Labour’s housing plans – houses for everyone

November 18th, 2012 at 2:18 pm by David Farrar

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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107 Responses to “Labour’s housing plans – houses for everyone”

  1. Pete George (23,567 comments) says:

    Camp Cunliffe are pulling it to bits at The Standard – http://thestandard.org.nz/kiwibuild/

    Nor will there be any income restrictions. On the whole, people will ‘self-select’, with those who can afford to move up the property ladder excluding themselves.

    Shearer didn’t say if they would also introduce self-select tax rates.

    Who dreams up Labour policy?

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  2. wat dabney (3,769 comments) says:

    It’s basically Robert Mugabe rewarding his supporters with free farms.

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  3. Michael (909 comments) says:

    Read the speech, sounds like the sort of stuff Muldoon would say.

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  4. Kevin (1,122 comments) says:

    Yes that’s what it always is with,labour wat.

    But Rodney along with ACT are dead wrong and always have been. Auckland should be ring fenced for ever, otherwise you are just a creating an infrastructure monster that our children and grandchildren will have to pay for. It’s really too late now and sprawling Auckland will always, bleed the nz taxpayer dry trying to maintain the infrastructure we have.

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  5. Tom Jackson (2,553 comments) says:

    Well, given that the good ol’ free market has f*cked many young people out of the chance to buy a house, this might gather some votes. Presumably, that’s who this policy is aimed at.

    It’s really a damp squib. What we really need is a “f*ck the old” party. Compulsory euthanasia for the boomers. You know it makes sense. ;-)

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  6. barry (1,317 comments) says:

    Are you sure this isnt the Greens conference???.
    I thought they were the ones who want everyone to have everything – and it wont cost mcuh at all……

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  7. Keeping Stock (10,341 comments) says:

    David Shearer is down to 99,998 affordable homes already, because Jacinda Ardern and Kate Sutton jumped the queue :P

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  8. Pauleastbay (5,035 comments) says:

    I am a 25 year old with a wife and we save our deposit for this scheme and we buy a house subsidized to fuckery by all you good people of Kiwiblog.

    After a while I don’t want to live in a known cheap housing area because I have worked hard and want to move to Grey Lynn.

    I will sell my house for a profit and pocket this profit and bugger you taxpayer dorks who paid for my house. Yes, that you dorks who have also worked hard, bought a rental or two for your retirement and to supply housing but will get shafted by a CGT when you sell them to pay for your medical and old age care.

    Or twenty five of my friends who are in the same boat, we all decide to sell at the same time to a developer who knocks the shit boxes down and builds a gated community, thereby making less land available for shit boxes.

    or in true socailist fashion I have to sell my house back to the government at a fixed price so in fact I have just been paying rent all this time.

    To politicians, stay out of this, you have no fucking idea, leave it to the professionals. Make land available for development thats Aucklands biggest problem, the hassle of getting land

    I have a mate who has done a 30 house developement in South Auckland, – all the houses were sold off the plans, he has made money and young families have got a nice house , not a house built by a good socailist builder- so free up the land, fuck all the consents and get it moving. Like it not, Auckland is where its at and where its going to be.

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  9. Reid (16,467 comments) says:

    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.

    I keep telling you it’s the 40,000 new immigrants per year most of whom have money and 99% of whom decide to settle in Auckland, that is the main factor. It’s five or six times the factor that land availability is. 40,000 new market entries per year. With money.

    What about that doesn’t anyone understand?

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  10. Luc Hansen (4,573 comments) says:

    One problem with the land shortage theory is that not only are we not making anymore, mother nature is in the process of reclaiming our land, returning it to the sea.

    Hide’s choice of urban sprawl is just dumb.

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  11. Eisenhower (137 comments) says:

    This is awesome. I’ll buy one in each of my family’s names. A property king with new, low maintenance homes at a price I can afford. Couldn’t have done it before. Labour has brought out the entrepreneur in me.

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  12. wat dabney (3,769 comments) says:

    Hide’s choice of urban sprawl is just dumb.

    Translation: I’ve already got somewhere to live.

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  13. bhudson (4,740 comments) says:

    So a Labour govt commits to paying for 10,000 houses per year. What do you think happens to the prices charged by the construction companies and all the subbies?

    The govt has to pay as their scheme is not a replacement to other construction activity; they have to pay more to secure that resource and not have it building elsewhere. What is more, the same competitive pressures will mean that the govt has to allow the construction companies to manage the complete build – no ‘labour only’ deal here when the construction company can take the pool of labour and apply it on construction which they are managing end-to-end.

    So what is the final impact on housing? Prices remain on an upward path.

    Sure there is some upward pressure on wages as it too is a competitive market, but that comes at a cost to the house buyer, not as squeeze on margins for the construction company.

    Really all Labour has promised to do is to increase the profits of construction company owners.

    Govt cannot direct the marketplace. Every centrally controlled economy has failed. [China's success has come as a result of freeing up control, not dictating production.]

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  14. Kevin (1,122 comments) says:

    Yes Reid correct, the auckand,house market is essentially a baby boomers scam accelerated by national in the 90s. We should as a country admit that overpopulation does not work. just look at Europe.

    have a policy of heading towards zero population growth with a cap of 5 million, by limiting immigration and and stop paying deadbeats to breed. Leave Auckland to price itself off the market and you will get population and industry redistribution and Auckland will come back into line.

