HomeStart boost could drive prices up

The National Party has promised to increase the funds available to first home buyers under the HomeStart grant but critics say that will simply drive up house prices.

Monday, September 11th 2017, 11:17AM

by Miriam Bell

National will boost the financial assistance available to first home buyers by doubling the financial support available to buy an existing house and increasing it for new builds, Building and Construction spokesperson Nick Smith announced Sunday.

The changes mean a first home buyer couple will be eligible for an extra $10,000 of Government HomeStart Grants, which boosts the grants available to $20,000 for an existing home or $30,000 for a new build.

National will also combine HomeStart Grants and Welcome Home Loans into one HomeStart product, so that first home buyers can access all the support available to them from one place.

The application process for Welcome Home Loans will be simplified to allow accredited banks to approve the 10% deposit, Government-backed loans on the spot.

This means applicants will be able to go through accredited banks rather than having to go through the Housing New Zealand process.

The changes, which will cost $74 million per year, will come into force on 1 January 2018 and are expected to help an additional 80,000 people into their first home.

However, some are questioning how successful this policy will be in practice.

ACT leader David Seymour said the policy will just pump more taxpayer money into an overheated housing market and will drive up house prices further.

The policy will not see a single new house built and will not lead to more affordable homes for young people, he said.

For economic commentator Michael Reddell, first-home buyer grants, in a supply-constrained market, are a daft policy as they lead to higher prices and benefit sellers.

He said that no serious analyst, from any side of the political/economic debate, thinks they are a good idea - and that Treasury and the Reserve Bank have opposed them.

“Subsidies to home buyers - rather than fixing the underlying problem - are like some throwback to the early 1980s, which was the last time we had such direct first-home buyer subsidies.”

Mortgage adviser Campbell Hastie, from Go2Guys, agreed there was merit in the argument that prices will go up.

“To increase demand at a time when supply is what it is that means prices will go up. There is evidence that the benefit of the action will run out.”

He said that the policy will make buying a first home easier for a group of people who will now buy sooner rather than later.

But, in his view, it is no silver bullet for the housing crisis, particularly for those in regions which have seen significant price growth.

“There are not that many properties around that go for under $600,000 in Auckland or in Tauranga or even in Wellington.

“It would have been more useful to increase the income and price cap for first home buyers but leave the amount of assistance available at the same level.”

Tags: banks Lending mortgages