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31-08-2007

State prop-up for housing market counterproductive in long run

The Salvation Army represents low-income New Zealanders and obviously has their interests at heart with its suggestion that the Government increase its spending on housing for low-income earners and beneficiaries.

The suggestion is another $500 million to $1 billion every year.

It can easily be argued that an individual will be better off in their old age if they have their own debt-free home. However, the Government is already committing large amounts of money to this sector of the population and introducing initiatives such as the KiwiSaver home deposit scheme.

It is tempting to want to do something to help low-income people when property prices have increased to the extent they have over the past few years, but property prices go through cycles and we are probably near the peak right now.

If the Government injects this volume of taxpayers' money into the housing market it will simply propel house prices further.

Existing property owners will benefit and future home owners will be no better off. This has been demonstrated in Australia following their first-home owners subsidy.

You cannot simply say we need more affordable houses and then create them through state subsidies. This is not a sustainable long-term strategy as the subsidies would need to continue.

Sustainable affordable housing can be created only by increasing incomes or reducing the cost of building houses - such as reducing council fees, building smaller houses with fewer features, or having smaller sections.

It would be extremely unfair to provide some people with Government support while most were having to make their own way.

The report suggesting the changes says more people renting is a sign that there is a problem. However, renting is considerably cheaper than owning your own home, carries fewer risks of events such as interest rate fluctuations and provides more accommodation flexibility.

Many people are making a logical move to renting rather than owning their own home. At a time when renting is so much cheaper than owning, this gives those tenants who want to own their own home in the future an opportunity to save a deposit.

KiwiSaver will help this. It is unfortunate that the present stage of the property cycle means not everyone who would like to own their own home is in a position to afford to do so, but we have been in this situation many times before and over the next few years property prices are likely to remain level while incomes increase and interest rates fall.

Unfortunately this means that some aspiring home owners may have to put their purchase off for a few more years.

The report's claim that rental property has a tax advantage is incorrect. This type of misinformation was clearly answered by Inland Revenue in response to a select committee question into home affordability. It is disingenuous to continue claiming this as a reason for either further taxing rental property providers or providing subsidies for home owners.

The report also claims that increases in the accommodation supplement demonstrates that rental property providers are somehow profiting from Government money. There are many reasons why the accommodation supplement has risen.

Reintroducing income-related rents for state house tenants reduced the cost of housing for those lucky enough to have a state house. This has led to a reduction in the number of occupants of state houses as incumbents do not need the extra income from lodgers to help pay the rent. This led to an increase in demand for private rental accommodation.

The cost of supplying rental properties has increased with increases in property prices. It is logical for rents to increase if the price of property increases.

But rental prices have nowhere near kept pace with house-price growth. The cost of running rental properties has increased. Rates, mortgage interest, insurance and maintenance costs have all increased greatly over the past few years.

The Government needs to be strong on this issue and not be tempted into making a long-term decision for a short-term situation.

* Andrew King is vice-president of the Property Investors' Federation, the national landlord lobby group.

Source: NZ Herald

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