Why the left should be against Labour’s housing policy

November 19th, 2012 at 9:00 am by David Farrar

There’s a lot not to like about ’s housing policy from a fiscal responsibility point of view. But upon reflection, I think there is even more to dislike about it from a left wing focus on equality and poverty. In fact it looks like it could almost set a record in terms of ways one could rort the policy. Let’s go through the issues.

  1. Generally the state provides assistance to people and families either on a universal basis or a targeted basis. All children get free compulsory education and all under 5s get free healthcare for example. That is a universal approach. A targeted approach is stuff like Working for Families (the lower your income the more you get) or even state house rentals (the rental is linked to your income). But this new housing policy is neither universal or targeted. It is a Lotto policy. If there are more applicants for these cheap sub $300,000 houses than there are houses (which of course there will be), then they will be allocated by random ballot. Now just think about this. As the median house value is $410,000 the lucky winners of these ballots will be arguably gaining $100,000 or so of value. Do you see why this should be called a Lotto policy!! You may earn less money than Jane and John next door but if they win the ballot they effectively gain $100,000 and you get nothing. Anyone from the left who seriously backs this policy is being sycophantic to Labour. They should be demanding the houses be allocated to the lowest income families – or given to Housing NZ to become state houses with income related rents.
  2. Purchasers who win the ballot will stand to make huge profits. If they buy the house for $300,000 and the market value is $400,000 then many of them will sell them as soon as they can to make a profit. Yes the policy says they may be required to retain them for a certain period of time – but that will just delay the cashing in for a profit. Also what will stop them moving out and turning it into an investment property? Will the state send inspectors in to check they are actually living there? Smart people, to make money, will find ways. They may get in “flatmates” but in fact not live there themselves.
  3. Rich families will love this policy. Huey, Dewey and Louie will each get a cheap taxpayer subsidized house for their 21st birthdays.
  4. This will be a boon for lawyers and trusts. The policy is that people must be first homeowners. So what the smart people will do is make sure their family trust buys their first home. They’ll then still be able to get a taxpayer subsidised home as technically they are still a first time homeowner. Cactus Kate is already making plans to make some arrangements so she qualifies for the handout.
  5. This policy will do little for poor families. They can;’t afford to buy even a $300,000 home. A better policy for Labour would have been that they will build 5,000 houses a year and turn them into state houses for low income families. But instead they are doing the housing equivalent of Working for Families – trying to buy the votes of middle class voters who hope they will win the Lotto ballot for a subsidized house.

So from a fiscal sanity/centre right point of view there is a lot to attack this policy over. But I think the strongest criticisms can be made from a left point of view. It won’t help the poor, it will be great for the rich who can buy homes for their kids, great for family trusts and those who receive this huge subsidy will be chosen by random ballot!

Imagine if Labour announced Working for Families was going to be replaced with a system where instead of support going to families with children who earn under a certain threshold, they were going to just give away $100,000 a year to 10,000 people drawn out of a ballot. That is the equivalent of this policy!

I suspect this policy was thought up a few days ago to try and gain some positive headlines for the conference. It is something you’d expect from Mike Moore in his heyday.

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44 Responses to “Why the left should be against Labour’s housing policy”

  1. Colville (2,300 comments) says:

    These houses wont (ever get built!) be “average” homes. They will be 1 double bdrm and 2 singles, combined kitchen, dining, lounge and family room and built on the standard Aussie pattern of having no hallway and the bedrooms comming off the living areas (which I hate but saves heaps of space) Maybe an attached garage and if so just a single with the laundry in there.
    All built on a 400 m2 section. (40% site cover allows 160 m2 house so easy done)

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  2. bhudson (4,740 comments) says:

    Another Labour policy of doing something for the sake of being seen to be doing something.

    The plan involves unnecessary borrowing and is distortionary as DPF points out.

    Labour are quite simply bereft of sound ideas. They showed that in the election last year and they continue to show that now.

    Perhaps the most amazing thing about this policy is that the delegates weren’t shouting out during the speech “Yes we can!” to calls of “David the Builder, can we fix it?”

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

    It’s a dumb policy. You would think they would go for public housing.

