Up to three quarters of what KiwiBuild adds to housing investment will be offset by lower investment by the private sector, the Reserve Bank warns.“The construction sector is currently facing capacity constraints, which means that KiwiBuild developments may crowd out other private developments, particularly in the near term,” the Reserve Bank said.
On Thursday morning, Reserve Bank governor Adrian Orr told MPs that there was considerable pressure on the construction industry, which meant that where the government built houses, others which would have been built will be “crowded out” by a shortage of land or labour.
“If they were going to build 100 houses, that means that between 50 and 75 houses elsewhere aren’t built,” Orr told a select committee.
In a statement linked to the monetary policy statement released this week, the central bank gave explicit assumptions about the extent to which it will eat in to the amount of house building which would have happened anyway.
“The bank has assumed that half to three quarters of what KiwiBuild contributes to residential investment will be offset by crowding out of other private investment over the forecast horizon.”
The bank warned that because of the time it takes to get going, the short term addition to the housing market would be virtually nothing.
“In the 2019 fiscal year, the Bank assumes that the net contribution of KiwiBuild to residential investment is almost zero, as the KiwiBuild programme is in its infancy and the construction sector is capacity constrained.”
So the net contribution of Kiwibuild is almost zero. The farce gets stronger.