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.