Reserve Bank predictions about KiwiBuild – very slow, and crowding out private development

Reserve Bank Governor Adrian Orr has said that the Reserve Bank predicts a very slow start to the KiwiBuild programme – that’s hardly a prediction, it appears to be current reality – and also that due to lack of capacity much of the numbers eventually built may simply replace what private builders would have constructed.

RNZ: Reserve Bank predicts KiwiBuild will crowd out private building, progress slowly

The Reserve Bank has sounded a warning that the government’s KiwiBuild programme is likely to crowd out other private house building, because the construction industry simply doesn’t have enough capacity.

Reserve Bank Governor Adrian Orr told MPs on Parliament’s Finance and Expenditure committee this morning KiwiBuild would need time to fully pick up momentum.

“It will be a very slow start, which it has proved to be, we haven’t had to change our forecasts much over the last six months,” Mr Orr said.

The Reserve Bank report said the sector was struggling to find enough skilled and non-skilled labour to meet demand.

“Capacity constraints are restricting firms’ ability to meet that demand.

“The ability of the construction sector to build additional houses therefore depends on whether these constraints can be eased.”

That meant resources were limited, which could impact on private investment, Mr Orr.

“It would crowd out resources if you’re chasing for land building activity etc then you have compete to build KiwiBuild versus something else”.

According to the bank’s estimates that would mean for every 100 KiwiBuild homes built, 50 to 70 houses would not be built elsewhere, Mr Orr said.

This isn’t a new idea either.

Housing Minister Phil Twyford said the Reserve Bank’s estimates were just “one more projection” and that he was not “fussed all at” about them.

He agreed with the concerns about capacity constraints.

“We’ve inherited some real difficulties in the construction industry, it’s both a lack of workforce, firms that have trouble scaling up, low productivity, lack of access to land.”

Twyford and Labour should have known that before they made bold promises.

NZ Herald – KiwiBuild warning: Reserve Bank governor Adrian Orr warns scheme ‘crowding out’ private sector

But Finance Minister Grant Robertson appeared to be at odds the central bank’s estimates and said Orr’s forecast was “certainly challengeable”.

Robertson did not seem to agree with Orr’s data when questioned this morning.

“Whether or not I accept that that is the level of crowding out is certainly challengeable, as we have had other advice.”

Robertson would not say what level of crowding out the Government was expecting; only that the Government’s goal was to add “significantly to the housing stock”.

The aim of KiwiBuild was to promote the building of affordable housing, the Finance Minister said.

I don’t think there is any sign so far that Kiwibuild is making housing more affordable.

The project has been trying to get promised numbers of houses built (dismally) but this focus doesn’t seem to have done much if anything to address the costs of building and the lack of available land (that also contributes to the cost of land).

“If we are starting to shift where some of the development is to more affordable, more affordable homes for first home buyers, that’s good.”

Note that he says ‘if’, not that that is what is actually happening.

The Government has a lot of work to do to prevent this from being both a big embarrassment and a costly failure.

20 Comments

    • Corky

       /  February 14, 2019

      National ads anyone?

      • Silly ad, but a lot of free publicity so probably mission accomplished.

        • PDB

           /  February 14, 2019

          Not so sure PG – the ad highlighted Kiwibuild disaster and as an added bonus also highlighted a nonsense response from the govt who attacked the ad for sexism (a man can never correct a woman because that is sexist, a woman correcting a man is ok though) but not the actual point the ad made.

          • Duker

             /  February 14, 2019

            What government response…weren’t they just some random snowflakes

        • Corky

           /  February 14, 2019

          The add is so-so..but the reaction is gold. Are National turning the liberal-based social media against themselves and the left?

          As long as they space these adds out, they may be of some value. There’s only so much limp-arse liberal bs the public can take..I believe. I hope.

    • Duker

       /  February 14, 2019

      Didn’t they admit first home buyers aren’t going to buy off the plan. They want a completed house to walk through

      • Kitty Catkin

         /  February 15, 2019

        The ad makes the point very well….33 houses a day to meet the target ! Yeah, right.

  1. Duker

     /  February 14, 2019

    Just checked national party 2017 Housing policy ..guess what

    And our Government Building Programme will deliver 34,000 new houses over the next ten years on government land.

    That’s 3400 government houses per year EXTRA promised by national …but wait there’s more…

    As the TOTAL build was ‘promised’ to be 200,000 over 6 years, which is an extra 5000 per year over the 2017 numbers.

    • High Flying Duck

       /  February 14, 2019

      “Freeing up Crown Land to see 34,000 more affordable, market and social houses built over the next ten years”

      Infrastructure fund, RMA reform, increased home start. It was a good package but it’s all ifs and maybe’s so we’re left with all 50-something Kiwibuild houses that can sit vacant until someone wants one.

      • Duker

         /  February 14, 2019

        We’ll have 5000 by when the election comes round

        • High Flying Duck

           /  February 14, 2019

          Will “we”?
          Will any have buyers?
          And who is the target market again?

          • Duker

             /  February 14, 2019

            That number was Nationals target for ‘government houses’…. We’re they misinformed too?

        • High Flying Duck

           /  February 14, 2019

  2. Duker

     /  February 14, 2019

    General Eisenhower once said, ‘Pessimism never won any battle.’ It’s the optimists who are the makers of history. The pessimists can bellyache all they want. But it’s the optimists who push history forward……

    • Gezza

       /  February 14, 2019

      You have to remember that critics aren’t necessarily pessimists though. In politics the worst critics & complainers are usually actually optimists. They’re optimistic that their criticisms will strike a chord with the swing voters, which will see the other lot turfed out at the next election and their botties ensconced in the government benches.

  3. Alan Wilkinson

     /  February 14, 2019

    This is what happens when you don’t elect a bunch of incompetent fools but Winston decides they should govern anyway.

    • Duker

       /  February 15, 2019

      .So the Incompetence for years with NZTA overseen by Bridges doesnt count ?

  4. david in aus

     /  February 14, 2019

    They would be better off building factories to prefabricate parts of houses. That way they will be involved in capital intensive areas and not competing with the private developers for the same workforce.

    They will be establishing capacity and improving productivity.

    Unfortunately for politicians, it doesn’t make good photo opportunities.

  1. Reserve Bank predictions about KiwiBuild – very slow, and crowding out private development — Your NZ – NZ Conservative Coalition