Allure of the lump sum

Some years ago Don Brash, Reserve Bank governor at the time, revealed that he had applied right reason to his decision to rent, not own, and was all but declared unpatriotic for his trouble.

Not surprisingly then, no one was prepared to put their head above the parapet last week when it was revealed the Government was working on a range of new-old measures, possibly including a lump sum payment, to help families into their first homes.

National Party finance spokesman John Key opted to hold fire till he could see the detail, in which we all suspect the Devil likes to lurk. He did warn that in Australia, where a lump sum of A$14,000 is available to all, the effects have not all been positive. In many cases it simply gets added to the house price by developers or sellers, or alternatively leads people into a highly geared purchase that becomes as much a liability as an asset when prices slide – as they are doing now.

But his reservations fell some way short of condemnation and he freely conceded that a move to help families struggling to get into their first home would be electorally popular, despite some economic fishhooks. "In principle, home ownership is a great thing, and it is falling slightly".

Across New Zealand it fell from 74 per cent to 68 per cent in the decade to 2001, and is likely lower now. Among Maori and Pacific households it is well under 50 per cent and falling. Investors who use their existing equity to gear up and buy houses, which the asset poor cannot afford, are taking up the slack.

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