The Reserve Bank gave some guarded good news to Housing Minister Phil Twyford yesterday, suggesting that many KiwiBuild homes would come in addition to existing housing supply.
The Bank was forced to weigh in on what has become an brutal political battle over whether KiwiBuild will add additional houses to the housing supply or whether it will simply rebrand houses that would have been built anyway.
The controversy has lead to National labelling the scheme “KiwiBuy”.
But the Reserve Bank’s quarterly Monetary Policy Statement noted that the “KiwiBuild programme is assumed to add to the rate of house building from the second half of 2019”.
That’s big news. The Bank puts extensive resourcing into coming up with its economic forecasts, and it’s essential that it does so. The Bank’s forecasts guide it’s setting of the official cash rate which is one of the main levers that sets the pace of the economy. Get it wrong, and the consequences can be severe.
That’s why it’s worth noting that the RBNZ now appears to back the view that most of the KiwiBuild homes built will be in addition to the current housing supply, which is roughly 30,000 houses delivered on the private market.
Critics have assumed that all or most of the 12,000 houses KiwiBuild will deliver each year, once fully deployed, will come by sucking resources from the 30,000 builds currently taking place. New Zealand will still build 30,000 houses a year, but 12,000 of them will be KiwiBuild, they say.
But the Bank disagrees, saying its forecasts have “assumed some minor set off”, but that KiwiBuild is overall likely to increase housing supply.
This is a change from the Bank’s MPS from last November. At the time, RNZ reported the Bank’s preliminary calculation was that as many as half of KiwiBuild’s projected 100,000 homes would have been built anyway.
Housing Minister Phil Twyford responded then that “there may be some offset but I doubt it will amount to very much”.
It now seems the Reserve Bank largely agrees, although as an independent entity it is duty bound to stay out of politics.
It doesn’t totally back the Government’s aspiration to deliver all the KiwiBuild homes in addition to existing supply.
Reserve Bank Chief Economist John McDermott said there would still likely be some “crowding out” as KiwiBuild sapped workers and resources from the private sector.
“You can imagine when one part of the economy starts to increase demand it will crowd out some other parts but overall we will start to see quite a lot of activity over the next few years in residential construction,” he said.
McDermott said the programme would mean construction firms could increase their own capacity to meed the additional demand.
“Builders will be fully occupied and I assume they will try and increase capacity by taking on and training labour,” he said.