ACT is criticising Prime Minister Jacinda Ardern for promising to explore further ways of helping first-home buyers with deposits despite Treasury warning against it.
In the wake of ballooning house prices, Ardern said earlier this week her Government would look into adapting the First Home Grant policy to help more first-home buyers tackle the hurdle of saving up a huge deposit.
The Government has homeownership products designed to help people on low incomes into their first home. The First Home Grant enables applicants to access up to $10,000 if they have 5 percent of their deposit, among other conditions such as income thresholds.
"Those are a natural place for us to look at and say, 'Are there ways that we can enable more first-home buyers to use those products?' That's one of the areas that I have asked for advice around," Ardern said on Tuesday.
"In that space, I'm looking at all options that do overcome that hurdle that at the moment means the difference between some people becoming homeowners is whether or not their parents can support them into a home. That's not the kind of divide we want in New Zealand, it's not who we are. We want it to be an accessible market."
But in a briefing to Housing Minister Megan Woods in July 2019, Treasury warned that homeownership assistance without dealing with supply could increase house prices.
"Relying in a large extent on demand-side assistance such as rental assistance and homeownership assistance will struggle to increase supply given the constrained environment," the document reads.
"In fact, financial support is likely to increase prices when supply is constrained. The Accommodation Supplement and HomeStart grants [the previous name of the First Home Grant policy] are examples of demand-side assistance."
"This is classic Jacinda Ardern: Introducing policies that seem kind but actually make matters worse," said ACT leader David Seymour. "She's like a fire-fighter with a hose full of petrol. Pouring more taxpayer money into the housing market will only make the housing crisis worse."
Housing Minister Megan Woods said in a statement to Newshub that the Government considers "a range of views when forming policies", including those of Treasury.
"Note, the report you are referring to is well over a year old."
Seymour said the age of the advice doesn't matter.
"Adam Smith wrote the Wealth of Nations in 1776. Does Labour really believe basic economics has changed in the last 12 months? The fundamentals of our housing market are the same. If you boost demand while housing supply is constrained, prices will rise."
While earlier this year economists tipped house prices to fall thanks to the COVID-19 pandemic, the opposite happened - fuelled by low-interest rates and the Reserve Bank's removal of loan-to-value restrictions (LVRs) making it easier to purchase a property.
Data from TradeMe and the Real Estate Institute shows the average asking price for a house in Auckland is now more than $1 million, with every region in the country seeing year-on-year increases.
The Reserve Bank is preparing to bring back LVRs by March next year, in which case banks would likely require investors to have deposits of around 30 percent to get mortgage lending.
In 2017 Labour campaigned on KiwiBuild as the housing crisis solution, promising 100,000 houses in 10 years, but with just 258 houses built as of September 2019, the policy was 'reset' - the targets were dropped and it shifted towards progressive homeownership.
On top of progressive homeownership, the revamped KiwiBuild included changes to the requirements for a First Home Grant. The deposit requirement was reduced from 10 percent to 5 percent, making it more accessible.
Labour also plans to repeal the Resource Management Act (RMA), the complex piece of planning law which has been blamed for holding back new developments.
Ardern has argued that despite the failings of KiwiBuild, the Government has built more houses than any Government since the 1970s, particularly state and transitional homes.
The Government is pumping $5 billion over four years into building 8000 additional state and transitional houses in partnership with housing providers.