Vaughan Gunson: The booms and busts of the building industry

The building industry has a long history of ups and downs, dating back to even Egyptian times. Photo / NZME

OPINION

The building industry has always been prone to boom and bust. Going back to when the Egyptians were building pyramids and the rising costs of feeding slaves with bread and beer put a halt to some pharaoh's ambitious plans for the afterlife.

There's just a big delay between embarking on a build and getting it completed, by which time, in the contemporary case, things change.

Like a Gib plasterboard shortage. Or petrol prices spiking, increasing the costs of ute-driving tradies.

And rising interest rates are putting people off buying houses with the careless abandon they once were.

All this resulting in house prices going south in the time taken to get consent to hammer the "For Sale" sign into the ground.

Suddenly, some building companies can find they've overloaded on debt, and houses or apartments aren't selling at the price they were banking on. That's a problem.

Building something as big and expensive as an apartment block is a risky business. Get your expectations wrong and your foundations can start to wobble. There's a reason so many financial crises have origins in the building sector.

I don't know how bad the situation is in New Zealand and what risk there is of a building boom turning to bust. But there seems to be an increase in economist types and building industry experts worried this might be the case.

And yet we still need to build more homes. To achieve price stability and take the heat out of the rental market.

If we're heading for a recession and a decline in new builds by private developers, then it should be the Government that picks up the hammer.

A socially responsive government can look to pull any surplus labour from declining private-sector construction into an expanding state house building programme.

Since 2019, Labour, to its credit, has instructed Kāinga Ora to build more social housing. As a result, 7000 new homes have been built.

According to the organisation's website, Kāinga Ora aims to build 40,000 additional homes over the next 10 to 15 years.

Those numbers, while a welcome turnaround from selling state houses, are still modest. A target of 100,000 homes over 10 years could be achieved.

Doing so, however, would run counter to a narrative that Chris Luxon and the National Party have been pushing. That "out-of-control" public spending is fuelling inflation.

Their claim doesn't stack up to much scrutiny. Public spending as a percentage of GDP is roughly equivalent to what it was for John Key's National-led government following the 2008 global financial crisis.

And counter to National's narrative, government spending can lower the cost of living.

Building more social housing, where tenants pay below-market rents, eases competition for rental properties.

It's scarcity in the rental market that allows landlords to get away with charging exorbitant rents.

Providing more socially owned homes to families for less than market rent puts downward pressure on all rents, but especially at the bottom end of the market where it's most needed.

The hurt we are experiencing due to inflation is compounded for many people by the rolling crisis that is New Zealand's housing problem.

The unaffordability of housing is a root driver of poverty, poor health and social dysfunction leading to truancy and youth crime.

Kāinga Ora should be boosted with direct government funding, rather than being forced to borrow as it is now, and ambitious new targets for increasing the state housing stock introduced.

Spending more on social housing to undercut the private rental market would be deflationary where it matters.