Eric Crampton argues fixing problems constraining infrastructure financing and with local government housing supply incentives must be the Govt's most important task

By Eric Crampton*

The housing supply shortage is worse than expected. That makes it even more important that government focuses on the key barriers to getting more houses built.

Perhaps counterintuitively, that may mean putting Kiwibuild to the side. 

Last week, Phil Twyford announced the results of his commissioned stocktake on the housing crisis. The results are damning. The growth in housing stock since 2012 has been far too low.

The consequences of the housing shortage are seen in the overcrowding statistics and their health consequences, in the proportion of people with high rent or mortgage costs, and in the often-poor treatment of tenants in a very tight market.

If the costs of the housing crisis felt especially by those on lower incomes are not bad enough, the government too feels the pinch. The housing crisis makes it more expensive for the government to provide housing assistance. Last year, those costs tallied almost $2 billion, or about 2.5% of core government spending. In a tight housing market, much of the benefit of the accommodation supplement flows directly to landlords.

One of the housing report’s authors, Shamubeel Eaqub, suggested that Kiwibuild would need to scale up from Twyford’s promised 100,000 homes to 500,000 to deal with the shortage. But, it seems almost impossible that that could be done without simply displacing private building.

Government has no particular advantage in building houses. Large-scale building projects are risky, even in a seller’s market. If costs overrun because of shortages of subcontractors, for example, costs will be higher than expected or projects will be delayed. And Kiwibuild will consume one of the scarcest of Wellington resources: the attention of competent people in the bureaucracy.

The housing shortage was never due to government building too few houses. The cause lies rather in zoning restrictions that prevented developers from building where people want to live: more downtown apartments, more terraced housing for inner-city suburbs, and more expansion at the city’s fringes. And those restrictions are themselves due to broken incentive structures for local government and infrastructure costs.

Minister Twyford understands the infrastructure financing constraints and local government incentives underlying the housing shortage. Fixing those problems has to be the most important task for this government. We should be prepared to give this government a pass for any missed deadlines on Kiwibuild, if it is focusing its attention on the barriers preventing either state or private housing from being built.


*Eric Crampton is chief economist at The New Zealand Initiative, on whose website this article first ran.

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45 Comments

"And Kiwibuild will consume one of the scarcest of Wellington resources: the attention of competent people in the bureaucracy."
Haha.
How many are there exactly? :)

No problem, we can just import some incompetent ones from overseas. Many of them come brim full of ideas that sound wonderful....

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Eric Crampton is right. The government needs to have a broader reform agenda than just building 100,000 homes. It needs reforms to the underlying systems which results in NZ building too expensive, too few and not enough different types of housing. Housing in NZ is incredibly unresponsive to demand and this has awful consequences for inequality, productivity....

In my mind this is a problem of urban spatial economics. Quite simply NZ towns and cities inefficiently allocate space. Addressing financing constraints and local government incentives is a key cog in improving the system that will allow KiwiBuild and housing in general to be more effectively provided.

I write about some of this here -in a paper called -Successful Cities Understand Spatial Economics
https://medium.com/land-buildings-identity-and-values/successful-cities-...

Spot on Eric, this is the biggest issue to NZ and the Government like National are taking to long to stop this costly ponzi scheme, now the markets in Mexican stand off we need to carry on with supply.

Dear Brendon
The fact the United Kingdom has failed to accurately address town planning in part should provide you your answer , namely there is no “correct” answer. No absolute “solution”
I live in a mega city and yet nobody claims it hasn’t got a myriad of town planning problems
NZ is doing its best for 5 Million people & limited skilled professionals

Thanks for reading my paper Northern Lights. At one level I agree with you that there isn't a perfect city i.e utopia is not possible. But at a pragmatic level I think there is lots NZ could do better with its urban areas....

Yes, Brendon. I'd like to think you are by now preaching to the converted on this 'ere august forum.

