Little boost to the housing supply from KiwiBuild

This article first appeared in Mitre 10 Trade Quarterly – Summer 2017-8.

Labour’s KiwiBuild initiative, to deliver 100,000 new affordable homes over the next decade, comes when capacity in the residential construction industry is already stretched. Any new homes constructed during the next 2-3 years will be the maximum possible under these supply constraints, whether the government chooses to build during this time or not.

Labour has stated that half the KiwiBuild homes will be built in Auckland. Possible locations for KiwiBuild homes around the rest of the country are shown in Graph 1 , based on where population pressures and housing affordability issues are most critical.

Graph 1

Infometrics does not expect the government to achieve a rapid increase in the housing supply and alleviate housing shortages. Graph 2 shows the extent to which other activity will be “crowded out” by the government’s push to build lower-cost homes. We estimate that over 80% of KiwiBuild activity nationally will simply be a substitute for private-sector work, with the crowding-out figure likely to be close to 100% in the already stretched markets of Whangarei, Auckland, Hamilton, Wellington, and Nelson.

Graph 2

Foreigners’ influence on housing and construction

Many foreign buyers have been excluded from the property market over the last year, with NZ-based banks refusing to lend to people with overseas-based incomes. Labour’s ban on property buyers who are not NZ permanent residents will remove any remaining foreigner buyers from the market. The exclusion of foreign buyers will cement the housing market’s downturn between now and 2020. Even so, the boom was ending and house price falls already looked likely over the next three years.

Labour’s goal to bring net migration down by 20,000-30,000 people per year will ultimately reduce medium-term underlying demand for new housing. However, Auckland’s undersupply of housing implies the need to maintain an elevated build rate for several years, even with net migration easing and set to head lower.

Alongside the migration cutbacks, Labour recognises the shortage of construction workers and has proposed a special visa category allowing up to 1,500 tradespeople into the country at any one time. However, this figure is well short of the 20,000 construction professionals that the LookSee Build NZ campaign is aiming to attract and tiny compared to the 55,000 people required to fill job openings in the construction industry over the next five years.

 

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