    The idea that Auckland can keep growing outwardly is crippling the rest of the country.

    Boo hoo if jacinda and katey want to live in Auckland they should find work to pay for it.

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  15. Kevin (1,122 comments) says:

    Wat there are thousands of cheap houses in New Zealand. No one is holding a gun at your head making you live in Auckland.

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  16. Rex Widerstrom (5,354 comments) says:

    Speaking as someone who lives in one of the most sprawling and poorly-thought-out cities in the world, Perth, I have to echo Kevin’s comment above.

    We don’t have unfettered urban sprawl (in fact house prices are held artificially high by the State government dragging the chain on new land releases while the Federal government tries to get round the problem by handing out $7,000 first home owner’s grants) but the sheer volume of land available means that people are now living 90 minutes away from where they’re meant to work.

    And that’s during the few months of the year when the government isn’t carrying out some sort of “urgent works” on the freeway, usually in exactly the same place they worked on a couple of years earlier, but forgot they needed an extra lane or something. I often wonder if they’d tolerate developers saying “Oh hell, I know I finished this building a couple of years ago but I couldn’t possibly foresee that so many people would want to access areas above ground level! So just pick your way through the rubble while I add some lifts”.

    The result is a mess that sees infrastructure fail and is especially noticeable on the roads, where estimates put the cost of traffic jams to the State economy at some $4 billion a year.

    If you’re going to open up more land some distance from the city then you need to have a raft of measures to encourage the growth of true satellite centres, the adoption of teleworking (or at least flexi-time) and so on. Aside from retailers, restauranteurs and manufacturers, most people don’t need to go to a place of work to work. Broadband and Skype mean we can do it from home, in our underpants (just don’t tilt the webcam down). Even our 000 operators (the Australian 111) spend their time at work gambling, online dating, and playing the share market.

    And as someone who lives 10 minutes drive from the CBD (and most of that is waiting at unsequenced traffic lights), I think apartments over railway stations (or freeway on-ramps) are the way to go. As long as there’s decent soundproofing, sign me up for one. The only people who need quarter of an acre with most of it grass are those of child-rearing age who actually have children.

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  17. Pauleastbay (5,035 comments) says:

    Yep Luc

    I noticed large chunks of Mt Albert and Otahuhu falling into the sea last week.

    That darn mother nature

    Kevin

    Auckland will continue to grow at least for our life time, Hamilton will be a suburb in 30 years as will Whangarei.

    30 years ago a few people travelled form Warkworth to Auckland for work now its just the normal thing.

    Hamilton will only be an hour to work, and world wide thats not a bad commute

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  18. rolla_fxgt (311 comments) says:

    As with any policy it’ll be interesting to see the conditions of it.

    Will you be able to sell the property for a profit?
    Will there be a mandatory holding period before you can sell?
    Will you be able to buy to rent?
    Will Labour voters be at the top of the list to buy?
    Where will they be built, ie will they be built everywhere, or just where someone decides they are needed?
    Where will the land to build them come from?

    The way I read it DPF is that Labour have committed only 1.5 billion to it, and from then on its meant to be self funding. But that’s I’d say being optomistic on Labour behalf, as I don’t think it’ll become self funding unless there are some significant fish hooks in the proposal.

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  19. Cactus Kate (551 comments) says:

    A wee sabbatical back and I should be able to qualify for one of these. Never owned a home before.
    Holiday house in Queenstown?
    Look forward to the details.

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  20. Kevin (1,122 comments) says:

    Paul what a beak image of the future of nz you paint, albeit true if we let this undersupply meme continue unchallenged. All you are doing is putting the crunch off for another generation.

    it’s maintaining the infrastructure that’s the problem. Not only that we live in a small exception in time when fuel is cheap so you are setting up a disaster.

    Also It makes no sense for an agricultural country to be wasting all its prime land on residential dwellings, or selling it overseas for that matter.

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  21. Shunda barunda (2,983 comments) says:

    Screw it, sprawl the shit out of Auckland, I don’t care anymore. Auckland is far enough away that the errors of urban sprawl won’t affect me and I will be able to watch the shit hit the fan in safety.

    All the good folks up there will move down here to get away from it and life will be enjoyed by all south of the Bombay hills! :)

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  22. Shunda barunda (2,983 comments) says:

    Sorry, I meant south of the Marlborough Sounds! :D

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  23. Kevin (1,122 comments) says:

    Oh no shunda, its called democracy. Aucklanders are going to tax your smug little arse off to subsidise our mess.

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  24. Fisiani (1,039 comments) says:

    Labour tactics 101
    People vote for parties that will make them better off.
    Bribe enough people and you will win the election.
    Take money from people who will not vote for you (a) and give it to people who will vote for you (b)
    if b>a then you win the election.
    Assume that most voters are thick and do not care about anything except free money.
    Build houses for $400,000 using money from (a) and sell them for $300,000 to (b)
    Promise to give (b) even more and they will turn up and vote.
    Tell (b) that the nasty Nats will stop handing out money so that (b) will always need to vote Labour
    This is how you win elections.

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  25. bhudson (4,740 comments) says:

    Fisiani,

    Traditionally that has worked – Working for Families and taxpayer-funded-interest Student Loans are good examples.

