Labour’s Kiwibuild policy was first announced in 2012, and is now a flagship housing policy of the new Labour-led government. The key points haven’t changed much since 2012, although the detail has been fleshed out a bit since then. Those key points are:

  • The government wants to build or facilitate 100,000 new homes over 10 years
  • At least half the new homes will be in Auckland
  • All Kiwibuild homes will be “affordable”
  • All Kiwibuild homes will be for first home buyers only

The good

There’s a lot to like about the Kiwibuild program; I like the aspiration behind it, and I like the focus on affordable homes. For too many years, builders have focused on building large, expensive homes, which simply aren’t a good match for New Zealand’s changing demographic profile.

The Kiwibuild targets are ambitious, and I like that too. For context: New Zealand currently has around 1,850,000 homes. Around 600,000 are rented. More context: New Zealand typically builds around 230,000 homes in a decade. Still more context: Auckland typically builds 76,000 homes in a decade.*

Compared with the numbers above, Kiwibuild has very significant scale. If we assume that all Kiwibuild homes wouldn’t otherwise have been built (this is very optimistic, of course) then the program would lift home building numbers by 40% across the country, or by 66% in Auckland. At the same time, it could give tens of thousands of families a better chance of buying a home, and lift the home ownership rate by several percent.

For the last bit of context: Kiwibuild focuses on ‘affordable’ housing, which has been largely ignored in recent years:

This graph (from the Productivity Commission’s 2012 inquiry into affordable housing) shows that, by 2010, less than 10% of the new homes being built were in the lower quartile for house prices – i.e. at the cheap/ affordable end of the market. I heard at a talk the other day that we’re now down to less than 5%.

That’s to say nothing of house prices generally, which of course have gone up hugely since 2012, along with deposit requirements.

I reckon there’s a huge potential market of people who’d like to own their first home but can’t afford it, but might be able to under the Kiwibuild program – if the government can deliver it successfully.

The vague

Although it’s a big shiny idea and has captured the imagination of plenty of people, we still don’t actually have much detail on Kiwibuild. Apparently more is coming in the next few weeks.

We’ve seen glimpses – e.g. that the government will buy homes ‘off the plan’ and sell them to first home buyers on completion. I like this idea, by the way. It gets developers closer to the presales targets they need to start building. And it recognises that first home buyers struggle to buy off plan, because they find it hard to predict where they’ll be in 1.5 or 2 or years’ time when the development is finished. Buying the homes when they’re finished is much easier.

The Ugly

So that’s the good part of Kiwibuild, now iet’s look into some of its potential issues by covering off:

  • Are its construction targets achievable?
  • Will it just ‘crowd out’ other housing?
  • How can we avoid potentially perverse incentives?

Are Kiwibuild targets achievable?

Kiwibuild has always been about delivering 100,000 homes in 10 years. But since the policy was unveiled in 2012, the construction sector has gone from post-GFC lows to record levels of activity.

Plus, construction prices have escalated by at least 20%, and land prices have gone up much more than that. This makes it harder to build affordable homes and achieve the Kiwibuild targets.

Labour always acknowledged that Kiwibuild would take time to scale up, but it’ll be even tougher now. The government wants to deliver 16,000 Kiwibuild homes in the first three years, but MBIE think it will only achieve 8,000.

The 10-year target is 100,000 Kiwibuild homes, but Shamubeel Eaqub says we need half a million, and with perhaps a bit of bravado, the Housing Minister replied that he expects to build “far more” than the targeted 100,000.

I think even the original target will be a stretch, but that’s no reason to give up on Kiwibuild; if anything, it makes it more urgent. Kiwibuild makes it crystal clear that the government wants homes built at the lower end of the size/ price range, and builders should respond by delivering more, smaller homes. That’s what we need, and it’s not the kind of housing we’re building at the moment.

Will Kiwibuild just ‘crowd out’ homes that would have been built anyway?

Critics of Kiwibuild argue that the program won’t result in many extra homes being built. It’s a valid criticism. To be fair, though, Kiwibuild was launched in 2012, before the Unitary Plan was notified, before Special Housing Areas were a thing, before the government of the day had given much thought to Auckland housing.

By the end of its reign, the National government was starting to do a lot more. In May 2017, then-Minister Amy Adams “announced that the Government’s Crown Building
Project will replace 8,300 old, rundown houses in Auckland with 34,000 brand new
purpose-built houses over 10 years”. Kiwibuild continues and extends on this work, but it’s fair to share the credit between Labour and National. Still, it’s not really fair for National to blame Labour for not delivering even more homes, when it was only after Kiwibuild was first announced that National really got started on this stuff.

So that’s the status for building on Crown land. Kiwibuild was launched early; National came to the party a bit later; and now Labour will implement it. Shared credit.