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  4. hinamanu (2,352 comments) says:

    The Nat/Lab coalition will have the same housing policy under UN agenda 21 which is available to view online

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  5. RRM (10,018 comments) says:

    As the median house value is $410,000 the lucky winners of these ballots will be arguably gaining $100,000 or so of value.

    Doesn’t that rather depend upon how saleable these el cheapo houses are?

    If the land costs whatever land costs, (And plenty of $700k brand new spec houses in Dannemora are already on pretty friggin small sections!) then one presumes that the only way to build these helluva cheap houses down to a helluva low price would be to make them tiny, impractical and nasty.

    [Edit: as per the rather grim but utterly believable picture painted by Colville above!!]

    This tinkering with the edges scheme seems silly, desperate, ill-conceived and doomed to fail, but people rorting it for profit wasn’t the main reason that occurred to me…

    But let’s be real DPF – all of the main people who make the calls on land availability already own their houses, (and whatever investment capital they may own is no doubt in other houses) so they have little to gain – and potentially even something to lose – from making vast tracts of new land available for house construction… which is why that will never happen, and dicky proposals like this that don’t threaten the ruling classes’ investments are what we’ll continue seeing.

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  6. smttc (763 comments) says:

    If the policy around kiwisaver withdrawals for first home buyers is used as a precedent (highly likely) then the use of trusts as ownership vehicles for the purchase will not be permitted. The kiwisaver account holder will have to take title in their own name. What they do after that is up to the first home buyer (eg transfer ownership to a trust). But the ” I was not the buyer” argument is blown out of the water.

    [DPF: That is not my point. I didn’t say people could use trusts to buy homes under this policy. I said that they may have many other properties in a family trust, and still be able to get a cheap home under this policy as they are technically a first time homeowner]

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  7. peterwn (3,307 comments) says:

    The policy is not pitched at core Labour supporters. It is pitched squarely at the ‘middle’ vote a larger portion of which is vital to any Labour election success. It could appeal to 10 times (or greater) the people than the number of proposed houses since a chance of winning a ballot is appealing in itself.

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  8. Camryn (543 comments) says:

    smttc – I think DPF means that trusts will have bought any *previous* homes so that the individual name is still “clean” for this purchase. I would fall into that category already, for example. I have never personally bought anything.

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  9. Pete George (23,683 comments) says:

    There shouldn’t be any need for ballots, according to the Kiwibuild factsheet the lucky recipients will ‘self-select’.

    No household type will receive preference over any other household type. 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.

    You couldn’t get much fairer than that. What a wonderful new direction this is.

    This is based on the well proven Labour leadership ‘self select’ model.

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  10. Camryn (543 comments) says:

    peterwn – But if you already own (which, to be middle class, I suggest is a prerequisite) then 100k more homes soaking up demand is not good for your existing property values. So, most voters will veer towards protecting what they have, I imagine.

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  11. Colville (2,300 comments) says:

    I have said it before (and been called a Leftard!)….

    Issue with land supply at fringe of city is that it tends to be either owned by a landbanker or have a mansion on a lifestyle block.
    Either way its not cheap land (lifestyle mansion $1.5 mil for 2 Ha? = $60k per site pre development)

    If Govt enters market and buys up land (think large farm near town) and builds a large number of these cheap houses together in one place, its a soon to be slum, 100% certianty.

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  12. smttc (763 comments) says:

    Camryn, me neither. But it would be a pretty stupid scheme if it did not have associated persons rules or maximum income or capital qualification rules to exclude people like you and me. Anyway it is a huge elephant of an idea. So I canoot see it getting off the ground in the first place.

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  13. Colville (2,300 comments) says:

    This is based on the well proven Labour leadership ‘self select’ model.

    isnt that the “self destruct” model?

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  14. metcalph (1,433 comments) says:

    My chief complaint about the ploicy is that it’s far too close to the policies pursued by the US, Spain and Ireland in the years leading up to the big crash.

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  15. Carlos (683 comments) says:

    DPF, in this post you’ve made rich people look like blood sucking scum without even realising it.

    [DPF: Not at all. I’ve just said that rich people are generally smart and will happily maximise their chances of winning a Lotto house from the state]

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  16. Griff (8,192 comments) says:

    Len brown will not be allowing 400sqm sections in Auckland.
    It will be the NZ equivalent of council flats.
    Like the slums you see being blown up in the uk.
    My ancestors fled England from the slums of two up two down and the council flat.
    Now the retards will do it here.

