Tuesday, February 12, 2008

Tackling housing affordability

Housing affordability is a key political issue at the moment, and I've been looking forward to Helen Clark's commencement speech today to see how they are going to deal with it. Now, thanks to the Herald and a leaked copy of the speech, I get to learn early. And the scheme looks pretty good.

The housing affordability crisis is first and foremost a problem of supply - there are not enough houses to meet demand, and so the price has risen. But not just supply in general - it's specifically a shortage of affordable "starter" homes, caused by market failure. The market isn't meeting this demand because it is simply more profitable for a developer to build a leaky palazzo (you know the type - those uniform natural tone monstrosities spreading like a cancer around Albany or Churton Park or Whitby) aimed at the richer end of the market than something ordinary people can afford to buy. Which suggests that the right's favoured solutions - gut the RMA and loosen zoning laws to allow more houses to be built - will not have the desired effect (it would however make property developers richer, which is the point of the exercise).

The obvious way of dealing with this sort of problem is for the government to intervene to ensure that demand is met. And that's exactly what they're planning to do, first through government housing developments which specifically include affordable homes, and second by supporting a larger not-for-profit housing sector along the lines of Britain's housing associations. This of course will take a while to feed through into the system, so on the demand side they're also offering a shared equity scheme - essentially, the government helps you into a house, but owns half of it. This should avoid the inflationary effects of direct subsidies.

This is solid policy which hits the right targets rather than enriching developers or creating a bubble. The only thing missing is demand control in the form of a capital gains tax on investment property. But that's a third rail in New Zealand politics, so its hardly surprising that a government facing a tough battle for re-election is avoiding it.

It will be interesting to see what the opposition's response to this is - whether they have any ideas which actually address the problem, or whether they'll continue to push enriching developers as a solution. My money is on the latter.