WFF lump sums not the answer to affordability

Giving benefits to middle and upper income families is madness. Peter Dunne’s suggestion that people be able to capitalise Working for Families benefits  as a lump sum to buy a home is even worse.

It would add to the burden on the public coffers by bringing forward the payments. The country would be borrowing more to enable a select group – families who could afford to buy a house – to borrow less, or pay more than they could without the lump sum.

WFF payment are based on family income and the number of children. As income increases the benefit decreases imposing a very high effective marginal tax rate.

Offsetting Behaviour has the figures which show that around half the 357,200 WFF recipient families in the 2008 tax year faced an EMT rate of more than 50%.

Why would you work harder, gain higher qualifications or take a promotion if at least half the money you received for doing so was clawed back?

 If people took the lump sum which would be based on their current income, what would happen if their income increased?

They would have to pay back the difference between what they got at the start and what they would be eligible for after a pay increase, increasing the EFT rate.  If not those who took the lump sum and got the benefit from it would in effect get more than those on the same income with the same sized family who didn’t.

Offsetting Behaviour makes another valid point – increasing the demand for houses, by giving some people more money to buy them, won’t solve the problem of home affordability by itself.

Price is affected by supply and demand. If more people have more money but the supply of houses doesn’t increase to meet the new demand then prices will which will negate any gain in affordability.

One of the factors affecting supply, and price, is regulations. A builder told me that tighter regulations in the wake of the leaky homes disaster had imposed new costs of $10,000 on the price of a new home. That was four years ago and the costs of regulations will not have improved since then.

If Mr Dunne wants to make homes more affordable he’d be better addressing the costs imposed by bureaucracy which would help everyone, rather than tinkering with WFF which would apply to only a few people and may not do anything to improve home ownership affordability.

2 Responses to WFF lump sums not the answer to affordability

  1. gravedodger says:

    Dunne’s suggestion is a typical bureaucratic response to a problem that a socialist (chameleon yes but still a socialist at core),would come up with while ignoring the basic premise that every action has an equal and opposite reaction.
    Why not address some of the idiot populist obstacles that ignore personal responsibility but drastically interfere with home ownership affordability.
    Planning constraints, building code regulations, employment and Health and safety requirements and finance restrictions all add up to 40 – 50% to the costs of an ordinary house in high pressure areas such as Auckland.
    Planners with a nostalgic view of the past and simplistic theories of landuse and infrastructure requirements take land prices from a basic section price of around $20 000 to over $200 000 by ignoring supply and demand facts of economics with restrictions on supply.
    Building codes that have Building inspectors operating well outside their knowledge trying to make inappropriate designs fit the reality of lay peoples expectations. Society has largely blamed builders for the massive leaky building fiasco when even the simplist person can see that a building with no eaves and complicated upper story decks will be impossible to keep watertight due to the fact that higher rainfall coupled with higher wind speeds is going to defeat weather proofing ideals in a search for aesthetics.
    How the architects and drafting industries escaped blame is a continuing source of puzzlement to me but the outcome has been a simple but totally ineffective and much more expensive inspection regime.
    Health and safety requirements have scaffolding installed when basic ladder safety and personal safety attitudes are adequate. Firemen use ladders regularly with out waiting for a scaffolding company to make the workplace safe and they only address safe use requirements once a year in training.
    Every time a perceived problem arises in the provision of housing then the desk pilots with no awareness of reality place another often needless hurdle in place that shows something is being done but in reality just raises the price of the finished house. Then dopes such as the Bouffant Prince of adaptability will be given Oxygen for a solution that misses the target by miles.

  2. scrubone says:

    I’ve been meaning for ages to do a post showing that in certain instances you can actually go backwards with a pay increase and WFF, if you figure into the mix the accommodation supplement.

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