    But last year the electorate turned their backs on the election bribes – Not-Working for Families, for instance, got no traction with voters at all.

    The tough global conditions seem to have broken the spell of ‘free money’

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  26. Nostalgia-NZ (5,211 comments) says:

    Need to know square metre sizes of intended houses which ‘are compact in size.’ They could be 100sq m for free standing homes, much the same as 1950s state houses but on measurably smaller land. Probably what the government should be doing in Glen Innes right now. There is definitely credibility to this idea as Government stocks of land in desirable districts are on sold.
    Builders in Auckland are seldom building houses under 200sq m which is another issue putting upward pressure on the market.

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  27. Rightandleft (663 comments) says:

    Auckland supplies more tax revenue than it takes. It is the engine of the NZ economy and most immigrants settle there not because they love sprawl but because that’s where the vast majority of jobs are. We need those immigrants to offset all the native-born Kiwis who leave. Yes many of them have money, but isn’t that a good thing? Do you really want more unskilled poor immigrants instead?

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  28. Nostalgia-NZ (5,211 comments) says:

    Another point from reading Stuff is that it isn’t clear where the intended homes would be built.

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  29. Viking2 (11,471 comments) says:

    Nostalgia-NZ (1,553) Says:
    November 18th, 2012 at 3:54 pm

    Need to know square metre sizes of intended houses which ‘are compact in size.’ They could be 100sq m for free standing homes, much the same as 1950s state houses but on measurably smaller land. Probably what the government should be doing in Glen Innes right now. There is definitely credibility to this idea as Government stocks of land in desirable districts are on sold.
    Builders in Auckland are seldom building houses under 200sq m which is another issue putting upward pressure on the market.
    ————————-
    agree with you. You can build a small 3 beddy without tirmmings like a garage and study/office etc etc for 200K. Add the section and you get a cheap house. The issue with housing is developers covenants that require 3 or 4 beddy brick etc, inbuilt garages and so on. These are not starter homes.

    Starter homes arrive on trucks.

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  30. Griff (7,722 comments) says:

    DPF “s figures are on the lean side I can not imagine a government scheme to match the size of this being as efficient as the private sector.
    Zoning is the issue, constrict supply cause a rise in price. Commuting in private cars will be with us for the next fifty years. Even large public transport schemes with a dense captive consumer base fail to turn a profit.
    I am not comfortable with government interference in the rights of people to use their own land as they see fit .
    Or for them to dictate the type of habitat we live in.
    Len brown wants people to live in stack apartments on train lines. Where does he live on a zoning protected piece of lifestyle?

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  31. Kevin (1,122 comments) says:

    No no no. Aucklanders are not the producers in this economy. The wealth is produced in the rural areas and the regions. The government then applies large taxes and extremely creative ways of capturing all that wealth from the producers so they can redistribute the wealth to the city folk who would otherwise not have jobs.

    Bureaucrats lawyers, social workers, and a whole plethora of other unnecessary jobs created for those in cities, instead of allowing the producers to keep and reinvest their profits to remain competitive.

    Consequently the rest of the country subsidises those in the large cities and now it will get worse with more subsidies for those poor in Auckland who want to own their own house.

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  32. Luc Hansen (4,573 comments) says:

    Think about DPFs header. Can we assume DPF wants 100,000 families homeless?

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  33. OneTrack (3,107 comments) says:

    That’s the houses sorted. What about the loans to pay for them (even if they are only 300000). Will the evil banks be lent on to give a loan to every first home buyer? I think I have heard of this happening before, around 1999. How do you spell sub-prime?

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  34. Rightandleft (663 comments) says:

    Kevin,

    All those jobs you say don’t need to exist, they’re called the service industry and in most other developed countries they’re the largest part of the economy. Would you really want to live in a country of nothing but rural farmers and miners? Auckland isn’t even that big and the sprawl isn’t nearly as bad as most US or Canadian cities (or Aussie for that matter). When I lived in Washington DC people had to wake up at 5AM to get to work by 9 and major traffic jams backed up before 6AM. Many people lived 80-100 KM from the city centre. Now that was some serious sprawl.

    I agree with Rodney Hide’s opinion that the best thing to do is open up the land. Smart growth is all the rage on the left because it is more environmentally friendly but it’s just too expensive. In Washington, even with all that traffic and the existence of a fast, reliable subway and commuter rail network, 85% of commuters chose to drive to work in their own cars.

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  35. Reid (16,467 comments) says:

    How do you spell sub-prime?

    No it’s not sub-prime if the govt’s behind it OT. That makes it prime, you see.

    (I’m just trying to imagine how those who end up voting for this garbage because they think it’s the right and humane thing to do, might rationalise this to themselves. It’s testing my Green Hat to the max. It’s starting to smoke.)

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  36. bhudson (4,740 comments) says:

    OneTrack,

    Labour govt guaranteed loans perhaps? The NZ equivalent of handing back the keys if you can no longer afford the mortgage?

    Perhaps we could do a little better in NZ under Labour – we are so egalitarian after all. Perhaps Labour could buy back the houses at the govt assessed market value and return any equity to the non-payer [actual market value wouldn't be at all fair - any reasonable scale of buy back and sale would cause the actual market value to fall.]

