Misplaced Charity

Hawke's Bay Tribune, Volume XXVI, Issue 146, 5 June 1936, Page 4

Misplaced Charity

HOUSING SCHEME 100 P.C. Advance Criticised By Business Man “ASKING FOR TROUBLE” The opinion that for the Government to allow advances up to 100 per cent, of the value of the properties under its housing scheme was only asking for trouble and would have a detrimental, rather than a beneficial, effect, was voiced by a business man in Hastings this morning. He classed the Government's proposals as being “misplaced charity."

“When considering such a project as a national housing scheme it is essential that it should bo on a sound commercial basis, otherwise it will be a colossal failure,” he said. “1 say ‘colossal’ because the magnitude of the failure would be in keeping with the magnitude of the undertaking in comparison with a private undertaking. “The normal commercial basis upon which advances of loans are made on property is Gti 2-3 per cent, of the value,” lie said. “J will admit that it would bo possible to allow a greater margin, even in private investments, but I feel that to allow no margin whatever, or certainly anything less than b, 20 per cent, margin, removes the enterprise from that of a commercial undertaking to a benevolent business. It would be impossible for private enterprise, as it would in reality bo charity, and naturally as such it would not be looked upon at all kindly by those with capital to invest.

“If given effect to then I believe tlmt it will result in the withdrawal altogether of private building enterprises, as investors will look to some other channels in which to invest their money on sound actuarial basis,” he commented.

Pointing out that under the present system of advancing money, whether through building societies, flat mortgages, or from other loans such as are now advanced by the State Advances Department, when a man purchased a house ho had an equity in it from the outset. His monthly payments met the interest on the amount outstanding, but also increased his equity.

"Under thife system the longer a man is in possession of his property the greater each month is his equity,” said the informant. “1 grant you that he is called upon to pay a fairly substantial sum every month, and that sum, viewed in the light of a rental charge, would be considered excessive, but it is really a compulsory saving.” Under this system a man hesitated for a long time beiore he would decide to walk out and drop his savings, he added. Under the proposed scheme o£ the Government, however, he need not hesitate in the slightest about walking out. There was nothing for him to gain by retaining possession and the property would tncn fall back on the Government.

“To my mind this is likely to happen on a big scale and the result of this would inevitably bring about a lull in the market values tlmt would undermine the whole scheme and bring about its downfall, ft is only commonsense to base a loan; or an advance, on adequate security. The practice al present adopted commercially is a third margin of safety. This, as I have already mentioned, may be reduced with a reasonable degree of safety, but to reduce it to nothing is to turn the whole business into a gamble in which no sane business man would invest his money. As 1 see the future, such a proposal would result in the State owning the majority of the houses and becoming one vast controlling agency.

“Frankly 1 cannot see how the Government can expect to bring about any reduction in rents,” lie added, “even if it does go in for wholesale advances along the lines it is now proposed. Cheaper houses than are being built at present can be built, of Course, but the department would have to take into account defaults in payments when assessing the rental oi these cheaper places, and in consequence the working man would not be any better off than before. The man that could and did pay would be called on to pay for the man that should but did not pay.”