By Alex Tarrant
Building and Construction Minister Nick Smith says declining home ownership has “turned the corner” and that he’s holding out for first home buyer and rental affordability measures to start improving as house price growth flattens, take-up of government deposit subsidies increases and as the Budget 2017 Accommodation Supplement hikes kick in.
He has already been helped by his own officials, who on Wednesday released an updated version of the government’s Housing Affordability Measure (HAM) which included a “minor adjustment” relating to income data boosting the number of first home buyers in the affordability range.
And a tweak in the way MBIE describes its buy and rent affordability measures was also incorporated into the latest release. Where the initial release referred to the proportion of potential first home buyers above and below a “national affordability benchmark,” HAM now proposes to indicate the proportion of first home buyers “with below-average income after housing costs.”
The latest HAM Buy measure – or HAM 1.1 as MBIE calls it – shows 77% of potential first home buyers nationwide earned below the average income after housing costs for purchase of a modest, two-bedroom house in the area they rented in at March 2016, similar to the 78% in June 2015.
The headline nationwide figure for Ham Buy 1.0 released back in May had indicated 81% of households came in below what was termed then as the ‘national affordability benchmark’. We’re not supposed to compare the headline readings from the two reports – we’re just doing so to indicate how the tweaks have allowed for a lower headline ‘unaffordability’ figure.
Everyone’s at pains to emphasise that the series is still experimental, by the way. And for those wondering, in Auckland, HAM Buy 1.1 was unchanged at 82% - although after a steady rise from about 76% in 2013.
Labour’s Phil Twyford said the numbers showed New Zealand “needs Labour on housing,” and talked up his party’s policies including taxing speculators, launching KiwiBuild and providing greater infrastructure financing. Labour has also proposed tightening foreign buyer rules.
“Nationwide, 77 per cent of potential first home buyers cannot afford to buy. Sixty per cent of renters cannot afford to pay the rent without experiencing hardship,” Twyford said. “Housing is the major driver of poverty and inequality in New Zealand today. It is taking a terrible toll on people, from families who cannot afford a home of their own right through to families living in cars.”
Government deposit subsidies
The release of the latest HAM reports on Wednesday (not that MBIE or Nick Smith decided to tell anyone with a press statement or anything) provided a base for both National and Labour to talk up their housing affordability books as our 51st Parliament heads to its final session on Thursday.
The government over the past three years has boosted deposit subsidies for first home buyers, many of whom have had to clear their KiwiSaver accounts to cobble together a 20% deposit (and in some cases less) for an entry-level home as house prices rose faster than incomes.
Asked by media whether he was dismayed by the fact first home buyers increasingly needed to rely on subsidies to get anywhere near purchasing a first home, Smith focussed on the fact that government had ensured the support was there.
Earlier in Question Time he had touted HomeStart grants as having gone from strength to strength: 15,400 first home buyers had received $75 million in HomeStart grants towards a deposit in the past year, an average of nearly $5,000 per grant. This was up $10 million from the year before. Government was on track to assist 90,000 first home buyers over five years through the scheme, he said.
“Even more significant is the growth in KiwiSaver first home withdrawals. These had increased from $200 million to $495 million, then $655 million in the last year,” Smith carried on.
“We all know that the most difficult hurdle for a first home buyer is pulling together a deposit, particularly when we have such low interest rates,” he said.
Back facing the media, Smith said he was not at all dismayed that so many first home buyers were having to rely on government subsidies. “In my view one of the most important assets that people will build over their working life will be their home. And if people are able to use the KiwiSaver scheme to build up the funds for a deposit, pick up a government grant, and buy a home, that is good,” he said.
CoreLogic data showed that, since the HomeStart scheme had been in place, the proportion of purchases made by first home buyers had grown from 18% three years ago to 21%. “That is encouraging and is showing that we are turning the corner on this very long-term challenge of improving home ownership.”
