Misunderstanding the investment approach

May 12th, 2014 at 3:00 pm by David Farrar

Stuff reports:

New Zealand’s neediest could miss out on taxpayer-funded homes under a proposal being put forward by Work and Income, an expert says.

The Ministry of Social Development is considering applying an “investment” approach to social housing as Labour claims state housing stocks are expected to drop by more than 2000 in the coming decade.

A similar “investment” approach, taken from the insurance industry, has already been adopted for beneficiaries to help target groups that are expected to cost the state big money in future and push them into work quickly.

MSD, through Work and Income, took over assessing rent subsidies from Housing NZ this year, as part of a push to get more private players involved in social housing.

MSD investment approach general manager Damian Edwards said it was early days in the switch and adopting the investment approach for housing was far from a done deal.

But Victoria University public policy professor Jonathan Boston said while it was “perfectly reasonable” for the Government to seek independent advice, using an insurance model for housing would produce “perverse incentives”.

If the Government was trying to minimise its long-term cost this could push them toward prioritising families and people in high incomes over lower incomes, undermining the whole purpose of state housing, he said.

“Those on higher incomes would be eligible for a smaller state subsidy, thus reducing public funding costs. Yet it is those on low incomes who have the greatest need for social housing.”

I think this is totally misunderstanding the investment approach. This approach doesn’t just look at direct spending, but looks at the long-term costs and benefits. Families most in need will get the most benefits from housing support – it can lead to better health and education outcomes for them. To suggest the investment approach would see state houses go to wealthy families is ridiculous.

In fact this Government has been saying that when a family is no longer poor, then they should give up their state house for a family that is more needy – a policy which incidentally is opposed by the opposition who think that once someone gets into a state house they should never ever be required to leave it – no matter their income.

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18,000 new houses for Auckland

May 8th, 2014 at 11:00 am by David Farrar

The Herald reports:

Auckland mayor Len Brown and Housing Minister Nick Smith have this afternoon announced a third tranche of “Special Housing Areas” for 18,000 new residences under the Auckland Housing Accord.

The announcement was made at a site at 11 Akepiro Street, Mt Eden, set to be developed into 18 units by Ockham Residential.

Big parts of Great North Rd, Otahu Coast, Flat Bush, New Lynn, Northcote, Albany East and Takanini are ear-marked as strategic areas, for big-scale redevelopment.

The Auckland Housing Accord, agreed to last year by Smith and Brown, provides for the creation of SHAs by Auckland Council with the approval of the Government. Qualifying developments in these areas are able to be streamlined and fast-tracked but the areas are raising alarm in areas from Takapuna to Newmarket, as people suddenly realise their streets will change dramatically.

Auckland needs more land and more houses (and more apartment buildings), it’s that simple.

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Migrants say Labour’s housing policy potentially racist

August 9th, 2013 at 9:00 am by David Farrar

Stuff reports:

The president of a nation-wide organisation that represents Chinese migrant groups says David Shearer’s policy is “picking on” Asian people.

Labour leader David Shearer says the party will restrict the ability of non-residents to purchase New Zealand houses as part of its package to help Kiwi first-home buyers.

Shearer says IRD records show more than 11,000 overseas investors own New Zealand properties they don’t live in.

That data would include people like Helen Clark. Actual sales data has shown that non-residents comprise only 3.2% of house purchasers (and make up 4.5% of sellers).

However, the president of the NZ Chinese Association Virginia Chong is concerned the policy is targeting Asian buyers.

Chong says there is a flawed perception that Chinese nationals are out-bidding Kiwis in the Auckland housing market.

The second generation New Zealander says people just see Asian faces in the auction rooms and assume that they are foreigners.

“It’s all very well saying it’s Asians who have pushed up the price but I don’t think it’s Asians, we are just a convenient fob-off,” the Epsom resident says.

Again the actual sales data shows only 0.4% of house purchasers are non-resident Chinese.

She says while the policy may be a Band-Aid on the problem, it will not have any long-term effect.

“From my perspective it’s potentially racist and it’s contrary to existing free trade agreements,” she says.

It is designed to make people think that Chinese New Zealanders are foreigners and stealing houses off “real” New Zealanders. And it does breach several free trade agreements we have signed, including those negotiated by Labour.

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Is Labour’s policy in breach of the FTA they signed?

July 30th, 2013 at 5:27 am by David Farrar

Stephen Franks blogs:

The Labour Party’s new policy to prevent non-residents from buying existing houses seemed inconsistent with the equal treatment Article of the NZ China FTA. That FTA was a proudly claimed achievement of the last Labour PM – Helen Clark.

