Have your say: Interest free loans for first home buyers? Good idea?

The Dominion Post is reporting that the government is considering offering interest free loans of up to NZ$10,000 to first home buyers as a way of kick-starting the housing construction industry.

Documents made public under the Official Information Act show interest-free first-home-buyer loans of up to NZ$10,000 were among proposals put up and worked on by private-sector chairs and senior Government officials in the lead-up to the jobs summit. Others included a housing upgrade plan to fix leaky buildings, interest-free loans for home owners to improve heating and water efficiency; incentives for early retirement and paying employers a subsidy to hold on to apprentices. Many did not make it into the jobs summit "top 20" thrashed out after a brainstorming session on February 27 involving public service and private sector bosses and Government ministers. But many continue to be worked on by ministers, including loans to people to build their first home or renovate their existing one.

What I think There is a risk with any sort of handout to first home buyers like this that all it does is pump up demand for existing housing and push prices up ahead of buyers. If it was a handout for new construction only that might make some sense. We certainly aren't building enough new houses at the moment. My reflexive view is that government handouts to people who should be able to afford to buy something themselves is a bad idea. Our measures of housing affordability show first home buyers, particularly those with two incomes and no kids, can afford to buy their own home, albeit in the cheaper parts of town and for smaller houses. The real reason buyers have stood back from buying brand new homes are the relatively high construction and land costs, relative to existing houses. Section prices need to drop. This measure will not help that. Your view?