Labour’s housing plans – houses for everyone

As bribes go, this is one of the bigger ones. are promising 100,000 new cheap houses and all you have to do is vote for them. Let’s look at the speech:

The start-up cost of the building programme will be financed through issuing government stock called Home Ownership Bonds.

The money we make from selling the houses will go back into the pot for building more.

The houses will be compact in size. Some will be stand-alone dwellings and others apartments. All of them will be good quality and energy efficient.

The homes will be sold to first home buyers who’ve saved their own deposit, like with KiwiSaver.

We estimate that the maximum needed to be raised for a kick-start will be $1.5 billion.

It will quickly become self-funding though. And because it’s a capital investment, it won’t affect our commitment to balance the books and return to surplus.

Labour don’t seem to understand about this concept called interest. When you borrow money (unless you print it as Russel wants) then you have to pay interest on it.

Now let’s think about this 100,000 house bribe. The average sale price of a property is $410,000. with 100,000 houses that means around $40 billion of capital to be outlayed in advance. The NZ Super Fund say the risk free rate of return is 5.16% on average. Let’s say the Government can borrow at 5%. That is already $2 billion in interest if there is only a year between borrowing the money and selling the house. I am not a property developer but I suspect it takes much longer than that.

But now consider that the Government just selling then at the median price will not help families much. So presumably the Government will sell them at a discount. How much? We don’t know. Say it is a 10% discount or $40,000 per house. That is another $4 billion.

But here’s the sad thing. Unless we do something about the supply of land in Auckland, the increase in house prices will be greater than any discount from the Government selling homes cheaply. Rodney Hide sums this up in the HoS:

There are many reasons why Auckland house prices are high. A lack of tax isn’t one of them.

One reason is that Auckland councils have for years run a deliberate policy to hike house prices. The council doesn’t put it that bluntly, calling it “smart growth” or a “compact Auckland”. But the policy works by hiking house prices.

The policy’s purpose is to get us to live in apartments over train stations. That way we will be more likely to take a train and the mountains of cash that councils have sunk into trains, stations and rail lines over the years won’t look such a waste. …

The policy works by the council running a planning fence around the city, a fence called the Metropolitan Urban Limit. Inside the fence houses can be built; over the fence, not so much. It’s the fence that has us piling on top of each other.

It’s said that the market isn’t working. Actually, it’s working perfectly. The council is artificially holding down the quantity of land supplied and people are bidding up the price of the precious little that is available. That’s how a market works when there is a shortage.

The result is easily seen. Average section prices in New Zealand account for 40 per cent of the cost of a new house. In Auckland it’s 60 per cent. There’s a 20 per cent council planning tax on Auckland houses.

It’s not hard to make houses more affordable in Auckland. Just loosen the fence. Land over the planning fence costs only 12 per cent of land inside the fence.

Unlock the planning fence and house prices would tumble. At the very least, the heat would be taken out of the market. Auckland families and couples would once again be able to afford a house

And best of all you won’t need to borrow $40 billion to do it!

UPDATE: Labour say they will sell the houses for under $300,000. I’d say the cost to the taxpayer has just exploded. This is the biggest bribe since Think Big. When the costs of construction exceed what they think it should be, the taxpayer will be left footing the bill.

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