KEY POINTS:
The Cabinet has an acute juggling act ahead of it as ministers weigh how much of the Government's tax surplus should be thrown at hot issues like housing.
The Prime Minister identified housing affordability as one of the major issues that the Government would tackle this year in her opening address in Parliament.
But like Finance Minister Cullen's address to the Auckland Chamber of Commerce - which he traditionally gives each year to set business expectations on the Government's economic agenda - the content of the new Government policies has tended to get buried in the welter of political claim and counter-claim that characterises an election year.
Helen Clark is driving overall political management on the housing front. This is an area where Clark has considerable expertise dating back to her time as Housing Minister where she fought a rearguard action to stop state-owned houses being flicked into private ownership as part of Sir Roger Douglas' flat-tax package.
A House Prices Group has been set up with the Department of Prime Minister and Cabinet to drive policy development.
Clark has also deputed two new Cabinet Ministers: Maryan Street (Housing), and Shane Jones (Building and Construction) to build on work done by Associate Finance Minister Clayton Cosgrove, who formerly held Jones' portfolio. Jones and Street are among the more talented of Labour's 2005 lineup. Each has considerable "street cred" with the business sector.
But while Clark is passionate about housing, the timing of the new policies - the third year in her third parliamentary term when the housing market is potentially on the verge of a slump - has given rise to cynicism.
Many of the respondents to a Herald website call for feedback on the Government's intention to increase the housing stock by freeing up more land for development, and also make it easier for first-time home owners to leverage themselves into a new home through a shared equity scheme, were sceptical on the motivations behind the proposed policies. The quibbles fell into several areas:
* Vote-buying. Is the Government simply planning to bribe voters with taxpayer funds by stumping up one-third of the price for New Zealanders to buy their first (new) home?
Many respondents argued this would simply be following the very successful move the Government made at the 2005 election where Labour - just weeks out from the election - said it would make student loans interest free for those who stayed in New Zealand.
There is clearly a potential for the Government to constrain successive administrations if it invests too much of Cullen's tax surplus into home equity and house prices subsequently fall and fail to recover sufficiently before the home owner sells his/her house on. The cost of a Government contribution of say $100,000 to a $300,000 first-home could end up at $10,000 year (at use of money rates) which soon bumps up the Government's exposure.
There is obviously a risk on this score which tends to suggest that a lot of thought will have to go into just how many millions Cullen budgets to assist prospective owners into their new first home.
* The Government is setting itself up as a sub-prime lender. In essence the Government will be the supplier or guarantor of loans to house buyers who otherwise would not pass muster with lenders (particularly as the credit market tightens). If a major slump occurs it will be the Government with its one-third equity contribution, rather than banks with their first-mortgage security, who end up being "tail-end Charlie".
* The Government would simply be increasing demand and fuelling prices when they need to come down. On this point ministers argue that the intention to make the shared equity loans available only for new houses will ensure further supply rather than demand. But they acknowledge there is a fine balance.
Respondents on the plus side also made several points:
* A lack of institutional memory of the times when New Zealanders did benefit from state help to get into houses. One respondent points to "miserable people" who are fortunate to have their own property and don't remember Housing Corp loans of the 60s and 70s. "Get with the programme, these young people will fund your retirement."
* The schemes are so good they should be expanded to others - not just first-home buyers.
This is an area where the Government will have to tread carefully as it has the potential to be a major political minefield. Mature people ask why shouldn't they be able to access shared equity "loans" so they can get into a modest house after marriage breakups.
Others ask why older people shouldn't be able to get shared equity loans when they downsize into a smaller house, thus releasing cash for their retirement and allowing the Government to recoup equity gain on their death.
* Timing. People also worry over whether shared equity or housing estate boosts is the way to go when they are re-examining how they save and budget. They want the central bank to reinstitute capital ratios that prevent banks from lending too much to people who can't service the debt when interest rates spiral. They also want interest rates to come down to more sustainable levels. This is a plus as it shows a more rational approach to housing is materialising.
* The Government is actually proposing to do something to address the affordability issue when it knows it will court criticism.
This is the major political takeout that will ultimately come through once the Government finds a way of ensuring the negatives don't get in the way of selling its policies. It won't be an easy task but other countries such as Australia, the US and UK do intervene in their markets to make it easier for homebuyers to get a toehold. We're just playing catch-up.
* This is the first part of an in-depth look at housing affordability.
