By Bernard Hickey
With 26 days to go until the September 20 election, here's my daily round-up of political news on Monday August 21, including a debate over National's plan to double first home buyer subsidies and Labour's announcement it has trimmed NZ$300 million from its spending plans and dropped six un-announced policies to account for the Treasury's slight lowering of its budget surplus forecasts in the Pre-Election Fiscal Update.
Labour Leader David Cunliffe and Finance Spokesman David Parker released Labour's updated Fiscal Plan that included the Treasury's forecast changes on Monday morning.
They said Labour had removed the indexing from a NZ$1 billion a year budget allowance, delayed the introduction of free doctors' visits for the elderly by 6 months to January 2017 and dropped six of its seven yet-to-be-announced spending policies. The one un-announced policy is costed at around NZ$95 million from 2016/17 onwards. They would not disclose the un-announced policies that were dropped.
Parker said Labour had carved NZ$300 million off its spending plans to account for the Treasury's lower revenue forecasts in the PREFU. Labour's fiscal plan still forecast surpluses and lower net debt than under National.
Labour plans to restart contributions to the New Zealand Superannuation Fund from 2015/16, starting with NZ$750 million that year and rising to NZ$2.2 billion by 2020/21.
Labour removed the indexing from a NZ$1 billion a year budget allowance, which is being used to pay for inflation-adjustments and population increases in health, education and social services spending.
"In addition, to meet our debt reduction commitments in light of the PREFU's reduced revenue from the cooling economy, Labour will focus on priorities, adjust the timing of some policies and not proceed with some unannounced policies," Cunliffe said.
He called on the Governent to say how it planned to spend the NZ$1.5 billion allowance allocated in the May Budget, "meaning New Zealanders are not in a position to make a clear comparison."
Finance Minister Bill English said it was too late for Labour to try to look fiscally responsible.
"Labour is desperately trying to make its big spending commitments look smaller, and has decided to not even put costings on its big spending tertiary and transport commitments," English said.
“Whatever Labour presents now would be up for negotiation in coalition talks where the Greens would have considerable sway – not to mention concessions demanded by Dotcom," he said.
Elsewhere on the campaign trail, John Key is reported to have said he would make some announcement about tax cuts later in the campaign, although it would not be a fully formed package. Finance Minister Bill English said last week there would not be a tax cut package announced before September 20.
First home buyers' carrot
Prime Minister John Key launched National's campaign on Sunday with a plan to double first home buyer subsidies at a extra cost of NZ$218 million over four years.
Nick Smith announced the details of the ramped up KiwiSaver HomeStart Grant, which included doubling the Government subsidy for a couple buying a brand new home to NZ$20,000, allowing KiwiSavers to withdraw the Government member tax credit and increasing the house price caps for the scheme in all areas to between NZ$350,000 to NZ$550,000. Here's a summary of the changes and the Q and A for the new policy.
The Government estimated the new Grant scheme would increase the number of recipients in the scheme by 41,501 to 91,824 in the first five years of the scheme and increase the costs of the scheme by NZ$217.8 million to NZ$435.4 million over those five years. It also planned to increase the house price caps for Welcome Home Loans to the same as those for the KiwiSaver HomeStart Grant.
The price cap for Auckland was increased to NZ$550,000 from NZ$485,000, and to NZ$450,000 in other major cities. The biggest increase was in Upper Hutt and Kapiti Coast areas from NZ$300,000 to NZ$450,000.
"The policy will help tens of thousands more first home buyers achieve their dream of home ownership," Key said in his campaign speech at the Vodafone Events centre in Manukau.
"First home buyers have always found it hard, and often that first step is quite a stretch. That is why I believe the changes will be welcomed by potential first home buyers," he said.
A couple buying a new home who received the maximum KiwiSaver tax credit for five years would receive an extra NZ$10,000 in Government subsidies and be able to withdraw an extra NZ$5,210 from their KiwiSaver accounts for a deposit on first home. Key later told reporters he thought the Reserve Bank and Treasury approved of the scheme, given the Government's moves to increase housing supply at the same time.
