Key’s $1 billion is not a game changer, says CPAG

The $1 billion promised by the Prime Minister to pay for local council housing infrastructure seems to show significant recognition of the growing housing crisis and the need for a better and more urgent response.

But Child Poverty Action Group (CPAG) says the money could come at a greater price for local councils, and may do little to prevent house prices from rising. Yesterday Prime Minister John Key conceded that there has been a rise in homelessness over the past eight years the National party has governed.

This admittance comes shortly after public mobilisation by an organisation called Park Up For Homes, which rallied people together in overnight “Park Up” protests across the nation, to show Key that the pitiful response to the housing crisis delivered with the 2016 Budget was simply not enough.

On the surface this $1 billion looks like Government is coming to the party.

But CPAG’s concern is, what looks to be a significant commitment by the Government is really just more debt, and may do little if anything to address homelessness or provide opportunities for first-home buyers. Furthermore this debt may put increased pressure upon local councils which already have borrowed heavily to fund infrastructure investments.

The proposed spending comes from a debt that will be on-loaned to local councils at zero interest with the expectation that it will be repaid through rates and other levies over the next 10 years. As its contribution Government pays the interest. Presently Government is borrowing at rates of less than 3% which suggests that at its peak the actual subsidy to councils will be around $30 million per year, or around $150 million over the ten-year life of the fund.

Alan Johnson, CPAG housing spokesperson says: “The question that should be asked is whether councils can afford to be borrowing more when some of them appear to be sinking in a sea of debt.”
“A city like Auckland obviously needs more people and more ratepayers to pay for this regional scale infrastructure investment but under John Key’s new plan many of these new ratepayers will be paying only for the debt wracked up in infrastructure to serve their property alone.”

This new debt which Government is promoting reduces costs for developers, but It seems unlikely that new house prices will drop significantly as a result. New house prices are not just related to the cost of developing and building, but to existing house prices. High prices for existing houses will generally be reflected in higher prices for undeveloped land on the urban fringe as well. So it does not follow that lower costs for land owners and developers will mean lower new house prices.

“If Government believes that this debt fund will provide affordable houses it should be telling the public how many houses approximately and how affordable will they be. I expect that answer will be ‘we don’t know but it will help’,” says Johnson.

CPAG says that given the scale of the actual real contribution ($15-30 million annually) such a vague answer is reasonable because this initiative is not a major game breaker. But a game breaker is urgent given the magnitude of homelessness and housing-related poverty in New Zealand.