The Budget, with a surplus of $372 million, includes $1 billion in new spending – most of it aimed at extra support for children and families.
Delivering the Budget, Finance Minister Bill English said New Zealand could not afford for house prices to double again, as happened between 1999 and 2008.
He said the Government had taken a number of steps to free up housing supply, which he said was essential to improving affordability. These included housing accords with Auckland and Christchurch councils and increased eligibility for Welcome Home Loans.
But the only Budget spending to tackle housing affordability is aimed at construction.
English pointed to a Productivity Commission report which found building materials’ costs in New Zealand were about 30% higher than in Australia. He said duties and tariffs applied to most materials.
Those tariffs and duties will be temporarily suspended and the Government ultimately wants to make the move permanent. English said that would save about $3500 from the cost of a new build.
English said the most significant aspect of the Budget for those hoping to buy a first home was the Government’s focus on limiting spending to levels that would not push up interest rates.
He said a Labour-Greens Government with less disciplined spending could push interest rates to over 10 per cent.
Treasury expects house prices to rise 7.3% in the year to March 2015, 4.3% the following year and then settle at about 2.5% annual growth.
It predicts GDP growth to peak at 4% in the year to March 2015, slowing to 3% the following year and 2% the year after.
Inflation is likely to remain below 2% until the second half of next year, when it will accelerate to 2.5% over the next two years, Treasury expects.
Westpac’s economists said that meant the Reserve Bank was likely to raise the OCR fairly rapidly, reaching a peak of 5% by March 2018.
The housing move was welcomed by the New Zealand Bankers Association.
Chief executive Kirk Hope said: “The move to temporarily remove tariffs and duties on building products is an innovative one. Reducing the cost of building a family home should help improve the supply of housing, especially in conjunction with previous steps taken by the government to free up housing supply. Significant challenges remain in regards to housing affordability in Auckland and this will be an area that will require ongoing focus from both central and local government.”
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