    Of course it would be the Labour govt’s economic policies raising interest rates and reducing the value of the NZD, thus increasing mortgage costs and general costs of living, not to mention increasing unemployment, that would both lead to the handing back if the keys and a shortage of buyers able to afford to purchase these ‘bought-back’ properties.

    Hmmm… Not to worry Paul Krugman and his disciple Luc Hansen have the solution – all that would be required is even greater deficit spending to stimulate the economy. I’m sure, after we have run out of paper to print more money, someone kindly economically liberal govt will find a way to help us manage our way out if it. One thing is for sure. It won’t be another Keynesian based economy – they’ll be in the same basket we will be in…

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  37. Lee C (4,516 comments) says:

    If I thought that a government was committed to encouraging house-building, I’d vote for it.

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  38. Mark (1,488 comments) says:

    It will be interesting to see treasuries take on the cost of this policy

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  39. the conservative (66 comments) says:

    Reid, you are right in respect to immigrants pushing the price up, but are you talking about foreign immigrants or the migration from Christchurch and other parts of New Zealand. Foreign immigrants are most definitely forcing the price up, but the supply side must also be a factor.

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  40. the conservative (66 comments) says:

    This all just sounds like more candy coming from Labour; that’s all they know. Having said that, National buys votes as well; they are presently buying the pensioner vote with the unaffordable eligibility age of 60.

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  41. Lance (2,655 comments) says:

    Sorry Kevin
    You are an economic illiterate
    The farmers don’t live in a vacuum. They require a substantial infrastructure to operate. Also the produce leaving their farms doesn’t mysteriously disappear at the gate and re-appear in a far flung foreign land all processec and packaged.
    If you disagree I would be interested in an example of a successful country that has no major cities that is a substantial primary produce exporter?

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  42. Reid (16,467 comments) says:

    Good point tc, it’s both really, anyone new with money hitting the market, is the driver.

    Supply side is definitely a factor and unfortunately Auckland has already sub-divided everything in sight out to the burbs so the only place is either up or out. So it’s out. Up is so overheated that in most suburbs even medium density development runs into the low ten millions and there’s not that many players out there these days with that credit line. So it’s out.

    And out is right. You get used to the distance in Akld and it’s planned to accommodate that quite easily. Unfortunately public transport will never alleviate the clogged arteries. This is because most rush-hour journey’s occur suburb to suburb not suburb to CBD which is why Wgtn’s hub and spoke works and why Auckland’s can’t. Until it clicks to someone to do some analysis, to determine who journeys to where and when and designs bus routes accordingly so people can take the bus to work and back without having to walk absolute miles from the bus stop, which is what happens for most of the population at the moment, nothing will change. And it’s so easy. Just put the rush-hour travel movement surveys into the quarterly rates bills and mine the data.

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  43. Nostalgia-NZ (5,211 comments) says:

    You’re wrong about Auckland having subdivided everything in sight by a long way Reid.

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  44. Scott1 (552 comments) says:

    If there is a problem with up maybe we should fix it.. So you are saying it is a cashflow not a profit issue, reid?

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  45. Kimble (4,440 comments) says:

    Huh? Sale price of $400k isnt the same as cost price. Arent they building houses?

    Lets see, the desired (or at least stated by them) effect of Labours policy is to increase the number of houses and lower the price.

    I predict two things would happen if this policy was implemented; the number of house builds would decrease, and the cost per house would increase.

    People think that the law of unintended consequences offers no predictive value. But when it comes to lefty economic policies, it is as predictable and as dependable as gravity.

    Well, given that the good ol’ free market has f*cked many young people out of the chance to buy a house, this might gather some votes.

    And which free market is that? The one that has seen a massive return premium on property persist for the last two decades without attracting enough new supply to bring prices back to something reasonable? Is that the one you are talking about?

    Rather a strange free market, that one. Seeing as it doesnt behave at all the way free markets behave.

    Markets exist; everywhere and all the time. There are markets in North Korea and Cuba. Market and Free Market are not synonyms. People buying and selling makes a market, NOT a free market.

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  46. Scott1 (552 comments) says:

    Or is it a local government regulation issue that is making the apartments too costly?

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  47. Pauleastbay (5,035 comments) says:

    people are scared of apartments, most in the inner city are shitily built and then you get a p lab move in next door

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  48. Luc Hansen (4,573 comments) says:

    the conservative (17) Says:
    November 18th, 2012 at 5:56 pm
    This all just sounds like more candy coming from Labour; that’s all they know. Having said that, National buys votes as well; they are presently buying the pensioner vote with the unaffordable eligibility age of 60.

    Crap! When did that change from 65! I’m off to WINZ first thing tomorrow morning! That would be a handy pay rise for me ;-)

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  49. Kevin (1,122 comments) says:

    All I’m saying is we should earn the money before we spend it on anything, infrastructure or anything else.

    At present infrastructure spending is ahead of our ability to afford it. Mainly because it is cheap and employes mainly unskilled labour which keeps unemployment down. But it does not improve productivity as much as is claimed and nowhere near as much as investing the money in productive enterprise so our kids don’t have to go offshore for good jobs.

    Yes, the farmers and regions need big cities but we,have too many clingons for the size of our economy. Population growth is not essential for economic growth. GDP per capita can still rise.

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  50. SPC (5,619 comments) says:

    The opening post is inaccurate.