    Drop the restrictions of land use and the problem goes away. let the market build what people will buy. On land priced at its value not by its zone.

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  17. bhudson (4,740 comments) says:

    The policy has already been eclipsed by the ongoing leadership speculation and may very well sink into the obscurity it richly deserves

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  18. Short Shriveled and Slightly to the Left (786 comments) says:

    I came from a very low income family
    I went to uni and earned a few qualifications
    I married young and have a partner to help earn and share costs (she like me grew up low income and educated herself into a good job)
    We worked hard and saved for 4 years
    We bought our first home last year
    We bought a house that needs a little work so that it was cheaper to buy (and our equity was better)
    this work takes up some of our weekends but we love it as its improving our house and our financial position, and we can see the outcomes
    We bought a house that is in an area that requires a bit of travel to work, so that it was cheaper to buy

    I fucking hate this policy

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  19. Nostalgia-NZ (5,279 comments) says:

    Get informed moonbats residental 6a = 375 sq m.

    Pre-qualifying criteria for purchasers. The idea that the houses are going to rebound in value is ridiculous, but if people chose to sell why shouldn’t they if they’re firmly within that pre-qualifying criteria it’s unlikely they are also speculators, they’ll be mum and dads who have been saving most likely for years, or a couple whose parents may have been able to assist them with a deposit – after the banks have been satisfied they’re qualified for a loan. In DPF’s doom and gloom he has ‘lucky’ winners who are actually, to use Carlos’s term, ‘blood sucking scum.’ If you speak to representatives of the housing movement in Glen Innes, or even to Harawira – I think they’ll say the Government’s partners dividing up the land there are more appropriately entitled to that name. They’re plonking transportable homes onto half sites and asking over 400,000 right now. Keep up folks. I note rather than being positive about perceived difficulties people here are looking for any reason to tear the idea down.

    As for the fiscal whole this was covered last night. A number of houses get built say 50 only after they’re sold ‘off the plans’ then finance must have already been approved. Punter settles and moves in, capital outlay recovered.

    Somebody above has indicated the sq m will be 150, I think it will be smaller (around 100) and if people who can afford them like them they’ll buy.

    The scorn heaped on this idea is most surprising, rather than being a reflection of all the detail and feasibility of the idea – it seems to be a recognition that Joe public will embrace this idea and that it’s a vote magnet.

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  20. gazzmaniac (2,307 comments) says:

    I think that debating the merits of this policy is an academic exercise. Labour isn’t going to be in a position to win the next election, and by the time they are ready they will have culled all the ridiculous policies from their manifesto.

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  21. bhudson (4,740 comments) says:

    NN-Z,

    This latest Labour policy is yet another desperate attempt to find some relevance to the general electorate. It will be another failed attempt.

    Already the news agencies are more interested in Shearer vs Cunliffe and the ongoing leadership tensions, than in this policy

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  22. Richard29 (377 comments) says:

    DPF – You seem to be assuming that they will be selling the houses for under 300k. Is that the case? The factsheet that they put out says that they should be able to build them for sub 300k on average. I would think the sale price will be slightly above that given the cost of capital, scheme administration etc.

    We live in our first home – a 110sq m three bedroom home on a 400m section, about 16km from the Auckland CBD in an average/nice suburb (schools are decile 6-7). We bought in 2008 for $355k – the valuation hasn’t changed dramatically since then.

    I think it’s probably fairly realistic that the government with a big build program and low cost of capital could create a bunch of houses for a similar price. I’m expecting any freestanding houses that are built will probably go for about $350-400k. The ones that retail for around the $300k mark will all be apartments and townhouses.

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  23. Nostalgia-NZ (5,279 comments) says:

    bhudson

    Affordable housing is relevant. Who cares that the media are concentrating on the leadership? Joe average couldn’t really give two stuffs about it, but he certainly understands the need for affordable housing.

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  24. CJPhoto (227 comments) says:

    Minor dwellings use to be built for just over a $100k I think which are 2 bed (or 3) at 60sqm (to fit in with regulations).

