New Zealand pumps first home buyers

ScreenHunter_3918 Aug. 25 10.06

By Leith van Onselen

You can tell it’s an election year in New Zealand with the incumbent National Government announcing over the weekend that it would double first home buyer (FHB) subsidies. From Interest.co.nz:

Prime Minister John Key launched National’s campaign on Sunday with a plan to double first home buyer subsidies at a extra cost of NZ$218 million over four years…

“The policy will help tens of thousands more first home buyers achieve their dream of home ownership”…

“First home buyers have always found it hard, and often that first step is quite a stretch. That is why I believe the changes will be welcomed by potential first home buyers,” [Key] said.

It’s important to point out that these changes are not likely to be as damaging as the FHB subsidies issued in Australia until recently, since they will only apply to “newly built” homes rather than pre-existing dwellings (see here for a summary of the changes under the scheme and here for the Q&A).

Nevertheless, there is the risk that the increased subsidies will increase the price of new homes and thus work to fatten developer profits, rather than necessarily making new housing more affordable. Such concerns are probably most warranted in Auckland, where planning rules are particularly tight and supply is less adept at responding to increases in demand.

Personally, I would have preferred to instead see the New Zealand Government redouble its efforts to free-up land supply and planning, as well as modify tax laws to ‘quarantine negative gearing’, so that rental losses cannot be claimed against unrelated wage and salary income, as well as implement a capital gains tax on investment homes. A broad-based land tax also wouldn’t go astray, in exchange for a reduction in less efficient taxes (such as on incomes).

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Comments

  1. reusachtigeMEMBER

    LOL, love the housos image! They aint buying!

    This will be great for property investors in New Zealand. Do Buy Now!

  2. This policy will infuriate Graeme Wheeler at the RBNZ (and probably Gabriel Makhlouf at Treasury!) Wheeler is doing what he sees as his best for the economy in the absence of real political spine, and that politicians go against that will make for an interesting cash rate decision first up after the election. If a December rise was in doubt at all, I doubt it is now! “Go Graeme”! Give National a 50+ basis pointer, IF they get back in, that is…….

    • Once again the govt tries to skip around dismantling the inelastic supply side and the demand side ponzi. They just don’t have the balls to to make the hard decision. But I guess the vote-ometer is all that counts.

      • They all own investment properties right? The politicians love socialism for RE no matter which end of the so called “political spectrum” they come from.

    • Agreed, go Graeme! If he was on the fence about what to do next this policy must surely tip him in the right direction.

    • “Wheeler should be angry”.

      And this is why many despair that housing related policy in this country will ever change for the better – when that rare person comes along who has both the will and the means to do something for the greater good, you can guarantee that one or more self-serving greedy types will come along and do what is good for themselves.

      Self-interest trumps altruism in politics and policy almost every time.

  3. And so the full extent of the “grand plan” is revealed… kill off FHBs from the established market using macroprudential tools and then herd them all into the riskiest end of the market, overpriced newly built homes. Let the financial newbs take the hit if the bubble ever pops…

    • When the young asked the baby boomers for a seat at the table of wealth creation they didn’t realise they were the main course.

  4. Well well well. I’m shocked. Not. With the NZ dollar heading south I’m just going to crack up laughing when the RBNZ is forced to drop interest rates. It will be comedy gold.

    • The government is basically playing “chicken” with the RBNZ now. No, actually it is worse than that – they are setting up a Mexican stand-off with FHB’s and indeed the whole macro-economy as the hostages.

      The people demanding the ransom, are of course the RE and finance sector rentiers.