But homes on Crown land could crowd out private sector activity, and Kiwibuild homes on private land will crowd out even more. It would be pretty stupid politically for Phil Twyford to admit it, but the ‘net’ increase in home building from Kiwibuild will be much smaller than the headline 100,000 number. Still, I’m not too worried about this as long as we get a shift in the type of housing being built: more homes, more affordable, and smaller.

Will Kiwibuild fall victim to perverse incentives?

Labour have always fixated on the (relatively) low purchase prices of Kiwibuild homes, and they’re still fixating on it. Before the 2017 election they said:

The stand-alone KiwiBuild homes in Auckland will be priced at $500,000-$600,000 with apartments and terraced houses under $500,000. Outside of Auckland prices are likely to range from $300,000-$500,000.

Now that Labour is in government, they’re still using these figures. In some cases, they’re mentioning prices way lower than anything being delivered in the market today. And I worry that corners will be cut to get the prices below the Kiwibuild thresholds.

I’m not talking about building defects, or low-grade products or anything like that. Building quality is regulated through the Building Code.

I’m talking about the government making tradeoffs that push down the purchase price of Kiwibuild homes, but increase their ongoing costs – for a higher “total cost of ownership” in the long run. Since the government has put so much emphasis on purchase price, they have “perverse incentives” to take these tradeoffs in the wrong direction.

This could cost Kiwibuild buyers more, and it could even undermine other government objectives like tackling climate change.

I can see three tradeoffs:

  1. Infrastructure paid up front, vs. infrastructure  paid off over time. At present, a good chunk of infrastructure costs are paid up front, as “development contributions” charged by the council. The alternative is to use “targeted rates” that are paid off over time.
  2. More expensive, energy-efficient homes, vs. cheaper, more basic homes. Even a ‘basic’ new home still beats most older houses. But paying for additional energy-efficient features could save money in the long run.
  3. Centrally located but expensive land, vs. remote but cheap land. The government might head further out of the city to find cheaper land. For example, it might buy land in Helensville rather than Massey.

I’ve got no problem with #1: there’s nothing wrong with shuffling these costs around. For example, $50,000 of infrastructure costs might be shuffled out of the ‘purchase price’, and instead the buyer would pay targeted rates of $3,000 every year forever. The home might look $50,000 cheaper, but the real cost of the housing hasn’t changed. Banks won’t be fooled, either; they’ll factor the ongoing cost of targeted rates into their assessment of what they will lend the buyer, and the interest rate they charge.**

There could be climate change implications with tradeoff #2, but they’re minor. Most home energy use is now from electricity, and NZ’s electricity is mainly renewable, so this isn’t a biggie. Still, it might be a missed opportunity to provide much better housing, which after all is going to be around for many decades to come. This could cost Kiwibuild home buyers more in the long run.

Taking Kiwibuild to the wop-wops (#3) is a problem. Land in far-flung parts of Auckland is cheaper because it’s far away from everything; far away from schools, jobs, amenities. People living further out tend to drive further and spend more on transport; they have higher costs for petrol, vehicle maintenance and in the value of their time.

Home buyers might be happy to make the tradeoff and put up with higher transport costs for a cheaper home, but there’s a big externality: greenhouse gas emissions. Living further out means more driving, which means higher emissions. Since the new government wants to take action on emissions, it should really be aiming for more homes in central areas. And it needs to avoid the “perverse incentive” of building homes that are isolated from the rest of the city, just so it can meet its own arbitrary price caps.

Wrapping up

Like any policy, Kiwibuild isn’t perfect. I think it’s pretty good overall, but could do with some tweaks.

  • The focus on affordable housing is great, and the ambition is good too. Hopefully it’s enough to stimulate a change in housing generally, so that even the non-Kiwibuild homes are more affordable and better matched to our changing society.
  • I don’t like the focus on delivering ‘homes under $X,000’. It’s a short term focus, and I’d want to see more consideration of the long term – especially as we come to grips with the long term problem of climate change.
  • I’d like to see Kiwibuild pivot slightly, to retain a focus on affordability but express that in different ways: homes that might cost more than $600,000 up front if that’s what it takes, but that are centrally located and well insulated.
  • If I could change just one thing about Kiwibuild, it’d be to acknowledge that most Kiwibuild homes should be well located, inside the city if possible or on the edge of the city if not. They shouldn’t be way out beyond the city edge, and I’d love the government to explicitly reject doing this.

* These stats are based on regional building consent figures from mid-1990 through to 2017.

** Shifting infrastructure costs to targeted rates could actually be a slight improvement. As it stands, the developer pays these costs, and then has to add on their finance costs and profit margin. With targeted rates these extra ‘costs’ should reduce.

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126 comments

  1. Good write-up John.

    On the issue of having price and quantity government house building targets.

    In Britain back in the post war period this caused all sorts of perverse incentives -which created a large number of poor quality Council built housing developments -many of which were later demolished. There is a really good documentary about it in this article.
    https://medium.com/land-buildings-identity-and-values/the-great-british-housing-disaster-885411247afc

    So quality considerations and an eye for the details is important.