    These could probably be 100sqm and be within budget depending on land price. They wont be native wood floors like the state houses of old. It will all be cheap products out of Fletcher Buldings catalogue.

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  25. bhudson (4,740 comments) says:

    Joe average couldn’t really give two stuffs about it, but he certainly understands the need for affordable housing.

    NN-Z,

    Where do you think “Joe average” gets his information from? It isn’t the Internet, it isn’t the blogs – it is still the daily newspaper, or the 6 o’clock news.

    People with interest in politics follow blogs and other online information resources. Joe average has little interest in politics and will get his information from the MSM.

    The MSM is focusing Joe on the leadership battle…

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  26. wat dabney (3,809 comments) says:

    Labour could perhaps make one small adjustment to the plan and make it a lottery to win a Lamborghini, which people could then sell to buy their house. I think that would be more exciting and certainly more glamorous; otherwise it’s just a corrupt vote-buying scam where people perhaps living in small houses are taxed to buy bigger and nicer houses for others.

    Win big on Wednesdays with Labour!

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  27. Scott (1,817 comments) says:

    Labour believes that for every problem there is a government solution. They are for bigger government, all day and every time. If we elect these guys to power who knows how long will be before we become like Greece? But we will have equality. We will be equally poor and equally miserable together.

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  28. bhudson (4,740 comments) says:

    Scott,

    Well Winston Churchill did say that the “inherent virtue of socialism is the equal sharing of miseries”

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  29. emmess (1,432 comments) says:

    Yes, it’s a supposed government created solution to a government created problem that will end up creating even more government created problems.
    If they had any brains they would just remove the government created problem in the first place.

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  30. wat dabney (3,809 comments) says:

    If they had any brains they would just remove the government created problem in the first place.

    Their aim is to benefit themselves; the politicians and their state-sector union members who operate the Labour Party vehicle.

    They know exactly what they’re doing.

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  31. Griff (8,192 comments) says:

    Nostalgia-NZ (1,565) Says:
    November 19th, 2012 at 10:02 am
    Get informed moonbats residental 6a = 375 sq m.

    Read the plan for growth in Auckland lately

    left get in and you are talking multi unit development for Auckland. Instant hyrise slums.
    Do you think a lefty government, if one is elected? will stop choo choo lens vision for Auckland .

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  32. Mark (1,491 comments) says:

    This is poor policy from Labour. I do not for one moment buy DPF’s argument on value gains, comparing the median house price to low cost housing is like comparing apples with pies. Sorry David you cannot use the Median house price as a comparitive measure of the value of low cost housing.

    In the 1970’s the Housing Corporation (formerly the State Advances Corporation) provided loans on new houses to first home buyers. Living in the property was a requirement so it was not a speculative gain option for Epsom kids with big trust funds. Seems that a revisit to some of the policy controls in place used then might have been a good place to start.

    As a wee aside the banking controls back then were a bit blunt – capital adequacy limitation on housing mortgages meant banks weren’t in the game and we suffered building society ballots etc, those were the days :) .

    The Labour policy has some huge holes in it and I agree with DPF that it is a rort waiting to happen

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  33. Scott Chris (6,176 comments) says:

    They should be demanding the houses be allocated to the lowest income families

    Not if the focus is on easing the housing shortage as opposed to addressing the needs of the poor.

    Purchasers who win the ballot will stand to make huge profits

    Easy enough to address by applying a conditional formula that normalises return on actual capital invested.

    Rich families will love this policy

    I doubt that they would be eligible.

    This will be a boon for lawyers and trusts

    Not if the purchase agreements are designed well enough. Apart from which, I doubt that those eligible to be in the ballot will have the financial resources to spend on exorbitant lawyer’s fees.

    So what the smart people will do is make sure their family trust buys their first home.

    Easy enough to exclude from the ballot those who are named members of a family trust.

    Cactus Kate is already making plans to make some arrangements so she qualifies for the handout.

    Speaking of luck, some people are lucky, in that they are born smart enough to become financially successful. Funny how envious some of them can be of those who were born less fortunate. Assholes.