The FTA’s definition of “investor” refers to a person “who seeks to make, is making, or has made an investment….”. So it clearly looks at prospective investments.

But a technical reading of the equal treatment Article suggests that it may demand equal treatment once an investment has been made, but does not protect intending investors.

Under Article 138 of the NZ China FTA (National Treatment)  all investments and activities associated with such investments made by investors of both parties must be treated, “with respect to management, conduct, operation, maintenance, use, enjoyment or disposal”  no less favourably than investments of its own investors. The list does not include “acquisition” or similar words.

So under that provision a Chinese house buyer must be treated the same as a New Zealander after acquiring residential property, but the protection does not extend to prospective buyers. Whew for Labour!

But wait – another Article (the most favoured nation clause) commits New Zealand not to pass law that discriminates against Chinese investors in comparison with other overseas investors (such as Australians).

Article 139 requires that investors of [China] be treated no less favourably than investors of any third country [Australia] “with respect to admission, expansion, management, conduct, operation, maintenance, use, enjoyment and disposal” of investments.

So Chinese would-be  investors do not get direct rights to insist on investor equality but they can’t be treated worse than Australians.

Labour has said Australians would still be allowed to buy residential property under their policy. This would breach Article 139.

The policy may also breach the Malaysia FTA and the ASEAN FTA it seems.

Also Rob Hosking at NBR reports:

It is a mark of how bogus the housing debate has become that Labour’s figures about foreign owners of New Zealand houses almost definitely include former leader Helen Clark and her four  houses.

The current Labour leader and Miss Clark’s successor as MP for Mt Albert, David Shearer, claimed at the weekend there are “more than 11,000 overseas investors [who] own properties here that they don’t live in”.

What Mr Shearer did not say is the figure comes from Inland Revenue’s numbers about “non-resident” taxpayers who pay taxes on houses they  own in New Zealand.

“Non-resident” taxpayers are largely made up of  expatriate New Zealanders and in this context are those who have gone overseas and who have rented out their properties here.

There are no figures on this but it is a highly common practice – although most who go overseas will have only one, or maybe two, properties to rent out and not, as in the case of Miss Clark, who departed to the United Nations in 2009, who owns four.

Half the Labour caucus have investment properties. If they all sold them to aspiring first home buyers, that would probably do more to help the market, than this policy!

Last year’s Productivity Commission report looked at the issue, but only in the context of immigrants buying houses.

In that context, it found the main inflow was – again– not from Asians, as Mr Shearer dog whistled at the weekend, but expatriate New Zealanders.

There is, the commission said, “no evidence of an inflow of foreign-born immigrants to an  area impacting on house prices”.

There is, though, “a strong positive relationship between inflows of returning New Zealanders into an area and local house prices (with a 1% increase in population resulting from an inflow of returning Kiwis associated with a 6%-9% increase in house prices)”.

The commission concluded the main cause for higher house prices in recent years is  shortage of supply, driven by a mix of investment nervousness since the end of 2007, plus poor regulation leading to slow consenting processes for new developments and some evidence of high building  costs because of a lack of competition.

Labour’s bid on housing, in short, is not aimed at what is causing problems in the housing market and will do nothing to solve them. It is aimed rather at the party’s political problems.

Mr Shearer’s weekend launch was a clear, unsubtle and some would say desperate bid to pick up votes from the segment of the population which does not like foreigners, especially foreigners of a different coloured skin, very much.

Labour is, in short, dog whistling for the New Zealand First and Green Party xenophobic vote.

It is classic dog whistle politics. Blame the immigrants and foreigners.

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How many foreign buyers are there?

July 29th, 2013 at 1:00 pm by David Farrar

Tony Alexander in May 2013 looked at this issue. He found the following from sales data:

From these numbers we can derive the proportion of all house sales in NZ which go to buyers from offshore
who have no intention of shifting here – including half of the “Don’t Know” responses.

  • Australia 0.4% 
  • China 0.6% 
  • Europe excl. UK 0.4% 
  • India 0.4% 
  • Other Asia 0.5% 
  • South Africa 0.3% 
  • United Kingdom 0.3% 
  • United States 0.4% 
  • Other 0.4% 
  • All 3.6%

So if you exclude Australia, Labour’s policy may reduce the number of buyers by 3.2%.

However also of note is 4.5% of sellers were based overseas.

Now remember this is based on actual sales data. Alexander summarises:

This is interesting because taking the many sampling uncertainties into account the proportion comes close to the proportion of sales we estimate are to people offshore who do not intend shifting to New Zealand – some 3.6%. The implication? There could be close to zero net transfer of NZ home ownership occurring to offshore investors.