    1. That’s OK. I heard they are going to get the insurance companies, the Canterbury Earthquake Recovery people and Fletchers to oversee a bunch of Irish builders. What could possibly go wrong with that?

          1. “Since when were Irish people a race?”

            What? Since thousands of years ago when the island was first populated. They have their own distinct language, cultural heritage and history.

          2. Heh… people conflating culture and race since thousands of years ago… unless they are ginga’s… in which case they can all die!!

  2. The government has discussed Paerata before (see article here http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11937945 ). Also even $600 000 is too high for many low income New Zealanders. bear in mind the benchmark for affordability is three times the median household income which equates to a price of around $250 000. The challenge is to find a way to build the homes for that figure (including land costs). Concerns about sprawl e.t.c. are to me a luxury when house prices are so high and we have thousands of homeless people. Better to have people living in homes sprawled a loooong way away than sleeping in cars or on the streets

    1. “The benchmark for affordability is three times the median household income” – Demographia are the main proponents of this benchmark, and they succeeded in getting a lot of other people to repeat it! Even in their own results, they find that only 62 out of 293 urban areas meet that affordability criterion, with almost all of those in the US. Many or most of them are cities that have flat or declining populations.

      It’s true that a few decades ago, a lot more cities would have been at or close to this affordability benchmark. Several things have changed since. First, planning restrictions, which Demographia imply are the only factor (and even then, they imply that the only relevant restrictions are the ones which stop sprawl). Second, lower interest rates – these make a huge difference, especially in NZ. Third, infrastructure costs etc have moved towards ‘user pays’ in NZ, so those costs are now included in new home prices – they weren’t in the past. Fourth, tax changes, e.g. the introduction of GST. Probably other factors too.

      There are a lot of differences between countries and cities which the Demographia figures gloss over, and my view is that the target now adopted by Auckland Council, that house prices are five times median income by 2030, is about the best we could realistically hope for. Even then, it will be a real stretch.

      1. I think a median multiple of 3 for Auckland is too tight. Tokyo which is 20 times the size of Auckland though manages under 5 -so something in the 4-5 range in the long term should be doable for Auckland and maybe 3-4 for our smaller urban areas.

      2. Median multiples are such a stupid way to measure affordability. In fact any kind of multiple assumes living costs are completely proportional to income which they are not. This is why I think median multiples always look better in smaller places that have lower incomes – their disposable income is very low and hence house prices have to be too.

        For example, supposedly a couple earning $50k PA can afford to buy a $150k home, and a couple on $200k PA can afford to buy a $600k home. But in reality the couple on $50k can barely afford to buy food while the couple on $200k can easily make the mortgage repayments on a $1.5 million home and still live a comfortable life.

      3. Yes… GST… build a new house and the developer pays 15% in GST on the purchase price to the IRD… OK they get GST back on inputs, but not on land… in effect there is no GST on land other than in some special circumstances… so there is quite a bit of GST leakage there that needs to be recovered…

        Developer contributions and Watercare Growth charges in Auckland add around $60 – 70k to each new dwelling (note than in an apartment building of 100 apartments that is 100 dwellings for the calculation of these charges).

        And the developer has to build the roads and install the infrastructure that gets vested in the Council… plus any water run off management that may be necessary… these costs have risen due to environmental concerns and have to be paid by the purchasers…

        There are many Council mandated costs that just add to the cost of a development – like paying an hourly rate for each and every council employee attending a planning meeting.. and I kid you not, there have been times when the poor developer has been sitting across the table from 20 council staff each costing $100/hour…

        A good 30% of the cost of a new dwelling is GST and Council costs foisted on developers and by deduction onto new home buyers outside of the cost of the land…

    2. But yes, absolutely agree that concerns about sprawl are a luxury in Auckland. “Up and out” is definitely relevant.

      My main concern is that the government doesn’t go and embark on some huge scale, long-term housing project way out of the city, which will take many years to deliver meaningful housing numbers anyway, and give worse long-term results than housing built closer in.

      Various alternatives are available, including bringing forward the timing of brownfields projects (where, after all, the government often owns the land already), or temporary housing (there’s a little of this being built already, and ditto for Christchurch post-quakes) which could fill the need faster, and help to take the very sharp edges off the housing crisis for the most disadvantaged. And not have to pay exorbitant fees to moteliers in the process!

    3. The government will be forced to use rent to buy schemes and use a leasehold land approach to get the prices down enough.

      Nothing wrong with this except the government needs deeper pockets.

      1. And NZ banks won’t fund large apartment developments… the only large apartment developments going ahead are 100% Chinese funded… local banks won’t touch them

      2. Leasehold land have escalating ground rent that makes the the ownership of a deperciating building pointless.

        The fair way is owner would buy the building. The land will be a rent to own model. Which the owner can slowly buy the land share back at his own pace.

