House prices held by Govt, says Mr Goff

Press, 24 June 1985, Page 13

House prices held by Govt, says Mr Goff

Tight monetary control by the Government was containing a potential boom in house prices, the Minister of Housing, Mr Goff, has said in Christchurch. Mr Goff told a meeting in the Yaldhurst electorate that without interest rates acting as a constraint, house prices “would have gone through the roof, as they did in 1981-84.” Interest rates would by later this year level off and start gradually to move down in a sustainable and permanent way, he said. Inflationary pressures in the second half of the year would begin to abate. “These forecasts are not just the prediction of the Government. In one preBudget economic assessment, for example, the highly respected independent forecasters, ‘lnformetrics’ predicted a drop in the underlying rate of inflation to around 7 or 8 per cent by 1987 and the restoration of strong and sustainable growth in the New Zealand economy for the first time in a decade,” said Mr Goff. Mr Goff said that the Government had given housing a high priority. To prevent a rundown in rental housing, State house sales were suspended in the short term. About 1800 a year had been sold and less than a third replaced, he said. “Instead, tenants wishing to buy homes have been given encouragement through provision of loan finance to buy homes in the

private sector. “Over 356 homes have been freed up in Christchurch in this way since July, 1984,” he said. The number of houses being constructed or bought for rental had trebled this year. “In one year we will put in place more State rental houses than the National Government did in three,” Mr Goff said. The budget for lending to modest-income families to get into homes of their own has been substantially increased. An additional $95 million has been allowed so that Housing Corporation loans were increased to a more realistic level. “The provision of refinance money to help people in last resort situations has been quadrupled. “We are now putting together through the Housing Corporation a new, imaginative programme to get even more low-income families into homes of their own, while giving a boost to the building industry,” he said. In addition to 1500 corporation rental units, the Government would provide 500 houses, mostly new, which would be available to families who did not qualify for Housing Corporation loan finance. “This includes families who by virtue of a low income or high rent cannot save enough to bridge the deposit gap,” Mr Goff said. It would also include some families with dependants who'had a deposit but

who, at least in the short term, could not afford mortgage payments. “By helping these people into home ownership, we can take some of the pressure off State house waiting lists and free up accommodation in the private rental sector,” said Mr Goff. “Because the families are low income, mortgage repayments have to be affordable. Repayments will be based on 25 per cent of the household income. “That means little will be paid off while incomes are low but when incomes improve the mortgage can be paid off more quickly,” he said. “For example, when a spouse goes back to work when the kids are at school, 25 per cent of a two-income family’s wages . will make real inroads into the mortgage. “Similarly, someone on a domestic purposes benefit or a sickness benefit may get the loan and be able to pay very little off it. “However, the average period of time a person spends on such a benefit is only two to three years and thus when they are back at work payments can be made to reduce the mortgage,” Mr Goff said. A real interest rate of 3 per cent would be charged to cover administration and other costs. The mortgage owing

would be adjusted upwards each year in accordance with the rise in the cost of living. This meant that the people getting the loan would not be heavily subsidised and would not be making an unfair capital gain out of inflation, Mr Goff said. “The value of the money put up by the corporation, and therefore the tax-paying public, will be protected,” he said. “The family borrowing it will not be getting something for nothing, and will not be getting an unfair advantage over someone else who has to really struggle to pay off their mortgage.” Mr Goff said that under the pilot scheme the family had weekly repayments lower than the level of rental they would probably have to pay in the private sector. The family also had the responsibility for maintenance, rates and insurance, but they had complete security of tenure and any deposit they made was protected. If the family could not meet its outgoings it could maintain tenure but pass the house back into the public sector rental pool. If the scheme was a success it could become a model for general Housing Corporation lending, said Mr Goff.