I’d tempted to call the policy a snake oil solution.  The data suggests it may have no impact at all on prices.

 

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Labour’s proposed ban on foreigners buying houses

July 29th, 2013 at 5:19 am by David Farrar

The Herald reports:

Housing Minister Nick Smith said it was a sign of how desperate Labour and Mr Shearer had become.

“The oldest trick in the political book, whether it be over crime or unemployment or affordable housing, is always to blame the foreigners.

“There’s no evidence that overseas buyers are having any discernible affect over house prices.”

It was an “unprincipled” policy because it exempted Australia, Dr Smith said.

“They are the largest group of non-resident home buyers.”

Property commentator Olly Newland said the policy would not work.

Australians would be exempted from the scheme, because of a reciprocal arrangement where New Zealanders were able to buy properties there.

Mr Newland said that made the policy “a bit of a nonsense” because Australians bought the highest number of properties here of all foreign buyers.

“Secondly, of course, any overseas buyer would very quickly find somebody else to buy a house for them here in their name and hold it in trust for them.

“There are a thousand ways to get around it if they want to come here,” he said.

“It sounds good but in practice it just won’t work.”

Sounds attractive to some, but likely to make almost no difference. Increasing the supply of land for housing is what will make the largest difference to house prices.

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What Hone was fighting against

July 27th, 2013 at 9:48 am by David Farrar

Paula Bennett FB

 

This is what Hone broke the law to fight against. That terrible Government providing houses to low income families in Northland.

Hat Tip: Keeping Stock

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6,000 new homes in Auckland

June 21st, 2013 at 1:00 pm by David Farrar

Simon Collins at NZ Herald reports:

Intensive housing project of 6000 homes and ideas for attracting new businesses and training organisations will help revitalise eastern suburbs around Tamaki estuary.

Auckland’s low-income suburbs of Glen Innes, Pt England and Panmure will roughly double in population under a draft plan for more intensive housing to be unveiled today.

The urban “regeneration” project, which could add up to 6000 new homes to an existing 5050, is expected to be one of the first “special housing areas” with fast-tracked resource consent processes under a housing accord signed last month by Housing Minister Nick Smith and Auckland Mayor Len Brown.

The target of 6000, included in the accord, makes it the biggest housing development scheduled in Auckland and twice as big as the 3000-unit Hobsonville development.

It covers the area between West Tamaki Rd in the north and the Panmure Basin in the south, including 2880 Housing NZ homes, about 1160 owner-occupied houses and just over 1000 private rental properties.

Unlike other developments, the draft Tamaki strategy also includes 11 other social, economic and environmental elements, as well as housing, designed to make the area more liveable despite doubling the population density.

Sounds very worthwhile.

The area is among Auckland’s most deprived, with a 2006 median income of only $20,000 and an employment rate of only 52 per cent, compared with 65 per cent across Auckland. Sole parents make up almost half the area’s families.

But the strategy sees opportunities for more jobs and training by attracting new businesses, redeveloping under-used land along the existing railway and encouraging training agencies such as Manukau Institute of Technology, Unitec and Te Wananga o Aotearoa to take over parts of Auckland University’s Tamaki campus, which the university plans to sell as it develops a new campus in Newmarket.

Houses, and jobs.

But Dr Smith said development was most likely to be done by “public/private partnerships” as at Hobsonville, where a Housing NZ subsidiary contracted with private developers to build houses.

Oh no, a public/private partnership. That means it is evil. It must be opposed by the left!

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Race based housing

June 21st, 2013 at 9:00 am by David Farrar

Kate Chapman at Stuff reports:

Mana Party leader Hone Harawira wants to offer Maori first-time homebuyers no-deposit, low-interest loans but admits he doesn’t know how much the programme would cost.

So do I have this right?

If you have a Maori great great grand parent you can get a no deposit, low-interest loan, but if you don’t you are not eligible?

Appalling.

And of course it is not costed. That would require someone to actually do some work, rather than just open the mouth.

Housing Minister Nick Smith said the Mana policy would cost more than $3 billion a year and put New Zealand “seriously in the red”.

