16 May 2013

Budget addresses housing affordability problem

8:05 pm on 16 May 2013

Under political pressure over the growing problem of housing affordability, the Government has finally acted by announcing a series of initiatives in the Budget.

But there is a big question over whether the plan to force local authorities to speed up housing developments will be enough to put a brake on fast rising house prices - particularly in Auckland.

Radio New Zealand's political editor Brent Edwards analyses the 2013 Budget.

In the Budget, Finance Minister Bill English said making more land available for building and speeding up the consent process would help make houses more affordable.

Legislation has already been introduced to Parliament to put the plan into effect. The bill will be referred to a select committee for consideration, but for only six weeks.

Under the changes, the Government hopes to reach agreements with other councils - similar to the accord with Auckland - and give them the tools to ignore current planning rules so more houses can be built more quickly.

If councils - and Mr English has identified Tauranga, Hamilton and Queenstown as areas of most concern outside Auckland - do not co-operate, the Government has the power to step in and fast-track new housing developments.

As well, Mr English has signed a memorandum of understanding with the Reserve Bank giving it more flexibility to take action to rein in the housing market if it poses a threat to financial stability.

What Mr English will not do, though, is make substantive tax changes to discourage investment in housing as a form of saving.

The Labour Party says the Government will only deal with sky-rocketing house prices if it starts to build affordable homes itself. Labour's own policy is to build 100,000 affordable homes in Auckland over the next 10 years.

The Government will hope that the initiatives unveiled in Thursday's Budget will have some impact.

Bill English believes they could act as a brake on house price rises within two years, not long after the election in 2014. So by election time, voters might already be starting to judge whether National's plan is working.

The Government had to address the housing issue - not just for political reasons, but because rising house prices also pose a risk to the economy. If they continue to spiral out of control, interest rates and the value of the dollar are both likely to rise.

And Mr English acknowledges investment in housing is sucking much-needed money away from investment in the productive side of the economy, particularly export industries. Yet he and his colleagues remain resolutely opposed to making tax changes.

Poverty and housing

In the Budget Bill English also announced a package of initiatives to deal with poverty, including spending $100 million over the next three years to insulate homes of those on low incomes with children or high health needs.

It is part of what the Government calls its targeted approach to dealing with poverty.

But overall the poverty package - developed after months of meetings by the Ministerial Committee on Poverty - included just minor adjustments and has been heavily criticised by Opposition parties.

So, too, has its plans to crack down on State house tenants. Under legislation introduced to Parliament, they will face regular tenancy reviews. It is expected up to 3000 tenants will be moved out of their State homes as a result.

As well, the Government is pushing to have community groups provide more social housing, but in return they will receive subsidies so their tenants pay no more than 25% of their income in rent.

Mr English says the focus should be on support provided to those in housing need, not on how many State houses the Government owns. It is a hint the Government will over time provide fewer State houses.

It is not an argument, though, that Opposition parties will accept and the Budget initiatives have set the stage for a strong political debate over housing and poverty.

Surplus a milestone for National

In the Budget Bill English also confirmed the Government is on track to record a surplus in 2014-15, albeit a modest $75 million. But having made a virtue of its book-keeping and determination to get to surplus, it is an important political milestone for the Government.

Presuming its books stay in shape next year, the National Party will go into the election campaign arguing that only it can be trusted to manage the public finances and the economy responsibly.

But Labour and the Greens point to other forecasts in the Budget, particularly the one which shows the current account deficit - the difference between what the country earns and spends overseas - will get worse.

Nor, they say, does the Budget forecast a significant drop in unemployment.

Labour's finance spokesperson David Parker says that proves Bill English has failed.

Mr English is not so interested in what Mr Parker thinks. It is what voters think of the Budget which matters most.

It is said that Budgets do not win elections - but they can lose them. In this case, Mr English's conservative Budget is no visionary document, but nor is it is likely to lose National the election.

And the Finance Minister has one more Budget to deliver before people go to the polls next year.