Government Should Tread Fine Line - REINZ

The forthcoming government home ownership initiatives need to tread a fine line between the unacceptable cross-subsidisation by taxpayers of first home buyers and desirable incentives to encourage savings, according to the Real Estate Institute of New Zealand (REINZ).

The Institute today welcomed the Government’s commitment to lift the level of home ownership in New Zealand. REINZ also commended Housing Minister Chris Carter for distancing himself and the Government from a Green Party suggestion for a Capital Gains Tax on properties other than the family home.

Mr. Howard Morley, REINZ National President, said “REINZ welcomes the Government’s goal of facilitating home ownership; we believe that home ownership promotes social cohesion and participation. The Institute has been advocating assistance to first home buyers for many years, but has also been wary of solutions which might superficially appear to serve social policy objectives yet cause more problems than solutions.

“We await the announcement of the Government’s plans with interest and trust that they will be well-considered and evidence-based. For this reason we would like to see an analysis undertaken of the efficacy of former schemes that facilitated home ownership for low and modest income New Zealand families.

“Like the Government, REINZ has been concerned with New Zealand’s declining rate of home ownership because home ownership is clearly a very desirable social objective. It encourages thrift, savings and a sense of responsibility and community belonging. But we believe many of the schemes to promote access to first home ownership can be distortionary and have unintended outcomes, sometimes making housing more expensive.”

Mr. Morley said the Institute had closely inspected the Australian first home ownership scheme, which provided flat dollar amounts for first home deposits. It concluded that such a scheme effectively removed part of the savings ethic while inflating housing demand largely for the benefit of the home construction industry.

“These schemes are distortionary and therefore undesirable. What you want is to encourage people into home ownership based on their own endeavours, not on the basis of diverting the taxes paid by hard working New Zealanders.

“The Australian model effectively results in you paying tax to your next door neighbours for their house deposit.”

“Tax rebates on savings would not only make the benefits of home ownership incentives available to all, but also would serve the purpose of cushioning the impact of such a scheme on the market. A lump sum scheme would increase demand for homes and put values under pressure, creating the very situation the government is seeking to overcome.”

Mr. Morley also warned against a simplistic analysis of the reasons why home ownership was becoming more difficult. “Certainly prices are rising faster than incomes but part of that has to do with New Zealanders’ passion for home renovation which has a significant effect on raising property prices. Another issue is that New Zealanders use property as their primary form of saving and investment which obviously contributes to buoyant property prices.”

Mr. Morley said the difficulty for first home owners was not just rising property prices putting the first home out of their reach, “but relatively stable incomes and a low inflation environment has seen that gap widen for those who don’t own homes, while those who do own their own home realise that upgrading and renovation, and paying the mortgage off at an accelerated rate, is for many the best retirement savings option.”

Suggestions of guaranteeing mortgages and offering suspensory loans for those on low incomes also embodied a form of discrimination, “If we are going to provide first home assistance it should be available to all, but potentially graduated in terms of income. One possibility is to make mortgage interest tax deductible for first homebuyers, up to a certain level.

“REINZ is keen to work with the Government to provide workable solutions. We agree that home ownership is an important social goal; it forms a significant part of the fabric which holds us together as a country,” Mr. Morley said.

ENDS

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