The  housing debacle – so what should we have done differently to make a real difference?

It is relatively easy to be wise after the event.  Even so I think there are some valuable lessons to be gained by looking back on what has been a policy disaster area for the Government and building those lessons onto the approach taken in the future.

I must say I feel sorry for Phil Twyford who is the “Government’s man” fronting this mess. My sorrow, however, reduces every time I hear him making bright and breezy statements in the media about how it will all come together in the long run.   You have to conclude that he is either indestructibly naïve, or is stuck with the job and is simply papering over the cracks for as long as he can.

One of the rather obvious lessons from all of this is that Government’s don’t build houses — that is the job of operational people like building product suppliers, operational people working for public agencies such as Housing New Zealand, building companies and individual builders and other tradespeople, and so on.  It is the job of the Government to establish the policy framework within which operations occur, i.e. real houses get built and sold.    But the policy framework has to be grounded in reality, not just a political flight of fancy.

In setting the policy framework Governments need to be very wary of setting quantitative targets (eg 100,000 new houses in10 years) because they have no real control over those numbers.

So what can the government do (or in this case what could it have done)?

• It should encourage conversations and support relationships which assist the effective operation of the supply chain, and a proper understanding of the demand side of the market and how that relates to supply chain realities. I have bitten off a large chunk here but the common ingredient is the role of Government is getting the right people talking to each other and generally “greasing the wheels”.  What the Government should NOT do is insert itself into the conversation or become an actual part of the supply chain or of the demand/supply process.  Leave that to the operational people.
• It should be continually seeking operational advice on holdups in the supply process and doing what it can to ensure that the Government policy in such areas is a positive (helping to solve the problem) and not a negative (simply contributing to the problem and/or making it worse.)
• It should look for gaps between what is being supplied to the market and the actual demand that needs to be met (eg the market may be supplying houses worth down to $600,000 while most first home buyers can only afford $350,000), and again encourage conversations about how to close such gaps.
• It should be conscious of the realities of capability and be prepared to take policy actions which ease capability constraints both in the short term (eg increased immigration, less capability intensive practices such as prefabrication) and in the long term (encouraging the growth of the workforce, more apprenticeships etc)

But in the end and as a last resort, the Government should be prepared to be a more direct player in the market. The key element is to ensure certainty for suppliers so they are prepared to invest in the building process.  Certainty, in this case, means real houses, not hypothetical goals.

One option which has been suggested by Government itself is to provide grants to first home buyers and this would undoubtedly help.   But there is a challenge in getting grants at the right level, and there will be uncertainty about the rate or extent to which grants are taken up.

The ultimate role for the Government is rather for it to be the guaranteed buyer of last resort, if that is what it takes to give suppliers the confidence to invest in supply and build capability, or bridge the price/cost gap between buyers (particularly first home buyers and struggling families) and suppliers (sellers).  There needs to be a commitment to ensure that there are a sufficient number of houses being acquired – either directly through the market or by the Government – to give the various players in the supply chain the confidence to invest.  Under this approach the  Government should buy houses – if it has to – with a view to getting them into the market rather than building up a stock i.e. this is not State Housing under another name.  This might involve selling houses at a loss to bridge the cost gap between buyers and sellers.  The goal should be to set prices at levels which avoid the stock of houses owned by the Government getting above a significant level.  That level will depend on a number of variables and may differ over time.

It would be necessary to set qualification rules that prevented buyers entering the “last resort” market simply to buy properties for investment.

The cost of the policy would depend mainly on the difference between the cost of the houses being acquired by the Government (the cost of supply) and the price that could be realised from buyers.  The cost would be reduced to the extent that the feedback from buyers enabled the Government to promote the design and build of houses which as closely as possible matched market demand and price.

The policy would also need to be dovetailed with the policy on social housing so that there was a seamless transition between different parts of the overall housing policy.

By Bas Walker

This is another of Bas Walker’s posts on GrownUps.  Please look out for his articles, containing his Beachside Ponderings.