This lot are fools ! In the same way that Labour attempted to act as the ambulance at the bottom of the cliff . Instead of getting to the heart of the problem , offer band-aids as a solution . Bloody hell !

i CAN NOT BELIEVE they are dong this. Port the f'ing market to milk some more votes. I will seriously cry if they go ahead with this. LET THE MARKET FIND ITS OWN EQUILIBRIUM U IDIOTS.

Good idea this, stimulate demand for housing.

That will solve the problem.

Another scheme that "seemed like a good idea at the time" but the unintended consequences are fairly predictable i.e. increased prices and reduced affordability.
The Aussie first home grant has raised prices across the board with the result that housing is less affordable than if the subsidy never existed in the first place, not only that but this is being done with money borrowed by the crown (i.e.the rest of us) to basically subsidize current vendors.
Dumb idea.

I think it's an overkill idea. Banks are already happy to lend, as long as the Loan to Value Ratio is OK - which for them is less than 80%.

Besides, a ten year fixed loan? Who stays in their first home for 10 years? It makes more sense, and has less risk for everyone, for the government to lend up to 12.5% toward a 20% deposit.

It feels like everyone wins.
* The bank has a more financially sound loan, and can avoid charging customers low-deposit interest penalties
* First home buyers get greater access to the housing market, but still have to save their way to a 7.5% deposit "“ probably enough of a buffer to make sure that if they do lose the house, they won't be left with a residual debt and nothing to show for it.
* The government encourages home ownership without locking up so much of its capital in the housing market "“ especially while we're all saying capital should be freed up for more productive purposes.

The only concern would be two sets of repayments "“ but at the current low interest rates, the issue for first home buyers isn't so much the repayment levels as the difficulty getting anywhere close to 20% deposit.

Good grief this is the lamest idea ever. Want to help first home buyers then just bring down the cost of houses via a land tax, freeing up more land etc. etc. etc. Honestly, anyone who thinks this is a good idea needs to enroll in 5th form mathematics and economics.

Maybe its an attempt to keep kiwis from fleeing over the tasman. Im not saying I agree with it.

Mark Hubbard re "we are about to have a tax package foisted on us attacking property ownership"

What makes you think that is going to happen - Key has said no to all of it.

Matthew,

agree. I am in Aus, and have witnessed a 50% fall in the sharemarket. i wnder if this would have happened had the govt given everyone 21,000 to buy shares. Why is ppty so important.

What concerns me most is the concept that a first home should take 10 YEARS to pay only 20% off!?!?! By that logic it will take half someone's life to pay off a poorly insulated, badly constructed, leaky home.

A far better option if this was implemented would be to completely dissallow mortgages on second homes. Nobody "needs" more than one home, so if they "want" a second one they should be able to pay for it with cash, and along those lines houses should be restricted to nz residents at a minimum.

The simple reality is that the vast majority of people own second homes to gouge their tenants and make a profit through rent or capital gains. Housing provides warmth which is one of the most basic human needs and it is ludicrous that people should be able to profit providing this when the reality is that people will die if they do not have warmth.

F**k me, even I (the left leaning Green voter) thinks this is an unbelievably stupid idea.

I dispair at the quality of those in charge of this place.

bloody dimwitted socialists!!!!
Well meaning, but have no idea of the fundamentals of economies nor the housing market
I see some academics are also talking up the idea of "compulsory acquisition" of land for residential devleopment. That would mean an urban development authority might want to do a high density housing scheme, and that they could have the legal right to compulsorily acquire a number of surrounding properties to make the developments "work better"
This is done in the UK. From what I can gather, our policy makers are unduly influenced by what is done with housing policy in the UK, even though our society and housing market is so different. I can't tell you how many whinging poms in the architecture and planning fields have complained to me over the last few years as to how the English model is so much better etc etc
And dim-witted heatley shows again how useless he is as a housing minister

can someone tell me why I can't seem to edit my comments and correct typos?

Manager - its not a smart idea. Its treating the symptoms rather than the cause, and worsens the underlying cause

Matt in Auck,

What is your internet connection like? Ajax comments doesn't look too kindly on those with weak connections (I think Stephen Joyce is trying to do something about this, but it may take a while).

Cheers

Alex

Let kiwi's just build to improve supply - no council clipping the ticket. If they build rubbish houses then no major diff to the leaky homes constructed by "professionals".

Let the market decide if it is worth purchasing a council consent/inspection product which *should* improve the resale value (market rather than monopoly).