  3. If we are really serious about houses for people to buy to live in then:

    How about a rent to buy scheme, financed and project managed by the government? (Government works schemes like we do for major infrastructure projects)

    The home (simple & basic) is built on its section or as part of an apartment complex
    The potential owners rents at a realistic affordable rate for a set time, negating the rip off rental market we currently have, whilst getting it together to buy the place if they like it
    Then lock in the buyer for a decade plus, exceptional circumstances permitting, to discourage speculating and not flip the house for a booming profit. Any excess profit from an early sale, set at a predetermined percentage, is paid back with interest to the government. Other rules could apply.

    This kills many birds with one stone as it hits rent gouging with a new market bottom line and therefore hits profiteering from the Investors, puts roofs over heads, gives real home buyers as opposed to speculators a home and starts to eat into the shortage whilst at the same time deflating the speculators market which is behind so much of the damage caused! It should in theory disincentivise housing being traded as a commodity.

    And most importantly and as a bottom line each estate is properly connected to decent PT! I’m thinking areas well serviced by rail, ferry, dedicated busway or God forbid, light rail.

    1. I love the concept of rent to own. I think that the only reason that we don’t have that already, is that Kiwis tend to think small and incremental, ignoring lessons from overseas.

      As a Kiwi, that frustrates me.

      1. The Green Party are pushing for both ‘rent only’ and ‘rent to own’ options. Tywford has stated in the media, that ‘rent only’ and ‘rent to own’ can be included in Kiwibuild, especially in Auckland.

    2. Ten years is too long – a lot changes in families and they can double in size in that time-frame. Plus if this is aimed at the lower end of the market you are going to need some four bedroom apartments to accommodate families, and the open market doesn’t provide that for under a million dollars.

      1. Its a basis for a practical solution but in the end and with finer details worked out, something that does not increase the property portfolios of speculators!

  4. With KiwiBuild, I really doubt that they’ll hit their targets. Guess what? That’s ok. As long as there is an appreciable improvement in housing stock numbers, failing to hit the target isn’t relevant because it’s still an improvement that didn’t look likely under the last govt.

    My real gripe is their focus on homes, rather than dwellings. Homes is a loaded word, makes people think of a detached house on it’s own plot of land. Land for homes is scarce, unless you sprawl.

    I’d like it if the govt gave more air time to vertical living – If Mr Manson can present what appears to be affordable high quality apartments, that don’t look like the slums that everybody fears, then the government should be able to do the same. Ted Manson article: http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11997975

    I appreciate that apartment living isn’t for everybody, but (apparently) excluding it from the mix is irresponsible.

    1. Jacinda has discussed on the AM Show that KiwiBuild will aim to build in Auckland 1-2 bed apartments for $350,000+

    2. Home is where the heart is, a dwelling sounds awful. You may be technically correct, but the warmth that the word home encompasses is much better as far as PR is concerned. I have lived in a modest apartment for almost a decade and consider it home. I agree with you in regard to Mansons, if only between the government and council they could find suitable land for such development. Apparently no go in Herne Bay, who would have thought?

    3. Interesting article. Thanks

      $65m+ for the Glen Eden site.

      12186 sqm = 5350/sqm
      165 dwellings = 395,000 per dwelling.

      According to the rates site it has 2729m2 of land. So 16.5 sqm per dwelling is pretty good.

      Land value was $1,275,000 or 460 psqm. Means the land value per dwelling is $7,600.

  5. On the issue of whether KiwiBuild should be built within the city limits or outside of the built up area. Surely it has to be both.
    To stop the constant escalation of land prices -zoning restrictions have to be removed both up and out -so that a superabundance of supply is possible. Superabundance comes from up and out. Normal growing cities grow up and out. This is what prevents monopolistic land pricing -the pressure cooker mechanism which has and will continue to cause land price inflation if not remedied. Monopolistic land pricing attracts speculators because they see an easy way of making money by doing nothing. Housing reforms has to address this issue to stabalise land prices.
    Once land prices stabalise then affordable intensification becomes possible. Density becomes the poor persons friend (if zoning lets it to be). In effect many low income people can get together to buy and build a multi-person/family dwelling where once stood a single person/family dwelling that only high income/wealthy people could have afforded. How many people/dwellings will depend on the price of land.
    But this system only works for the low income and those trying to buy into the property market if land prices are stable (or declining). If land prices continue to escalate then KiwiBuild prices/quantities are not possible and the initiative will breakdown -somewhere/somehow.
    Note: not everyone living on the periphery of the city works/travels to the centre of city. As long as people have affordable choices then they can find solutions which best fits their needs.