    The plan is to raise the finance to build the houses from the low cost debt of government. But not raise the level of public debt, because inital house sales will finance further house building and all the houses built will be on-sold. As it is self-funding on an on-going basis there is no one off fund-raising debt issue.

    And saying the houses will be sold at cost – means the cost of land (and development) and house building and the cost of finance. Thus there can be no loss to the government – no rise in public debt when home 100,000 is built and sold.

    It’s not difficult to understand, unless one is trying to mislead others as to what the policy is.

    Maybe because one is peddling the line that inaction in the face of rising house prices and rising rents and large untaxed CG to the landlord class is not a sign of a government out of touch with the needs of the many.

    Increased house supply eases property values and rents. It also creates jobs – economic growth (rise in tax revenue). It is action where the current government is inept. Economic stimulous that does not leave a legacy of debt is the correct course.

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  51. Kevin (1,122 comments) says:

    But if you increase jobs by funding them from tax,revenue you are not achieving anything but temporarily hiding unemployment.

    In most of the world most people rent. If we keep increasing our population without the industry to support good jobs then we will have to become a nation of renters too.

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  52. the conservative (66 comments) says:

    Luc, I’m sorry my mistake; old age is setting in; what I meant was 65; At present it should be 67. Yes, I would be getting the pension now if it were 60????

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  53. SPC (5,619 comments) says:

    Kevin, the difference between this and infrastructure spending is that this will leave no debt.

    As for infrastructure spending – some replacement of existing infrastructure has to occur because one cannot afford not to do it.

    As for new infrastructure, debt is just a way to allocate cost over the life time – just as a home mortgage. The question is to assess how much can be afforded.

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  54. SPC (5,619 comments) says:

    Kevin, the jobs are funded by the house sale not tax revenue.

    Yes a rising population places upward value on land and this makes home ownership more difficult.

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  55. Flyer (22 comments) says:

    Fantastic to see Labour are now promoting asset sales!

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  56. Reid (16,467 comments) says:

    You’re wrong about Auckland having subdivided everything in sight by a long way Reid.

    Nostalgia property started to go nuts in the early 80’s and has kept going. That was driven by the sub-division which still goes on today. All the low hanging fruit has been plucked and a good part of the harder stuff too, all over Auckland.

    If there is a problem with up maybe we should fix it.. So you are saying it is a cashflow not a profit issue, reid?

    It’s a risk-averse market at the moment Scott, that’s the only issue. It’s a bit of a big issue though, isn’t it.

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  57. Nostalgia-NZ (5,211 comments) says:

    SPG 6.58

    That sounds right.

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  58. Kevin (1,122 comments) says:

    Yes spc. We are way over infrastructures compared to other developed economies except perhaps Aussie. Maintaining existing infrastructure is necessary and costing a log, especially since much of it was poorly thought out in the first place. I’m just suggesting a respite where we let our industrial capacity catch up. It would attract high skilled high paid workers and should be a priority of the right, but for some reason it’s not. Too many fletchers shares I guess.

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  59. bhudson (4,740 comments) says:

    @SPC,

    Your detailed reading of the policy seems to have overlooked the $1.5bn kick start. Which would have to be borrowed. As the plan would be a rolling plan – profit form sold home paying costs of building the next – the $1.5bn borrowing will remain throughout the progamme. What is more, with the target profit for each house being so low, it would seem certain that further borrowing will be required over the term of the Programme to keep it going.

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  60. Kevin (1,122 comments) says:

    Yes Reid is correct about everything in sight in Auckland being subdivided. But that’s where Auckland and nz needs to rethink its development strategy. There are plenty of examples of small wealthy nations. We could have been one if we’d got our act together.

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  61. SPC (5,619 comments) says:

    No, I did say that the cost of finance – the original input (building 10,000 houses pa over 10 years) being rolled over – was to part of the cost factor in the price the house was offered for sale at.

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  62. Nostalgia-NZ (5,211 comments) says:

    Kevin 7.31

    Crap. Drive through Pakuranga, Mt Wellington, Panmure and Glen Innes for a start.

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  63. SPC (5,619 comments) says:

    bhudson, even if the amount rose to $2B in the final year of building – the cost (including finance) would be included in the price the property was listed for sale at – so the end debt is zero.

    The intention of course is to hold down the rise in property values by building more homes and to have wages increase relative to rent and mortgage cost, and the GDP grow relative to (foreign funded) home mortgage debt.

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  64. Luc Hansen (4,573 comments) says:

    Flyer (11) Says:
    November 18th, 2012 at 7:12 pm
    Fantastic to see Labour are now promoting asset sales!

    The post of the day!

    Take a bow, Flyer.

    (But this is Kiwiblog: stuff a rabbit skin down your undies in case some of the locals are lurking!)

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  65. Luc Hansen (4,573 comments) says:

    @SPC

    + getting people housed?

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  66. Doug (410 comments) says:

    The Gangs will love this scheme most would be first home buyers. Once they get a house it will be turned into a P Manufacturing base. When caught buy the law the house will have no value left, the poor suffering tax payer picks up the bill.

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  67. SPC (5,619 comments) says:

    Once they buy the house the tax payer has the money spent building it back.

    If they ruin the value of a house they pay for, their tough luck.

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  68. bhudson (4,740 comments) says:

    @SPC,

    The rolling $1.5bn debt would be carried for the full 10 year term of the Programme (possibly increasing due to continued upward pressure on the cost of housing.) That is $75m per annum (at least) in debt servicing, the recovery of which is dependent on clearance rate of houses over the term.

