Labour has an interesting proposal to build state houses. I know some other economists who have a more intimate knowledge of the building industry, and they tend to agree with the concept. From what I can tell the justification is:
- The credit market for builders/developers/housing is dysfunctional at present and there is no direct solution.
- This is especially the case for the area of the market that state houses would fill.
- For social reasons the government wants to carry a certain stock of housing, and this has been run down below the level they desire.
Given the last factor, building state houses may be preferable to say having the RBNZ give direct lines of credit at “functional market” interest rates to builders/developers.
Now, I was wondering if there are people out there with a bit more data and information on this – and whether they can throw down things in the comments. Such a direct intervention requires a hefty amount of evidence, and while I’m sure that the policy is being put out on well considered grounds I would also like the opportunity to look over this.