Smith announced a previous ramping up of the scheme in August last year in response to the Reserve Bank's high LVR speed limit, although the limit has since exempted loans for newly built homes.
'Not one new house built'
David Cunliffe said National's housing announcement would just push up prices.
“House sales to first home buyers have collapsed as a direct result of the Government’s failed housing policies, and now they are offering up a sticking plaster," Cunliffe said.
“They refuse to actually build the many thousands of extra houses that are needed. And they refuse to tax speculators," he said, adding it would not offset the higher deposit requirements under the Reserve Bank's high LVR policy.
“The fundamental problems are lack of supply of housing, planning rules that constrict development, and unrestricted speculation."
Phil Twyford issued a fact sheet on housing saying no one was living in any houses built in Special Housing Areas and the Auckland Accord was running behind its targets.
Russel Norman also criticised the policy as a 'band aid' approach to the problem of rising house prices, particularly in Auckland where the median price had risen more than NZ$220,000 since 2008.
"The only real difference to the current KiwiSaver policy is some home buyers will get up to NZ$5000 more for a mortgage to buy an expensive new home. That extra subsidy doesn't even touch the sides of offsetting the NZ$228,400 increase in the median house price in Auckland," Norman said.
In my view
In my view , the policy has tried to side-step the accusation that the subsidy will simply increase existing property prices by directing the increased subsidy to new home builds. However, there will be questions about how many new home builds will be financed by first home buyers, given most are currently bought by older buyers using equity built up in their first and subsequent homes. The Government is hoping the arrival of first home buyers may 'kick-start' developers into offering new types of developments and thus adding to supply.
However, a couple with a combined income of NZ$100,000 in Auckland who had savings and subsidies of NZ$50,000 for a deposit would have to borrow five times their gross income with a 90% LVR loan to afford a home and land package costing NZ$550,000.
It may have the biggest impact out in the regions, where the caps for the scheme have been dramatically increased. In Upper Hutt, for example, the cap has been increased to NZ$450,000 from NZ$300,000.
The danger remains real, however, that these subsidies simply pump up the price of a limited number of new homes.
A 2012 Australian Government study (pages 26/27) of the many similar first home buyer subsidy schemes there found they were not effective in improving affordability in the long term in areas where supply was constrained. Here's a September 2013 speech from Australian economist Saul Eslake arguing that first home buyer subsidies in Australia have not worked.
The concern about increased subsidies simply pumping up prices is most acute in Auckland, given a ramping up of KiwiSaver withdrawals and the growth of the subsidy scheme through 2012 and 2013 coincided with a surge in low deposit lending to first home buyers and property investors that forced the Reserve Bank to introduce its high LVR speed limit.
Visiting Hobsonville
Following up on the announcement, Key and Smith visited the Housing NZ Corp development at Hobsonville on Monday, which they said was the sort of development that first home buyers could use the expanded HomeStart grant.
"We have up to 3000 new homes coming on-stream here over the next 10 years, of which at least 20 to 25 per cent will be within the new NZ$550,000 house price cap for Auckland under KiwiSaver HomeStart and the Welcome Home Loans," Smith said.
He said the first sod on the former Defence Force land was turned in 2002 by then Labour Prime Minister Helen Clark, but the project had then stalled because of planning disputes. The Government had revived a housing plan in 2010 and then included the land as one of the 63 Special Housing areas under the Housing Accords and Special Housing Areas ACt in 2013, Smith said.
"Earthworks were consented a week later and now 444 houses and sections have been sold. A further 350 houses are to be sold in 2014/15 with development partners. Beyond these 3000 houses, there is also a further 2,000 proposed on adjacent private land in a Scott's Point development that has been approved as a Special Housing Area," Smith said.
"The practical effect of HomeStart at Hobsonville is that a first home buyer can now purchase a three-bedroom house. The previous house price cap of NZ$485,000 meant that first home buyers could not access previous grants or the Welcome Home Loan for the dozens of three-bedroom properties at Hobsonville on sale in the NZ$520,000 $540,000 range," Smith said.
