KiwiBuild: the solution you come up with when you don’t want to fix the problem
OPINION: The biggest problem with the housing market is that, despite what they might say, deep down, not many people who own one want it fixed.
While New Zealand is acknowledged to have a housing affordability crisis, solving the problem could quickly lead to a crisis in household confidence and an inevitable political fallout. House prices are arguably the biggest political indicator of all.
For aspirant home buyers, this should not be seen as a message that homeowners want anyone else to be locked out of the market. Quite the opposite.
With house prices in New Zealand's major urban centres already among the most expensive in the world, the only thing keeping the whole scheme going is the expectation that more buyers will keep piling in, and the fact that no one has addressed factors holding up supply.
Although it was not actually telling us anything new, the Reserve Bank's frank assessment of KiwiBuild made this point on Wednesday, with clarity no official advice has dared to use.
Previously Treasury has warned that the amount of "additional residential investment" would be lower than expected, and the Reserve Bank had made a similar point.
"If they [KiwiBuild] were going to build 100 houses, that means that between 50 and 75 houses elsewhere aren't built."
Because of the slow start, the Reserve Bank warned that so far, KiwiBuild may have sucked up so much resource that the programme may have caused as many houses not to be built as it had completed.
KiwiBuild was conceived to help those who were pushed out of the housing market, but to a large considerable extent, KiwiBuild is pushing developers out of the market.
For all that Housing and Urban Development Minister Phil Twyford has said about the housing market not delivering the houses New Zealanders need, the scheme is just adding demand in a market where the constraints are more regulatory than free market failure.
The Government is stepping into a housing market constrained by a shortage of builders, land prices artificially inflated by regulation and high infrastructure costs.
KiwiBuild is the political solution which you would come up with when you don't really want to fix the problem.
Rather than focus first and foremost on removing the barriers which make housing so expensive, the Government's solution is to add fuel to the fire.
This is more or less the official policy of the programme which claims to be about affordability but also says it will link buyers and sellers around a market which is assumed will run and run.
"KiwiBuild homes are expected to appreciate in value at the same rate as a market home," the Ministry of Housing and Urban Development's website states.
When officials began questioning the impact of KiwiBuild, Twyford was initially dismissive of the "kids at Treasury" who did the analysis.
While the Government maintains the line that there are a range of opinions about the impact of KiwiBuild, Twyford clearly knew better than to fire insults at the Reserve Bank governor. Especially given the series of problems the program has had so far.
Twyford maintains that the Government is addressing "all of the constraints" identified, from the planning system to skills shortages and infrastructure financing.
These are welcome objectives. They are also the type of claims every Government makes and as the coalition approaches the middle of its three year term are unlikely to deliver tangible results.
With the Auckland housing market already softening, the global outlook weakening and the Reserve Bank proposing new rules which could push up borrowing costs, it could be that ultimately the Government is happy with a housing market that just keeps propping the market up.
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