Easy Fixes for First Home Buyers will make it harder to buy a home
Two recent fixes for First Home buyers sound to easy to be true - either the Government giving a grant, or longer term mortgages of up to 50 years.
Both will fail in their objectives for the same reason.
Remember when you were in third form, and you had your very first lesson in Economics - Supply and Demand? You learnt that when demand exceeded supply, prices rose (all other things being equal) and that when supply exceeded demand, prices fell.
As there is only a limited number of houses available to go on the market at any one time. And increasing the number of potential buyers will just drive the prices up further as buyers have to outbid each other for the same houses. I bet that $1 of Government grant the value of houses will rise around $10. (Based on 90% mortgages.)
Increasing the demand is not the solution - then the obvious answer is to increase the supply. But the RMA and other planning rules are barriers to increasing the supply of houses.
And perhaps first home buyers need to be realistic - our parents generation bought their first homes in Wainuiomata, Naenae or Porirua East, not 200sqm apartments on Cuba Street or trendy suburbs like Khandallah. When they had built the equity, they would trade up.
Both will fail in their objectives for the same reason.
Remember when you were in third form, and you had your very first lesson in Economics - Supply and Demand? You learnt that when demand exceeded supply, prices rose (all other things being equal) and that when supply exceeded demand, prices fell.
As there is only a limited number of houses available to go on the market at any one time. And increasing the number of potential buyers will just drive the prices up further as buyers have to outbid each other for the same houses. I bet that $1 of Government grant the value of houses will rise around $10. (Based on 90% mortgages.)
Increasing the demand is not the solution - then the obvious answer is to increase the supply. But the RMA and other planning rules are barriers to increasing the supply of houses.
And perhaps first home buyers need to be realistic - our parents generation bought their first homes in Wainuiomata, Naenae or Porirua East, not 200sqm apartments on Cuba Street or trendy suburbs like Khandallah. When they had built the equity, they would trade up.
posted by Michael at
8:54 PM
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