KiwiBuild may crowd out developments — Orr

WELLINGTON: The Reserve Bank estimates that for every 100 houses built under the Government’s KiwiBuild programme over the next three years, between 50 and 75 other houses may not be built because of capacity constraints.

Speaking to Parliament’s finance and expenditure committee, Reserve Bank governor Adrian Orr pointed to the separate paper the central bank published on Wednesday outlining its assumptions about the KiwiBuild programme.

‘‘The construction sector is currently facing capacity constraints, which means KiwiBuild develop ments may crowd out other private developments, particularly in the near term.

‘‘The bank has assumed that half to threequarters of what KiwiBuild contributes to residential investment will be offset by crowding out of other private investments over the forecast horizon.’’

The bank said it needed to factor KiwiBuild activity into its forecasts because it may have a significant impact on inflation and employment.

It is factoring the net contribution to demand into its forecast because KiwiBuild will be competing for resources.

‘‘There will be some crowding out’’ of capacity that would otherwise be used for building homes not connected to KiwiBuild and ‘‘there’s a significant resource challenge.’’

The assumption was based on numbers of houses because the central bank could not know the value of houses that might otherwise be built.

Finance Minister Grant Robertson said the Government had other advice that suggested a lesser degree of ‘‘crowding out’’ caused by KiwiBuild but he was relaxed about the central bank making its own assumptions. — BusinessDesk