Chris Bishop, Housing Minister and National’s housing spokesman, acknowledged this back in 2024 when the Government abolished the First Home Grant – which used to give eligible KiwiSaver members up to $10,000 to go towards their first home.
His argument was: “The answer to New Zealand’s housing crisis is not demand-side measures like the First Home Grant, but supply-side solutions.” And yet, National is now proposing to drastically expand eligibility for a demand-side solution, not long after bowing to political pressure to reduce planned intensification in Auckland – a supply-side solution.
Bishop points to other measures to increase supply – RMA and Building Act reform, for example – and says that in a stable housing market he doesn’t see “any risk” from a “modest expansion” of the First Home Loan scheme.
Stable? For now. Modest? The income ceiling is doubling.
Australia provides us with a live demonstration of the risk. It removed income caps from its own 5% deposit guarantee scheme in October last year but didn’t completely abolish house price caps.
Within six months, homes below the cap rose 6.7%, while those above rose only 3.6%.
That doesn’t prove the scheme caused the disparity – but it’s difficult to ignore when the two had previously been moving fairly well in lockstep.
Economic commentator Bernard Hickey puts it this way: “You say you’re helping first home buyers, but what you’re actually doing is helping the people who are selling those houses to first-home buyers – because it increases the price.”
In New Zealand, where there is no house price cap, buyers could simply end up spending more – because they can. The power of leverage means reducing the deposit requirement dramatically increases the purchasing power of someone with enough income to service the resulting debt.
It also doesn’t sit comfortably with National’s stated aim of economic growth.
Why? Because, as almost every economist will tell you, what New Zealand desperately needs is more capital flowing into productive businesses that create jobs and raise productivity, rather than ever more capital chasing existing houses. We already have circa $400 billion of residential mortgages, after all.
Hickey suggests: “What you’re doing is increasing New Zealand’s reliance on the housing market and making our economy even more of a housing market with bits tacked on.”
I’d also suggest it sits awkwardly with Kāinga Ora’s stated purpose.
Its legislated housing functions explicitly include helping people on “low or modest incomes who wish to own their own homes”. At well over twice the median household income and more than four times the median individual income, it’s difficult to see how an individual earning $300k fits that description.
That’s not to say the income cap didn’t need to rise – it did.
Bishop gives the example of a teacher earning $78,000 and an electrician earning $85,000 who have recently returned from their OE with little in savings. Their combined $163,000 income puts them just outside the bounds of the scheme and shows why the $150k cap was outdated. It doesn’t explain why its replacement needs to be $300,000 – let alone why the same threshold should apply to one person.
IRD data suggests just 4.1% of wage and salary earners make more than $180,000 a year, or about 116,000 people. The new cap doesn’t just reach into that top 4% – it extends all the way to an individual earning $300,000.
While buying your first home is definitely not easy, conditions are easier than they have been in a long time. National’s own policy document points out first-home buyers made up 29% of all purchases in July – the highest monthly share in more than 20 years.
Even without increasing income limits, the Kāinga Ora scheme is growing fast. In the past financial year it insured new loans worth $2.38 billion – up 40% on the prior year.
To be clear, these aren’t all 95% mortgages. While borrowers can have deposits as low as 5%, Kāinga Ora told me the average is 10.2%.
It’s also a common misconception that you otherwise can’t buy a home unless you have a 20% deposit – you can!
The Reserve Bank’s LVR speed limits allow banks to make up to 25% of their new owner-occupier lending to borrowers with less than 20% equity, and with less than 15% in that category in May, the RBNZ said banks were “well below” the limit.
House prices fell after the LVR rules were tightened and interest rates were hiked. Photo / Fiona Goodall
Squirrel mortgage adviser Adam Clark says: “It’s not particularly difficult to get low deposit lending at the moment.”
The Reserve Bank doesn’t impose LVR limits for a jolly – they’re a financial stability tool designed to limit risky mortgage lending and make households, banks – and the financial system – more resilient. In fairness, the RBNZ currently considers housing-related financial stability risks to be contained. But there is an awkward tension in the RBNZ maintaining guardrails around highly leveraged borrowing in the name of financial stability, while National proposes expanding a scheme specifically designed to enable more of it.
Bishop says there is a risk that households “who could comfortably service a large mortgage are locked out of the First Home Loan scheme”. But being locked out of this particular scheme isn’t the same as being locked out of home ownership.
Plus, is comfortably servicing a large mortgage really the most we can hope for from households earning up to $300,000?
Not only do we want high earners building savings and investing for retirement – we want them to have the ability to take a risk on starting a business, rather than tying up ever more of their income in servicing housing debt.
For the teacher and electrician earning $163,000 that Bishop cites, the deposit likely really is a genuine barrier. But at what income level does home ownership cease to be a problem the Government needs to solve?
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