14 Feb 2019

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

5:18 pm on 14 February 2019

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.

New housing in Upper Hutt.

Photo: RNZ / Alexander Robertson

It's also predicting a "very slow" start to the government's flagship programme, with between 7000 and 14,000 homes being built in the next three years.

As part of its analysis of monetary policy, the Bank has looked at the KiwiBuild programme.

The original government targets were to have a thousand homes built by July, 10,000 by 2020/2021, and 12,000 each year after that.

Those interim targets have now been scrapped but the government is still committed to building 100,000 homes within 10 years.

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.

Reserve Bank Governor Adrian Orr

Reserve Bank Governor Adrian Orr. Photo: RNZ / Jane Patterson

"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", he told MPs.

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.

Judith Collins and Phil Twyford.

Judith Collins and Phil Twyford. Photo: RNZ / Rebekah Parsons-King

That could create a perverse effect, said National Party housing spokesperson Judith Collins.

"There could be a slow down in the supply of private dwellings built by private developers for Mum and Dad Kiwis, it's going to make it harder to buy houses not easier."

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."

But Ms Collins said they were problems that would have to be sorted if he was to hit his 10-year target.

"Just by saying we're going to get all of these extra houses, which Phil Twyford has promised, but without the resources, he's forgotten there's no shop we can go down to and buy a whole lot of builders or electricians, gibstoppers or plumbers."