Tuesday, August 26, 2014

The realists speak

The price of land may limit the benefits of the National Party's new promise to first-home buyers, the Registered Master Builders Association says.

This is not surprising.

National’s housing policy doesn’t address the problem, it simply provides a band-aid solution.  And a shallow one, that is likely to seep and bleed for years.  It saddens me to say that but in reality it displays a willingness to accept failure in the housing market.  As the eminent professor says in the article:
However, Auckland University professor of property Laurence Murphy said although the National policy of providing a higher KiwiSaver grant to a couple buying a new build may support a group of people today, there was no guarantee the next generation would benefit.

He said it did not necessarily address the wider issues of housing affordability.

Kiwisaver was set up to make sure we could save for when we needed the money in our later years. It also helps the country's current account balances. So-called "affordable housing" can mostly only be achieved where supply exceeds demand, and where the cost of housing comes down. We should help these two things by making more land available and cutting compliance costs. That’s exactly what RMB is saying, and unashamedly, is exactly what Act is saying also.  But because Act is not offering bribes, it gets little cut-through.

There is a good reason why land inside Auckland's urban boundary is 8 times more expensive than land outside it.  Politicians then get annoyed at this and criticise landbankers. But landbankers are incentivised to do so by governments that refuse to release land for development. Realizing all of this is too hard to solve, or burying their collective heads in the sand, politicians then decide that taxpayers should pay for someone who wants to buy their first home.

The cost of $218 million is likely to end up like the Green Party's budget costs - grossly underestimated and wrong. That's because once you make something "free", demand for it increases. That'll mean more people are likely to take up the offer, meaning we are all going to pay more. Eventually the chickens come home to roost on "free money" and that's when you run out of it like Margaret Thatcher famously said.

Then comes the problem of savings being directed into housing, which many commentators and politicians over the years have said is wrong to do. Capital should at the very least be directed towards more productive areas, so the politicians tell us. But when it comes near to an election, all is forgotten.

The final problem with this is one that is sad but inevitable. In my job I see many young couples starting a future together, yet the statistics tell us most won't end their lives still together. When they split up the relationship money is divided up. Their Kiwisaver money and taxpayers contributions are divided up and paid out. The money never ends up back in Kiwisaver where it came from. Instead it is used on life's wants, rather than its needs. 

That's their savings, and our tax money pretty much flushed down the drain.

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