"I am confident we are going to see hundreds of young Aucklanders accessing the new KiwiSaver HomeStart so they can purchase their first home in Hobsonville. I also expect this development to now advance even faster with the additional buyers in the market. An important objective of KiwiSaver HomeStart is to encourage more housing companies to build new houses in the price range affordable to first home buyers," he said.
"Hobsonville has shown it is possible to provide good quality, more compact housing that is affordable. The flexibility and speed of the Special Housing Areas legislation combined with KiwiSaver HomeStart opens the door to many more developments like Hobsonville across Auckland."
'Pouring petrol on the fire'
Labour Housing Spokesman and Auckland MP Phil Twyford said the Australian experience had discredited such subsidies.
“It is Economics 101. You are mad if you stimulate demand in an already overheated market where supply is not keeping up with demand. As the Australian experience shows and as Treasury knows, the Government is trying to put out a fire with petrol," Twyford said.
"Instead of building large numbers of new affordable houses as Labour will do through KiwiBuild, and taxing speculators as Labour will do through its capital gains tax that excludes the family home, National has thrown $218 million on the bonfire of the Auckland housing market," he said, pointing to this Grattan Institute report from October 2013 criticising first home buyer deposit subsidies.
NZ Initiative attacks plan too
NZ Initiative Executive Director Oliver Hartwich said the policy would drive prices sky high.
“National’s announcement does nothing to remove the constraints and roadblocks to building more houses, such as tight land supply and limited infrastructure. All it will do is subsidise demand, which is likely to push prices even higher," Hartwich said.
“It may well be a vote catcher, but it in the long term the policy will exacerbate New Zealand’s housing affordability crisis,” he said.
Hartwich pointed to a new report from the NZ Initiative showing New Zealand would be short more than 113,000 homes unless construction increased from current levels.
“Construction has fallen to just over 15,000 new dwellings per annum. Supply is now at its lowest level since the mid 1930’s," he said.
“Instead of turning the tide on the greatest crisis facing the New Zealand economy, the government seems to have chosen good politics over good policy.”
He said the best way to improve affordability was to reform the Resource Management Act and boost infrastructure finance for councils.
'Right to Work' plan
Internet Mana launched its election campaign in Auckland, promising 100,000 new jobs through a 'Right to Work' plan at a cost of NZ$1.3 billion a year. It would fund its 'Right to Work Force' and Digital workforce plans by redirecting 20% of ACC reserves and proposed levy reductions to a new social insurance fund.
However, the launch was over-shadowed by Pam Corkery's televised abuse of reporters outside the venue, where she called one a "creep" and another a "puffed up little sh*t" after refusing to allow interviews of Kim Dotcom.
Labour policies
Elsewhere, Moana Mackey announced Labour's climate change policy , including setting up an independent Climate Change Commission to establish carbon budgets, restrict the use of international carbon credits and bringing Agriculture into the Emissions Trading Scheme by 2016.
Phil Twyford announced Labour's Transport policy .
The policy included reviewing and delaying some motorway projects to shift funds to rail, coastal shipping, public transport, regional and local roads, safety, and cycling. It includes a review of the Kapiti Expressway , a review of the PPP for Transmission Gully , a replacement of the Puhoi to Wellsford motorway with NZ$320 million of upgrades to the existing road and the dropping of plans for a Basin Reserve Flyover .
Gerry Brownlee said Labour should say which motorway projects it would cancel.
David Cunliffe announced Labour's policy would abolish secondary income tax and instead use special tax codes until the IRD introduces its new computer system. It said the policy had no cost.
(Updated with Labour's updated fiscal plan, Key's comments on tax cuts, Smith on Hobsonville, Twyford on first home deposit subsidies and English on Labour's fiscal plan, NZ Initiative attack on first home buyers' subsidy expansion)
I'll update this regularly through the day.
See all my previous election diaries here.
See the index for Interest.co.nz's special election policy comparison pages here.
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