Wednesday, 9 May 2018

Crowding out

You should always worry at least a bit about whether a government programme crowds out some other private sector initiative. A state-provided daycare centre could crowd out existing private providers. A welfare programme could crowd out existing charitable programmes. And government house-building schemes could crowd out private development.

The mechanism for crowding out is simple if you spend a few minutes thinking about it, but often isn't obvious to people unless it is pointed out. If there are only so many construction workers currently available in New Zealand and if they're all already employed, the government's Kiwibuild programme will have to crowd out some existing private construction simply by bidding construction workers away from other house-building activities.

But I never expected it to be this transparent!
The Government wants to buy private housing developers' existing plans to add homes to the KiwiBuild tally.

Housing Minister Phil Twyford announced the 'buying off the plans' initiative on Tuesday.

The initiative would see the Government use its $2 billion KiwiBuild fund to purchase developers' land to build KiwiBuild homes on, or purchase existing dwellings to be resold as KiwiBuild homes.
So they'll be taking existing properties that either would have been developed anyway, or that are already either built or in process, and on-selling them as KiwiBuild properties.
Property Council New Zealand chief executive Connal Townsend said the initiative worked in favour of the Government and residential developers who struggled to lend money from "nervous" banks, he said.

It reduced risk for the residential construction industry that faced hurdles from labour and building material shortages, he said.

"It's not a silver bullet, but a very helpful initiative. [It] speeds up the process hugely. Time is money to a developer."
The government is set to make access to finance way worse, at least for apartment projects, by banning foreigners' involvement.

Other than that, well, I guess there are some upsides in the government getting more first-hand experience with the consequences of its building materials supply regime, its immigration restrictions on foreign labour, and the occasional forays into anti-dumping tariffs. If the government thinks that, in a housing crisis and in a country where building materials are really expensive, it's a good idea to throw anti-dumping tariffs on Malaysian wire-nails, I kinda like that the government gets to experience more of that cost of that nonsense a bit more obviously and directly.

If the Property Council's right that there are risk and time costs being offloaded to the government, I'd hope that the prices reflect that appropriately.

But it's an odd way overall to run a government house-building initiative.

I have a few other ideas, like how we could have KiwiCar where the government buys a bunch of Hondas and puts a fern sticker on them before selling them here. It'll be great to have a domestic car industry again. Or KiwiShirt, where the government buys a lot of t-shirts from Malaysia or something, and puts New Zealand labels on them. It'll be great. Maybe the labels could be printed in New Zealand.

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