The Mana policy is outlined here:

  • Only Maori first home owners would be able to apply
  • There would be no deposit
  • Interest rates would be no higher than the rates government pays on money it borrows
  • Applicants can either build new or buy an existing property
  • Applicants will be able to negotiate mortgage arrangements that suit their circumstances

 

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Tony Alexander’s eight housing fixes

June 16th, 2013 at 12:00 pm by David Farrar

BNZ Chief Economist Tony Alexander has eight proposals for helping with housing problems. They are:

  1. Initiate a large builder training programme targeting not just youth but low skilled migrants. Yes, the migrant gates would need to be opened. Just the signalling of strong intention to boost builder numbers would make investors think twice about their capital gain assumptions. 
  2. Ban councils from imposing any development fees and allow developers to install their own infrastructure. 
  3. Create an SOE whose sole purpose is to undercut existing building materials suppliers through bulk purchases from offshore, nodal warehousing and distribution from just three or four locations in the country, with a separate agency responsible for monitoring the quality of materials sourced. 
  4. Initiate a new large state house building programme relying largely on the to be created new carpenters etc. Constrain new state houses to more efficient building systems including containerised modular housing (this doesn’t involve shipping containers), central and screwed in foundations, etc. 
  5. Ban house sales to non-residents (even new houses given the ease with which special developments could arise targeting solely folk offshore and soaking up construction sector resources). 
  6. Impose a tax on all houses owned by Kiwis offshore with the aim of encouraging them to sell them. 
  7. Put in place a capital gains tax on second properties and farmland and immediately payable stamp duty for all second house purchases. 
  8. Rezone all land within 10-20 kilometres of existing city boundaries as residential

Nice to have some radical thinking in this area. Tony predicts the chances of hos policies being implemented:

Low, zero, zero, mild, mild, zero, low, zero. 

Which ones do you agree with?

I like 1, 2, 6 and 8. I support a CGT but on all properties, not just some.

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Labour and Greens propose a state monopoly for power purchasing

April 18th, 2013 at 12:24 pm by David Farrar

Kate Chapman reports:

Labour is promising to cut the average Kiwi power bill by up to $330 a year if elected to government next year.

It plans to do so by setting up a single buyer, NZ Power, to purchase all electricity generation at a fair price.

Announcing the plan today, leader David Shearer said it would create 5000 jobs.

The Crown would forgo dividends and tax revenue from the power companies at a cost of $60-$90 million a year.

“I’m not prepared to sit back while power companies cream super-profits at the expense of households and the economy,” Shearer said.

As a single wholesale buyer NZ Power will set electricity prices ensuring power companies get a fair prices but not super profits.

The sums here look as dodgy as with Kiwibuild. A cost of $90 million a year is meant to translate into $330 for 2 million households? That’s a 500% difference.

Secondly the history of NZ is that state monopolies do the worse for consumers and prices.

I await the policy to make it illegal to sell houses, except through the state. I mean houses are just as essential as electricity.

What this effectively means is that politicians will set the price of electricity. Remember when Muldoon decided what the interest rates will be? And the Government decided what rents you could charge, and price and wage freeze? All decided by politicians.

A monopoly crown buyer of all electricity will get to unilaterally set the price of electricity and MPs will decide who sits on it and effectively tell them what price they want electricity to be at.

UPDATE: Readers should be aware that this policy is a de facto nationalisation of the privately owned Todd Energy and Contact Energy. it is almost a confiscation without compensation of their assets. Because Labour and Greens are saying we will pass a law to make it illegal for you to sell power to anyone except the Government, and only at the price we unilaterally set.

Think about that, and the precedent it is setting.

This is a policy out of the 1970s and some sort of socialist nirvana state.

Imagine you set up a business, and one day the Government came along and said we are going to make it illegal for you to sell your product or service any more – to anyone but us. And you get no say in what the price will be – we will unilaterally determine that.

This is akin to theft from the shareholders (and if you are in KiwiSaver you are probably an indirect shareholder) of Todd Energy and Contact Energy.

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Surprised it isn’t 95% in favour

January 10th, 2013 at 1:00 pm by David Farrar

The Herald reports:

The Labour Party housing policy for first-home buyers has struck a chord despite the Government’s attempts to write it off as expensive and unrealistic.

Just over 70 per cent of the 500 respondents in the Herald-DigiPoll survey approved of Labour’s promise to enter the housing market to build 100,000 low-cost homes over the next 10 years.

I’m surprised it isn’t 95%. Who is against a political party saying they can wave a magical wand and produce houses  $150,000 to $200,000 cheaper than normal.  The problem is their numbers simply do not and can not add up. It is a con.

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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. Labour 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 housing 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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Labour on housing

July 16th, 2012 at 9:00 am by David Farrar

John Hartevelt at Stuff reports:

Labour is urging a “hard look” at the accommodation supplement, amid claims landlords are pocketing a $1.2b “subsidy” despite providing substandard housing.