This was how my grandfather extended a small 2 bedroom cottage to a family home in the old days - you just did it. Now it takes a year to get consent + 20K to the council for various random charges before you hammer the first nail.

Also how about you being able to borrow directly from the govt

It's keeping the young happy so the oldies can hang on to their vast assests. It's what I'd do. This isn't socialism, it's smart capitalism - feed the pigeons

@ Matt in Auck and Alex tarrant

@Alex T - I'm on 100Mb/s and it doesn't work for me either. Maybe a Windows Vista problem?

Shaun - oh yeah we can't forget heatley has a nice number of investment properties ey. Of course he would support something that keeps the bubble going!!!!!

Hey this will be great earner for the government since they propbably will end up charging everyone land tax (IP will be just the start) = tidy little earner for government.

This would be a disaster for everyone else. I thought we were already a country with way too much debt!! And they come up with this! BRAVO you morons!!!

I agree with Bob remove the council red tape and clipping of tickets and let people build more for a lot less.

I just love the way we use the words 'The Government' when talking about who is going to be subsidising home loans for a particular group of people. 'The Government' can consider this, but it's the rest of us who actually have to do the subsidising.

How a National government could possibly be entertaining the thought introducing yet another socialist redistributive policy is beyond me.

Don't they realise what the population wanted last year when we voted out a Labour government and in a National one?

interesting website on small cottages in Seattle:

http://www.cottagecompany.com/For-Sale/backyard-cottages.aspx

Matt - the academics who promote the acquisition of private land for high-density developments should be required to invest their own capital in these developments if they actually eventuate. It's very easy to play property developer with the public purse. If they were made to have some skin in the game I think their research papers would take on a much more 'financial' flavour, rather than a sociological one.

here are some similar links to policies and designs to increase the housing stock in Vancouver. there's plenty of space in AKL in the first few rings of burbs to increase density. This would support transit options and provide some more options for housing (single professionals, seniors, etc). Also, it might mean that there would be a pub within walking distance of my house.

http://www.smallworks.ca/
http://www.vancouver-ecodensity.ca/content.php?id=47

Weren't Fannie Mae and Freddie Mac in the US set up to help provide this sort of rate certainty? That didn't go so well.

Yeah but it's claimed Fannie and Freddie were set up as a political move, whereas this one would be done purely for the good of soci...

...Oh wait, hold on...

I think the problem is purely lack of supply and QUALITY in Auckland. Thousands of shoddy built apartments and houses that nobody wants and a ring fence around Auckland constricting supply but plenty of demand from returning ex-pats and new immigrants.

Seems theres alot of houses for sale in the provincial towns but the prices are over-inflated. I expect the market will take care of that over time however Auckland is different much like Sydney is to the rest of Australia. The answer is to increase supply.

Lower interest rates for first home buyers is daft. I bet Treasury will stop this in its tracks.

Good point, Kate!
How about Mr. Tindall starts sourcing more of the produce for his barns locally; providing manufacturing jobs for our populace, and hence allowing them to purchase a home, if they wish, from the efforts of their work.
But it doesn't make financial sense, does it! So best we get the taxpayer to subsidise his idea.

The good, the bad, and the ugly

The good - Ten year fixed is a great idea. Moving here from the US, I couldn't believe the longest I could lock in a loan was for five years. In the US, I had the choice of 10, 15, 20, or 30 years. Its not that I stayed in a house that long, its that I could depend on the payments not increasing. Half of the trouble in the US housing market are rates resetting and homeowners not being able to afford the increased payments and defaulting. I also partially blame the ARM's for the whole housing bubble in the first place (Weee, look how much more house I can buy if I gamble that rates will never go up!)

The bad - the fact that NZ banks (Oz owned) can get away with only offering such short lock periods. I guess it is due to the tiny NZ market and lack of competition. Could we force Kiwibank to make such an offering???

The ugly - More government mucking with market forces.

History rolls over again....This is what the old State Advances Corp was doing up to the early 70s I think it was..
It was originally, I believe, to enable the big influx of British immigrants..trades people during the 60s, basically land broke, a kick start into NZ life, and an incentive to come here.
From memory it was 2 yrs, and the interest rate depended on income??? varied between 2% and 7% I think it was.
Then there was a duplicate scheme run thru the Maori affairs dept with even cheaper loads.

Bottom line it is a scheme to cater for those...generally the younger generations who spent rather than saved for deposits, against the advise of their parents and grandparents....

Back then NZ was getting industrialised we needed trades people urgently, so there was a justifcation.....this time it is to subsidise those who decided to live it up and now want a hand out.

What do you mean this is not going to happen Bernard?