But there seem to be so many new common taters on Interest, rehearsing the same old schtick, that you should take every opportunity to play that ol' Broken Record at every opportunity.

Pour encourager les autres....think of it as Adult Education.

Waymad it would be nice not to need to preach because NZ is implementing effective reforms but we are not quite there yet. The signs are looking good though, hopefully soon there will be no need for preachers like me and Eric.....

Kiwibuild really only deals with a small subset of housing issues, if they can't even plan for that build rate a politically astute move would be to consider dropping the policy while still on the honeymoon and moving funding to motherhood and apple pie.

Too predictable. The NZI is driven by ideology, not evidence. But you knew that already.

Crampton is right about regulations and funding infrastructure. We need do need changes here. But he is wrong to preclude direct government action. All options must be on the table when it comes to digging NZ out of this hole.

We should keep our mind open to direct government involvement - and not dismiss it based on ideology. Those of us old enough to remember know that it was through a helluva lot of government involvement through the 1950s-80s that we became a small property-owning democracy.

Good points.
The discussion is still too slanted towards ownership. The government should be building thousands of market rental apartments every year, holding them and managing them (with far greater tenancy rights and security)

Yes! And making shoes - the kids need shoes! And growing food - we all need food!

And tvs, and cars, and computers and haircuts! You know how much a haircut costs these days!

The government should take over everything, and then there will be plenty of all goods and they will all be cheap and high quality.

But if you think about it, the only market that the government (especially local government) is involved is housing, and look what has happened...

So if the government doesn't start building secure, good quality rental housing, who will?
Can't see too much evidence of the market doing it in any meaningful manner in recent times.
And the market will always be subject to the whims of market conditions.

If you haven't seen the market doing this, you haven't been to Canterbury in recent times.

Capitalism works well for shoes and for food. It is very responsive to issues of supply and demand. Builders of houses would be similar if they abandoned all rules (they would love it until the next earthquake/flood/leaky home/accident) and if they could create that magic substance 'land'.
Large scale building of houses is very risky when the economy can boom or bust in time scales far shorter than building.
The government needs to be involved if only to produce the spec for what they want and then request for tenders.

Capitalism fails when the average person can't afford the average house

Kiwibuild and the 100,000 houses was merely an easy one liner to appeal to the great unwashed.

Of course there was no chance of building 5000 let alone 10,000 houses annually but the slogan worked so now they need to dilute Kiwibuild before it becomes an albatross around their neck at the next election.

Time will tell spruiker!

Its now 6 months since the election and still we see grandstanding and slogans but no houses so yes time is indeed telling.

The AM show tackled Taxinda on this subject. It appears that logistics will be announced soon enough. I think the spin merchants will change it to 'more affordable' based on what she said. It sounds like apartments with green space with amenities and transport at the cheaper end. A bit like making the chocolate bar more affordable by reducing the amount of chocolate but if it provides what the market wants and I don't have to pay for it or have it near me then She has my support.

Well put,
the slogan was always just a catchphrase ,, however, it tells you how many sheeples believed and hoped it will become true .... without using their brains and common sense.

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Eric Crampton, from rampant immigration proponents The New Zealand Initiative, believes the cause of housing shortages is zoning restrictions. I could think of other causes.

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Er, yes, wasn't rampant immigration a wonderful government idea though? I mean where would we be without it? Let me see now, we would have enough houses, our roads, hospitals and schools would not be overcrowded, and we would have fewer of the regulations that become necessary with a larger population, and fewer government employees to dream them up and administer them.

So the cure for wonderful government ideas dreamed up by very clever government employees is ... more wonderful government ideas dreamed up by very clever government employees.

Aaargh.

All reasonable concerns. But NZ Initiative knows immigration works and the more the better. It is the universal cure for all economic ills. Rather strange other countries don't try it at the level NZ does.
Anyway the government has the problem in hand: just bring in more immigrants to build the houses, schools, hospitals needed for the immigrants and then bring in immigrant teachers and nurses otherwise the schools and hospitals will be rather pointless. Of course they will want somewhere to live but that is easy just build more houses....