    1. Problem is

      1. the trade-off by building OUT is longer commute times. If we want to build places to live for people who work in Auckland. Then either we build near transit; or we expect people to lose time in traffic

      Building near transit is not entirely the solution. An outer city greenfield will likely not have the density of services as inner-city. So anybody living in these areas will likely need to by a car in order to reach services. Once a car becomes a sunk cost, then the likelihood of transit use is reduced.

      2. these greenfields need NEW infrastructure development, but our inner-city (brownfields) needs infrastructure RE-development. If we say build-out to meet housing needs and this then implies a priority to this NEW infrastructure spend. Then inner-city infrastructure continues to fall apart even further.

      1. We could build an outer city greenfield densely enough that the density enables lots of services and a car free lifestyle.

        1. Why build these new services and businesses, when we already have these in the city?

          That’s not really scale.

          We must be honest – Auckland is now a LARGE city. We need to do large city things.

          1. Because we are going to be adding a million people in the next 30 years. We will need more supermarkets, more hairdressers, more social development services.

          2. All that can happen in the inner city.

            For example Transform Manukau can take 100k more people within 800m of transit.

            Maybe the shopping malls, etc there can operate 24/7.

          3. I sincerely doubt that Manukau has enough government or council owned land to accommodate anywhere near 100,000 people.

            I think you have missed that I am not suggesting that we only do greenfield. Rather, I am pointing out that some greenfield may be necessary and that it doesn’t necessarily have to be single storey, detached sprawl designed to maximize driving.

          4. I just dislike the continued suggestions that a “new” sustainable city on the outside of Auckland is the answer.

            There is greenfield within the city. Regional development should occur. But I don;t think Auckland as a city should spend money on it.

          5. +1 to that. The areas I had in mind were the sprawl that is already planned (Dairy Flat, Westgate, Papakura east). Government could get involved to achieve better outcomes there.

    2. Absolutely. Lets scrap all controls on development including height, setback, minimum parking requirements, minimum lot sizes and maximum coverage. Then the RUB can be scrapped as well.

      Then we will have a truly equal market and developers can start to build the kind of developments they see a market for.

      Right now, I have no doubt that would be dense housing as that is the gap in the market, not single family dwellings on the periphary.

      1. I’m not arguing for that level of deregulation, but I completely agree that there would immediately be far, far more high density development. I’d love to see something like no *internal* controls on sites over 5,000m2 or something similar. Would be interesting to see what got built.

  6. Stupid idea is stupid. This isn’t the 1940s where the government controls everything and standards were lax.

    Land costs aside, ~80% of the cost building a house is the materials and the labour to do the work.

    The government doesn’t control the two main building supplies company in NZ who charge a high price because they have a duopoly. They can’t force companies to change prices unless they want to hurt the whole economy and scare of foreign investors afraid of government interference. If the government wants to waste a huge amount of money creating a 3rd company that buys direct from China, then they can do that, but it won’t be cheap at all.

    The government can’t wave a magic wand and make more builders, plumbers and electricians just appear. it takes years to get an experienced tradesman. And you can’t force a building company to do work for cheaper than in the private market so the government won’t get much cost savings that way.

    The government can force councils to bend the rules to allow cheaper housing, but this will only have a small impact on the final cost, but a large impact on the long term lifestyle of occupants. You also can’t easily get building companies with experience in building houses other than what we have been building for years. So the risk is that if you change the style of housing to terrace or apartment, you may not find enough builders able to do that without lots of problems down the line that future governments may have to clean up.

    I expect the whole thing to be an expensive failure with more subsidies for the building sector.

    The government would be better off by removing the huge tax loophole in residential property. Over the past 10 years, my house “earned” several times more than me at my job. All tax free. I then use all that tax free equity to buy another house or three. One of my rentals earned more in price growth than it did in rent. Why bother having the hassle of a tenant? Remove the loophole gradually and house prices will drop as speculators leave the market. Housing isn’t an attractive investment when you pay tax on capital gains. It is immoral, but it is legal and I’d be stupid not to take advantage of it.

    1. Ari if land is only 20% of the cost of housing. Does that mean the $million dollar new builds in Auckland only had a section price of $200,000? I don’t think so……

    2. The government can do what it likes how it likes.

      And housing was a terrible crisis in the 40’s as it is now, so why sit back and not care less and pretend the market will find a way?

      And why do you not think you are part of the problem?

      We all know it but the state of our housing is affecting the state of our society, for the worse. I am seeing many families moving around nomadic like at the whims of investors, kids living in more homes in their short lifetimes than their years. It is ugly out there.

      Good article from Aussie yesterday on a similar theme.

      http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12010674

      1. Waspman, did you read what I wrote?

        I never said the free market will find a way, just that the government is ignoring some of the key issues (like tax) and working against the market and that never works out well for anyone.

        Back in the bad old days the government owned everything. They own huge building companies and they sourced their own building supplies. They had the infrastructure to deliver on their promise to build a whole bunch of small, poorly built houses on cheap land. We were super rich off of wool and dairy exports so we could afford it.

