Economics Professor says housing announcement lacking detail and doesn’t go far enough

21 March 2021

Aerial view of houses

University of Waikato Professor of Economics, Frank Scrimgeour, says the Government’s housing announcement today does not address the fundamental issue driving up house prices which is a lack of supply.

“Boosting supply will require partnership with local government and the facilitation of construction,” says Professor Scrimgeour.

“Today’s Housing Acceleration Fund announcement, whilst well intentioned, has a real danger of ending up like the shovel ready projects and not happening - unless there’s a strong connection with local government and Kāinga Ora.

“It’s a good idea but contrary to some of the reaction that it’s not enough money, my worry is that, without the detail and a clear timeline, it won’t be spent.

“It’s also not clear whether this will be supported by the replacement to the Resource Management Act (RMA), or if it will be slowed down by the replacement to the RMA. Ultimately there still has to be a commitment to getting more houses, and more at the less expensive end of the market,” he says.

He also asks where the connection is with other partners, such as local government, at a time when many are going through their long term planning processes.

Professor Scrimgeour says the Government’s ability to genuinely address both the “urgent and long-term measures” is a huge challenge, and more detail is needed to understand the true impact of the announcement and the Government’s ability to deliver on the housing crisis.

Professor Scrimgeour believes the extension of the bright-line test is a political signal that will discourage investors.

“At the end of the day you want a dynamic housing market and there’s lots of reasons why people’s circumstances change. We want assets to move rather than be stranded because there are tax incentives to hold on even though a house may be of greater benefit to a different owner,” he says.

“The removal of interest rate deductibility requires greater clarity around new builds. Different rules applying to existing versus new houses creates perverse incentives, such as knocking over a house to build a new one, instead of repairing it because of the tax implications.

Professor Scrimgeour says overall, there will be a modest number of people who are helped with this announcement.

“The more restrictions that are in place, the less likely people are going to want to invest in constructing new housing. The Government should focus more attention on facilitating a step-change in housing supply.”

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