A change of tune from my usual anti-Labour ranting. The Government is looking to make it easier for families to own their own home. Which I totally applaud, in light of the overheating housing market. It’s inaccessible to young people already burdened with student loans, or low income earners. The price bubble exacerbates the problem and has eroded the Kiwi dream. The widespread practice of owning several houses expedites wealth transfer from poor to rich. My generation has significant hurdles to face to enter the market.
From the Herald article:
[Since National’s reforms in 1991], apparently limitless credit fuelled a rise in the prices of low-end houses in Auckland from 3.4 times the income of a typical low-income working family in 1991 to 5.1 times the typical low income a decade later. But as prices soared, the proportion of homes owned by the people who live in them, once the highest in the world, dropped from 73.8 per cent in 1991 to 68 per cent.
Now Prime Minister Helen Clark has signalled that the free-market experiment is over. Already Kiwibank – ironically, chaired by Bolger – has made 750 loans totalling $87 million under a pilot state-backed mortgage insurance scheme to help low-income people into homes. More is promised in the Budget on May 19.
“Our Government is concerned at falling rates of home ownership,” Clark told Parliament last month. “The mortgage insurance pilot introduced in September 2003 was this Government’s first step back into this area of policy. How to encourage savings which could lead to home ownership is under consideration.”
Contraception, education, travel, and globalisation are among the complex factors delaying home ownership. But..
New Zealand intensified these effects by cutting taxes on the top income-earners from 66 per cent to 33 per cent (partially restored to 39 per cent in 2000). Welfare benefits were cut. Unemployment soared, unions shrank, and wages dropped from 55 per cent of the national income in 1983 to 43 per cent today.
The result is two-sided. On one side, home ownership has dropped because wages have slipped relative to house prices. The other side of the same coin is that higher-income earners have more spare cash to buy the houses that first-home buyers once would have bought.
[People already established in properties] “shut the first-home buyers out”, using tax dodges such as “loss attributing qualifying companies” … banks lend up to 95 per cent of the value of a property, you can acquire a $500,000 house for as little as $25,000 up-front. If property values rise by 5 per cent pushing the value of the house up to $525,000, you double your investment, tax-free. First-home buyers, who get no tax deductions for their mortgage payments, can’t compete.
Housing NZ says that in 1991, 62 per cent of Auckland households headed by working adults aged 20 to 39 would have been able to service a mortgage on a low-end two- or three-bedroom Auckland home. By 2001, only 31 per cent could afford it.
“This is not just the bottom 20 per cent of the population, it’s also middle New Zealand. So any solution has to be capable of assisting many, many New Zealanders to get ahead.”