HomeStart Grants incentivise new builds

One of a number of measures to address New Zealand’s housing supply issue, the Government’s new KiwiSaver HomeStart scheme has attracted a lot of interest 

Since its launch at the beginning of April, more than 2,000 applications have been received for the new scheme. It is hoped the grant, which replaces the KiwiSaver First Home Deposit Subsidy, will help increase supply by giving couples an incentive to purchase a new home.

Provided they’ve been in KiwiSaver for at least five years, couples buying a new home are eligible to receive
a maximum of $20,000. Couples buying existing homes will be eligible for a maximum of $10,000.

New property includes:

• A vacant residential section on which a new dwelling will be built.
• A house and land package purchased off the plans.
• A new apartment built off the plans.
• A newly built property, defined as a dwelling of any type that has received its building code compliance certificate less than six months before the date of the buyer’s application.

Former ANZ chief economist Saul Eslake argues that subsidising first-home buyers only pushes up house prices and does not address supply issues.

In a speech entitled ’50 Years of Housing Failure’, delivered at the annual Henry George Commemrative Dinner
in in Australia in 2013, Eslake said:

“[In Australia] cash grants and other forms of assistance to first-time home buyers have served simply to exacerbate the already substantial imbalance between the underlying demand for housing and the supply of it,” said Eslake.

“What is also noticeable about the last 20 years is that – despite mortgage interest rates having been on average substantially lower over this period, and despite unprecedented expenditure on grants to first home buyers – the overall home ownership rate has actually declined by 5 percentage points to 67% at the 2011 Census, its lowest figure since 1954.”

“Builders working for clients who have successfully applied for the subsidy will not be required to do anything differently

The Reserve Bank Governor has also expressed concerns that the changes have the potential to push prices up in the long term. However, Builidng and Housing Minister Dr Nick Smith said the Government have taken that advice into account.

“The final home start package agreed by Cabinet took this advice into account and left the grants for existing homes as is. The Governor also said ‘the targeting of a higher subsidy for new homes would be expected to have a positive effect on housing supply’. Consistent with this advice, the final package doubled only the subsidies for new housing supply.”

Tamaki redevelopment to add 5,000 homes to Auckland stock

In conjunction to increasing housing subsidies, the government also transferred 2,800 Housing New Zealand Properties to the Tamaki Redevelopment Company. Dr Smith said the redevelopment will increase Auckland’s housing supply by 5,000 homes, because the properties being redeveloped are on large sections.

Planned changes to the Resource Management Act, which was aimed at freeing up more land for development and removing redtape from the building process, had to be shelved after New Zealand First leader Winston Peters won the Northland by-election. It is expected the government will table a revised programme of changes later in the year.