September 16, 2009 1:36pm by David Farrar

State House Tenants can now buy their homes

From today those state house tenants in a position to buy the house they live in can do so, says Housing Minister Phil Heatley.

Over the next week, Housing New Zealand will be approaching about 3,800 state tenants who pay market rent and live in a home that is available for purchase, to make them aware of the opportunity.

Letting a family who may have lived in a state house for years and years, maybe even decades, buy the house is such common sense, you have to wonder if anyone could possibly think it is a bad idea. Well Labour do of course/

Marty G at The Standard has said he is not oppossed automatically to state house sales, and proposes four conditions:

Housing NZ must use all revenue from sales to buy new houses – we don’t want the amount of housing available for the most needy decreasing.

I’m surprised he does not realise that is Government policy – that the money from sales will go to purchase new housing.

It must not sell all the houses in wealthy areas only to construct state house only neighbourhoods – the poor and the wealthy should not be physically separated by government policy.

Now having just argued for the importance of not decreasing the amount of state housing available, Marty then argues for a measure that will decrease the number of available houses.

The median house price in Manurewa is $250,000. In Mt Eden is is $600,000. If you sell 10 houses in Manurewa and replace them with houses in Mt Eden you can only afford four houses.

I’d rather have ten families in state houses, than four, for the same investment.

There are more than enough modestly priced areas to have state houses, without creating state house only neighbourhoods.

The houses must only be bought by their current tenants – we don’t want them claimed by wealthy investors, locking out the poor.

That also happens to be Government policy. I note Marty makes a classic mistake by assuming that people living in state houses are poor. They certainly were poor when they first moved in, but the 3,800 paying market rents are no longer poor. You could argue that their houses should be sold to anyone, with them just given first option.

This is the problem of providing housing assistance through having lower rentals for state houses, as opposed to income assistance regardless of who your landlord is. To provide maximum equity, you really should evict tenants from their state houses once their income rises so they no longer are “poor”, But no one does that because of the fuss it would create. But what this means is that you have people on a waiting list for a state house who are far worse off income wise than the current tenants.

Likewise when the number of people living in a state house reduces (as kids leave home), you should ideally shift them to a smaller house. Not doing so again leaves more needy tenants on the waiting list (and there will always be a waiting list). This is one reason why I think income assistance rather than lower rentals is a better policy approach.

There must be a caveat on the titles to the properties preventing them being rented out by a private landlord – that way they can’t be bought out by property investors as happened in the 1990s.

Now this is just bizarre. If for example an elderly couple need to more into a retirement home, they can’t rent out the house they own. Blaise Drinkwater responds to this point on his blog:

What Marty G wants to do is sell the house to the tenant—because the tenant is Needy and home-ownership is A Good Thing—, but then dictate who this buyer may sell the asset to at a future date. This kneecaps the value of the house: to restrict the pool of potential buyers is to decrease demand artificially. The needy tenant is disadvantaged by this.

There is envy implicit in Marty G’s calculus: property investors must not be allowed to own ex-state houses because they’re rich and that’s bad. This leads him to a policy preference designed to restrict the wealth of the wealthy by diminishing their economic opportunities, but has as a side-effect: it also restricts the wealth of the needy by diminishing their economic opportunity. It turns out you can’t have one without the other.

Repeat after me: if you outlaw a voluntary transaction, you’re hurting all the parties that would benefit from that transaction, and not just the ones you’re trying to hurt.

Blaise sums it up well.