National ignores Reserve Bank advice on housing, fuelling house price inflation

The National Government’s HomeStart package, which starts today, will likely be absorbed into higher margins for developers according to the Reserve Bank, the Green Party said.

The Reserve Bank advised the National Government in June 2014 that its package of HomeStart reforms could “result in increased developers’ profit margins” and, over the longer term, “have the potential to add to existing house price pressures in what is a highly overvalued market”. National reduced the size of the final package delivered but not the fundamental flaws in the package’s design.

“National’s HomeStart package helped National win the election but it is actually a poisoned chalice for young home buyers, as new access to subsidies will be offset by even higher house prices,” said Green Party Co-leader Dr Russel Norman.

“Like bridges for Northland, National deserted sound economic management to help secure the outcome of an election.

“Treasury and the Reserve Bank warned the National Government of the fatal design flaws of its HomeStart package, but National went ahead with the policy in an attempt to be seen as doing something to address the housing crisis in the run-up to the election.

“If you don’t fix the pipeline supplying new houses, giving people more money to buy houses will simply push up the price they have to pay.

“National is failing new home buyers, especially those in Auckland. Since National came to power, median house prices have increased 60 percent or by $253,500 while wages have remained flat.

“National needs a war-like effort on housing and actually build more affordable, medium density, energy-efficient housing to solve the housing crisis.

“National should address high rates of foreign ownership, especially in Auckland, and introduce a capital gains tax to address the tax bias towards property speculation.”

Link to Reserve Bank memo: