Hayden Munro: Housing crisis could get worse with interest rates rising, house prices falling and economic concerns mounting

New Zealand is finally starting to make headway on the housing shortage, but all of this progress is at risk if the Government goes back to sitting on its hands. Photo / NZME

Opinion

OPINION:

Quietly, and without much fanfare, New Zealand has been digging its way out of the housing supply hole dug over the last few decades.

But now, with economic headwinds getting stronger, we risk repeating the mistakes of the past and making our housing crisis even worse.

For decades, under both National and Labour governments, building new housing simply wasn't a major priority.

And in the absence of an active government, a vicious cycle of feast and famine took hold.

The aftermath of the global financial crisis is a great example. With everything left to the vagaries of the market, when the economic downturn hit, construction was the first industry to fall over.

Between 2008 and 2011, the number of new homes built was cut in half. Developers headed for the hills, banks were more reluctant to lend on housing projects, and construction firms went to the wall or opted to build fewer homes at higher price points to keep the risk down.

Work dried up. Firms went under. Workers left the sector.

The impacts lasted well beyond the initial downturn – when the economy recovered and we wanted to be building houses again, the financing, expertise and workers we needed weren't there.

Like a muscle that atrophies from not being used, New Zealand had simply lost the capacity to build large tracts of housing.

What followed was years of housing misery. With supply shut off and the population rising rapidly, prices skyrocketed, homelessness increased, and rates of homeownership hit their lowest level in 60 years.

To make matters worse, an ideological aversion to state provision from the Key/English Government saw state housing sold off with not enough new ones built to replace them.

Even accounting for the growth in the community housing sector, New Zealand had 1500 fewer public housing places in 2017 than it did heading into the global financial crisis.

In the last few years, the situation has, slowly, begun to turn around. New Zealand has built around 150,000 houses in the last five years - 40,000 in the last year alone. Building consents are at their highest level ever, the number of apartments, units and townhouses consented is growing, and the Government has added more than 9000 new public houses. Some 49,000 workers have received training since apprenticeships were made free, and the bipartisan housing deal will make it easier to zone new land for development.

But all of this progress is at risk.

With interest rates rising, house prices falling and economic concerns mounting, the same sorry cycle could play out again.

The Reserve Bank has warned that we could be about to see another major fall-off in building activity. Already, 22 per cent of all liquidations last month were in the construction sector.

If we want to avoid a repeat of the post-GFC housing slump, we can't have the Government go back to sitting on its hands.

We're already hearing calls from the Opposition for big spending cuts or for more of the jobs on housing to be left to community groups. That's a recipe for the hands-off approach that made this mess in the first place.

Instead, we need to keep ramping up efforts to build more housing.

The recent announcement of $1.4 billion to pay for pipes and to get land ready for construction is an example of what this could look like – it significantly de-risks building projects for developers who might be under financial pressure, and ensures houses actually get built.

Likewise, the Government needs to keep up, and even look at expanding, its state house build, which will guarantee work and give more certainty to builders around the country. Underwriting developments of affordable housing will become more important.

This all helps give certainty that there's a pipeline of work that can give building firms the confidence to plan and hire staff.

We've seen before what happens when we shrug our shoulders and let a downturn wreck our building capacity. We can't afford to make the same mistake again, not when we're finally starting to make progress on the housing shortage.

Hayden Munro was the campaign manager for Labour's successful 2020 election win. He now works in corporate PR for Wellington-based firm Capital Communications and Government Relations.