    Without knowing more detail it’s hard to say whether this policy will work or not, but I do know that it will take more than merely streamlining the consent process to alleviate the national housing shortage. The government has to, in this case, decisively intervene in the market for the greater good of society. Comrades! ;)

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  34. williamsheridan (63 comments) says:

    This policy will win Labour support from those who want something for nothing …. so it won’t win support they don’t already have.
    In the meanwhile it will lose them support for those who a) believe in a truly equal-opportunity society where opportunity and har work get you ahead and b) are sick-to-death of hand-out bias.

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  35. Nostalgia-NZ (5,279 comments) says:

    williamsheridan, a young couple who have saved enough for a home deposit are not looking for something for nothing. They’re looking for an affordable modest home of good quality.

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  36. calendar girl (1,265 comments) says:

    Short Shriveled @9:59 – Enjoyed your account of your path to your first home. It had many similarities to my own experience, including the low-income family backgrounds. Well done to you and your partner on your efforts to secure your family’s more secure future – you have good reason to resent being overlooked in the new handout, where you are already regarded as a “rich prick”!

    I will begin to believe that genuine first-home buyers are serious about their challenge when they are prepared – like you – to consider houses >10k from Queen Street, 100-120 m2 or so in floor area. And when they are not already owners of two cars and every known electronic gizmo and household appliance before they have even housed themselves.

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  37. williamsheridan (63 comments) says:

    @Nostalgia…. and I suspect that young couple will be very pissed off when they miss out on the Labour Housing Lotto and see that they are subsidising the “lucky” winners via increased taxes ….. which will make their housing dream less achievable. And if that hard-saving couple want to build their first home they will be facing increased building costs – because the builders who have been subsidised by the taxpayers-funders of the Lucky Labour Lotto winners will have pushed up general costs (and that is a simple supply and demand outcome) …. unless of course the Labour Lotto plotters introduce price controls.

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  38. Joseph Carpenter (214 comments) says:

    What a load of drivel some people have talked about this. Lets look at the real world example of “low cost affordable housing for Auckland”, I’m talking about Hobsonville Point, the last Labour’s Government premier initiative for “affordable housing” at the former Air Force base land and run by Housing Corp. How did it work out – read for yourselves, here is the latest link:
    http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10847892

    Didn’t work out too well did it? And this was way out at the arse end of Hobsonville. Oh the few “low cost affordable” $400,000 homes were absolute crap quality EIFS clad 80sqm 2-bedroom 2-storey terrace row houses on 180-220sqm sections. And those were heavily subsidised by Housing Corp and the government Gateway scheme (can I hear anyone say government guaranteed NINJA/ARM/IC mortgages, seems vaguely familiar, where did that happen before and did it have a happy ending?). As for 375sqm sections in Residential-A, you greedy rich prick lifestyle block land hoggers, if you’re in a government affordable housing subdivision you only need 180sqm, you don’t need no stinking backyards, or sideyards, or living courts, or daylight recession planes, or accessory buildings, or lawn etc

    We can only hope that the new Labour version of this scheme which is at least 1000x larger will be a raging success this time because this time it’s ….. bigger…. and they don’t actually own the land, no wait… I mean doing the same thing over and over and expecting this time the result will be a glorious socialist housing utopia instead of an expensive total clusterfuck is right isn’t it?

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

    DPF suggests:

    A better policy for Labour would have been that they will build 5,000 houses a year and turn them into state houses for low income families.

    By 2016, it’s estimated that the subsidy will cost the taxpayer $2.2 billion a year. Find a way to return that to the taxpayer and you’ve got a $2 billion net gain rather than the $2 billion a year net loss (in interest on borrowing) DPF estimates as the cost of Labour’s proposal. And that’s not counting the upfront capital cost and the possible loss from selling below market value.

    If we could insist that anyone on a benefit move out of their private rental and into a state house, the money handed to them by the taxpayer and spent on rent goes back into the Consolidated Account and not the bank account of a property developer.

    Then when when the beneficiary gets a job (and most actually do) give them the option of increasing the payment on their home in proportion to their increased income, with part going towards a deposit.

    As soon as they have the deposit, they’re told to get a mortgage on the open market and the money (including any capital gain from any appreciation in value since construction) goes back once again to the taxpayer, to build another house and start the cycle again… Cost to the state: a bit of foregone rent between when the tenant starts work and when they’ve saved a deposit.

