KiwiBuild reset is potentially dangerous for taxpayers

The New Zealand Taxpayers’ Union believes that replacing KiwiBuild with easy credit policies for first-home buyers is potentially dangerous for taxpayers.

The comment follows the government’s admission that the KiwiBuild scheme was “not working,” so they released new initiatives to address the housing crisis – including reducing the deposit for first-home buyers from 10% to 5%.

However, the taxpayer pressure group pointed out that the initiative places significant risk on taxpayers.

“The American housing crash and ensuing Global Financial Crisis was driven in part by the American Government’s decision to offer subsidized mortgages to low income households, who then failed to meet debt repayments when interest rates increased,” said Joe Ascroft, economist at Taxpayers’ Union.

“Our Government’s decision to adopt a similar approach by offering taxpayer-backed mortgages to households who can only scrape together a 5 percent deposit is an uncomfortable echo to those easy credit policies which induced a housing crash overseas.”

Read more: Govt scraps KiwiBuild target, lowers deposit requirement

Ascroft pointed out that rising unemployment or interest rates might hinder households from meeting repayments, therefore causing trouble to taxpayers.

“If households on ultra-low deposits ever failed to meet repayments due to rising unemployment or interest rates, either taxpayers or the banking system would be put under significant pressure,” Ascroft said.

“Of course, the best approach to housing unaffordability isn’t to load on more debt and subsidies – which will inevitably push housing prices higher – but to enact meaningful supply-side reform. Allowing our cities to become more dense and removing the rural-urban boundary would be good places to start.”