    My earlier comment today covered why this won’t actually hold down the cost of housing.

    Anyway you cut it property investment is a non-productive investment. If the govt is to get directly involved in funding GDP growth, it should be doing so in a productive sector. The impacts of that growth can be used by individuals/families to fund their housing needs independently.

    With respect to housing prices now, if Labour want a policy to manage house prices they would be better off regulating to open up land supply. They don’t need to try to be in the business of property development.

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  69. Nostalgia-NZ (5,211 comments) says:

    Sell off the plans bhudson. Build when the customer signs and pays a deposit.

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  70. Luc Hansen (4,573 comments) says:

    bhudson

    Are you saying building is not a productive sector?

    That goes against all the economic theory I have studied!

    You should write a paper on that and get published.

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  71. SPC (5,619 comments) says:

    How does the government afford picking winners – by investing in the productive (export?)sector – when we have debt constraints?

    It’s up to those who might have speculated money in housing investment to decide where to invest instead in the productive sector – venture capital etc.

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  72. Reid (16,467 comments) says:

    + getting people housed?

    No, we don’t care about that Luc. That’s just sentimental lefty bollocks.

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  73. Luc Hansen (4,573 comments) says:

    Apologies, Reid.

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  74. bhudson (4,740 comments) says:

    How does the government afford picking winners – by investing in the productive (export?)sector – when we have debt constraints?

    Indeed SPC. Picking winners is bad form – here’s hoping the Green see sense on this sometime soon.

    However, if you are of a mind that govt should not borrow money to invest in the productive sector given debt constraints, then you could not possibly counentance borrowing to build houses so that people can take out mortgages on them.

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  75. bhudson (4,740 comments) says:

    That goes against all the economic theory I have studied!

    I suggest moving beyond weetbix packets then. (And web pages from Krugman.)

    You must have been sleeping when Labour were telling us all about how investment in housing is unproductive. Actually your dear friend Gareth Morgan was saying the same in The Big Kahuna – it was the principal reason he wanted a capital tax on the family home. (Well that and to pay an income to people which don’t want to work – while forcing DBP recipients into work and forcing superannuitants to sell their houses.)

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  76. Luc Hansen (4,573 comments) says:

    you could not possibly counentance borrowing to build houses so that people can take out mortgages on them.

    Even when interest rates are at an all time low (well, in modern history, for the pedants)?

    And if picking winners is such bad form. why do we let our farmers get away with polluting our streams and atmosphere?

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  77. Luc Hansen (4,573 comments) says:

    Well that and to pay an income to people which don’t want to work

    I bet you haven’t read the book because in the book he rebuts exactly that point, comprehensively.

    Fuck, I’m feeling like an IDF F16 pilot – shooting fish in a barrel!

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  78. bhudson (4,740 comments) says:

    Luc,

    I reject your allegation that farmers are wantonly polluting our streams and atmosphere.

    In any event, comparative advantage is not picking winners. Our farmers invest because they are very good at farming – our goods are sought after and the returns, global commodity prices permitting, are good.

    Continuing to invest in something we have a comparative advantage in is not picking winners.

    The Rational Optimist would be a good starter for you to move on from the weetbix packets, Luc. How an Economy Grows and why it Crashes would also do you some good, I think

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  79. Griff (7,722 comments) says:

    Investing in new building stock is productive. it does create an asset.
    Its not housing churn for capital gains that bear now relationship to the actual return from rent etc.
    Trailer homes would supply cheap easily relocatable modern housing We could put fences around them luc so no need for compounds for the rest of us

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  80. bhudson (4,740 comments) says:

    I bet you haven’t read the book because in the book he rebuts exactly that point, comprehensively.

    Fuck, I’m feeling like an IDF F16 pilot – shooting fish in a barrel!

    Luc,

    I have. Unlike you, I suspect. What is more I called you on this here on KB some months ago.

    I bought the book when. It was released, hoping for some valuable insight. Alas it wasn’t to be.

    He certainly does advocate a UBI with no strings attached – not being bothered working is sufficient criteria to receive the UBI he proposes.

    I suggest you actually try reading it, rather than claiming it is simply what you want it to be.

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  81. coge (190 comments) says:

    The Christchurch rebuild is NZ’s priority here. Where is Shearer going to source skilled labor?, from China? It would just pressure construction costs in terms of supply & labor, the houses would end up costing way more than 410k

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  82. SPC (5,619 comments) says:

    bhudson

    You do realise that the constraint at issue is public debt.

    If we don’t build more homes the amount of foreign funded mortgage debt still goes up because of rising demand for available housing. Having more homes does not necessarily mean higher mortgage debt as there would be less debt per property than otherwise.

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  83. SPC (5,619 comments) says:

    coge, yes it would have been ideal if National ran this policy from 2008 to create jobs and prevent the housing shortage that has emerged in Auckland.

    But Auckland should not have a growing housing crisis just because a rebuild is needed in Christchurch.

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  84. bhudson (4,740 comments) says:

    You do realise that the constraint at issue is public debt.

    Yes and you claim on one hand that we should not raise public debt to invest in a productive sector, yet it is ok to raise public debt to invest in an non-productive one. That is not rational, economically. And it certainly isn’t efficient. If the govt is going to raise public debt further, then it is in the taxpayers’ interests that it does so in a productive sector.

