Monday 30 November 2020

Building Pressure

Capacity constraints are building in the construction sector. Some of it is weird supply-chain issues with the global pandemic; some of it is a substantial building boom here and worker and material shortages. 

The Herald goes through it, noting some promising SNZ data:

Stats NZ has been highlighting strong building activity lately.

In the year ended September 2020, 37,725 new dwellings were consented, up 3.5 per cent from the previous year. Auckland alone had consents issued for 15,470 residences, up 5.7 per cent.

This month, Stats NZ said that for the first time, the monthly value of building consents issued in Auckland exceeded $1b and accounted for about 44 per cent of the national total of $2.4b.

Auckland makes up about one-third of New Zealand's population, it noted.

"This is the first time a region has issued more than $1b worth of building consents in a single month, with more than $700m coming from residential projects," acting construction statistics manager Bryan Downes said on November 2.

"This reflects both the rising volumes of building consents and higher construction costs," Downes said.

The sector running at full-speed is still nowhere fast enough to address the shortage though. 

My column from Newsroom, last week

If Parliament had a pressure gauge, the needle would be redlining. That pressure risks venting through policies to target the symptoms of the current shortage while worsening the real problem.

The Prime Minister highlights government schemes like Welcome Home Loans and the First Home Loan grant that support people buying their first home. She also pointed how hard it is for new buyers face in building a deposit for a first home. It would be rather surprising if Ministries have not been asked to give her some policy options to assist those buyers.

But programmes that subsidise home buyers, when housing supply is constrained, will mainly boost the price of existing homes. They won’t get new housing built. If real estate auctions are a game of musical chairs with more buyers than available seats, giving bidders more money only increases prices.

Boosting housing demand through subsidies to buyers, when construction cannot keep up with demand, might look helpful but is actually making things worse.

The Government has other unhelpful ways to vent political pressure.

The Green Party has proposed wealth taxes; Bernard Hickey proposes land taxes. But it is difficult to see how new taxes get more houses built.

The current shortage combined with house price inflation benefits landlords, making rent control policies more attractive. But those policies can make investment in new apartments and townhouses even more fraught. In the immortal words of Swedish economist Assar Lindbeck, rent control is “the most efficient technique presently known to destroy a city – except for bombing.”

And policies to help tenants while supply is tightly constrained – like rental warrants of fitness – risk doing harm over the longer term.

The real problem is hard to solve in a hurry, which is a problem when you’re in a pressure-cooker.

Meanwhile, Ardern today blames the housing shortage on Kiwis not liking Capital Gains taxes. 


No comments:

Post a Comment