September 05, 2019
Sam Green

Solving the housing crisis

The KiwiBuild reset was announced this week as a solution to the housing crisis, meanwhile, the Reserve Bank is battling to keep house prices up.

Housing has been a topical issue for years; we’ve had a constant stream of commentary with the housing market at its core. Fears of capital gains tax, possible bubbles and subsequent property price corrections, first-home buyers unable to get on the ladder, the exodus from Auckland, and the rise, fall and reset of KiwiBuild. Changes made in the KiwiBuild reset, announced on Wednesday, include halving the required deposit for KiwiBuild homes to five percent while also allowing families and friends to pool their $10,000 home-start grants.

The KiwiBuild programme is one of many ideas to solve the “housing crisis”, a term that has been thrown around frequently. Depending on who you ask the definition of a housing crisis may look very different. Until we see some clear definition of the problem that we need to solve, designing effective policy will be challenging.

Depending on who you ask the definition of a housing crisis may look very different

For a growing number of households, particularly those with a single income, owning a home in or near a major city is almost impossible.  So surely, the solution for the crisis would be to reduce house prices. Problem solved!

That starts the second crisis. We all know New Zealanders are not adverse to big mortgages, and some collect as many as possible to grow their housing portfolio. The latest Monetary Policy Statement from the Reserve Bank notes that softening in the housing market may reduce household spending. As reduced household spending can drive an economic slowdown, they believe they must lower interest rates to keep home owners spending.

For an increase in supply to flow through to make homes more affordable, we would effectively need to create substantially more homes, though that would start a crisis for home owners and potentially prompt an additional policy response from the Reserve Bank.  

The public is demanding something along the lines of: don’t let house prices fall, ensure healthy tax-free capital gains, and make houses cheaper for low income families. We are going to need some creative/impossible policies to achieve all of these demands.

We are going to need some creative/impossible policies to achieve all of these demands

The current KiwiBuild reset policy attempts to tackle this issue by lowering the deposit required (making it ‘easier’ to buy a house), while increasing the amount of credit in the market (ensuring capital gains), while building more houses. It ticks all the boxes for now, but lower deposits mean bigger mortgages, and with the cloud of political uncertainty brewing, clearing out savings and KiwiSaver schemes to pull together the $25,000 deposit needed to buy a $500,000 house may not be as good an idea as it sounds. 

The KiwiBuild reset has also announced some new schemes for home ownership for lower income families. Details are still vague but $400m has been allocated for a progressive home ownership scheme that could include rent-to-buy and shared equity plans for between 2,500 and 4,000 families.