This is better than your daft ideas.

Remember in the 1960s and 70s housing corp loans for first home buyers at 2.5%? 5-6% isn't really much of a discount from market rates compared to that.

Nothing is going to reduce build costs - it cost what it costs unless you reduce the standard of construction dramatically. At current land prices the underlying land cost for new sections makes up as little as 40% of the price - the remainder is made up of the ever increasing development costs. There is little chance of reducing land prices significantly even if supply of developable land was substantially increased.

Low wages are another whole issue but don't expect this to be the solution either.

Affordability is really an interest rate problem, even though you'd deny it BH.

With interest rates in recent times (90s and 00s) averaging above 8% or so, when US, UK and even Australian rates (to a lesser degree) averaged towards 6% or below and with even our historical rates of the 60s and 70s at 6% or below, it's fairly clear that interest rates are a big factor in the affordability issue.

To build a fairly average new home on a flat site costs say $220,000. To develop a flat section might be $80,000 (depending on which city/district council) so by the time you have a ready to move into house (financing costs, landscaping, soft furnishings, carpets etc incl) you can quite easily be at $340,000 with zero land cost. Given that in cities like Wellington and parts of Auckland etc you'll need to through in an extra $50,000 or $100,000 for building on a hill then even if the undeveloped land cost was just $50,000, the cost of the new house might still need to be as much as $500,000 and that's with no developer's margin for all the hassle involved.

Now consider the number of properties required is ever expanding, and that the supply cost of the new dwelling is significantly above the prices of existing properties, then there is NO SOLUTION to affordability, without a reduction in the physical demand for housing (unlikely) or the provision of much larger numbers of smaller new homes (isn't likely either), or higher wages (long-term solution) so the easiest solution for now is structurally lower interest rates.

If first home buyers (not investors) can get a 5% long term long then the 3% saving on average would mean that they could pay the mortgage off in 15 years rather than 25 years. Throw in some wage growth and the average first time buyer could have their mortgage paid off in maybe 10 years.

Of course there would need to be limits like a mortgage cap of say $300k and certain criteria met. But what's the cost going to be? If the real difference with market rates was say 2.5% the net present value of the discount might be something like $40k which isn't much more the Aussies first home buyer grant. But consider you scrap the kiwisaver grants (saves $10k) and then save perhaps 20 years of paying a family an accommodation
supplement, which starts of at $100pw now and in 20 years (who knows it might be $500pw?) then this option starts to look very cheap indeed.

Now all of that must be good for the economy.

I think there is a fundamental issue here, which has been clearly illustrated by the failure of Fannie Mae and Freddie Mac. The point we should learn from recent events is that if people can't afford to buy a house and pay the mortgage, then they SIMPLY CAN'T AFFORD TO BUY A HOUSE AND PAY THE MORTGAGE!

By artificially subsidizing people who can't afford a house, there are two obvious things that happen.
(1) House prices rise due to the additional (false) demand which simply makes the problem worse for new home buyers
(2) The market eventually collapses when the subsidies run out since the owners could never actually afford the house in the first place. The end result is a net disservice to new home buyer who may end up bankrupt or having an underwater loan, rather than the benefit that was originally intended.

What really needs to change is one of the following three things:
(1) House prices need to drop, or
(2) Incomes need to rise
(3) More land is freed up and compliance costs slashed

These are the fundamental factors, and until one or all of the above change, it is madness to try and entice first home buyers into the current market if they can't afford it.

Finally I believe we need people making decisions who both see and compassionately understand the needs of real people (in this case the first home buyer) and who ALSO have a sound grasp of economics and the long term effects of any policy. Too often we seem to have someone from one end of the spectrum who can't see the implications at the other end. NZ appears in distinct lack of real visionary leaders.

Kerrin

No need for a lot of words to be spilled about this. It's a political attempt to solve an economic problem. Even more stupiderer than the Don Brash/ACT 2.0 rubbish from earlier in the week.

Slgithly off topic, why is Steven Tindall a kiwi hero, when he has got rich off selling us cheap tat from china to hoover up any disposable income we have? I'm not particularly pro or con Tindall, but surely the red sheds have contributed little of nothing to our economy? Mr Tait electronics for eg has done more for us i would have thought....

