The Prime Minister's announced $1 billion fund for interest-free loans for infrastructure to support new housing developments is another piece in the Government's continuing piecemeal response to its most pressing problem.
John Key points out that it is a problem of economic success - so many people find New Zealand an attractive place to be at present, including New Zealanders who would otherwise leave, that housing cannot keep up with the demand. But it is a problem nevertheless. The Government ought to be on top of it.
Announcing the infrastructure fund to the National Party conference at the weekend, Mr Key also listed other steps the Government has taken in recent years. It has established special housing areas where councils are supposed to issue faster building consents, removed tax deductions for depreciation and taxed the profit on non owner-occupied houses bought and sold within two years. A few weeks ago it issued a national statement requiring councils to ensure the supply of zoned residential land keeps pace with demand.
The national statement was criticised for the fact that making land available for development would not achieve very much unless the infrastructure could be provided. So now we have a $1 billion fund for that purpose. What next? Well, maybe it will set up urban development authorities to take the planning and consenting of new developments away from councils. Mr Key told the party conference that "UDAs", recommended by the Productivity Commission, were under consideration. The commission proposed they have the power to take land if necessary where speculators are holding out for higher values. Housing Minister Nick Smith said that was "something for Cabinet to work through over coming months".
Sadly, this is not a Government given to big, bold, decisive action. When house prices started to rocket out of the reach of most New Zealanders, the Government should have responded with a package of measures that could have included all of those it has introduced piecemeal over the past three years. They might have had far more impact as a comprehensive reform of the housing market. A suite of drastic measures would have removed any doubt that the Government was concerned about hyperinflation of housing and would not let it happen. All players in the market would have received that message.
Instead, they have seen the Government adopt a series of half-measures, usually in response to criticism or initiatives of others such as the Reserve Bank, and it remains debatable whether the Government really is worried about the price of houses. It may be more worried about causing prices to fall. Its infrastructure fund will be welcomed by councils of cities where it is available but it will only boost the supply of investment property. The Labour Party's proposal, to allow councils to issue infrastructure bonds, might also have reduced demand, since the bonds would have offered an alternative to direct investment in housing.
The Government is just tinkering on the supply side of the housing market to feed an insatiable demand.