KEY POINTS:
The perverse thing about the Government's attempt to tackle housing affordability is that it has accurately pinpointed the reason for young house-hunters' gloom. "Fundamentally, the problem is the under-supply of affordable homes," said Helen Clark in her statement to Parliament. This suggests an understanding of the fact that
house prices rise when demand runs ahead of supply. Any rational response would, therefore, seek to increase supply while, at the same time, reduce demand. Sadly, the Government's response tinkers around the edges of supply while stimulating demand, thereby underpinning prices.
The centrepiece of the programme is a shared equity scheme designed to help people in high-cost areas get on to the home ownership ladder. A share of the property will be secured by the state or a state-approved agency as a second mortgage, which will attract no interest but have to be repaid when the house is resold. The impact of this is, unfortunately, likely to be counterproductive, as is the case with anything that makes it easier for people to pay existing prices. Adding to this ability serves only to make prices remain high or increase.
If this were offset by a sharp increase in supply, the damage might be limited. But there is nothing in the Government's immediate plans that does this. It says, first, that it will review public land holdings to identify areas available to contribute to new urban housing projects. In Auckland, at least, it will be disappointed, if only because much of this land is subject to land claims. Another proposal to increase supply - by measuring how much land zoned residential is actually available for housing development - offers little more.
Worse still is the plan to tackle issues in the consent process that add unreasonably to the cost of building. That, again, will enhance demand. The demerit points do not stop there. It is reasonable to ask if the Government should be exposing itself to the housing market during a cyclical downturn. Its participation may have a sickly tinge for the next few years.
But the most regrettable aspect is that, while housing affordability is a complex issue, several steps could effectively address the problem of under-supply. One is the freeing up of more land on urban fringes. This would be contrary to Auckland's growth strategy, which aims to avoid urban sprawl, and is probably not something that appeals to the Labour Party. That leaves the most logical step of all - to restructure a tax system that says clearly that borrowing and buying houses is the most sensible form of investment.
The housing market has been driven by investors in rental properties. If property was placed on the same tax footing as other investments, the demand from that quarter would drop, there would be less money driving up the price, and supply would increase. This programme makes it plain that the Government does not possess the courage to tackle the tax distortions which, more than anything, have created the affordability problem. Instead, it has gone for easier options.
At least there is more substance in the announcement that the Ministry of Social Development will change the way it deals with non-government organisations to give them greater certainty of funding. The likes of parenting programmes have long been hobbled by funding doubts. As much as this kept them on their toes, it also encourages a short-term focus in services and staffing. A combination of certainty and adequate Government purview should be possible. If similar characteristics had been brought to the issue of housing affordability, the Government's parliamentary year would have been off to a good start.
