There are two main ways people can meet their accommodation needs: renting and owner occupancy. Both involve making annual payments for housing services either in rental payments, interest payments on a mortgage, or to the extent that an owner occupier has paid of his or her mortgage, in the opportunity cost of forgone interest from having money tied up in the ownership of a house. A lot of people, myself included, prefer to own their own home rather than renting. For others, renting is the preferred method of meeting accommodation, and a third group would prefer to own but rent due to not being able to secure a large enough loan.
Now I can understand a desire to help those in the that third group, particularly since they are likely to be disproportionately drawn from the poorer members of society, but if the mechanism for doing so is to make buying a house cheaper while simultaneously making renting more expensive, the mechanism will actually be hurting the most vulnerable members of the group it is seeking to assist--those sufficiently liquidity constrained that even with the assistance house purchase will still be out of reach.
And yet, the three main political parties' policies on housing seek to penalise this group of renters. The reason for this is that rental accommodation and owner-occupied accommodation are pretty close substitutes on both the demand and supply side of the market, and so their prices are very closely linked. Any policy that either makes it easier to purchase a house for owner occupancy or more costly to own a house that is rented out, while not doing anything to increase the total stock of housing, must make renting more expensive.
So, for example, a policy (Labour-Greens) to level a capital gains tax on residences but exempt residents' first homes, will make it more expensive to be a landlord in a market where house prices are expected to increase in the future requiring a higher rental rate to compensate. A policy (Labour) to prevent foreign non-residents from owning domestic residences to be rented out will have the same effect. And a policy (National) to give tax breaks to first-time house buyers will similarly favour owner-occupiers at the expense of renters, operating here through the demand side.
I would love to see each of the leaders questioned in the televised debates on why they think the effect of their proposed policies on renters would be an acceptable cost.
No that i disagree with you neccessarily, but considering the small(ish) maximum change in Nationals policy, will it make much more than a marginal difference?
ReplyDeleteat most, with Nationals changes, you can get 5K more of your kiwisaver out ($21 per year x 5 years x 2 people) and 10K more subsidy ($1000 per year x 5 years x 2 people). so thats 15K more deposit, but only if the house is brand new.
in my 11 years of mortgage finance, i can tell you than low deposit builds are both very rare and a pain in the butt. banks hate em, builders want more money early on than the buyer has, and there is no buffer for progress payments.
So realistically for the majority of people, its a max 5K benefit, and again in my experience, very few people have been in KiwiSaver for 5 years when they buy (this may change of course with this extra funds).
also, in my experience, the kiwisaver subsidy is usually used to just get to the minimum 10K deposit, 6 months earlier than savings would have allowed, or just makes the same loan smaller.
so other than bringing up some purchases i am not sure how much pressure this is putting on property as buyers using kiwisaver are still fairly uncommon in terms of the number of buyers.
i do have some people who can only buy because of KiwiSaver, but that is more to do with the 3-5 years of enforced savings, than the subsidy (which many of my clients are not eligible for, the income threshold being relatively low compared to the maximum price).
Alan.
So true.
ReplyDelete"Any policy that either makes it easier to purchase a house for owner
ReplyDeleteoccupancy or more costly to own a house that is rented out, while not
doing anything to increase the total stock of housing, must make renting
more expensive."
Not very nice to say all parties hate renters and then discuss only the policies that, in isolation, seem to support your view, while ignoring those policies that do the opposite. For instance, Green Party policy also explicitly states that thousands of additional state houses would be built, along with other measures to make renting more affordable, not to mention healthy. And you're wrong too if you think controlling the housing bubble isn't needed at the same time. Need to look at the whole picture.
Do note that some of the Greens' policies on rental home standards will come at a cost of higher rents.
ReplyDeleteParties, especially on the left according to my world view, are about saying they are helping people while actually not. It is the public's perception of the policy which matters, rather than is actual impact.
ReplyDeleteThere is a certain value in promoting home ownership, just look at the cost of debt for secured versus unsecured borrowing. This of itself is likely to be beneficial to lower income groups once they secure sufficient equity. The societal value of people owning homes I think is also important and may lead to better outcomes.
ReplyDeleteHowever a fundamental issue with affordability is income and of course cost. I would rather a party focus on how its policies will make us all richer, whilst increasing competition for all goods, including house building, than focusing on how they are either going to distort prices via taxes or redistribute income.
Same goes for the discussions on higher income taxes. We should be trying to work out how we get as many people into the highest tax brackets rather than working out how much we can fleece them before they start hiding their hard earned income.
I don't disagree at all with you, Alan. Policies that are small don't do much to help homeowners, and so don't have a large corresponding effect on renters. I think all of the policies I looked at are probably trivial in their effects on both groups and are more about rhetoric than serious policy, so my complaint is more about the asymmetric rhetoric in not noting that the policies are means of transferring from one group to another whether the transfer be small or large.
ReplyDelete@Ken. Sure a party can have other policies that might bring down the cost of housing in general. But then adding one of these policies is a transfer from renters to owner-occupiers on top of that. I could accept this as not disingenuous if, to take your example, the Greens were to say "We want a CGT for other reasons, and while it might have detrimental effects on renters, we have other policies to bring down the cost of housing". But this won't fly if the party promotes its detrimental-to-renters policy as one that is designed to lower the cost of housing.
ReplyDeleteAlso, on the Green's proposal to build extra state houses; have they stated where they will obtain the land on which to build them? If it is through forcing councils to rezone or to allow higher density housing, then fair enough (but why do they then need to build the houses themselves). If it is not through that, won't they just be competing in the market for a fixed stock of housing land, inducing more land-value inflation?
That is something that struck me, the maximum house prices under the scheme seem very very high for the maximum eligible incomes.
ReplyDeleteAnd from a British viewpoint...
ReplyDeleteThe nightmare of renting started in Westminster