The government’s approach thus far to enabling first-home buyers to purchase a house has focussed on monetary subsidies and release of funds from otherwise restricted savings funds. The exception to this trend is the Welcome Home mortgage insurance. The recent 2025 Taskforce and the House Prices Unit reports’ recommendations listed above focussed on releasing land for development and lowering the cost of building new housing through cutting bureaucratic processes. These factors, however, do not address the actual price of existing housing because they only apply to those building new properties. There are three kinds of policy interventions for housing issues: demand side, supply side, and regulatory.[1] Examples of demand side interventions are Kiwisaver-based subsidies and mortgage insurance. Supply side assistance, also known as the market adjustment approach, involves providing assistance to those building new supply.[2] Subsidising market activity generates an expense which, in the current economic climate is undesirable. Regulations are part of the current problem as resource consent processes have become convoluted and expensive.[3] What is needed is an innovative approach that is fiscally neutral, promotes growth, increases supply, thereby reducing demand for housing. Of particular focus in this report is the role of property speculation on existing houses, its effect on prices, and by extension the resources that are not being utilised to construct new supply.
Taking a fresh look at market failure analysis and other market-based approaches may provide fresh insights into the housing problem. It is possible that there are distortions in the market that may require correction. For example, if there are factors in the marketplace which artificially make inefficient business models viable, then house prices may be too high, caused by excess demand. Such a situation would also artificially raise rents as landlords have higher entry-costs and mortgage payments as a result. The analysis will cover various potential distortions to the market such as the above example, and potential solutions. Policy instruments that put incentives for investment in new housing and innovation will be explored, because new housing will address the supply issue that is causing price inflation and increase the productivity of New Zealand’s construction sector.
[1] DTZ Research, p61
[2] Ibid. p63
[3] Brash et al., p54