Labour's housing scheme impresses Peter Lyons.
Labour leader David Shearer has painted a bold vision. His
KiwiBuild announcement is big picture stuff. He has announced
Labour's intention to build 100,000 affordable houses for
first-home buyers over the next decade in a public-private
My main reservation is where is the land coming from?
This appears to be the main problem of housing affordability
in certain areas at present.
The reason I like the announcement is that average houses in
New Zealand are way overvalued. Our houses are generally
nothing spectacular as dwellings but we are paying premium
dollars for them.
This is an aspect of our economy which we have control over.
We can't control international oil or dairy prices and the
productivity of our farms is limited by technology. We do
have the ability to control the prices we pay for our houses,
if we choose to exercise it as a nation.
The purchase of a house is the main financial decision in
most peoples' lives, so we should be doing everything to
ensure affordability. The current situation of using debt to
bid up our existing house prices while average incomes
stagnate invites disaster.
In tough times, firms seek to cut costs to maintain
Countries generally do the same, which is why we have a
government that is pruning its spending. The irony is that
while the Government is slashing its spending, the Reserve
Bank is keeping interest rates low, to try to stimulate the
economy. This is fuelling the housing boom, which is driving
up living costs, making us less competitive internationally.
The profits generated by this process are mainly heading
offshore to bank shareholders. If we can get housing
affordability under control, we can move on to creating a
competitive economy. If we don't, we are going nowhere.
Forget blaming greedy landlords or evil property speculators,
the issue comes down to supply and demand in the housing
market. Currently, this equation is out of kilter in certain
But the main problem is the cost of land. Mr Shearer has
pointed to the big advantage a government-sponsored building
It is economics of scale. This should ensure a fall in
construction costs for first homes but it doesn't overcome
the issue of land costs in key areas.
Developers are not prepared to build cheap housing on
There is a mixture of government and market failure that is
causing the current housing crisis. There is also a
psychological factor in the self-fulfilling belief that house
prices can only rise. In the years following the global
financial meltdown, housing inflation was not an issue
because the banks were wary of lending. They are resuming
their past practices and the boom is back on. On the supply
side, new construction of affordable housing has slumped in
the past few years due to a lack of development finance and
the cost of land.
I applaud Mr Shearer's big picture approach. He has
identified the major area of our economy over which we have
control if we choose to exercise it. He will be criticised by
market zealots who abhor any form of government intervention.
He also needs to confront the land affordability issue.
But as an avenue to economic prosperity the plan has merit.
It will create jobs and skills and reduce the price of the
main financial transaction in most peoples' lives. It is far
superior to relying on monetary policy and low interest
rates, which serves to further inflate house prices and
indebtedness. Unless we solve this housing affordability
issue we will continue our economic stagnation and relative
decline. We can fix it if we choose to.
• Peter Lyons teaches economics at Saint Peter's
College in Epsom, Auckland, and has written several texts on