Why is it that when it comes to our so-called housing crisis, no politicians seem to get it?
It’s not hard to grasp. For half a century we have consistently failed to build enough houses for our growing population and so the basic rule of supply and demand comes in. Desperate purchasers fight amongst themselves for too few houses and then pay above the odds or give up and sulk.
It’s like two hermit crabs fighting to the death for one shell.
Meanwhile, people with a bit of spare cash stick it into investment housing instead of a bank or equity in a business. And because interest rates have been so low for so long it’s a money tree of capital growth.
The factors are simple to see. Natural population growth. High immigration. Low levels of construction. Poor forward planning.
At the heart of it all is one simple fact. This country doesn’t have enough houses.
You know this. I know this. So why don’t they know it.
I say this because the latest grand idea to get first home buyers into an affordable house ignores that fact completely. In fact it will only add to the problem on the demand side.
Phil Twyford is investigating a government-backed shared equity scheme.
The scheme would allow a third party such as the government to co-own a property by taking on a share of the mortgage. That would reduce the owner's deposit and weekly mortgage payments.
It can get quite complex with conditions on prices and who gets the capital gain but basically, you can view it like the government providing a cheap second mortgage.
And that’s where the wheels start coming off. Because if you can’t afford to borrow the whole lot from one lender in the first place why would anyone think you were able to afford a second lender, especially in these days of single-digit interest rates
And as it enables a low earning family to borrow more than they were originally able to it has a few echoes of the subprime mortgage scenario that caused so many problems in the States and sparked the GFC
But the biggest problem is that it extends a whole new line of cheap credit to another sector of the market who will then compete against each other to by the few affordable houses around and that will push those prices up again. Back to the hermit crab analogy.
The big problem is at the end of the day this scheme doesn’t build a single new house.
And that’s what Phil Twyford promised. To build 100,000 houses. Recently he’s changed that to facilitate building houses and now he’s suggesting not building a house and becoming a bank. It’s a slow descent towards the realisation that the government hasn’t got a clue what to do.