High residential property prices impact productivity in several ways.
They absorb capital which could be invested in businesses and start-ups, limiting the entrepreneurial endeavours of younger people in particular.
They also create barriers to labour and social mobility, both of which matter for achieving the country’s productive potential, and limit the ability of per capita income to grow without a corresponding lift in productivity.
If housing is more expensive it can lead to a rise in poor health and educational outcomes. This in turn impacts productivity.
Likewise, high house prices in areas like Auckland and Queenstown can limit the desire of both workers and businesses to move to those more expensive locations.
Those who own their own homes tend to be older and are more likely to be looking to use their wealth to fund retirement. Meanwhile, younger people who are likely to start a business are facing more and more capital constraints these days due to housing costs.
ANZ Research acknowledges it is difficult to find definitive evidence of the impact expensive housing is having on business ownership, but there are signs of consequences such as a declining rate of self-employment among the New Zealand population.
Ballot box housing
Providing more affordable housing was one of the biggest issues of the 2017 election. The Government has unveiled its ‘KiwiBuild’ policy in an effort to fast track the building of more housing, with the goal of building 100,000 new homes in 10 years.
Most of these are expected to be apartments, with the first 1,000 homes intended to be finished by July next year. Couples earning up to $NZ180,000 ($A164,500) will be eligible to buy a KiwiBuild property. They must own the home for at least three years and live in it.
However, because demand is expected to far exceed supply, potential buyers will have to enter a ballot for one of the homes. The Government says this is to make sure people on more modest incomes have an equal chance of buying one of the properties.
Within two weeks, 35,500 people had registered their interest, according to figures from the Ministry of Business, Innovation and Employment (MBIE). Around three quarters of registrations were from the Auckland region.
Construction has begun on the first 430 homes, with plans unveiled for more. One of the most ambitious proposals is a 10,000 home development in the south Auckland suburb of Mangere.
The first ballot will be drawn in October, for the right to buy one of a limited number of homes that will be built in the Auckland suburb of Papakura.
Improving housing affordability is a complex problem.
While Kiwibuild is likely to have some benefits, it is not a silver bullet that will improve housing affordability or productivity.
The Government’s plans are ambitious, but achieving them will be difficult in practise, since it is competing with a private sector for resources and the construction industry is constrained.
And 100,000 homes, while ambitious, aren’t going to solve the housing shortage, given the extent of pent up demand and population growth.