Tony’s Plan

By Eric Crampton 15/06/2013

BNZ Chief Economist Tony Alexander has a few recommendations to fix the housing market. Let’s take them in turn. My comments are the secondary bullets.

  • Initiate a large builder training programme targeting not just youth but low skilled migrants. “Yes, the migrant gates would need to be opened. Just the signalling of strong intention to boost builder numbers would make investors think twice about their capital gain assumptions,” he says.
    • Not a bad idea, but I’d expect expansion in builder training to come with increased demand for new construction; it could be that there are hold-ups in the training schemes with which I’m unfamiliar though. 
    • I would also note that there is a current massive demand pull for Christchurch. It will be difficult to build Auckland out & up at the same time as we rebuild Christchurch. 
  • Ban councils from imposing any development fees and allow developers to install their own infrastructure.
    • A bit further than I’d have gone, but I’ll take this over the status quo. We do need to learn from America’s municipal utility districts.
  • Create an SOE whose sole purpose is to undercut existing building materials suppliers through bulk purchases from offshore, nodal warehousing and distribution from just three or four locations in the country, with a separate agency responsible for monitoring the quality of materials sourced.
    • I can believe that we have substantial inefficiencies of scale in building supply. But there are so few barriers to anybody who wants to start shipping in container loads of building supplies from abroad, I’m a bit puzzled why we think that inefficiencies would persist once building started ramping up. On the other hand, we have seen substantial materials cost inflation in Christchurch. Count me as skeptical that this one passes cost-benefit. We’d need to pretty clearly state the market failure Tony thinks here is operating and why this is the best way of solving it. I’m reminded of my undergrad macro prof who thought it would be a good idea to have a government-run set of gas stations that used US reference point pricing.
  • Initiate a new large state house building programme relying largely on the to be created new carpenters etc. Constrain new state houses to more efficient building systems including containerised modular housing (this doesn’t involve shipping containers), central and screwed in foundations, etc.
    Ban house sales to non-residents (even new houses given the ease with which special developments could arise targeting solely folk offshore and soaking up construction sector resources).

    • State housing is really a second-best kind of solution. Where the private sector is forbidden by Councils from expanding supply, I can see an argument for it. But otherwise, surely it makes better sense to allow more building and give poor people money. I’m reminded of the difficulties involved in Housing New Zealand’s divesting itself of some $1m+ state houses in Auckland.
  • Impose a tax on all houses owned by Kiwis offshore with the aim of encouraging them to sell them.
    • I’m rather sure that recent numbers have shown few houses are being purchased by people who have no intention of coming here. And recall too that there exists a rental market. For this to screw anything up, it has to be the case that supply constraints remain pretty binding AND that none of these overseas owners rent out the houses that they’re not occupying.
  • Put in place a capital gains tax on second properties and farmland and immediately payable stamp duty for all second house purchases.
  • Rezone all land within 10-20 kilometres of existing city boundaries as residential.
    • I’m cool with this, so long as we’re not then taxing owners of agricultural land as though Council had provided subdivision-density infrastructure to paddocks.
Update: Thinking more on the SOE plan, if Alexander thinks the thing would be profitable, surely the Bank of New Zealand could simply announce some business plan competition where BNZ would provide financing for the best business plan aimed at improving materials supply and distribution.