Provision of state-owned rental dwellings was an important plank in Labour's election platform. In the year ended March 1938 the first four hundred units became available under the scheme.
This housing construction was financed largely by Reserve Bank credit, a use of bank credit which provided extra ammunition for the inevitable cross-fire of criticism of any state housing scheme.
The dwellings were let at low rentals, admission being subject to a means test. Strictly uneconomic,1 these rentals were given a semblance of relationship to costs by charging only a nominal rate of interest on bank loans to the Government for housing purposes.2 Needless to say this concealed form of subsidy did not escape the attention of the critics.
The programme for construction of state housing was stepped up rapidly and, by the outbreak of war, about three thousand of these dwellings were becoming available each year.page 10
Besides providing housing for the more needy members of the population, the state housing scheme added to the total demand for construction work and, with the augmented public works programme, helped to absorb unemployed labour.
1 And to become more uneconomic as rentals remained fixed while costs rose.
2 Later there was considerable controversy over the actual method of financing state housing (see for example NZPD, Vol. 291, p. 2691 and onwards). Loan money, once borrowed, becomes available with other monies for a variety of uses and it is difficult, if not impossible, with most state borrowing to say that the money was raised for any particular purpose, or to distinguish the uses to which it was actually put, but the above paragraphs give a reasonable indication of what was done. The rate of interest charged averaged about 1 1/4 per cent.