Chris Bishop, Housing Minister and National\u2019s housing spokesman, acknowledged this back in 2024 when the Government abolished the First Home Grant \u2013 which used to give eligible KiwiSaver members up to $10,000 to go towards their first home.<\/p>\n
His argument was: \u201cThe answer to New Zealand\u2019s housing crisis is not demand-side measures like the First Home Grant, but supply-side solutions.\u201d 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 \u2013 a supply-side solution.<\/p>\n
Bishop points to other measures to increase supply \u2013 RMA and Building Act reform, for example \u2013 and says that in a stable housing market he doesn\u2019t see \u201cany risk\u201d from a \u201cmodest expansion\u201d of the First Home Loan scheme.<\/p>\n
Stable? For now. Modest? The income ceiling is doubling.<\/p>\n
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\u2019t completely abolish house price caps.<\/p>\n
Within six months, homes below the cap rose 6.7%, while those above rose only 3.6%.<\/p>\n
That doesn\u2019t prove the scheme caused the disparity \u2013 but it\u2019s difficult to ignore when the two had previously been moving fairly well in lockstep.<\/p>\n
Economic commentator Bernard Hickey puts it this way: \u201cYou say you\u2019re helping first home buyers, but what you\u2019re actually doing is helping the people who are selling those houses to first-home buyers \u2013 because it increases the price.\u201d<\/p>\n
In New Zealand, where there is no house price cap, buyers could simply end up spending more \u2013 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.<\/p>\n
It also doesn\u2019t sit comfortably with National\u2019s stated aim of economic growth.<\/p>\n
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.<\/p>\n
Hickey suggests: \u201cWhat you\u2019re doing is increasing New Zealand\u2019s reliance on the housing market and making our economy even more of a housing market with bits tacked on.\u201d<\/p>\n
I\u2019d also suggest it sits awkwardly with K\u0101inga Ora\u2019s stated purpose.<\/p>\n
Its legislated housing functions explicitly include helping people on \u201clow or modest incomes who wish to own their own homes\u201d. At well over twice the median household income and more than four times the median individual income, it\u2019s difficult to see how an individual earning $300k fits that description.<\/p>\n
That\u2019s not to say the income cap didn\u2019t need to rise \u2013 it did.<\/p>\n
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\u2019t explain why its replacement needs to be $300,000 \u2013 let alone why the same threshold should apply to one person.<\/p>\n
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\u2019t just reach into that top 4% \u2013 it extends all the way to an individual earning $300,000.<\/p>\n
While buying your first home is definitely not easy, conditions are easier than they have been in a long time. National\u2019s own policy document points out first-home buyers made up 29% of all purchases in July \u2013 the highest monthly share in more than 20 years.<\/p>\n
Even without increasing income limits, the K\u0101inga Ora scheme is growing fast. In the past financial year it insured new loans worth $2.38 billion \u2013 up 40% on the prior year.<\/p>\n
To be clear, these aren\u2019t all 95% mortgages. While borrowers can have deposits as low as 5%, K\u0101inga Ora told me the average is 10.2%.<\/p>\n
It\u2019s also a common misconception that you otherwise can\u2019t buy a home unless you have a 20% deposit \u2013 you can! <\/p>\n
The Reserve Bank\u2019s 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 \u201cwell below\u201d the limit. <\/p>\n
House prices fell after the LVR rules were tightened and interest rates were hiked. Photo \/ Fiona Goodall<\/p>\n
Squirrel mortgage adviser Adam Clark says: \u201cIt\u2019s not particularly difficult to get low deposit lending at the moment.\u201d <\/p>\n
The Reserve Bank doesn\u2019t impose LVR limits for a jolly \u2013 they\u2019re a financial stability tool designed to limit risky mortgage lending and make households, banks \u2013 and the financial system \u2013 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. <\/p>\n
Bishop says there is a risk that households \u201cwho could comfortably service a large mortgage are locked out of the First Home Loan scheme\u201d. But being locked out of this particular scheme isn\u2019t the same as being locked out of home ownership.<\/p>\n
Plus, is comfortably servicing a large mortgage really the most we can hope for from households earning up to $300,000?<\/p>\n
Not only do we want high earners building savings and investing for retirement \u2013 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.<\/p>\n
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?<\/p>\n