Housing spokeswoman Annette King said the Salvation Army had warned in the 1990s that the supplement to support low-income people would turn in to a subsidy for landlords – and that had happened.

Where is the proof for this claim that it has turned into a subsidy for landlords? Is Annette King saying that landlords are charging more to someone who is eligible for the accommodation supplement?

“It is a major subsidy for landlords but it hasn’t produced better housing or more access to housing or an ability for people to buy housing,” Ms King said.

It is not a subsidy for landlords. It is a subsidy for low income tenants who are renting.

“If we just let it keep growing year after year as more and more people struggle to pay rent, then we are doing nothing in terms of changing the ability to house people and it’s time that we had a highly focused look at how do you turn that into something that is a whole lot better.”

The supplement is paid in addition to other welfare payments at varying rates, depending on circumstances. It is meant to help cover rent, board or home ownership costs.

In 2007, the Government paid $877m through the supplement, but it is expected to top $1.2b this year.

If Labour is proposing abolishing the accommodation supplement, then they should say so. You could divert the $1.2b a year into new state homes through Housing NZ, which are then provided at 25% of people’s incomes. I suspect this is what they want to do.

The problem with this though is those low income families who get into a Housing NZ home get massive state support, while those low income families who do not get into a Housing NZ home would get zero, nil, nothing.

Ms King said the supplement supported people in rental accommodation but a lot of the houses were “incredibly poor quality”.

“Some of it is absolutely appalling housing and landlords take whatever the accommodation supplement is and add it to their rent,” she said.

Again, proof? Labour are smearing tens of thousands of landlords with this allegation.

“I think we need to take a hard look at how we could turn some of that accommodation supplement into providing affordable, decent, warm housing and how we could turn some of it into people being able to own their own housing.”

She did not know exactly how that might work but said it should be discussed.

So Labour actually has no alternative. They just wanted to smear evil landlords.

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The Christchurch rental drought?

June 14th, 2012 at 12:00 pm by David Farrar

The Press reports:

An “immediate” solution to the housing crisis that has crippled some Christchurch families and created a new “working poor” has been delivered to the Government. …

She founded the Canterbury Affordable Housing Trust to carry out her plan and hoped the Government would provide funds to help.

Working families who were not eligible for Government support had been the hardest hit in the rental drought, she said.

Obviously rental prices have gone up in Christchurch. Personally I don’t think much of landlords who have massively hiked rents. But the issue is whether or not there are affordable houses for rent in Christchurch.

Trade Me has the following rental properties listed:

  • Up to $300/week – 167
  • $300 – $350 – 140
  • $350 – $400 – 148
  • $400 – $450 – 108
  • $450 – $500 – 69
  • $500+ – 195

And no they are not all or even mostly one bedroom places. Around 70% are three or more bedrooms.

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Eight months dead in a council house

February 23rd, 2012 at 7:33 am by David Farrar

Clio Francis at Stuff reports:

A second pensioner lay dead in a Wellington council flat for at least eight months – and was found the same year as fellow tenant Michael Clarke died.

An investigation by The Dominion Post has revealed that Wiremu Whakaue died in his one-bedroom flat in Adelaide Rd in 2009, but his body was not discovered until March 2010.

I do not believe the City Council should be a housing provider. I do not think it is their role, and further more they seem to be very bad at it.

Assistance with housing needs is the responsibility of central Government, not local. City Councils should not be building hospitals or schools, they should not be providing welfare benefits and they should not be providing housing.

Their apartments should be sold to Housing NZ, where tenants would enjoy subsidised income related rents, or to community housing providers who will keep rents at the same level. Both would ensure, I am confident, that tenants are not lying dead for almost a year in their properties. The City Council should focus on the responsibilities it has that no one else has, rather than try and be a landlord.

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Nats on Housing

November 6th, 2011 at 10:19 am by David Farrar

Stuff reports:

Law breaking tenants would be locked out of a state house for up to a year under National Party policy released today.

Excellent idea. The criminals in state houses often terrorise their neighbours.

As for where they will live, well there are thousands of other landlords around. They’ll have to convince a private sector landlord that they will be good tenants. That in turn may gave an incentive to stop the crime.

Key said National would insulate all state houses built before 1987 by the end of 2013.

An existing insulation programme would be expanded to cover a further 4600 state houses, he said.

The Greens will be pleased.

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Heatley looks set to make Labour’s housing policy workable

October 25th, 2010 at 9:00 am by David Farrar

Phil Heatley outlined on Q+A some quite radical changes to Housing NZ, but they are changes that would help those most in need – and in fact are long overdue changes necessary to make the model of state housing reinstituted by Labour workable.

