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Providing quality affordable housing

Comment 11th August 2010

Please bare with me while I give reasoning for my idea. I wish to outline some causes of the housing problem and my solution.

Housing expenses (mortgages and rents) are the biggest drain on peoples monetary resources so if this expense can be reduced it will benefit everyone.  The first part of the plan is to reduce housing inflation and the second to provide affordable housing at minimal cost to the government. 

Much of todays problems have occurred due to housing crisis which started in the USA but spread worldwide. If house prices were restricted from rising so quickly many of the sub-prime mortgages would not have been approved. Poor lending practices from banks assumed that house price inflation would cover for default loans. This. of course, was false. 

This was also fueled by people using residential property as a wealth creation tool. This needs to change. The buy-to-let owners need to be reined in and more restrictions put in place to prevent the quick buying and selling of residential property to make a 'fast buck'. 

The following, admittedly simplistic argument, outlines part of the problem.

Presently home ownership is roughly 60%. That means for every 100 houses that a buy-to-let person or company owns, roughly 60 houses have been taken out of the market for the ordinary person to buy. The buy-to-letters can often afford to pay over the odds as they are generally not looking for a quick return and are building a portfolio. The other 40 houses are then fought over by the 60 ordinary buyers. This of course inflates the prices more. There are many buy-to-letters out there with hundreds of houses. This is ridiculous. More residential property needs to available for the ordinary person.

Negative gearing and other tax benefits should only be allowed for one rental property… or possibly two at the most.  High deposits or no loans for 3rd properties (as the Chinese have instigated) should be brought in here. High capital gains taxes on the sale of properties if sold within a year. The tax to be reduced until near zero after 15 years of ownership. This includes primary residences.

There are ways to build property wealth with only one or two properties, but that is another issue that I won't cover.

These measures will help slow the house price inflation, which at the moment isn't a problem but will occur again eventually.

The following provides a solution to many other problems as well as the housing shortage:

A government scheme to encourage private investment in the development of quality affordable housing should be introduced. A scheme like this is currently in place in NZ. Private investors pay for the building of a small number of  council run houses in each new development. The investor owns the property which is then leased back to the government, which in turn rents it to people on the council house waiting list. This provides for a large number of council houses to be build which is funded by the tax payer and not by the government.

 The council have strict policing of the properties to maintain their standard. Every 3 months they are inspected and one warning issued for any breaches of standard (either to neighbours or the property). If another breach occurs the tenants are moved out. Due to many of the tenants never having lived in quality housing before there is a 95% success rate of tenants looking after the property.

These properties are rented at market rates, which is agreed to by the owner and council. The council pays this rent to the owner and then is reimbursed by the tenant through rent and/or housing benefit.  Even if there is not a tenant the owner still receives the rent. It is very rare that a tenent is not there, except for repair work. This means the income is 100% government/council guaranteed which is a huge plus for the banks that people borrow from.

The houses can be bought and sold as per any other property with the caviat that the new owner must re-lease the property back to the council. The tenants do not need know of any change of ownership. The properties are maintained by the council to a high degree.

These investment properties should be further encouraged with tax incentives, and as many of these properties can bought by buy-to-letters without tax penalties, which should be in contrast to tax on multiple private dwellings that are not part of these schemes.

Why does this matter?

It gives a solution to providing quality affordable housing with very minimal cost to the government.

It helps to get people out of impoverished areas with no hope and into an environment where their lives can have a positive outlook. This will help to break the never ending cycle of helplessness  that some people have been born into.

By encouraging people to buy government backed affordable housing it will provide income for them in their retirement. This will ease the burden on pension credits.

It will help the economy by giving builders and all the associated industries a big boost.

As the housing is 100% government guaranteed, banks will lend more.

These ideas will slow house price inflation down which will put more money into peoples pockets, which in turn they, hopefully, will spend and help the economy.

 

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