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Home buyer subsidy discredited in Oz

Treasury advised against National’s policy of ramping up home buyer subsidies after it was discredited in Australia because it pushed house prices even higher, Labour’s Housing spokesperson Phil Twyford says.

“Documents released under the OIA (attached) show Treasury advised the Government that ‘Experience with homeownership grants in Australia suggests that such programmes tend to push prices up in a supply constrained environment by supporting greater demand, rather than improving affordability. There is a risk that by significantly expanding eligibility for the KiwiSaver Deposit Subsidy and Welcome Home Loan schemes, the Government will end up undermining affordability for first-home buyers’.

“A 2012 Australian Federal Government report found that subsidies for first home buyers in the face of constrained supply of houses had the effect of increasing prices. Because of that, plus the risk that first home buyers would be too heavily mortgaged and at risk of defaulting if interest rates went up, it recommended the grant scheme be changed or phased out altogether. As a result the grant schemes were scaled back.

“The report said the grant scheme ‘may not be the most cost-effective way of improving housing supply and affordability in the longer term.’

“It is Economics 101. You are mad if you stimulate demand in an already overheated market where supply is not keeping up with demand. As the Australian experience shows and as Treasury knows, the Government is trying to put out a fire with petrol.

“National is trying to argue a larger subsidy for new builds will stimulate construction of new homes. But Auckland house prices rose $75,000 in the last year. An extra $10,000 subsidy is not going to make up for even a month of Auckland house price growth. In contrast Labour’s KiwiBuild will be delivering homes over $200,000 below the median house price in Auckland.

A report on homeowner subsidy schemes by the independent Australian think tank, The Grattan Institute said: ‘Because supply has been constrained, first home buyer assistance has not only failed to increase ownership levels but may have pushed up prices, benefitting sellers and making it harder for many households to own their first home.”

“Instead of building large numbers of new affordable houses as Labour will do through KiwiBuild, and taxing speculators as Labour will do through its capital gains tax that excludes the family home, National has thrown $218 million on the bonfire of the Auckland housing market.

“It is not only a waste of taxpayers’ money, but as the Australian experience shows, it will actually make things worse. Cash hand outs to first home buyers will push house prices up, enriching vendors, and actually make things harder for first home buyers. After six years in office, this poorly thought through and ineffective response to the housing crisis is pathetic.”