More from John Armstrong on Green housing policy

In his weekend column John Armstrong referred to the Green housing policy as ‘a dog of a policy’. See ‘Green housing ‘dog of a policy’. He has given me more detail on his views.

The Greens are perfectly entitled to promote such a policy.  But from the moment I read it, I have thought it potentially has huge problems in terms of introduction, workability, equity and fairness. 

Prompting my thinking to some extent was memories of a decision by the Labour Cabinet in the mid-1980s to let the old Post Office Savings Bank offer mortgage finance to people who were not the bank’s customers. (In those days, you had to be a customer to get even a sniff of mortgage finance.)  

The result was that before the bank’s management realised it, the bank was drained of cash from its mortgage fund such that it had to put a temporary stop to lending to long-established customers. You can imagine the furore.  As Postmaster-General, Jonathan Hunt copped the flak. 

In other words, the politics of unintended consequences.

Another factor was that the Greens’ scheme is a shared equity scheme. I was unable to find another such scheme anywhere which is skewed so heavily in favour of the buyer. That may be neccessary if you are targeting home ownership at the very bottom of the income scale. 

But it carries big risks for the taxpayer. 

When you are talking of borrowing $300 million a year —- as the policy hints — the risk is quite high.  I know that at this stage, the policy is in discussion paper form.  But there was little by way of detail, leaving an awful lot of  questions. 

And in this case, the devil is most certainly in the detail.

Yes, a lot of questions that I hope will be answered.

As Armstrong said in his column…

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.

The Green policy is targeted at low income people. Expect many to never be able to afford to pay off capital.

Some will move to higher incomes. Expect some of them to invest any money they can elsewhere without paying off capital – they would quite possibly get better returns than the very low housing interest rate.

So much of the $300 million per year Government debt to cover this policy will accumulate. For years. For decades. For up to half a century, or more.

Remember that Greens called their policy Home for Life.

Armstrong said “I was unable to find another such scheme anywhere which is skewed so heavily in favour of the buyer.

And similar could be said of the Green policy on renting – they want tenants to be giving the right to renew tenancies to allow them to ‘put down roots in the community’. A home for life, owned by someone else.

It might be hard to find another scheme anywhere which is skewed so heavily in favour of the tenant.

What investors would want to be stuck with no choice about changing tenants or selling their property? Expect rental investors to flee the market.

How would the people be housed then?

Oh, the Government could finance them into a Home for Life that they could own without having to pay for it, ever in their life. At possibly a lower ongoing cost than renting.

Greens have opened their policy for discussion. Good. I hope they have a good think about the politics of unintended consequences.

Green links: Short question & answer sheet and Full housing discussion paper

 

2 Comments

  1. Darryl

     /  February 5, 2013

    Just spells DISASTER.

  2. Steve W

     /  February 5, 2013

    So what’s the difference between this and current state housing? Very little. If the people living there don’t pay off capital….they don’t own the house. End of story…..just as we see today with state housing. If this house makes a large number of relatively cheap homes available to low income people it will have succeeded whether they buy or not. Add a means test to this policy for incomes that rise…and you fix most of the problem. Most people will want to own their own homes. A few will be deadbeats…and so what? They would be deadbeats under any regime.

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