Reserve Bank Governor Adrian Orr has warned MPs that the Government's flagship KiwiBuild policy will have a significant "crowding out" impact on the private sector.
But Finance Minister Grant Robertson appeared to be at odds the central bank's estimates and said Orr's forecast was "certainly challengeable".
This morning, the Reserve Bank published a discussion document which projected that KiwiBuild would create an additional 7100 – 14,200 homes in New Zealand by 2022, above what was already expected.
"While KiwiBuild is assumed to contribute 100,000 affordable houses over 10 years, it is unlikely that this will be achieved without crowding out a significant amount of other residential construction activity, given the current and projected state of the construction sector," the Reserve Bank's KiwiBuild paper said.
Speaking to MPs at the Finance and Expenditure Select Committee, Orr said half to three-quarters of total house building in New Zealand would be crowded out by KiwiBuild.
"So if [KiwiBuild] was going to build 100 houses, that means that between 50 and 75 elsewhere aren't being built."
Robertson did not seem to agree with Orr's data when questioned this morning.
"Whether or not I accept that that is the level of crowding out is certainly challengeable, as we have had other advice."
Robertson would not say what level of crowding out the Government was expecting; only that the Government's goal was to add "significantly to the housing stock".
The aim of KiwiBuild was to promote the building of affordable housing, the Finance Minister said.
"If we are starting to shift where some of the development is to more affordable, more affordable homes for first home buyers, that's good."
Housing Minister Phil Twyford said the Government was working with developers and builders to increase capacity and will this year introduce legislation to infrastructure funding and financing.
National's housing spokeswoman Judith Collins told the Herald after the committee meeting the crowding out impact was a "big concern".
"Taking capacity out of a sector very geared up to building dwellings is, I think, going to put up the cost of construction for people who are buying a house."
Collins was concerned that, with the private sector building by far the majority of houses in New Zealand at the moment, people wanting to get construction work done may end up having to pay more for trade people to do it.
Act leader David Seymour was also concerned at Orr's projections, and said his comments show KiwiBuild won't add to the housing stock this year and will reduce private sector building over the coming years.
"It's not surprising the Reserve Bank predicts KiwiBuild won't add to our housing stock when the Government is just buying existing homes, putting a KiwiBuild logo on them, and adding a set of rules around who can buy them."
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The Government had previously said it would build 1000 KiwiBuild homes in 2018/19, 5000 in 2019/20, 10,000 in 2021/22 and 12,000 a year, every year until 2028.
Late last month, Prime Minister Jacinda Ardern announced those targets had been scrapped.
But she said the Government was still forecasting 100,000 KiwiBuild homes to be built by 2028.