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Key: Treasury & RBNZ support housing package

The National Party is adamant the housing package announced at its campaign launch today will not merely push prices up further. 
The package is the centre piece of the launch by Prime Minister John Key, right slap bang in Labour heartland of Manukau this afternoon. 
It will cost the government $218 million over five years - or a little more than $43 million a year. However the scheme is not capped and the government will spend more if the demand is there, Housing Minister Nick Smith told a press conference just after the announcement. 
The package replaces the existing KiwiSaver first home deposit subsidy, with a KiwiSaver a "home start grant" with higher price limits on the houses people can buy, and it also doubles the support for those people using the scheme.  People will also be allowed to withdraw more money from KiwiSaver as a deposit - they will, in effect, be able to take out all the government contribution, minus the $1000 kick start. The maximum government contribution to KiwiSaver is $521 a year.
The final part is extending the existing Welcome Home Loan scheme, to bring it in line with the new package announced today. 
Mr Key outlined this with an example of a couple who, having been in KiwiSaver for five years, and earning $40,000 a year each, couple withdraw up to $29,000  from their KiwiSaver accounts, and add that to either a $10,000 or $20,000 HomeStart Grant, depending on whether they’re buying an existing or a new home.
"In total, that means a deposit after five years of almost $40,000 – or almost $50,000 if they are buying new," he told the gathering of National Party faithful.
This will not, though, push up demand for houses and therefor house prices, he says.
"We certainly made sure the Treasury and the Reserve Bank were comfortable with what we were doing. I can't speak for the Reserve Bank, but I think I can paraphrase them by saying that given we are adding to the supply of housing they are comfortable with what we are doing."
People who are buying a new house will be eligible for a Home Start grant of $10,000, or $20,000 if they are a couple.  The goal is also to encourage developers in special housing areas to build new houses in the $450,000, $500,000, $520,000 range in places like Auckland," Mr Key told the same press conference."

More by Rob Hosking

Comments and questions

Two problems here

$43M a year only funds 2150 new homes per annum at $20,000 each grant

Secondly whilst it appears to help those in need it will only inflate house prices and the only winner there will be the seller of the house not the buyer

Not overly clever or well thought out

The $43 million a year is only an estimate based of how many people will take up the offer. If more take it up, then it will cost more. Additionally, not everyone will take up the full $20,000, e.g. Those buying an existing house.

It won't inflate house prices, because it favors increasing the supply of houses. This should put some downwards pressure of price inflation.

How does that work? You give a buyer a subsidy, it increases demand, not supply. If you want to increase supply, you give a subsidy to the producer linked to supply creation or better yet you remove structural impediments to a supply increase.
Has anyone in Wellington actually studied economics? In fact can they even read? You can see crystal clear today the impact that increasing SUPPLY is having on milk prices this year in the face of LESS demand from China - prices have fallen by over 40%; housing is no different.
All parties have agreed that there is an issue with lack of housing supply relative to demand in NZ, in particular Auckland and Christchurch. So how does adding to demand fix this?
And don't argue that the demand stimulates more supply from housebuilders. There is already excess demand so if the supply could respond to the price signal, it already would have.
The laws of economics appear to have been suspended for this policy, which is surprising given the party proposing it.
Also, why on earth would anyone put in place a policy that encourages people to put all of their retirement eggs in one basket (a highly levered one at that)? Has no-one heard of the concept of diversification, especially those that used to work in finance? Kiwisaver shouldn't be used to pump up house prices further.

Well said !. I am sure National policy makers are well aware of the inflationary impact this policy has, it is just a cynical election bribe!

"I can't speak for the Reserve Bank, but I think I can paraphrase them" Another paraphrase from John Key ... I wonder what was actually said? I rather imagine that the actual advice was something along the lines of "there will be risks of house price inflation, but should there be an increase to the housing stock this may be ameliorated."

So of course the real question is how many will be new builds, and how many will be existing purchases. Surely we can see the Treasury modelling on that question? Or perhaps the head of the Reserve Bank can speak for itself?

So you are comfortable with the Greens,Labour,Mana,Internet and Winston running the country ?

Gordon, seeing as you ask. Yes, I am more comfortable with that, than with having having Key, Collins, Ede, Slater, Lusk and Whyte running the country.

Remember, the PM has not resiled one jota from the dirty politics that have been proven to have taken place. He uses the shameful defence that 'everybody does it.' He refuses to apologise. He refuses to accept any wrongdoing. He refuses to hold anybody to account. He says black is white and white is black. He believes people are conspiring against him, just because they are asking questions about immoral and possibly illegal behaviour in his office. Questions which he refuses to address.

What do you think will happen next, if all this is emboldened by another mandate?

I voted National last election. I don't think I can again with so many unanswered questions. I don't believe this policy or anything else from the National Government with a Justice Minister who has apologised for lying over Oravida, and a PM in all likelihood about to be questioned by the Solicitor General under oath having given contradictory statements to the media about using the SIS illegally for political gain.

So I presume you believe Labour's promise to build 10,000 houses (including land) a year in Auckland at $300,000 each (as well as the Easter Bunny and Santa Claus)?

The only answer to the housing crisis is for NIck Smith to stop denying
that there is a housing problem.
The only way to fix the problem is to control immigration and select only people with skills the country needs.
We have people flooding into this country from every corner of the world to drive taxis, sell houses etc.
Only Winston is mentioning this.
After voting National last time, I will be voting NZ First this time.

It was interesting to hear that Labour were going to provide these houses partially via Asset Sales - i.e. selling off Crown land cheaply. - This is one of the ways they were going to increase land supply.

Too silly for words. This is the sort of nonsense I'd expect from Labour. their only redeeming feature is they won't have Internet/Mana as a coalition partner so I'll still vote for them - reluctantly.

The real question is how will people service a $500,000 mortgage, Especially since 'affordable' new houses will largely be waaaay out in the suburbs, with steep transport costs, resulting from our genius govts neglect of public transport.
Well thought. Right.....

Where is the evidence of the Reserve Bank "support" ?

This is supposed to help 90,000 first home-buyers over 5 years at a cost to taxpayers of $218 million.

That works out to a supposed taxpayer cost per first home-buyer of $2,422 each.

Really ?

After 6 years of doing nothing, the National party suddenly has some ideas about solving the housing problem they created.
One would think there was an election around the corner.

Are New Zealand voters gullible or just stupid?

This is just a blatant election bribe, the National Government has no intention of making housing more affordable as this goes against their policies of self interest.

Yeah the RBNZ will be all over this like a rash.

I own residential property and they've all just gone up in value by $20k.

Thanks National. Still won't get my vote though.

Lolly scramble politics?

I thought Bill English said this would never happen under National.

Anon 7 think back a bit further, House prices doubled under Helen and electricity went up 70%, try a bit of balance or are you leaning left on a steep hillside.

Know how to support your mates? Provide a subsidy for buyers. In the short term, this will increase prices until the government can't afford the subsidy. Then the prices reduce by the level of the subsidy, just like they did in the early 1990's.

The winners of this policy will be the speculators and the overseas banks, who enjoy the benefit of a temporary increase in equity for naive borrowers to take on more debt.