    If that isn’t a good idea, then borrowing to build houses certainly isn’t. But, as I noted, they could instead regulate to force the opening up of land, this driving down costs (particularly in Auckland, where the greatest problem is.)

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  85. Luc Hansen (4,573 comments) says:

    bhudson

    He does attach strings by offering various scenarios, but my point was that he offers evidence that disproves your fallacious reasoning.

    I’ve read the book.

    You have read the book.

    Great.

    I don’t agree wholeheartedly with Morgan, but I respect his reasoning.

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  86. SPC (5,619 comments) says:

    bhudson there is no increase in public debt resulting from building houses that are on-sold.

    I would guess that a decision to build 100,000 houses over 10 years will involve government “regulating” to get land available for this.

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  87. Luc Hansen (4,573 comments) says:

    borrowing to build houses certainly isn’t.

    Yes it is.

    Building infrastructure is always a valuable driver of economic activity. But if you don’t want to borrow, no worries, we can just print the money because the only reason we are not butting hard up against the zero lower bound is ideology – and we have just appointed a more Brash than Brash as Reserve Bank Governor.

    That’ll work in this new economy we are faced with.

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  88. Nick K (1,244 comments) says:

    Gut Kiwisaver savings to put into “unproductive” housing. Has Labour learnt nothing from the last 25years. What would Dr Cullen say about gutting Kiwisaver like this? What complete crap.

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  89. bhudson (4,740 comments) says:

    SPC,

    You have acknowledged that there will be $1.5bn (possibly more) borrowed for a term of 10 years. The fact that it is paid off eventually does not mean it was never borrowed.

    Labour tried that trick last year with their plan to borrow to buy shares under the Cullen Fund. It didn’t work.

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  90. bhudson (4,740 comments) says:

    Luc,

    Oh good one. Aside from the fact that building residential properties to on sell is not infrastructure in govt terms – that is roading, fibre, Wellington runway extension (well that one is wishful thinking), schools, hospitals – now you want to print money!

    Printing money is inflationary Luc. It will erode the value of the dollar; of people’s savings. Of the home you want them to purchase.

    Now our credit rating with the agencies is currently on a stable outlook because govt debt is low and people have reduced debt and are saving.

    And your plan is to erode those savings. While also increasing public debt.

    What do you think that will do to peoples’ cost of living, Luc? What do you think that will to our credit rating?

    Printing money = inflation = eroded savings = credit downgrade = higher cost of credit = reduced investment = increased unemployment = higher govt costs = reduced govt revenues

    All and all a very, very bad idea, Luc

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  91. Luc Hansen (4,573 comments) says:

    Nick

    Cullen set up the first home limited withdrawal facility.

    It’s there to be used.

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  92. Luc Hansen (4,573 comments) says:

    bhudson

    Housing is infrastructure.

    Yes, there is an inflation constraint, but we are only saved from a deflationary situation by central and local and SOE price increases. Without those increases, we would be hard up against the zero lower bound and, like in quantum mechanics, the rules change.

    At a time of household deleveraging, we need the govt to step up. Instead, Key and English are deleveraging govt spending.

    Dumb as.

    And what’s the point of a great credit rating if you don’t use it to house your own people?

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  93. bhudson (4,740 comments) says:

    Luc,

    The last things we need right now are:

    – higher interest rates
    – higher inflation

    These raise costs for both households and businesses. They place stress on families and suppress business investment.

    Now is exactly the right time to be saving/investing. It is protecting us from further credit adjustment and is also helping to create a buffer to help us deal with further uncertainty abroad.

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  94. SPC (5,619 comments) says:

    bhudson, borrowing to fund investment in an asset to be sold does not increase public debt.

    And tax revenues derived from the economic growth from the house building will close the budget deficit and thus reduce public debt.

    More housing reduces house price inflation.

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  95. Kevin (1,122 comments) says:

    Of course there is a simple solution. Equality. Have equal tax laws taxing all forms of income the same, no subsidies, no,handouts and leave it to the market. But no government can try that because kiwis think the world owes them a living.

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  96. Luc Hansen (4,573 comments) says:

    Good on you Kevin…equality that begets inequality.

    Straight out of the 1st Testament!

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  97. bhudson (4,740 comments) says:

    borrowing to fund investment in an asset to be sold does not increase public debt.

    Exactly what they tried last year SPC – borrowing to increase an asset doesn’t count. Well until Steven Joyce pointed out that Michael Cullen, as Finance Minister, disagreed with that assessment.

    As I recall he tabled govt budget/update document from 2008 that made it very clear that such borrowing does have to be counted as additional borrowing.

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  98. Kevin (1,122 comments) says:

    Wtf I’m not religious so,have no idea about that. The desire for equality of outcome and the social tinkering trying to achieve it is what causes the greatest inequality.

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  99. SPC (5,619 comments) says:

    Over the lifetime of the 10 year home building and on-sale the result will be zero resulting debt.

    And during the period of the building the 1.5-2B investment rolled over will be balanced by the land and the building asset being prepared for sale.

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  100. bhudson (4,740 comments) says:

    SPC,

    Govt reporting rules – as endorsed by the previous Labour govt – means that debt has to be reported as additional debt.