Response to ben Says - I disagree
1)"The US government achieved this by forcing banks to lend to ever less credit-worthy borrowers."
Not quite, while the US Govt gave them a mandate to do so, the banks happily complied because they could now lend to anyone, Fannie / Freddie would provide the guarantee, and Wall St. could sell these packaged CDO's to any schmuck around the world that believed the credit ratings slapped on them.
2. "Inflation is on the horizon, making these fixed loans even further below cost and much more risky that they would otherwise already be"
Making a fixed loan in an inflationary environment decreases the risk. If I buy a house for $400k on a fixed mortgage at 5%, inflation hits and rates go to 12% and the house is worth $500k, you be well assured I will keep making payments to keep the house.

Very well said Kerrin. I can't believe that the media is all over John Key about that "will never achieve anything" environment meeting and no-one seems to want to ruffle his feathers over the real issues of housing in this country which actually affect the average New Zealander. I'm almost 100% over it. I might have to put myself in a 100% news ban and just come back in a years time to see what happens as watching this slow train wreck play out day by day is just becoming too much to bear.

geografree - thanks
those types of granny flats are pretty harmless, low impact, and AFFORDABLE
If Vancouver and Seattle are doing it why not Auckland?

Worst what can happen for NZ economy is for house prices to start falling. Luckily does not happen often, but goverment needs to prop up demand more. Good move, but will be difficult to achieve.

No!

like....duh...

regards

If, J.C., our housing market is too big to fail , then I would suggest to you that as a country, we have already failed; oursevles and our children. The next imported batch of citizens of this country will hopefully do better than us, with the wonderful resources that we have borrowed against, and given away.

Bernard, you put it well and politely in your view. There's little more to be said.

I would have expected this from the previous government, but I thought this side of the aisle was supposed to understand markets.

Evidently, the only thing any politician understands is the electoral cycle.

Spot on DC, good to know government realises this. After all it is their job to protect this country

Is it just me or does anybody know anything about property prices. When property starts to move it is always the lowest end of the market that moves first. This is also the last to slow up - as proved virtually everywhere over the last few years. I don't think there is any problem at the first time buyer end. A lot of the problems with people getting thier foot on the property ladder is prioritising their money. Banks will lend money as long as they believe they will get their bit back. They want to lend money out, that's how they make profits.
I think the idea about a 10 year fixed loan at 5% or 6 % is probably just idle talk - it would be virtually impossible to manage. Unless it is an excuse to introduce a Stamp Duty?

Fraser Says:
"Is it just me or does anybody know anything about property prices. When property starts to move it is always the lowest end of the market that moves first. This is also the last to slow up "

Interesting, so how come we have another property boom, according to the realestate guys yet the big fall in the 200k to 320k bracket(current selling prices) has not moved?
They dropped 18 to 26% and gone up 3 to 5%.
The property /rental guys are having a feild day in Auclkand suburbs.

William, good thinking,

maybe we should offer permanent visas to anyone witht he 2 week real estate qualification. This would surely add enormous productivity to the nation

Hugh: thanks for the Urban Planning / housing affordabilty formulae , wish I'd read it before dribbling on this thread.

Thanks also for the honesty:

"The question that needs to be asked is: What do all these unfortunate examples have in common? It seems very clear that they are not being promoted to actually solve the problems or perceived problems.

The answer is that those promoting these "solutions" are simply in the game of expanding their own control and influence. Protecting and expanding their empires. Nothing more, nothing less."

Is ignorance a possible defence?

Some opinions are worth more than others - Thanks again.

Well pointed Gibber

No.

regards

Heh heh . Good one !

hurls1,

"It will enable first home buyers to have the certainty of a guaranteed interest rate and not have the uncertainty of interest rates being 5% or possibly even go to 22% as they did in the mid eighties."

So who is financing this???? the taxpayer i am guessing. Removing risk is a terrible thing to do in the housing market. Gee if I could guarantee 5% per year I would factor in that I could get a 600k mortgage instead of a 300k mortgage. Do you seriously think that is not gong to inflate prices????????? And then imagine what will happen 2 years down the track when the gvot sees everyone jumping in. They will start reducing the loan size, and prob pull the whole thing. Then we will have a crash. And we will have a lucky few guranteed by the govt. Basically this belongs on the scrap heap with interest free student loans. Crap idea, but if the system is screwed you people will take advantage of it.

If the first home buyer wants certainty, then prove they can service a mortgage by first saving a deposit. This will illustrate to them what sort of lifestyle they can enjoy whilst paying a mortgage. Then, get on the 'property ladder' at the bottom. Don't try and leap too far up. Then do the maths and structure the mortgage accordingly that they have certainty of rates, and any degree of flexibility that they think can benefit them. It's no more difficult than that.

Echoes of America's cure to it's shopping splurge , by embarking upon an even bigger spending spree .