“If we look historically in New Zealand at those periods where we’ve had very high home ownership – you used to be able to capitalise the family benefit – it is actually during a period of absence for about 20 years of any sizeable assistance for home ownership that we have seen those numbers decline.
“It’s the government’s view that there are broader benefits for society of more people owning homes, and that’s why we think it is good use of public money to be assisting people to pull the money together for a deposit and to get into their first home,” Smith said.
Would he want to see over time a trend emerging of first home buyers not requiring government subsidies to purchase a property?
“My first priority is in terms of trying to change that long-term 30-year trend of declining home ownership. A good way to do that is to give a leg up for those first home buyers. That’s what we’re doing with that KiwiSaver Homestart scheme. It’s growing each year and it’s showing it’s working,” Smith said.
Former doubters were now joining KiwiSaver to use it as a mechanism for getting into home ownership, “and I would encourage that.”
Turning a corner on home ownership
“The combination of high rates of new home builds, flat house prices, and the KiwiSaver HomeStart scheme shows that New Zealand has turned the corner on improving home ownership,” Smith had earlier said in Question Time.
That had included an exchange with Labour’s Phil Twyford on the latest release of the HAM series. Twyford put to Smith that since he gained responsibility for the housing portfolio, the proportion of Auckland first home buyers spending more than 30% of their income on housing had gone up by 29%. This was in regard to another HAM measure released by MBIE on Wednesday.
Smith didn’t accept the figure, instead choosing to launch into an attack on Twyford’s ‘Chinese sounding names’ saga a number of years back, which new Labour leader Jacinda Ardern had expressed discomfort with earlier this week.
Twyford continued by asking whether $220 a week was enough for a family to live on, “given that the housing affordability measure shows that since he became Housing Minister, there has been an increase of one-third in the number of potential first home buyers in Auckland who would only have $220 left per week, after their mortgage payments.”
Smith again dodged the question. “I can confirm that since I’ve been the Minister of Building and Construction, the number of houses being built in Auckland has more than doubled. It has gone nationally from 14,000 to over 30,000 homes per year, and I think every member in this house knows that the core of the solution of our housing challenges is getting more houses built, and that’s exactly what we’re doing.”
A patsy question from National Party backbencher Alastair Scott on what measures the government had taken to improve housing affordability had Smith touting Accommodation Supplement increases, KiwiSaver withdrawals and Homestart grants.
Twyford raised that Fletcher Building had noted earlier Wednesday that 5,000 fewer houses were built in Auckland over the last year than were needed to keep up with population demand. “Does that constitute a building boom?”
Smith: “I woke up this morning to hear reports that there was shortage of builders, of plumbers, of electricians, that there was a shortage of cranes, of concrete trucks. And that is because the building industry is at an all-time boom, and in the pipeline is more than 100,000 homes over the next three years and the biggest building boom in New Zealand History.”
Could Smith confirm that only a few hundred affordable homes were built in Auckland last year? Well, asking a Minister whether they can confirm something or not generally allows them to respond any way they like under Question Time’s rules:
“I can confirm that more homes were built in Auckland in the last year, than there has been for more than a decade,” Smith said. “And, that there is a record pipeline of new homes coming on stream. I can also confirm that in the last year, Auckland house price inflation was minus 1%, the lowest in 10 years, showing that with a growing in supply, housing affordability issues are being addressed.”
Twyford brought it back to the HAM series: “Does he realise just how ridiculous it is that he is still blaming Helen Clark’s government, when after nine years in office, 77% of potential first home buyers cannot afford to buy, and 60% of renters cannot afford to rent without going into financial hardship?”
Those numbers were “garbage,” Smith replied, triggering Labour MPs to yell back that they were from the HAM series. Smith continued though: “If he listened to what Stats New Zealand said on this index released today, they would know that they’ve got about as much credibility as the fiasco that embarrassed his own party over Chinese-sounding names.”
Whether he was questioning Twyford’s credibility or that of the HAM series is open for debate.