Armstrong on Greens housing policy

John Armstrong writes in the NZ Herald:

It is much easier to pass a verdict on the Greens’ new “rent-to-buy” housing package. It is really a huge state house building programme in drag.

Under the policy, low-income families would occupy new, government-built $300,000 homes without having to stump up a deposit or take out a mortgage. The families would instead be required to make a $200 weekly payment to the Government to cover the interest cost on the Crown capital used to build the house. The occupiers would have the option of making additional payments to buy equity in their home.

The Greens won’t say how many such houses they want to build. They say the scheme would complement Labour’s plan, and the Greens’ share of those 100,000 homes would be decided during coalition negotiations.

The policy is easy to comprehend. Its generosity makes it extremely attractive. It seems to make sense.

Wrong. It is a dog of a policy. It should be put out of its misery.

The slow repayment of capital by occupiers under the Greens’ scheme would require the Government to go on a continual borrowing binge. There would be huge problems of fairness in terms of cut-off points for eligibility.

There is no incentive or requirement to pay off capital. Occupiers would have the house for life and enjoy cheap rent at $200 a week. It is not clear whether that payment would increase and by how much when interest rates increased – as they inevitably will. It is not clear who would pay the rates and the general maintenance costs.

Labour’s scheme at least imposes discipline on buyers to maintain the value of their properties by requiring them to take out a mortgage.

The Greens’ policy should carry a health warning. It flashes “unintended consequences” in neon – consequences that would probably have to be picked up by the taxpayer.

Labour has officially welcomed the Greens’ contribution to the affordable housing debate. Instead, it should quarantine this Nightmare on Struggle Street before it taints its own policy by association.

Labour and Greens seem to be competing with who can come up with the biggest bribe, and hope no one notices that the massive borrowing needed by the taxpayer will plunge our credit rating down the gurgler.

Surely what we need is less borrowing, at a time when Governments around the world are crumbling under the burden of their debt.