Someone needs to take care of local Gov incompetence in managing this issue for such a long time ... and take them to task

Yes, but you'd have to be the biggest masochist in the world to want to do that.

Imagine trying to cajole those monkeys into acting in a decent way.

Well, it is not that difficult, ..National showed ACC the stick two years ago to get on with the Unitary plan and they all caved in , kneeled and bent down, and finished the job pronto ... Christchurch CC, before them, tried to resist and got put under admin .... once these (mostly soft lefty) bureaucrats are left on their own they think that there will always be tomorrow and no one should question their powers and way of governess ...

Two things they master:
1- Shifting the blame to ratepayers or central Gov for not paying enough !!
2- Ill-planning and Wasting money.

This assumes that Mr Key’s absolute, and in my mind ill-considered adherence to ideology was all or nothing.
What a resultant dreadful mess and legacy – however, let’s not have that interfere with the blame game.
And in the meantime - how’s life in Auckland these days?

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1) Most important - Reduce the immigration rate. Then give the immigration rate to the RBNZ to manage as a macroeconomic tool along with the official cash interest rate. Government can still set the overall immigration strategy. Politicians got us into this mess and cant be trusted to manage the immigration rate in NZ's best interest, for the same reason RBNZ already controls the cash rate.

2) Secondly I disagree, Government has to do kiwibuild. There is no profit at the low end of the market for developers and the only way in the short term to address that deficiency is for the government to intervene.

3) Remove all land zoning ability from the RMA (it was never intended to be used in that manner) and go to a national set of effects based standards.

4) Require local government to do business cases for all spending and require them to spend on "needs" first (transport, water, waste) before even considering the "wants"

5)Use infrastructure bonds/target rates where still needed.

Totally agree, especially point 2.

Point 1). Even Prof Spoonley was reported saying the current rate was too high and had got ahead of infrastructure. I can only guess one day he went from his home in the Bays to work at Massey Uni during peak traffic. Only 10 years ago I studied at Massey and honestly the traffic was not too bad. Not now; last week I had a reason to travel to Albany early in the morning and wow am I glad to be retired and anyone on the road between 7am and 9am must be crazy. And that was going north - the traffic crawling towards the bridge was far worse.

He's been a big immigration spruiker hasn't he

1, 2 and 3, agree.

4) No very much not. There is no case nor need for this as the voter voted in councillors based on their policies. Add in that judging social needs based on business criteria is pretty much plain silly.

5) This assumes? that infrastructure can be built cheaper privately. ie I assume you mean some sort of MUD? I am not adverse to this but I am not sure it would make a significant difference. On top of tha treading into it a bit doing a MUD and then say in 25 years handing it over to the council "free" certainly doesnt seem a good idea.

Then we should consider that yes Ok houses may indeed be built faster but I dont think they will be affordable at the FHB end of the market ie 500k or less.

Hence why I agree with 1) but it doesnt go far enough. We also need to stop foreign ownership and a CGT to remove the other demand components from these we just dont need.

> give the immigration rate to the RBNZ to manage as a macroeconomic tool

Our politicians already abuse immigration as a crutch for economic reasons while ignoring all the negative aspects open door immigration brings such as cultural and racial divisions. It's not all one happy melting pot. This is very short sighted.

This might indeed allow houses to be built, but they wont be affordable ones.

We need a few disincentives to immigration both new and past arrivals.
Provide some incentives to become a citizen by reducing the benefits of just being resident (like being able to vote)
Introduce the 20 years residency to Super starting right now.
Put Australians on the same rules as others until the Australian Government stops its own 'Kiwi' rules.
'Help' those using NZ as a backdoor to Australia to make up their mind.
No buts, no maybes application of residency by stealth.

