Having being raised in a council house in London I have a lot of empathy for the need for state housing. I lived in a 3 bedroom terrace house with my 7 brothers and sisters, and a dog, that’s 5 boys in one room, 3 girls in another and the parents in their own space. I’m not convinced that families are that size any more.
The problem, as I see it, with the availability of State Houses in New Zealand is that there has been no planning and has been no foresight forever, and land was turned over to property speculators to build on as they saw fit. That there is a shortage of recently built houses in the council stock is no surprise to anyone. Councils have not invested in their own obligation to provide housing to those that require it.
And so I’ve been intrigued by recent mumblings in the press about “affordable” housing, which is different to “State housing“
Affordable housing laments that house prices are beyond the reach of many, particularly the first home buyer, the low paid, and the needy. In a supply and demand market the complaints about affordability are loudest from those in need, whilst the investor and older, or wealthier home owner have no issues with the steady climb of house prices, being as how they are on the ladder of ownership (or multiple ownership).
The Affordable housing campaign implies that people still need and should own property, and they should own property as the backbone of their retirement savings and safety-net.
The affordable housing initiative is aimed at getting people into house ownership, it is not aimed at providing state housing stock to be rotated and used for those who need or desire state housing accommodation.
The Green Party kicked off an expanded version of their affordable housing policy here;
Here : http://www.greens.org.nz/press-releases/green-party-launches-major-housing-initiatives
The package, entitled Home for Life, contains three new policy planks:
1. Progressive Ownership will allow families that are otherwise locked out of the housing market a path way to home ownership by leveraging the Government’s low cost of capital.
Families will be able to live in a government-built home, making a basic weekly payment to cover the Crown‘s investment cost and making flexible payments in addition to that amount that purchase equity in the property off the Crown until they own the property outright.
No deposit would be required and if families moved out of the home before owning it the equity investment made to that point would be paid out.
The media says http://www.nzherald.co.nz/politics/news/article.cfm?c_id=280&objectid=10861089
Under the Greens’ progressive home ownership model, the Crown would build houses for up to $300,000 which families would live in, and eventually own if they chose to. The Crown would initially own all the equity in the house because families would not need to pay a deposit.
Families would make weekly payments, similar to rent, to cover the Crown’s investment cost – $200 a week on a $300,000 house at a government bond rate of 3.5 per cent. They would make additional weekly payments to buy equity in the property until it is owned outright.
The payments would be about $100 a week, but that figure would be flexible if circumstances changed.
So I did a couple of thinks,
- A Mortgage of 300,000 at a rate of 3.5% results, if you calculate it on a yearly basis, an interest of $10,500
- A rental payment of $22 per week equals $10,400
The net gain would therefore be $100, the mortgage would reduce to $299,900, the equity position would be $100
A payment of $100 per week, or $5,200 per year would eventually see you own the house. But it could take 50 years.
So I went to Sorted.co.nz https://www.sorted.org.nz/calculators/mortgage-repayment
If you only made the minimum weekly payment ($200 as mentioned above) on a $300,000 mortgage, fixed at 3.5% it would take 100 years, with the actual minimum payment of $208.
Increasing the payment to $301 sees that plummets to a 32 year mortgage
But wait……..the MSM says that the Greens appear to be saying
- Mortgage : $415 a week plus other costs (including rates, insurance) of $50 a week = $465 a week
- Renting $350 a week but no asset
- Progressive ownership Basic payment of $200 a week, $100 equity payment and $50 a week for other costs = $350pw. A family who increased the amount they spent on the home by the rate of inflation would own their home outright after 25 years.
I have no idea how they are going to deliver on that idea, that $100 equity gets them to a 25 year term when the very excellent Sorted.co.nz website says no.
There are a couple of questions though.
Who own the property, and who maintains it? If you can only just afford the minimum payment, by whichever circumstance or choice you choose, who is responsible for the maintenance of your property. The repainting of the outside, the roof, gutters etc, and the maintenance and upkeep inside, a new kitchen in 10 years perhaps, upgrade the bathroom.
What if you want to remodel “your” home?
If house prices rise by 3,5% per year every year then in 10 years the “value” of the house will be $423,179.63. At what price is it “sold” back to the government for? Do you as the “owner” retain the $123k of paper equity gain, based on it’s cost of 300K on day one? Or do you only retain your $5,200 equity contribution (based on your adding where you can $100 per week into the payment)?
10,000 houses a year
The promise that both Labour and the Greens have made appears to be 10,000 $300,000 houses per year for 10 years.
Are they committing to building a house for a value of $300,000 in 10 years time, when you can demonstrate that should you build that house today in 10 years it is worth, taking into account a 3.5% growth of $425K, of you take this back to a 2% growth you still get $365k.
How much smaller would you have to build a house to fit the $300,000 price tag in 10 years. ?
I’m also going to mention in passing that I’m setting aside the obvious questions like
- Where is the available land to build 100,000 houses?
- Where is the infrastructure that supports it?
- Where are the jobs that support growth this size?
And the fact that as is widely discussed in the media it appears, in New Zealand, that everyone wants to own a fully detached free standing house with a patch of land, and we want this in the central city, or walking distance to the central city. We don’t want to live in less desirable neighbourhoods, and not on the city fringes. The property ladder appears to be viewed as a one step stool , not something you climb gradually.
What can you conclude from an incomplete policy statement? The Green policy calls for the Crown to invest the Sundry/Other funds in the budget into building houses, a lot of houses. I’m no economist but given the available tools online I can’t make the maths work, either there is some cunning plan to renew the mortgage yearly somehow and not have it as a fixed term option, but it is all based on 3.5%, and an initial value of $300,000.
When a house is sold back to the crown at what price is it then sold back to the next owner at? $300,000? Which might annoy the neighbours and keep the house prices low or depressed, decrease the long term equity and provide no retirement saving nest egg? I guess you could end up with a community comprising a bunch of $300,000 slum properties that no-one wants to buy, or maintain and that fall back to State responsibility. Perhaps.
There are questions as to who own the responsibility to maintain and upkeep the housing stock, and there are questions as to where they can be built.
New Zealand will have to get used to terrace or row-houses, or multi-storey dwellings that offer little or no garden space in short order if this is ever going to get past go.
And on a different note New Zealand is going to have to figure out where the employment opportunities come from that support such a growth.