Handouts for first homes

The Real Estate Institute has criticised options being considered by the Government to help first-time home buyers, warning it could end up as another student loans scheme.

Private home ownership rates have fallen over the past decade from 74 per cent to 68 per cent, and house prices are soaring.

But the institute said any proposal should be based on providing incentives to save rather than delivering a lump sum for a deposit.

REINZ national president Graeme Woodley said the institute had been advocating assistance for first home buyers for many years, but was wary of policies that could cause more problems than solutions.

Lump sums, by way of Government-funded deposits, or guaranteed mortgages for people with no collateral, were bound to cause distortions.

"A lump-sum scheme would immediately increase demand for homes and put values under pressure, creating the very situation the Government is seeking to overcome."

Tax deductions on savings were fairer because they required a commitment from the would-be homeowner and would cushion the impact to the housing market.

It was also less discriminatory than simply diverting taxes from those on higher incomes.

"If we are going to provide first home assistance it should be available to all, but potentially graduated in terms of income," Woodley said.

The institute had reached its conclusions after inspecting the Australian first home ownership scheme, which provided flat dollar amounts for first home deposits.

Another possibility was making mortgage interest tax-deductible for first home buyers, up to a level.

Woodley also warned against a simplistic analysis of the reasons home ownership was more difficult.

"Certainly prices are rising faster than incomes, but part of that has to do with New Zealanders' passion for 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."

- NZPA