Yes but still I see one possible problem in the future if the world carries on down its current path and that is you cannot STOP people coming in that have an NZ Passport. There is now a huge number of Kiwi's living offshore, what happens if you turn off the taps and they still want to start returning ? We can only hope things don't get that bad.

Yep the only way to solve the problem is to reduce the number of people living in New Zealand. Have you stopped for a minute and thought about where your going to build all these houses to start with ? The only way is out in totally new satellite towns. You cannot build where there is no land. Knocking down one house to build two is going to be a slow process and you cannot build high rise apartments in the suburbs right next to single and two level existing houses, its too late. If the problem is as "Massive" as the report suggests then its just not solvable in the short term by building more houses. Thats the problem with politicians, they are the least practical people out there or else they would have become Engineers.

One can only look at our country and think there have been some major policy flaws over the past 20 years.
I am a supporter of moderate immigration. We need a certain number of skilled migrants each year to fill key skill areas.
What we haven't needed is:
- mass low quality education 'immigration'
- so called investor migrants

The govts of the past 20 years have also massively dropped the ball in underinvesting in both hard and soft infrastructure.

We are chasing our tails trying to catch up

We don't have a housing crisis!!!
We have a population growth crisis.
Stop the population growth and the housing will sort itself out.
We don't have a housing crisis!
We have an infrastructure crisis which is caused be population growth. City and town councils don't have the funds to provide infrastructure for the population growth.
What is hard about this to understand?
Kiwibuild isn't even going to cope with the proposed population growth. High immigration has not lifted our productivity where it counts in farming, fishing, or forestry which are our bread and butter industries.
High immigration has only lifted our GDP by building houses and other ponzi scheme stuff. Hi immigration as an economic business plan is a ponzi scheme making some of us rich and the rest of us impoverished.
Unfortunately the ones getting rich are the ones who make the noise promoting this sell out of the NZ lifestyle while the majority of the population who are the losers have no voice as they are to busy struggling to raise their families and they blindly trust our governments.

Leave regions and millionaires' mansions out of foreign ownership ban.
Amy Kirk from Queenstown told MPs she feared it could crash the Queenstown economy.
LOL https://www.stuff.co.nz/business/money/101713280/leave-regions-and-milli...

While I agree somewhat with your sentiment of rampant population growth being a core issue, I think that is a bit simplistic:

1. We need immigration to fill some key skills shortage areas, thinking here of aged care which will be a high needs growth area as the population ages.

2. We can't control the movement of kiwis. That is subject to the whims of all sorts of international and domestic factors.

I agree that migration needs to be reduced, quite significantly, but at the same time there are limits to how far it can be controlled. And we definitely need migration in some key areas.

If we had a stable population the govt wouldn't need to spend countless billions on services and infrastructure to support the immigration.
That money could have been available to pay reasonable wages to care workers which would have also reduced unemployment.
The wages currently paid to care workers is only attractive to immigrants from 3rd world countries. This high immigration is locking us into being a low wage/beneficiary economy.
Those oldies who need looking after built this country and deserve better than what they are getting. After all it was promised to them when they paid their taxes.
As for kiwis coming home, that's great. We don't want 1/2 a million kiwis coming home from Ausie all on the same day, but yeah, welcome home.

There are so many comments in here that seem to be formed from cultural racism and insecurity - probably many generations of insecurity built into the systemic model since Waitangi Treaty precariously planted "land rights" to the non Indigenous people who had taken up residency with the grace of the local chieftans and some tobacco, guns and alcohol or shiny buttons in exchange for their immigrant "rights".

Now we are looking at the descendants of those same migrants and more recent migrants who want to stop anyone else from coming to New Zealand and investing money into our economy and participating by buying housing and working etc. Why are humans so racially exclusive? Typically the cultural sentiment is a Post Colonial apartheid that has been bred through fear of loss and competitive negative rivalry.