    Any economic returns from the building and sales activity have to be assessed against the returns that could have been derived if that money had been invested elsewhere. For instance, if that had been invested to increase productive export capacity – a return on capital as well as a return through taxation of company(ies), wages/salaries, consumption and so on.

    If the returns would be greater through another channel, that would be a better investment. And would provide both employment opportunities and the wealth for individuals to purchase homes.

    Better still would be to not borrow money, not to crowd out private investment (property developers), but instead regulate to free up land supply andstreamline consents to allow low cost consent and development for the same type of housing developments. That would provide the same conditions for lower cost entry level housing, while not requiring the govt to borrow, or to act as a property developer.

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  101. Kimble (4,440 comments) says:

    Maybe because one is peddling the line that inaction in the face of rising house prices and rising rents and large untaxed CG to the landlord class is not a sign of a government out of touch with the needs of the many.

    Step one: government fucks up
    Step two: markets adjust accordingly
    Step three: we start to notice the result of government fucking up
    Step four: politicians declare the result is actually due to the market and proceed to fuck up again
    Step five: their ‘solution’ not only causes new problems, it doesnt even fix the original one.

    Reversing the initial government fuck up is not inaction.

    Why arent there enough houses when the return on housing has been so high for 20 years? Why arent greedy people who like money, building houses to make lots of money? What is it that is keeping PEOPLE out of the house building business?

    What makes anyone think the government would be a good property developer? Maybe they are the only ones who can get around the original impediment? Themselves.

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  102. Herodotus (12 comments) says:

    No mention as to how the land that is to be acquired is to be financed, as the market strengthens (and given that this policy will not be implemented at best 3+ years away) how will the govt acquire the land. Current land owners will be adequately funded from banks and will want to protect those who have already brought into the developments. Green fields will have to a:acquired and b: have plan changes . That takes time. Raw land takes 2 years at least to be worked into a state to allow construction, council contribution costs all require funding pre title stage. Banks will not loan on land that the mortgagee does not own to give banks 1st charge over the security.
    Will we have replication of vast areas of state housing e.g. Manukau of the 50’s – 60’s or pepper potting strategy (difficult ) as land owners mentioned above will want to protect existing customer base and the value to the land or house& land packages.
    Also the site plans published are to small to ascertain detail and what section size is required to comply with site coverage rules.
    Last point are there over a 10 year period 100k “new” home buyers, without including immigrants, and does a married couple – divorced and converted to 2 blended families constitute “new” home owners? or once you have in part owned a house you are excluded ? Or once you have residency, NZ citizenship you qualify ?
    From Labour ever getting back in to the following election I would be very surprised if the 1st house would be completed and have owner occupiers residing in it.

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  103. SPC (5,619 comments) says:

    bhudson,

    Why would one compare the investment return of funding home building with investing in the “productive sector” (does the government invest in the productive sector now). Besides the government is not investing any capital – only borrowing and repaying the loan (and covering interest cost) – guaranteeing 100,000 new homes in the process.

    It is the private sectors failure to build sufficient new homes that is the problem. They were building at higher levels earlier under the same rules that apply now. So just making a change here and there and expecting home building rates to increase is too great a risk. We have been told for years that home building rates were too low and there was a looming shortage and yet the market players did not react and build the homes – they just exploited this to make some CG on their existing property.

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  104. SPC (5,619 comments) says:

    I suppose it would be sort of relevant to note that the current government has already said that it would finance the building of houses in Christchurch before on-selling them to the public.

    I thought this was a good idea but it should happen in Auckland too – where there is also need for more housing than the private market can or is delivering. I see my position as consistent, no partisan spin.

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  105. Colville (2,268 comments) says:

    SPC, the private sector were building at a higher rate when it was profitable to do so, its not profitable now so they dont.
    House prices have rebounded well but only under constrained supply, if lots of new builds were to appear prices would slump again, major players know this well and keep supply at a level that keeps them viable.

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  106. bhudson (4,740 comments) says:

    does the government invest in the productive sector now

    Yes, it does:

    – establishment of free trade agreements to enable private sector companies to trade internationally and to grow the economy
    – initiatives such as the Advanced Technology Institute to act as an R&D hub for private sector companies (in additon to the long standing role of public sector R&D
    – Primary Growth Partnerships
    – Regional Partnershipm Network
    – International Growth Fund

    To name but a few – all investments, financial and other resources, in private sector growth for the benefit of New Zealand.

    It is the private sectors failure to build sufficient new homes that is the problem.

    If you want to pin a single failure, it would be local bodies inflating housing costs by restricting the supply of land for residential developments. That leaves a growing group of people chasing a smaller pool of land and housing = guaranteed price increases.

    Of course local bodies are challenged by the cost and effects of sprawl, but simply refusing to expand merely serves to make housing unaffordable (especially in high population density such as Auckland.)

    What is more the local bodies could free up land but set other restrictions which would encourage the type of housing that is being proposed by Labour – in fact that is just what Labour would have to do under their plan. They could also streamline consenting for these developments, based on standard house plans.

    And it could be achieved without $1.5bn borrowing by a govt.

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  107. Scott1 (552 comments) says:

    It also costs a lot to get a house built due to various regulations and I presume that the height and the nature of the building is restricted in a lot of places. I dont see why it should be quite as expensive as it is.

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