Shearer's low cost housing idea is just a dream

As the waves made by the Labour Party conference two weeks ago start to settle, it is becoming clear that beneath the surface is a dangerous prospect. Indeed, at the conference David Shearer's big-ticket policy initiative of launching the largest building programme in 50 years is something to be wary of. It may have fallen second to the Cunliffe leadership challenge in the media's front-page priority after the conference, but it is becoming clear it is a policy almost equally as threatening to Shearer's legacy as Labour Party leader.

Let's be clear: this is not about politics; it is about what is sensible. And the dream of the Government magically having the ability to build thousandsof homes rests on a number of fanciful assumptions. First, and most obviously, there is the assertion that the Government will have the ability to build 100,000 houses (up to four bedrooms in size) of desirable quality in suitable areas for just $1.5 billion.

Shearer has justified these numbers by stating the scale of the project will be such that the cost will be driven down by economies of scale.

According to Shearer, the project will "drive prices down by 25-30 per cent in terms of materials alone". While ambitious and optimistic, it seems unlikely savings of such large magnitude exist but have not been exploited by private investors, if Shearer is correct the demand for said houses would exist.

The accuracy of such estimations has been questioned by those in the industry too: "I think the jury's still out on whether you can make those sorts of savings," said Warwick Quinn, the Registered Master Builders chief executive.

Given that he represents the industry that will benefit most from Shearer's plan, the fact even Quinn is questioning its viability is telling.

The scheme also rests upon the assumption that the government will be able to cheaply issue 'Home Ownership Bonds' and then also invest back the "money made from selling the homes... to build more homes".

If Shearer has such lucrative investments lined up that would outstrip the cost created by issuing more bonds, I'd love to be made aware of them. In fact, why doesn't the Government just take out more than it needs if his investments are so certain and profitable that he can rest a policy of such magnitude upon them?

The reality is that any investment will carry risks with it and, once more, Shearer is placing the weight of 100,000 houses on an idealistic assumption.

But maybe we could forgive him his dreams if they were actually dreams of prudence. Unfortunately, they are not. New Zealand's private sector debt is estimated at about 150 per cent of GDP, far higher than the public debt we all worry about. Moreover, Treasury states that in 2010 housing loans amounted to more than 50 per cent of this debt. Put simply, this housing scheme encourages exacerbation of this problem, and it encourages investment in housing rather than more productive industries.

If the numbers weren't enough to prove his false optimism, then perhaps when Shearer visited a low-cost housing development in the Wellington suburb of Newtown it was finally put into perspective for him. The houses he was trumpeting as an example of "low-cost housing" were in fact worth $495,000.

It may be the stuff dreams are made of, but this housing initiative is just that: a dream. And it is certainly not the stuff leaders are made of.

James Penn is deputy head boy at Wanganui High School and captain of the New Zealand secondary schools debating team.