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The image features Chris Bishop, a Member of Parliament the National Party, against a background that appears to be a stylized, pixelated depiction of various New Zealand banknotes. The image includes the branding "THE BULLETIN" on the right-hand side.

The BulletinMay 23, 2024

The sudden death of the first home grant

The image features Chris Bishop, a Member of Parliament the National Party, against a background that appears to be a stylized, pixelated depiction of various New Zealand banknotes. The image includes the branding "THE BULLETIN" on the right-hand side.

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Well that didn’t take long. On Tuesday night, Newshub’s Jenna Lynch reported that the government was poised to scrap the first home grant scheme in next week’s budget. By yesterday morning, other outlets including The Post and RNZ had received the same tip. And at 1pm yesterday afternoon, an advisory informed media that a pre-budget announcement would be made by housing minister Chris Bishop on parliament’s black and white tiles just half an hour later. It was then that Bishop confirmed that the grant, which provided up to $10,000 towards a first home for an individual, had indeed been scrapped. Applications closed immediately and $140m of the savings from ending the scheme – about $245 million over four years – will be used as part of Budget 2024 to fund 1,500 new social housing places via community housing providers.

The balance between good policy and good vibes

As someone who very recently used the grant to buy my first home, I feel incredibly fortunate with the timing. For me, that additional grant money was the difference between purchasing a house or staying in a rental. And I wasn’t alone. Stuff’s Glenn McConnell reported that 12,000 people were approved to receive a grant last year, and since June 2017, 87,000 have been paid out. In a first home buyers Facebook group, one prospective homebuyer called the news devastating. “Looks like the dream is shattered,” they wrote. “We were counting down the days to apply for the grant.” RNZ’s Katie Scotcher has another story like this today, speaking to a Taupō man that was intending to submit his paperwork for the grant on the same day applications closed. But while these individual instances suggest the first home grant was helpful on a case-by-case basis, the counter argument is that it was poor economic policy, as economist Brad Olsen told McConnell. “It was a subsidy on buying a house, and because of how inelastic housing is, that subsidy really was bidding up prices,” Olsen said. “I am torn… from an economist’s point of view it was not good policy. But at least it did something for first home buyers.” Bishop also argued the scheme was inefficient, reported RNZ, saying evidence showed that while the grant brought forward the purchase of a new home, “in most cases it does not make a difference to whether someone can buy a home or not”.

The fallout

As Newshub’s Jenna Lynch noted last night, the government had never signalled its intention to scrap the grants and certainly did not campaign on it. In fact, National had previously argued for raising the first home grant and as recently as 2021 criticised Labour for the cap being too low. Bishop said that was then, and this is now. “We have just had to front the fiscal conditions that we are in,” Bishop said. But Labour’s housing spokesperson Kieran McAnulty called the move a kick in the guts for first homebuyers and said Bishop was out of touch, as The Post reported. “I don’t think he gets how important this is for a lot of people, how hard it is to buy a home.” Also writing for The Post, Luke Malpass said it was risky any time a government ditched so-called “free money” policies. But, he said, the move showed the government was serious about investing in things that delivered the “best bang for buck”. As such, Malpass said it would be interesting to keep an eye on the fate of the last government’s free prescriptions scheme in the upcoming budget, “a subsidy which has a far greater public health rationale”.

On the same day, a stagnant cash rate

For those who already own a home, yesterday’s biggest news came about half-an-hour after Bishop’s pre-budget announcement. The Reserve Bank revealed, as had been expected, that it was keeping the official cash rate at 5.5%. Interest’s David Hargreaves broke down what it meant, with the Reserve Bank signalling it could raise interest rates in the future. The central bank also pushed back when it expects to see inflation get back into the targeted range of 1% to 3%, picking the fourth quarter. None of this was overly surprising, though Kiwibank’s economists called the tone of the bank’s commentary “more hawkish than expected”, but it nevertheless provides a gloomy entree to the government’s budget. Luke Malpass at The Post has analysis of this as well.

As The Herald’s Audrey Young noted earlier in the week, there have already been a lot of pre-budget speeches. The most recent of these was from Labour’s Barbara Edmonds, whom Young said delivered the best of the bunch. Next up is finance minister Nicola Willis who will speak to the EMA in Auckland later this afternoon.

Keep going!