Thursday, November 01, 2012

Fallow on housing affordability

The Herald's Brian Fallow is not what anyone would call a left-winger, but even he can see that the government's response to the housing affordability crisis is a non-starter. And the solutions he proposes instead look almost socialist:

So why not embark on a major programme of state house construction? The Government just doesn't want to borrow the money.

It seems to believe it could never persuade international markets there is an important difference between borrowing to fund an operating deficit and borrowing to fund long-lived physical assets with enduring socio-economic benefits.


The measures are also entirely targeted at the supply side. The Government has ignored the potential of a demand-side intervention along the lines of the old State Advances programme, targeted at the starter home area where market failure is most evident.

The Government can borrow 10-year money at around 3.5 per cent. Why not make 10-year fixed-rate mortgages available at, say, 4 per cent which can only be used to purchase newly built homes below a certain size, say 100sq m?

Again, the government's reluctance to borrow money - even for investment, even when it is profitable - prevents them from seeing the solutions which are right in front of their eyes. Unaffordable housing is a choice made by the government. And they need to be held accountable for that choice.