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.