Some on the left will try and whip up hysterical opposition to them, but people should be aware the group that recommended them includes the Auckland City Mission Diane Robertson and Major Campbell Roberts from the Salvation Army. And also to her credit Sue Bradford, who was a panelist, seemed quite supportive. So I suggest people resist knee-jerk reactions.

National introduced market rentals in the 1990s. This was highly controversial and unpopular, ans was reversed by Labour who campaigned on a change back. I don’t want to defend the market rentals but explain why they were done.

The idea behind market rentals was that an income based accommodation supplement was a fairer way to assist low income people into housing. It could take into account your exact level of income, the average rental price in your area etc and most of all applied to every New Zealander on a low income.

The idea was that if two families lived next door to each other on identical incomes and identical family sizes and in identical houses, they would both get the same level of support. Up until then the person in the state house got huge assistance, and the person in private accommodation got very little. Unless the number of state houses was so large as to cover every low income New Zealander, then some families unfairly were getting much better assistance than others. And in fact (as this report shows) it was not always the family with the greatest need who was in the state house.

However the market rentals policy was hugely unpopular, for a number of reasons. One reason was the Government failed to sell it well. People thought it was about increasing rental payments from poor families, and there was almost no focus on the fact that the Government would be helping many more low income families than previously.

It also had the problem in that it created a large number of people (around 300,000) who were modest “winners” and a smaller number of people (around 70,000) who were quite large “losers”, and those who are disadvantaged by a policy change will fight against it, while those advantaged by it not so much.

To be fair there were also some unforeseen consequences also, such as private sector landlords pushing prices up, due to state houses doing the same. That was genuinely undesirable, and possible one reason National has not returned to that policy even though it is clearly less discriminatory.

So we’re left with Labour’s policy which is that if you live in a state house, you get a much higher subsidy from the taxpayer – the SHAG calculates it as worth $8,000 a year compared to $4,000 a year from the Accommodation Supplement. There are a limited number of state houses, and one can not change the number of houses in stock dramatically or quickly. So you want those state houses to go those most in need. But I have always said to do that you need to evict people from their state houses if a more needy family is on the waiting list, and you also need to move tenants from larger to smaller homes as their kids leave home.

The SHAG has recommended pretty much exactly that, but in a gentle way. Their recommendations are what you need to make Labour’s policy better for low income families. It means the greatest assistance goes to those with the greatest need.

SHAG’s report is here. Here are extracts from Q+A:

PHIL HEATLEY – Housing Minister.
Well, that’s certainly a recommendation in the report is that any new tenants coming on from now on would be under the understanding that they may just have the house for three years, five years or 10 years, and then we review that tenancy. So the tenancy wouldn’t necessarily end in that time, but we’d review the tenancy and see if their circumstances have changed.

This seems very sensible. Exiting tenants entered under a policy where their expectation is they can remain in the house for life so long as they are good tenants. I like the idea in future that you set at the beginning an expectation of review at a certain date. If their circumstances have improved and there are much needier families on the waiting list, then logically one would allocate to the family with the greater need.

MR HEATLEY So what would happen is& Well, a good example actually is someone’s in a state house – you know, they’ve had it for 10 years. When they first moved in, they had three kids, they were married, it was a four-bedroom. Now they’re alone or there’s just two of them. They just need one bedroom.

This is one of the real problems. The kids have left and now tenants are in a house with lots of spare rooms, while a family on the waiting list with three kids can’t get a house.

Some people will say the answer is just to build more state houses, but there is no way the state housing stock will increase from 70,000 to over 300,000 (the numbers on the accom supplement).

GUYON OK, the other big mismatch you’ve got is the type of houses that you’ve actually got. You’ve got far too many two- and three-bedroom houses. You’ve got a lot of people rattling around in houses that are too big for them. I think that you said there were 2700 houses with spare bedrooms, and about a similar number with crowded bedrooms. Are you going to have to engage in a large-scale selling and buying programme, in terms of selling houses you don’t need and buying ones that are fit for purpose?

MR HEATLEY That’s correct. In fact, we’ve got two types of mismatch, as you describe. The first one is that we’ve too many three-bedroom houses – in fact, 10,000 too many – and we haven’t got enough one-bedroom houses for very small families – obviously people living on their own – and certainly not enough four- or five-bedroom houses. So what we’re going to do is send a very clear signal that we want to realign all that, so we’re going to need to dispose of all our three-bedroom houses and buy smaller and larger ones.