But before you say - here is another Maori activist telling people who have lived here for two hundred years already to "go back to where they came from" I want to ensure that you are aware that this sentiment against outsiders has been conditioned also systemically and fuelled by some unscrupulous in political motivations to incite fear and barriers against others - for the most part to give them a platform to rally up support for their own agendas. Take Donald Trump as a prime contemporary example of this phenomena. His allegiance to NRA for example, results in a sway of support from all people who want guns in their lives. The solution promoted by Trump on the advice of his NRA cronies, for school mass shootings is... more guns.

But my observation is not a judgement but a knowledge that you are being fed and then you are perpetuating (continuing to feed) misinformation and cultural racism that is actually damaging to our country and yourselves. Why?

Because expert studies of international migration over many decades have revealed that countries with higher immigration intakes actually generate more economic growth! I discovered this when I was doing a PHD research in International Law regarding the huge issue we are facing globally with displacement and refugees from any country in the future, due to global climate disasters. It is no longer only third world, war torn countries that are at risk. The reality of war and refugee or UN displacement is that only 1 percent of UN camp refugees globally are relocated into first world countries. That's one percent of all UN migrant relocation.

And the real issue is not that people are relocated to another country - or how would you justify being in NZ by your ancestors? The real issue is HOW these few people are migrated and assimilated into their new countries - that causes even more racial disharmony and prejudice. A restructure of the contractual obligations and cultural preparation of migrants can easily resolve much of the issues and resentment receiving countries face when new migrants come into a country with "outside" or seeming strange habits, attire and practices - which all seems threatening and overwhelming to locals who are used to and comfortable with a certain cultural way already. "Birds of a feather, flock together" is the Celtic saying. We can resolve these issues by preparation or assimilation frameworks that accompany contractual agreement for migrants to accept certain cultural biases (as long as they are not outright discriminatory). If they don't want to accept terms and conditions, they are not appropriate for migration to that particular culture. It's that simple, but UN is considered too cumbersome to reinvent the wheel - even if it was formed on a war alliance against a relatively smaller percentage of conflict and refugees (i.e Nazi Germany) - far smaller than the estimated 500 million and more refugees that will result from our growing climate change globally. And we must also consider that NZ at any time could be amongst those climate refugees in our precarious future. Do we want to exclude what we may one day soon be a part of? Remember the ice sheet in Antartica is breaking up and melting, could cause rises in sea level of 2 metres.

But the other major issue of the current system model of immigration, is that it doesn't select on cultural or triple bottom line sustainability values. Instead, it selects on financial wealth. And if you consider the International Global Database on Terrorism - statistics are that terrorism is mostly funded from "overseas brought in wealth" through migrant connections. In other words, our global first world system looks favourably and gives status to those who hold the most money - but not always do those who hold the most money have the same cultural values and morals as the resident population. The security risk is another reason for preparation migration - considering the sheer enormity of migrating people that we will globally need to deal with from third and first world.

A third factor to consider, is why are so many of these displaced third world people attempting to migrate? The short answer and predominant reason, is the impact by Post Colonial Capitalism. Yes CAPITALISM! Brought by the same immigrant Colonial populations that founded our NZ non Indigenous population.

OK, now that we have the migration situation outlined, let's look at first world economies (including NZ) and why immigration doesn't destroy an economy but builds it or at least maintains its resilience if it is governed correctly. Consider first the population trend of first world countries. That's right - predominantly it's ZERO population growth. All good, as your comments state. No population growth - no housing shortage. Now let's look at some basic logic. First world economies are also heavily and rapidly becoming age heavy in the retirement bracket. That is - no young workforce and lots of superannuation to be paid by the government that no longer has the tax payers - because they are not being born and not allowed to immigrate here.

So how is the government supposed to fund housing or anything at all with a negative approach to immigrants? And especially to immigrants that want to work in normal jobs - not fund ponzie schemes or trade weapons.