        Now the situation is different. Land is limited and expensive. The government has no building company, no building supplies company, no major pools of labour to put to the task. All they have is a badly run property management business and the ability to borrow a lot of money. It won’t turn out well.

        I never said I wasn’t part of the problem, don’t put words into my mouth. But you would be stupid not take advantage of the current situation if you could. For the record I voted for the only party that said they would remove the tax loophole even if it means I would have to pay way more tax, because we are in a dire situation.

        1. While I agree speculation is a problem, I can’t see how a CGT (or were you thinking of a different loophole) will result in anymore houses being built. What we need is something that will get more built, especially of the types that individual builders are shying away from.

          Kiwibuild is the best policy I’ve seen to achieve this, even if it is far from perfect. If it manages to bring land prices down then capital gains wont really be an issue anymore.

          1. CGT won’t work with long term landlords who just keep accumulating capital.
            You need to tax all wealth to be fair. Wages and shares are already taxed and thats what you pay rent with (after tax income), but not the huge wealth tied up in unproductive housing (we dont get better wages from putting all our money into houses).

            Tax wealth and suddenly buying a few rentals doesn’t make as much sense because they have poor return without huge capital gains. Money driven out of housing can get invested elsewhere, like into productive businesses and at the same time bring housing prices down. When you raise the tax burden on housing capital, you can cut the burden on income earners by the same amount which helps make housing more affordable.

            This is only part of the answer because this would just bring house prices down, but not decrease the cost of building new houses. This is much harder to do.

            Kiwibuild will have great difficulty to deliver houses on a large scale because of the lack of skills, process, labour, materials etc. It is a nice idea, but I have little faith in the government to deliver this, because it is such a complex task and our track record isn’t great. Labour will probably has 6-9 years to get this right before National returns with a vengeance. I hope I am wrong and wish them luck, but I think the taxpayers will be footing the bill of this for decades to come.

          2. Can you clarify what you mean by taxing wealth what sort of taxes you think we should have? Are you thinking CGT or something else?

            Also I’d be interested to know what your solution to the building supply issue is?

          3. No idea on how to solve building supply. Not my area of expertise. I suspect will require a shift in zoning rules to make it easier to build different types of housing, breaking the building supply duopoly, investing in new technology for construction. Some real disruption is required, but the profit margins are too low to attract new comers.

            A CGT only goes into affect IF you sell your property and only on the capital gain since you bought it. And maybe not on the family home. And maybe not if you have held it for 10 years. And maybe not if the house is in your partners name. ie lots of loop holes are likely. It makes no impact on the investor because it only affects them if they sell. I dont even know if it applies if your child inherits it on your death. Worldwide it has shown CGT has little impact on speculation or house prices.

            Say I “own” a house where rent doesn’t cover costs and loses money every year that I can claim back on while not paying any tax on capital gains. That isn’t a business. No business can run losses like that and still stay in business(unless you are a government owned airline). Rental properties pretend to be businesses, but they arent. They are a legal tax dodge.

            A wealth tax would apply to all wealth on an annual basis. You already pay taxes on wages, business income, share dividends, bank deposits etc. But you pay no tax on wealth in housing. If the bank owns half the house, you only pay tax on your part of the house that you own. Just use CV for house value, which is usually conservative. If you are a landlord(or any other business) and are earning a profit above a certain % return on investment, then you don’t pay the tax. But if your property is a tax dodge as I described, then you pay the wealth tax. Or if you own a $2m rental outright and charge 50k in rent, your return is going to be 2% or even less with costs. That isn’t a real business either. Because who would operate such a poorly returning business. You could stick your money into the bank and earn better returns. After you pay the thousands of dollars in wealth tax, you sell up and put the money elsewhere.

            The rest of the tax system is mostly ok. The key is that all the money that the government gets from the wealth tax should go back as a refund to all wage earners via lower income tax. Making it a tax neutral policy, but really helping poorer people with no assets.

          4. No one would run a business at a loss just to offset their other taxes, it doesn’t make any financial sense. The only reason they do this is an expectation of significant income in the future. For a growth company this would be future dividends and an associated increase in share price, for housing it is almost certainly cashing in the capital gains at some point.

            An asset tax would need to be across the board, as only taxing poorly performing businesses doesn’t really make sense. Why would we tax the owners of a failing business?

            These capital gains on housing would disappear if we had a reliable supply of housing, something the market has failed to deliver. Like you I’m not an expert but I think a government managed system that tackles the whole system, including trades training and materials is the best bet at the moment.

          5. “No one would run a business at a loss just to offset their other taxes, it doesn’t make any financial sense. ”

            The majority of landlords are doing this. Leverage your rental so hard that it makes a loss to avoid tax and then live in a house that you own outright. You can then offset income tax against the book loss.

