Inflation warning over National's housing plan

National's new package of housing measures has been dismissed by opposition parties who say it won't help get people into homes, and could increase inflation.

Critics say the National Party's grants for new home buyers will push up prices, and may not encourage new homes to be built. Source: Breakfast

The measures are aimed at first home buyers, and will allow them to withdraw more from their KiwiSaver accounts as well as apply for increased grants from the Government for buying new homes.

"The Government has been reasonably clever in focussing the increase on subsidies on new home building, and if it's successful in increasing the number of developers who say, 'Hey, maybe I can build a new development for first home buyers', then it might actually increase supply," economic commentator Bernard Hickey says.

"The risk though is it increases the amount of money chasing a fixed supply, which would increase the price of new houses."

Mr Hickey says studies overseas have shown subsidies don't make homes more affordable in the long term, and Labour says the real answer is to build more new houses.

"If they want a change, just jacking up prices by giving people an extra $10,000 here or there won't change the answer," Labour leader David Cunliffe says.

Prime Minister John Key says the package will increase house supply as developers will have greater confidence that there will be a market for their homes.

"What this will do is have a stream of people who they know can buy these homes, and they'll tailor a package around that. It's very realistic."

The five year, $218 million package, includes replacing the KiwiSaver First Home Deposit Subsidy with a grant, and allowing larger withdrawals from KiwiSaver for first time buyers.

Currently, after five years in KiwiSaver, a couple could get $10,000 through the KiwiSaver grant, but under the new Home Start policy, they could get $20,000 for a new home.

"What we're letting you do, in very simple terms, is you can take your money out of your KiwiSaver account - what you put in, what your employer puts in what the Government puts in - and if its a new home and you're a couple we'll give $20,000 as well," Mr Key says.

"We'll wrap all round effectively in a Government guaranteed loan so you only need a 10% deposit, and you're outside the Reserve Bank's LVR restrictions."

Mr Key says the package means a couple earning $40,000 each would be able to save enough for a deposit on a new $500,000 home in five years by making 3% contributions to KiwiSaver.