Opinion - Budget 2017 made incremental steps to addressing New Zealand's housing crisis. The Budget may not be the best place for it, but there is clearly no ambitious plan to fix it. The measures are 'ambulance at the bottom of the cliff' stuff.
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The Budget announced a boost to the accommodation supplement, and already-announced increases in house building by Housing New Zealand, infrastructure spending and hints of public private partnerships to accelerate infrastructure investment. These changes are very welcome. The main criticism is that these initiatives are too timid and gradual.
The increase in the accommodation supplement is welcome relief for families battling rising rents and cost of living. But with not enough houses and not enough social houses, the demand for accommodation supplement will keep rising, as will rents. Steven Joyce admitted about 100,000 people will still be under housing stress even after the increase in the accommodation supplement. Let's not even start on outdated rental regulation, which makes renting a precarious living arrangement.
Increases in the state-house building programme will not house everyone needing a state house at the end of the programme. The stock of state houses is currently at the lowest level since the 1940s relative to population.
In the same interview, Joyce lamented that low interest rates are driving prices higher. What he didn't explain is that our lending is overly directed to existing houses, rather than building new houses. Low interest rates are not enough to encourage enough house building. The regulation of our banking system is not fit for purpose - it is creating too much debt for the wrong purpose. Not to build houses and fund enterprise. This of course sits with other constraints including land and infrastructure supply.
Joyce also glibly asserted that the pressures will ease once housing supply ramps up. But we have been waiting for housing supply to ramp up for the last 30 years.
We have been here before. Post-war New Zealand was desperately short of housing. But a concerted push to build more houses started in the 1950s.
The 1953 National Housing Conference and the policies that followed worked on many facets. It worked particularly hard to stimulate demand to buy new houses and provide the financial capability to do so. It was the certainty of demand that helped building firms to do things in bulk and with a long-time horizon.
Relative to population, we were building at a rate of about nine houses per 1000 people between 1950 and 1980. In the latest cycle, the peak was eight and the norm is around 5.6 per 1000 people. If we had kept building like we did before the 1980s, we would have built around 480,000 more homes today. There would be no housing shortage. Left to its own devices, the market as it stands today will never build enough houses.
Without a substantive change to the state's intervention in the housing market, I am not convinced that New Zealand will ever build enough houses. Budget 2017's measures on housing will provide a short-term salve, but maintain the status quo. There is no ambitious programme to tackle the biggest housing shortage since post-war New Zealand.
* Shamubeel Eaqub is an economist and partner at Sense Partners, a boutique economic consultancy.