Most New Zealanders dream of 'owning their own home'. They are willing to sacrifice a large portion of their income 'to get a foot on the first rung of the home ownership ladder' by committing to mortgage repayments over a major period of their lives.
That 'inflation escalator' was turned off in the early 1990s when the NZ economy entered a period of low inflation, except that house prices increased at an accelerating rate through to 2009. House prices increased because; the Reserve Bank raised NZ interest rates to restrain NZ domestic inflation, which attracted funds from overseas where interest rates much lower, and into the housing mortgage market rather than the productive economy because of the tax breaks available to rental property landlords.
The inflow of foreign funds into - into NZ dollar denominated short term loans- 3 month mostly - pushed up the NZ dollar exchange rate against other currencies, adversely affecting NZ manufacturing exports and stimulating imports of consumer goods. Both the NZ trade deficit and overall balance of payments deficit inflated- the latter mainly due to the inflating housing mortgage debt owed to overseas lenders via the mostly Australian owned banks in NZ.
Because so much money is held in housing mortgage debt, with interest paid to overseas owned banks, rather than circulating in the productive sector of the NZ economy, economic decline is more likely:
The EHF strategy offers a swift and comprehensive solution to all of these trends. It will provide opportunities for every individual, household and business to participate in building an economically, socially and environmentally sustainable future.
Government policy influences the life circumstances and prospects of its citizens through the impact of the tax/benefits transfer payments system (who or what is taxed and on who or what the tax revenues are spent) on the creation and distribution of resources, jobs, income and wealth. We might expect this tax/benefits transfer payments system to 'average out' the taxes/benefits effects, so no person or group is particularly dis/advantaged by it.
This is not true in New Zealand presently, where tax concessions for investment in rental housing, of most benefit to those in the highest income tax bracket, have helped to sustain massive speculative increases in house prices, to the detriment of the productive sector of the economy and the current and future wellbeing of the majority of the population.
With the NZ economy, like many others, currently facing 'stagflation' (flat economic activity, including wages, combined with price and cost inflation), rental property investors, often with interest-only mortgages contracted at high property prices, are already facing negative equity as property prices stagnate or decline. Consequently, mortgagee sales proceeds will fall short of the outstanding debt mortgage lending banks in NZ themselves owe to overseas, short term lenders.
Apart from suggestions about how to cut house building and section costs, alternative (to EHF) policy proposals to make housing more affordable generally involve additional taxpayer subsidy of current, heavily tax subsidised, house prices, and would leave the majority of households still burdened by massive housing finance debt and the economy stifled by lack of consumer demand and a massive balance of payments deficit.
On the supply side, suggestions such as reducing the production costs of new dwellings through changes in the building code, releasing extra land through zoning changes, or reducing the cost of building consents, would not result in cheaper market prices for sections or houses, because the market price will be set by the highest bidders. These will always be rental housing investors while they enjoy their current tax advantages over prospective owner-occupiers.
On the demand side, a range of subsidies intended to enable more people 'to get a foot on the first rung of the home ownership ladder' have been mooted. In addition to 66,000 rental homes for people on low to moderate incomes, Housing New Zealand (HNZ) provides several pathways to home ownership, including the purchase of state homes by sitting tenants, via the Welcome Home Loan , a deposit subsidy via KiwiSaver, and Gateway deferred payment for building land. See http://www.hnzc.co.nz/
Such demand side subsidy schemes only benefit a few households with incomes just below the then current affordability threshold and, in the case of Gateway deferred payments, expand the amount of, and extend the time exposed to, mortgage debt. Few HNZ tenants will be able to buy as most have incomes so low as to qualify for the Accommodation Supplement rent subsidy. Under an earlier 'right to buy' scheme state houses were sold at a discount to sitting tenants, who soon onsold and returned to state or private tenancy when they found they could not keep up mortgage payments.
The stumbling block remains the gulf between the incomes of the prospective owner occupiers and the house prices that result from the current rental landlord tax breaks.
There are three ways of measuring ‘average’ value;
- the mean value is the total value divided by the number of properties or salaries,
- the median value is that value on each side of which 50% of the values fall, so it’s the middle value,
- the modal value is that value which is the most frequent in the scale of values, which is closest to what most people think of as 'the average'.
As the top 2 income deciles have much higher incomes, the 'average' is greater than the income of most of the lower deciles, so the numbers in each income and house price decile, by region, give a more accurate measure of housing affordability.
This situation, where low and middle income households cannot afford a mortgage, has been called 'intermediate housing market failure' and a consensus has emerged among researchers and policy analysts that a large not-for-profit third sector, capable of producing houses they can afford, needs to be developed. The EHF strategy shows how that can be self-financing and, combined with super-efficient ecohouse building technology, offers a comprehensive and permanent solution to the housing affordability problem and also the prospect of a smooth transition to a more socially, economically and environmentally sustainable way of life.
Compare, Savings Working Group Final Report