O'Rourke Denis: Estimates Debate — In CommitteeText is incorporated into the Bound VolumeO'Rourke Denis: Estimates Debate — In Committee[Sitting date: 31 July 2013. Volume:692;Page:12150. Text is incorporated into the Bound Volume.]DENIS O’ROURKE (NZ First):I think the National Government’s housing policy is a mess and housing in New Zealand is in deep crisis. There are severe housing shortages especially in Auckland and Christchurch and homebuyers especially first-home buyers cannot afford to buy a house. In a home-owning democracy which New Zealand has always been this is a national disgrace. In Auckland there is a need for at least 10000 new houses per year probably 12000. There is already a housing deficit there of well over 30000 houses and growing and under the Government’s plans there is a probability of no more than 10000 new houses per year. So on that basis the Government’s plan will never catch up. The Government’s plan is obviously a failure but the worst is that young people seeking a first home will not be assisted by this Government to get a home of their own under its “too little too late” policies.To make matters worse it is highly likely that the Reserve Bank will shortly limit the quantum of high loan-to-value ratio mortgages that the trading banks can make. High loan-to-value ratio loans will typically cover 80 percent or more of the total property value. The Reserve Bank seems to be arguing that the purpose of this is to improve overall financial stability. The higher borrowers are leveraged the greater the risk that a property downturn could trigger a major economic meltdown echoing the subprime mortgage crisis that generated the global financial crisis. So the Reserve Bank wants to restrict high loan-to-value ratio mortgages to avert the dangers of risky lending but I think this is a flawed policy.Firstly it is a second-best strategy. Normally the Reserve Bank would raise interest rates but it cannot do that without raising an already overvalued dollar and inflicting all sorts of damage on the economy. Secondly it will not actually work in practice because people can resort to all sorts of subterfuge to circumvent this restriction by shuffling money around. This has all of course happened before. Thirdly the Reserve Bank’s housing policy is Auckland-centric. Christchurch and elsewhere in New Zealand face different issues and the results are therefore likely to be patchy and inappropriate for much of New Zealand. Fourthly it will do nothing to deter property investors and speculators who have been buying up Auckland property and who also have ample equity. Fifthly it does nothing about the migrant flows which have been concentrated in Auckland. It does nothing to tighten immigration policy in areas such as parental reunion which have added significantly to housing demand in Auckland by we think something like 10 percent. That is a significant portion. Lastly and most important its impact will fall most directly on first-home buyers. It is not the first-home buyers who are driving this bubble but they will be the sector most heavily penalised by limits on loan-to-value ratio lending. Perversely the policy may encourage them to seek the extra equity they will now need from potentially risky sources such as finance companies and this would of course add even more financial risk to the system.We in New Zealand First think the Government’s policies are overall to blame. The Government has acted far too late. Over the last 4 years the Government has allowed a housing price bubble to emerge in Auckland by its inept immigration and housing policies. Only a comprehensive housing strategy designed to address both demand and supply factors as advocated by New Zealand First will make housing affordable for first-home buyers. New Zealand First supports a broadly based housing policy that will make homeownership a reality again rather than a dream for working New Zealanders.New Zealand First’s policy to assist first-home seekers is to establish a new State agency to acquire land to create a land bank in areas where demand clearly exceeds supply and those of course are currently Auckland and Christchurch. The agency would sell residential sections of a modest size on the basis of long-term agreements for sale and purchase of up to 25 years to first-home buyers. This reduces the upfront capital cost of a new home by we think something like a third. Interest rates would be highly concessionary at 2 percent for an initial period of at least 3 years. Purchasers would build their own homes using normal bank financing and would have title to thesection transferred to them with the amount owing to the agency secured by way of a second priority land charge. The Government’s special housing areas are not enough—