            It’s a massive tax loophole that we need to remove, but the only way to remove it is to charge a tax on home ownership which is about as popular as Gareth Morgan. Funnily he is the only one seriously promoting it.

          6. SB – they don’t buy those houses just to offset their tax burden, that would be insane. It would be much more financially beneficial to not own the asset in the first place and pay more tax, once you account for the costs of owning the asset (especially finance).

            The reason they buy the house and put up with a loss for a period of time is because they are anticipating a significant capital gain at some point. Kill off the chances of capital gain through increased supply and reduced zoning regulations and there is little reason for anyone to take this approach.

            The tax write-off applies to anyone running a business and is vital to the success of many small businesses around the country as their incomes fluctuate.

          7. I think pity “back down” on an investigation into capital gains tax, but they were caught between a rock and a hard place, it seriously is needed to help this real supply problem.

    3. If your house is not rented or available to be rented then it is going to be extremely difficult to convince the IRD you’re an investor as opposed to a speculator.

      1. Wait, so all those people that own baches empty for most the year are speculators?! Speculation isn’t taxed. Trading is. There is a difference.

    4. I believe Vancouver has a tax on unoccupied homes, which would address some land banking issues here. To most people just the price of land is prohibitive, and to build a reasonably house can easily surpass $400,000 in building costs, with million dollar land values common in JAFAland, to build one’s own home on a section within the range of public transport would need to be budgeted at $1.5million. The government is the only choice for many of us, as a million dollars is a few more zeroes than my mind can even imagine. Well done for being conscious of your immorality!

    5. Are you suggesting that a small company building 1 or 2 cars a year can build a car as cheaply as say Toyota can? There has to be some huge economies of scale if the government can get it right.

      1. If the small company has the only automotive engineers in the world, have the only car factory in the world and control the support of building materials, then yes, that company will make a care cheaper than any other company.

        I’m talking about large building companies involved with the CHCH rebuild. That cost tens of billions and it was a huge mess. Still is.

        Economies of scale only work if you can actually scale something. But you can’t. We(as in the government) don’t have the builders, the systems to manage the process, or the best access to building suppliers.

        You can’t force a company to bid in work that it won’t make money from. Especially in an area the company may not have experience in and risk losing heaps of money trying to get government work.

    6. It seems that you are National supporter. The days of neoliberal economics are now outdated and as a country, we need to re-think economic policies that are long term and meet the environmental, social and housing concerns. It clearly shows you have little knowledge on the latest building trends globally which is not to stuck to the traditional ‘hammer n nail’ construction methods that are currently being used in NZ which is specialised labour intensive.

      Kiwibuild is about manufactured dwellings whether it is a house, town house or an apartment meeting current building code, that is at least 30% cheaper that traditional ‘hammer n nail’ construction and quicker to build, at the same time complimenting existing traditional ‘hammer n nail’ construction for people who want to spend extra $$$ for a crafted dwelling.

      1. Never voted National or ACT. Probably never will.

        I’m just stating facts you can’t ignore.
        You can’t magically make builders appear where there is a massive shortage unless you want to pay through the nose for it or accept substandard quality.

        Just look at the CHCH rebuild. Big builder shortage, huge hikes in buildings costs every year. Big shortages of building materials Large scale fraud. Huge costs. Poor outcomes.These are all the facts from the CHCH rebuild which is about the same size or smaller than building 100,000 homes.

        Who is going to build your new cheaper buildings? Magic robots from the future?

        You can’t magically make construction companies have skills in building new types of buildings. Or deliver an entirely different mode of building on a large scale overnight.

        You make impressive claims, but if building companies could make things cheaper, they would do it, because they could still charge the same price and make a killing. But they dont. Because there are many reasons why the construction industry is the least productive and least innovative and not all that profitable. It is a risky industry because it is so cyclical.

        You can deny the facts all you like, but it won’t change them.

    7. Lets say a compact 3 bdr dwelling costs 300k to build – excluding land costs. For 100,000 houses, that is 30 billion.

      If the government is under-writing all of that, then they have a big hammer to tell industry to be more efficient.

      Consider that in the 1920s many of the houses build were kitsets. Go look at the houses in places like Grey Lynn or Onehunga. You’ll often see 4-10 houses in a row all build the same way. Certainly after almost 100 years they have changed.

      If building the 100,000 houses we need now in a cheaper way, means all of those 100,000 houses look the same. Then I’m sure the homeless families wont complain.

      1. +1 Haussmaniam architecture and Eixample are defined by very similar homes in large patterns. They are considered beautiful urban forms. I never understand why kiwis are so averse to identical houses.

        1. Have you read Eve Blau? I’m working my way through The Architecture of Red Vienna and Project Zagreb at the moment.

          NZers seem to have an obsession with all the shades of grey in their architecture. It’s inherently wasteful.

          When you get to medium plus density, most of the individuality happens inside the apartment/terraced dwelling.