    Of course the problem with kicking off such a policy is the lack of state houses in which to place beneficiaries. There’s only two solutions to that: build more (and accept we need to come up with the capital to do so) or change the policy that allows state house tenants to stay put paying market rents after they’ve moved off a benefit or got a better job. I say the latter, but then I’ve moved 14 times in the past 10 years so I don’t become emtionally attached to a dwelling – especially one I don’t own.

    Yes, the “buy it or lose it” provision upends the historical tradition that says state house leases will never terminate even if the resident becomes a multimillionaire, but sentiment is costly. Far too many couples and even singles occupy three and four bedroom homes which are needed to house families who are squeezed into inadequate dwellings or have no homes at all.

    Converting their occupancy to ownership allows them to continue to exercise the option to live in “their” home once they earn an income, but releases the capital back to the government to build another house for those who really need it. It’d take a while for the effect to be felt, but then any policy aiming to increase housing availability and affordability, short of a massive publicly-funded build, is going to take time.

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  40. SPC (5,772 comments) says:

    What’s the difference between a government borrowing to build houses in Christchurch and then on-sell them (National policy) and doing this nationwide (Labour policy) – as there is also a housing shortage in Auckland?

    Building more houses lowers the rent cost to those who cannot afford to buy. It lowers the cost of buying a home.

    It creates jobs (7.3% unemployment) and in lowering the cost of hosuing increases discretionary spending – we return to employment led growth. And all without increasing public debt.

    The alternative – unaffordable housing, homelessness and rising rents means rising government cost in the Accomodation Supplement, the economy stalls, tax revenues do not improve and we remain stuck with government spending cuts year on year to close the budget deficit. And who gets hurt by this – those who got the top rate tax cuts, those who make the untaxed CG on the rising value of property? No the poor do, the people who will benefit most from Labour’s more active government policy.

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  41. SPC (5,772 comments) says:

    “A better policy for Labour would have been that they will build 5,000 houses a year and turn them into state houses for low income families.”

    Why, you would call that unaffordable debt build up if that was actually proposed – you must know we know that.

    Building 10,000 a year is better housing policy and doing so without increasing public debt is better economic policy.

    Economic growth without public debt build up enables more input into Housing Corp in the future – housing the poor is separate matter to alleviating a housing shortage and creating jobs. This policy creates a better environment for the poor – lower private sector rents and more jobs.

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  42. Boglio (78 comments) says:

    Sounds like Clendon, Otara, Mangere and parts of Papakura where group houses were 100 sq m without a garage

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  43. bka (135 comments) says:

    “the $2 billion a year net loss (in interest on borrowing) DPF estimates as the cost of Labour’s proposal.”

    Rex, DPF modelled the policy as if ALL the money for ALL the houses was being borrowed up front, which misrepresents how the policy works, – so his conclusions for the interest costs are completely wrong.

    If we just take it on what has come out: 1.5 billion would be borrowed, 5000 houses built (as they are saying $300,000 per house)and sold in 6 months, (they want to build 10,000 a year) then the money from the sales put toward the next 5000 and so on. Ongoing interest cost would be about $75 million at 5% on the 1.5 billion borrowed, they could possibly fund that by $7,500 added to the price of each house sold.

    There might be stuff to criticise in how this is supposed to work, but that 2 billion dollar a year figure is not useful to discuss the policy as it is.

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  44. Francis_X (147 comments) says:

    >>>bhudson (2,712) Says:
    November 19th, 2012 at 9:12 am

    Another Labour policy of doing something for the sake of being seen to be doing something.

    The plan involves unnecessary borrowing and is distortionary as DPF points out.

    Labour are quite simply bereft of sound ideas. They showed that in the election last year and they continue to show that now.<<<

    And your alternative suggestion is…?

    I note that New Zealanders have this "knocking" attitude (from both left and right) to new ideas. Someone comes up with an idea and instantly we get people explaining why it can't be done. Christ, it's a wonder we ever colonised this country; vlimbed Mt Everest; or built the jetboat – "can't be done because of X,Y,Z.".

    At least Farrar has come up with sensible alternatives. Kudos to him for that.

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