With the New Zealand National Government’s single-minded focus on solving Auckland’s housing crisis by boosting supply failing dismally, and it facing possible election defeat as the nation hits the polls on 23 September, Prime Minister Bill English has promised to boost first home buyer (FHB) subsidies and resorted to spin about the Government’s record on housing supply. From Interest.co.nz:
[National’s] Amy Adams and Nick Smith were wheeled out to announce a boost to the government’s HomeStart deposit subsidy. Also announced is that banks will be allowed to approve 10% government guaranteed Welcome Home Loans on the spot to first home buyers on low incomes, without having to jump through the current checks and balances.
Bill English on Monday morning defended the need to boost the subsidy…
“And the drive in Auckland, as in the rest of the country, is getting more houses on the ground, faster.” This was well under way, English said.
“Prices are flat-to-falling, so that indicates there’s progress. But we do need four or five years of the kind of building boom we have now, where across the country there’s around about 30,000 houses a year going to be built.”
Asked whether that meant there weren’t enough houses to meet current demand, English replied: “Well, there’s people who want to get into houses at the moment who can’t get in. As of today, a number of the first home buyers will be pricking up their ears, because there’s now – we reckon about 80,000 more will be able to get into the market, where in the last two-or-three years 30,000 have already used the HomeStart scheme.
“It’s also going to be clearer to them what they can get. Because the Welcome Home Loan, which is a guarantee for those who have a 10% deposit instead of a 20% deposit – government backed guarantee – they have to go through a separate process with [Housing NZ], and we want to bundle that together so when they go to the bank, they can see that they can get the HomeStart grant – $20-30,000 if they’re a couple; $10-15,000 if they’re on their own – and get the Welcome Home Loan if it’s a 10% deposit,” he said…
He disagreed that the move would fuel house price rises, saying government would ensure this didn’t happen “by continuing to pursue all the projects with Councils that are getting more houses built faster.”
Economics 101 tells you that you don’t solve a housing affordability problem by further pumping demand via FHB subsidies.
English’s comments about succeeding in boosting supply also don’t hold much water given the circa 30,000 consents issued across New Zealand (circa 10,000 in Auckland) is running well below the nation’s immigration-fueled population growth of roughly 100,000 people (44,500 in Auckland):
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The situation is probably even worse than suggested above, with CoreLogic in August estimating that “while Auckland consents increased by almost 10,000 in the past year, the housing stock increased by less than 6000 dwellings”. Moreover, “less than half the number of new homes that Auckland needed last year were actually built”, and “the housing gap is bigger than is being talked about”.
Sadly for FHBs, the housing shortfall continues to worsen, and will likely continue to do so under current settings.
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Recent population projections from Statistics New Zealand estimated that Auckland’s population will rise between 56% (medium growth scenario) and 75% (high growth scenario) between 2013 and 2043:
Driven by mass immigration:
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Auckland will continue to be New Zealand’s fastest growing region. Among regions, Auckland is projected to receive over half New Zealand’s net migration, and account for over half the country’s growth in the period to 2043…
With at least 14,000 new homes needing to be built (not consented) in the city each year – more than double the current build rate – it is obvious that the housing situation in Auckland will continue to worsen as dwelling supply falls well short of rapid immigration-fueled population growth.
New Zealand needs genuine action on both the demand and supply-sides. And only Labour seems to have comprehensive policies (see here and here).
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
