John Armstrong: Parties impotent as Kiwi dream dies

By John Armstrong

For those who hold to the Labour Party faith, no image is more iconic than the 1937 photograph of Michael Joseph Savage carrying a dining table into the first state house built by the first Labour Government.

The picture of a prime minister willing to dirty his hands after the Depression years of hands-off government and physically help a low-income family into the security of their own home, albeit one rented from the state, has an enduring symbolism.

That spirit has been passed down through successive Labour ministers holding the housing portfolio, a list which includes the current prime minister.

So Helen Clark will be disturbed by last week's report from the Centre for Housing Research showing the property boom is putting the Kiwi dream of home ownership out of reach of ever-increasing numbers of Aucklanders.

Bad enough that the report suggests some 55,000 households cannot afford to buy even at the bottom end of the market. The study ominously warns such housing "stress" is reaching into politically crucial middle-income earners - the cohort that decides who wins elections.

Labour can hardly be blamed for soaring house prices. But it will surely cop some of the blame - just as it is copping the backlash over the high dollar.

Housing Minister Chris Carter has been savvy enough to acknowledge there is a "serious problem" when 55,000 Auckland households cannot scrape together the money to buy the cheapest house on the market.

But he has also been smart enough to stress the limits on the Government's ability to do much to solve the affordability problem - at least in the short term.

Labour's housing policy has primarily been focused on housing "low and modest" income earners - not the middle classes.

However, Labour thinking has been shifting towards giving more assistance to first-home buyers generally, most notably with the $10,000 that will ultimately be available for a deposit for those signing up to the KiwiSaver scheme.

Mr Carter has also highlighted Government projects such as the proposed "greenfields" housing development at Hobsonville, which will see a mix of "social" housing, "affordable" housing and mid-market and upmarket homes. There are also plans to build new houses alongside existing state units elsewhere in Auckland where space allows.

However, the Government is not about to embark on some massive 1950s-style expansion of Labour's modest state house construction programme.

Further infrastructural spending would only fuel inflationary pressures in the already-heated construction sector, pushing up interest rates even higher and exacerbating the affordability problem.

Labour's reluctance to introduce measures that might prove counterproductive is matched by an unwillingness to take action that might prove all too productive - such as a capital gains tax on investment properties.

The property boom may be creating problems, but those are politically far more palatable than any crash in property prices and the attendant impact on wider economic confidence.

However, Labour can take some comfort that the paucity of obvious, immediate and politically acceptable solutions similarly limit National's capacity to exploit the argument over housing affordability.

Having heavily criticised Labour's alleged proclivity for spending up large, National can hardly come up with initiatives that likewise cut across the Reserve Bank's priority of curbing inflation.

That leaves both parties with little option but to wait for the bank's repeated hiking of the cash rate to cool off the housing market. The pressing question is when that will happen and to what degree. As the incumbent Government, that is for Labour to worry about. National has the luxury of being able to to sit back and watch.

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