As for Kiwis returning home - well they are less likely to get jobs (whether on paper welcomed or not) because of the same cultural racist exclusion. Why? Because employers "prefer NZ networks or people with ESTABLISHED NZ networks" over outsiders. And a Kiwi who has been overseas is definitely an outsider - not someone bringing in new ideas, fresh approaches and other country experience that might generate some more economic growth and wealth for the locals. No - the job applicants must have already established working relationships with "locals" - Kiwis living here since the GST recession and public asset sell off. Yes, the job will not go to the "best" applicant. It will go to the one that knows so and so and has done something similar for twenty years. It will go to the one that other "locals" feel most comfortable with.

As a native born New Zealander with migrant ancestry and living in a multicultural, economic society I am left puzzled about the New Zealand insecurity cultural racism exclusion network system. And with the "No Growth" or apparently "no sustainable regeneration" economic ideal being applauded by so many - I wonder why and how our education and cultural knowledge system can be so backward that we favour such stagnation as an economic governance framework!

All good, Kiwis but don't expect "outsiders" to come to your rescue in the advent of the next earthquake, flood, volcano or any other environmental disaster - that reeks havoc in a more populated area than Christchurch for example. They won't be able to because they're excluded. And spend some time thinking upon developmental growth strategy - if there's a housing shortage - that's a building industry opportunity. And our children - what economy will they inherit with a stagnant policy and cultural attitude?

Don't throw it in the lap of the government to take responsibility for living. Governments with just a few years guaranteed in office are generally not good at long-term strategies and that's why our global system fails transformation. People (tax payers) employ or appoint governments to manage our tax so that we can have roads, hospitals, education etc. But if we are not having a growth or sustainable regenerative economy and at the same time, an aging population, we obviously won't have tax payers to fund the government administration will we? Mummy and Daddy Politicians are just not going to give us all we need and want without us taking personal responsibility for our long term future. If regional economic development and country specific planning and economy is not working, it's just as likely to be because people are using those same locally cultural biases and exclusion tactics to fuel their own campaigns and feather their own wealth vision while expecting the world outside to give them everything they want - without collectively working toward a common framework. Notice that people are always willing to save the world and give to the poor and needy after they become wealthy, successful, attractive and every other selfish fulfilled goal first. By the time this happens they are bought into the same system they wanted to change and play along.

Today's world financial wealth giving status as well as comfort, that comes with a self propelled unwillingness to contribute ethically to their own community. That's the result of rampant greed Capitalism that has almost destroyed our natural resources globally. Before much of this was conducted silently and covertly in thrid world countries - exploiting the same migrants that are now displaced and needing new homes to your great annoyance. Of course the argument has always been it is "better the devil you know" or at least the best option of a number of deficit models. But Capitalism is by definition not a growth model, but an ultimately self destructing finite resource consuming economic model. Especially with the business plan goal of a mass online market web commerce or an offshore company in the Bahamas an increasing ideal. It's time for a change - not in government but in how we govern and sustainably develop our countries. We are an international trading global society of multi national decent. For this reason and many others its time to put the old racial prejudices and negative competitive jealousy to rest.

Start looking locally at global governance input - that is how can you actively and interactively participate in local governance and community matters that aligns and builds a national and global governance prospering stability? Don't wait for Donald Trump or any other politician to hand that out to you. Don't just complain - get involved and start making a framework that is democratically driven on decisions around issues and matters for policy - rather than the people who govern and their popularity.

Your post is very long and wider ranging so difficult to engage with, so I make some points as follows:

1. Some people are are racially exclusive but not all and although many people exclude outsiders some don’t. This seems no different to me than any other character flaw.

2. The assertion that capitalism is the cause for third world migration seems so ridiculous to me, maybe I misunderstood.

3. Wealth, success or physical attractiveness are not in-and-of-themselves selfish, and you cannot give to the poor what you do not have.

4. Many systems of wealth creation have been tried. No one pretends capitalism is perfect or all wise. Indeed it has been said that capitalism is the worst wealth creation system, except for all the other systems that have been tried.