Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 

KiwiBuild will crowd out other home building: RBNZ

KiwiBuild will crowd out as much as 75% of other home building: RBNZ

By Jenny Ruth

Feb. 14 (BusinessDesk) - The Reserve Bank estimates that for every 100 houses built under the government's KiwiBuild programme over the next three years, between 50 and 75 other houses may not be built because of capacity constraints.

Talking to parliament's Finance and Expenditure Committee yesterday, Reserve Bank governor Adrian Orr pointed to the separate paper the central bank published on Wednesday outlining its assumptions about the KiwiBuild programme.

“The construction sector is currently facing capacity constraints, which means KiwiBuild developments may crowd out other private developments, particularly in the near term,” it says.

“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 investments over the forecast horizon.”

The central bank says it needs to factor KiwiBuild activity into its forecasts because it may have a significant impact on inflation and employment.

“It is important that the bank makes judgements about how the KiwiBuild programme will affect the economy so that the bank can meet its policy targets."

The Reserve Bank is factoring the net contribution to demand into its forecast because KiwiBuild will be competing for resources.

“There will be some crowding out” of capacity that would otherwise be used for building homes not connected to KiwiBuild and “there's a significant resource challenge.”

Orr noted that the assumption is based on numbers of houses because the central bank can't know the value of houses that might otherwise be built.

The central bank has a working assumption that there will be a slow build-up to the programme, so it is assuming between 7,000 and 14,000 homes will be built in the next three years. That means most of the activity associated with the government's target of building 100,000 affordable homes under the KiwiBuild programme will occur beyond the central bank's three-year forecast horizon.

The Reserve Bank has included $2.5 billion of additional net spending on housing over the next three years and the KiwiBuild houses will cost between half to the full cost of other houses.

It is assuming the programme will ramp up to 12,000 houses a year by 2022 and the central bank acknowledges a number of government initiatives designed to increase capacity in the construction sector. But those measures will take time to take effect.

The Reserve Bank says officials visited a number of construction firms in late 2018. “Construction firms noted that they were facing strong demand for their products, but a range of capacity-related issues meant that they could not expand production enough to keep up with demand,” it says.

“Shortages of skilled and unskilled labour were the main issues holding back firms' production, in addition to the cost of land for developments, and obtaining financing for projects.”

That means the ability of the construction sector to meet demand will depend on the extent to which these constraints can be eased.

Residential investment is about 6 percent of real GDP and about 7.5 percent of nominal GDP and both measures are above historic averages.

The Reserve Bank says it expects the construction sector will continue to face robust demand and constrained supply.

“However, if the housing market were to soften and residential construction slow or decline, then KiwiBuild may help to prop up demand in the sector, resulting in a larger net contribution,” it says.

Forecasts of KiwiBuild's impacts are inherently uncertain and a wide range of outcomes is possible and the Reserve Bank will continue to monitor the industry, Orr said.

(BusinessDesk)


© Scoop Media

 
 
 
Business Headlines | Sci-Tech Headlines

 



Consumer NZ: Buy-now, Pay-later Raking In $10m+ In Late Fees Annually

A Consumer NZ survey has found buy-now, pay-later services are costing shoppers more than $10 million a year in late fees. Close to four out of 10 Kiwi consumers use buy-now, pay-later services, such as Afterpay, Laybuy and Zip... More>>

Westpac: Catherine Mcgrath Appointed New Zealand CEO

Westpac Group CEO Peter King and the Westpac New Zealand Board today announced the appointment of Catherine McGrath as Chief Executive Officer, Westpac New Zealand... More>>


Amazon: AWS To Open Data Centres In New Zealand

Today, Amazon Web Services (AWS), announced plans to open an infrastructure region in Aotearoa New Zealand in 2024. The new AWS Asia Pacific (Auckland) Region will consist of three Availability Zones (AZs) and join the existing 81 Availability Zones across 25 geographic AWS Regions at launch... More>>

ALSO:



Statistics: Surge In Imports Results In Record Monthly Trade Deficit
Imports increased $1.8 billion in August 2021 compared with August 2020, resulting in a record monthly trade deficit of $2.1 billion, Stats NZ said today. Exports were little changed, down $42 million. "This is a larger deficit than normal because of higher values for imports.. More>>

Fonterra: Completes reset, announces annual results and long-term growth plan out to 2030

Fonterra Co-operative Group Limited today announced a strong set of results for the 2021 financial year, reflected in a final Farmgate Milk Price of $7.54, normalised earnings per share of 34 cents and a final dividend of 15 cents... More>>


Statistics: GDP rises in the June 2021 quarter

Gross domestic product (GDP) rose by 2.8 percent in the June 2021 quarter, following a 1.4 percent increase in the March 2021 quarter, Stats NZ said today. June 2021 quarter GDP was 4.3 percent higher when compared with the December 2019 quarter... More>>