No doubt some will call this privatisation! This does show the difficulties with the current policy – it is very hard to match the demand with supply.

GUYON Will the numbers stay essentially the same at roughly 70,000? Or will you increase it or decrease it?

MR HEATLEY What we’ve said quite clearly, and we certainly said to the people that drew up the report for us, is that we’re committed to state housing, we’re committed to Housing New Zealand&

GUYON On what numbers?

MR HEATLEY  &we’re committed to income-related rents.

GUYON Yeah, we’ll talk about that in a second. What numbers?

MR HEATLEY In terms of numbers of state houses, what we’ve said is we want to house more people in social housing. We want it to be a combination of state housing and combination of houses provided by others in the community-housing sector. So we are going to move away from counting the number of state houses we own or manage. …

GUYON That’s fascinating. So at the moment, there’s a ministerial directive that says you have to own just over 70,000 state houses by the middle of next year.

MR HEATLEY Um, no, the ministerial directive that’s happened over a number of decades under National and Labour, and it’s continued as they’ve gone in and out of government, is to increase the number of state houses.

GUYON OK, but roughly it’s 70,000.

MR HEATLEY That’s correct. And we’re saying&

GUYON So you’re abandoning that target? You’re abandoning any target or minimum number of houses that you need to own?

MR HEATLEY Yes, what we’re doing&

GUYON That’s a massive change.

MR HEATLEY It is, but what we’re saying now is that we want to increase the number of people housed, and we want to increase the amount of social housing in New Zealand, but we can’t do it alone. The government’s in no position to keep buying state houses the way we have been, so we’re going to slow down and probably stop and go to the community-housing sector, who have put up their hand, and they say this in their report, and say, ‘Look, we want to get into housing the most vulnerable.’ In fact, many housing organisations are specialist in their area – disabled, mentally ill, elderly.  ‘And we actually need capital, cash or houses for you as the government to inject into us to grow.’ And we’re prepared to look at that.

This is quite an important exchange. Shifting the focus from whether HSNZ has 70,000 or 70,500 or 71,000 state houses to a focus on how many people are in social housing, which includes the Salvation Army, some local authorities etc.

MR HEATLEY Well, no. What the panel says& And, you know, we had someone on the panel from Auckland City Mission, someone from the Salvation Army, someone from the New Zealand Housing Foundation. They’ve come back and they’ve said, ‘No, what we would like you to do is transfer a whole lot of housing stock or cash or land into our community-housing organisations, which are not-for-profit organisations&’

GUYON On that sort of level? 20%?

MR HEATLEY They’re suggesting moving very fast. If the ministers make a decision, we’re going to have to consider our tenants, not upsetting people’s lives. But the important thing I’d like to pick up on is this is not privatisation. This would mean a state house was transferred to a not-for-profit community-housing organisation who would have to retain the house. They couldn’t sell it, otherwise it would have to come back to us. And they would have to house the most vulnerable. They couldn’t just get, you know, anyone in that house.

As I said at the beginning, the members of SHAG who recommended this include reps from City Mission, Salvation Army etc. I think they have done an excellent job at analysing the problems with the current policy and proposing some changes which will provide better assistance to those most in need.

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The commies are right

September 28th, 2010 at 2:00 pm by David Farrar

The Herald reports:

Auckland Council candidates are split almost equally over whether the new council should play a bigger role in providing social housing for low-income people.

Mayoral candidate Len Brown and 17 other candidates have told a survey by the Waitakere Housing Call to Action group that the council should maintain or expand the pensioner units it will inherit from existing councils, and work with the Government and community groups to provide more social housing. …

Mr Brown told a social issues forum in Otahuhu yesterday that he wanted to double the existing number of units.

He advocated putting “1000 new units of affordable housing, both personally owned and rented”, into Housing NZ urban renewal projects at Tamaki, Clendon and Papakura.

No no no. Local Government isn’t there to find schools, hospitals and provide housing. That is the role of central Government, Len Brown wants to spend over $1 billion of ratepayers money on housing – money that could either lower rates, or be far better spent on public transport, roads, parks etc.

Not everyone thank God wants to spend $1 billion on housing. No I dodn’t mean John Banks, but the two communist (Annalucia is standing for the Communist League, and Penny – well if it sounds like a duck, walks like a duck ….) candidates:

The candidate survey found some unexpected bedfellows. Far-left mayoral candidates Penny Bright and Annalucia Vermunt both urged expansion of social housing – but by the state, not the new council.

And Penny and Alllucia are right. This is the role of central Government – through Housing NZ. What next from Len – have the Council start its own welfare department?

