Reserve Bank backs 'kids at Treasury' estimate of KiwiBuild impact

Thursday, 29 November 2018

Minister of Housing and Urban Development Phil Twyford rejected the estimate.

The Reserve Bank has backed estimates that KiwiBuild will only deliver half the impact that the Government claims over the next four years.

In May, Housing and Urban Development Minister Phil Twyford slammed 'kids at Treasury' for slashing their predicted impact of KiwiBuild in generating more housing supply.

Treasury said it would create an additional $2.5 billon in residential investment over 2018 through 2022 - half the previous estimate of $5.4b.

'I don't agree with Treasury's numbers. They've made some very questionable assumptions,' Twyford told media.

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'Some of these kids in Treasury are fresh out of university, and they are completely disconnected from reality'.

In Parliament on Thursday, National MPs pointed to a Reserve Bank Monetary Policy Statement for November, in which it said that it expected the scheme to only add a quarter to a half of the number estimated of homes initially estimated.

The projection included an assumption that KiwiBuild would contribute $2.5b to nominal residential investment between now and 2022, with KiwiBuild only adding to residential investment from the 2020 fiscal year.

That would equate to between 7000 to 14,000 additional homes.

The government aims to build 100,000 affordable homes over 10 years, half of those in Auckland.

MP Judith Collins said the Reserve Bank numbers were consistent with the forecast from Treasury in May, that the $2.5b figure still stood, and that the capacity of the private sector to keep building houses was constrained by KiwiBuild.

Collins said it reinforced the idea that the Government was putting 'KiwiBuild stickers' on houses that would have been built anyway and that KiwiBuild was not adding the number of houses the minister said it would to the market.

Twyford said he did not accept the estimates.

He said the Government had contracted more than 3800 KiwiBuild homes and announced nearly 10,000 to come in large-scale developments.

The Government was tackling problems it had inherited in the construction sector, he said.

Economist Gareth Kiernan, of Infometrics expects KiwiBuild's impact to be less than the Government expects.

'Even if the main thrust of KiwiBuild starts to shift away from the current focus of buying properties off the plan or already under construction, the net positive effect on construction activity might still be very small, with the demand from the Government simply crowding out demand and construction activity that would have arisen from the private sector anyway.

'We are forecasting the capacity limitations to become less critical over the medium term as net migration continues to ease, the housing market remains reasonably soft, and interest rates eventually rise. Thus by 2021-23, it is likely that KiwiBuild will have more of a positive net effect on residential construction activity than in the near term. However, even then, the policy's focus on Auckland and the likelihood of persistent demand pressures there will still limit KiwiBuild's scope to boost the overall residential build rate.'