Time to channel Great Depression, get building state houses: Infometrics

Thursday, 7 May 2020

Real Estate Institute chief executive Bindi Norwell is feeling optimistic.

A huge programme of social housing development could help vulnerable New Zealanders into homes and support the construction industry, economics consultancy Infometrics says.

Chief forecaster Gareth Kiernan said the waiting list for state houses had more than quadrupled since mid-2015 but high levels of construction activity had made it difficult for the Government to respond with more housing.

Now, with private development likely to be largely on hold through the rest of this year and next, there was a chance to reverse that. Kiernan expected residential building to drop from 38,000 homes a year to 18,400 by mid 2022.

“Rents have continually risen faster than incomes since 2011, leading to large increases in the state house waiting list in areas such as Gisborne, Napier, and Rotorua,” he said.

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“The Government needs to take quick action to start addressing this crisis now. The number of vulnerable people needing housing assistance is set to jump further as unemployment spikes over the next 18 months.”

Gareth Kiernan warned the construction industry risked a severe loss of workers and capacity.

Excluding any potential increase to the waiting list, it would take 9400 new state houses a year to get it back to the level of 2015.

Kiernan said building more would support construction employment, “echoing the 1930s experience of the Great Depression, where large-scale building work and improved social welfare outcomes combined to see the stock of state houses increase by 10,000 between 1938 and 1941”.

He said 1523 state houses should be built per year over the next two years in Auckland, mostly in Mangere-Otahuhu, Otara-Papatoetoe and Manurewa. Wellington would need 160, Lower Hutt 180, Christchurch 213, Gisborne 122 and Kawerau 15.

“The residential construction industry risks a repeat of the severe loss of workers and capacity that occurred in the wake of the Global Financial Crisis, when consent numbers almost halved between 2007 and 2009,” Kiernan said.

“It took many years for that capacity to be recovered after activity started to pick up again in 2011, meaning that the industry struggled to meet demand when economic conditions returned to normal.

“The Government has repeatedly talked up the potential of infrastructure investment as a way to support the economy’s recovery from the Covid-19 pandemic. Although there are important issues to be addressed in the infrastructure space, reducing the state house waiting list will have a much bigger effect on society’s most vulnerable people. We believe that tackling the social housing crisis will actively contribute to an improvement in people’s wellbeing in a way that KiwiBuild was never going to do.”

He said it was likely more land would need to be acquired by the Government,

“I would expect land to become more readily available as private sector development work dries up due to falling house prices, the weak labour market, and low business and consumer confidence. Of course, one of the challenges in this process would be to avoid the 1930s/1940s approach of building whole suburbs of state houses that ultimately become low socioeconomic areas.

'However, the Government’s mixed developments in Panmure and Porirua would seem to provide reasonable templates for a good approach. And in areas where a smaller number of new state houses are required, working in with builders in existing developments to commission a few properties interspersed throughout the subdivision should be possible.”