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Herald on Housing

August 11th, 2010 at 2:00 pm by David Farrar

The Herald editorial:

The membership of a taskforce will always play a central role in determining the credibility of its recommendations. If a group is stacked with people of a particular bias, its findings will probably be of limited value. When, however, Diane Robertson of the Auckland City Mission and Major Campbell Roberts of the Salvation Army were appointed members of the Housing Shareholders Advisory Group, it could safely be assumed that the whole range of options for improving social housing would be canvassed.

Duly, the group has delivered a report rooted in practicality. …

Some on the left have already started to condemn the two named above for the crime of being practical, and wanting solutions that work and are affordable.

Commendably, the advisory group looks critically at what has become the “house for life” expectation of many Housing NZ tenants. A state house has come to be regarded as a right, not a privilege. Some 22,000 tenants, or a third of the Housing NZ portfolio, have been in the same state house for at least a decade. In that time, many would have had children leave home or other changes in their circumstances. This means the Housing NZ stock is under-used. Many of these tenants could quite easily move to private housing, freeing up their houses for those in greater need.

If one has state house rentals greatly lower than non state house rentals, then it is essential that limited stock of state houses be directed towards those most in need. And that will not always be the current occupants.

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GST on Housing

August 27th, 2009 at 9:23 am by David Farrar

Brian Fallow writes:

Here’s a suggestion for the tax working group set up to figure out how to put the tax system on a more durable and efficient footing to consider: scrap the provision exempting mortgage payments and rents from GST.

A brave suggestion.

But remember, any recommendations the working group comes up with are expected to be revenue-neutral, taken as a whole. And the broader the tax base the lower rates can be.

The question I then have is how much extra GST revenue would ending the housing exemption bring in, which would indicate howmuch tax rates in other areas could decrease.

More than 40 per cent of the income tax – much the biggest single source of Government revenue – comes from the top 10 per cent of taxpayers ranked by income, which is dangerous when labour is as mobile as it is and the income gap with Australia and most other developed countries is as large as it is.

It sure is. The top 9% pay 42% of income tax and the top 14% pay 53%.

What is so special about expenditure on housing that warrants exemption from a consumption tax? Other necessities like food, clothing and electricity attract GST.

A fair point.

According to Statistics New Zealand’s household economic survey the average household expends just over $10,000 a year on rents or mortgage payments (including principal).

With nearly 1.6 million households, at the current GST rate and ignoring any second round effects, that would yield about $2 billion a year. That is also about what an increase in the GST rate to 15 per cent would yield and is reportedly enough to fund, for example, a cut in the top income tax rate to 30c in the dollar – an avowed goal of the Government.

Oh I love it when a journalist actually does research and provides the info you need.

It would cost around $800 million to drop the 38c rate to 30c and around $280 million to drop the 33c rate to 30c so GST on housing would easily allow that it seems.

But that is not all. Applying GST to mortgage payments deals with one of the biggest distortions in the current tax system, the problem of “imputed rentals”. Avoiding the need to pay rent is a large part of the return on investing in the roof over your head. An untaxed capital gain is the rest.

My incentive was to stop paying rent. Any capital gain is a bonus.

Compared with a land tax or the McLeod review’s wealth tax, attacking housing through the GST system has the advantage of not relying on what someone from Quotable Value – however professional and incorruptible – estimates a property is worth. How much you pay a bank or landlord is cut-and-dried, not a matter of opinion.

I wonder why Fallow advocates GST on a mortgage only, and why not GST on the sale of a house? Maybe because most sellers are individuals and not GST registered?

The brutal reality is that if politicians set their face against a shift in the tax mix from direct to indirect taxation because they think the short-term distributional effects are too hard to deal with, then they are bequeathing to their successors a tax system that resembles an iceberg drifting slowly northwards. It will just not deliver the revenue required to provide the services people have come to expect from the state.

This is the killer paragraph and one the Government should remember.

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Great viewing

June 29th, 2009 at 5:48 am by David Farrar

As people will know Labour has attacked National’s decision to let state house tenants buy the homes they live in. Well some clever sod at National found a report from 19986 when the then Labour Minister of Housing proudly announced exactly the same policy, and raved on about how wonderful it will be.

Who was the Minister of Housing then? Our own Phil Goff. So enjoy the video of Phil Heatley having fun with Goff in the House.

It does reinforce the point I made last week about Goff being an enigma. I’d like to know what he really thinks about allowing state house tenants to buy their own homes. Does he really think what he announced in 1986 was a mistake?

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