          Scale only works if it is actually scale.

  7. I want to see real leadership from this very government who has campaigned on this subject. (I have long given up on National)

    Set up a public register for each member showing how many houses they own.

    For everyone that owns more than one, publicly shame them and then vote them out. If they are list MP’s then the respective leaders should kick them out. Greed is NOT good and being part of the problem is not acceptable!

      1. Well there we have it, based on that list, there are a number of Labour MP’s who are part of the problem. Good to see Phil Twyford is not one and hopefully the PM sold her Pt Chev home when moving recently.

        Take away on the rest, sell your investment homes forthwith, that deny home buyers who want to buy to live in a home the opportunity to own their own and by your own actions, reduce the housing stock, or bugger off out of your well paid jobs and stop pretending you give a damn!

        This so undermines Labours credibility on housing when I see that. It is to be expected of National.

        1. There is nothing inherently wrong with owning more than one house, there will always be a need for rental homes, whether it is students, people starting out in the workforce or just those that aren’t ready to put down roots. A number of second houses are baches.

          The problem comes when a market situation allows speculating to be viable, even with a capital gains tax speculating would have been viable over the last 15 years. Kiwibuild at least offers a solution to this by adding a significant number of houses to the market, which will mean price rises are much less likely. Speculators loose interest pretty quickly if there are no capital gains to be had.

          1. Well the thing is if every multiple home owner sold up and only owned what they needed to live in it would free up an awful amount of housing stock and with supply meeting demand vis a vis, lower prices overall with heaps of competition. And if you want to play landlord then do so as a business but don’t bullshit voters as a politician.

            There is nothing inherently wrong unless you are a politician who talks passionately about a housing crisis and then adds to that problem in your own little way by owning rentals.

            There is no room for maneuvering here for such politicians, you either are willing to do everything you can to alleviate the problem or you aren’t, in which case you are a hypocrite.

            Everyone can make the difference rather than leaving it to someone else.

          2. But surely all those second and third homes aren’t empty at the moment? Imagine all those houses would be sold to potential owners-occupiers, then where would all those renters go?

          3. Unaffordable housing well and truly exacerbated by speculators who are now trying to cash in on every cent they can extract from their tenants and or the taxpayer, reducing potential house buyers and owners into permanent renters. In other words “all those renters” may well not want to rent but are now forced to do so because of our “system”.

            This system is seriously flawed and almost feudal in its method!

  8. Pre-fabrication and quality factory builds please. Why I want a new car, Toyota doesn’t dump a bunch of steel, fabric and electronics on pallets in my driveway and have some small time outfit assemble it for me. There are dozens of car companies that build things as efficiently as possible someplace and transport them to market. It’s a bit harder with housing because of the sizes but not insurmountable. If Kiwibuild can give the prefab industry scale and certainty that is one way of lowering costs and improving quality.

      1. I think the only way for affordable housing is for the government to hold it. Maybe some 50 or 100 year schema with buy-back options.

        Either that or high-density where the contribution of the land is marginal.

        Not an easy answer. Especially since most real estate gain is from land values.

        Alternatively you could do what they did in Vienna. Mixed housing – the richer people cover a high portion of the land costs in return for better location in the building or other value.

        eg. A $1 million house and a few 500k houses – the one million house gets a car park and the others are hopefully close (800m) to transit.

    1. Pre fabrication of small 2 bed houses should be pretty easy really. I can’t see why they couldn’t build such a house in a factory for say $100k (assuming factory owned by government and not for profit). Then if they change the building code so you don’t need all sorts of engineers and inspections and such for foundations they could probably be on site for say $150k. Our 1950’s house is on pile foundations, I imagine they aren’t any more than a foot in the ground, and I doubt there was ever an engineer or a geotech involved, and its fine.
      As for land, I think its going to have to be sprawl I’m afraid. Except where there is government owned land available.
      So hopefully all up $400k in outskirts of Auckland.

      1. There s plenty of government owned land around Auckland. All the stuff around the SH20/1 junction, bits around the CRL, Housing NZ land. Lets use all of this as well and balance what we are building.

      2. A manufactured dwelling can be any number of of bedrooms. There are already a number of interesting manufactured dwelling designs in the market place that are warm. dry, energy efficient and environmentally friendly.

        1. Yes although all the manufactured dwellings I have heard of in NZ seem to be at the high end of the price scale. I think so far we have concentrated on the convenience aspects of manufactured dwellings, to my knowledge it hasn’t been used in NZ to drive prices down yet.
          We would expect a hand built car to be significantly more expensive than one off an assembly line and much more prone to problems. I expect the same thing for housing.

          1. What hints that Phil Tywford has been giving, that the manufactured dwellings that will be used for Kiwibuild will be from a range of pre-approved designs. He said that once the Urban Housing Authoriy has been set up, the Authority will call for designs from architects and other interested parties and once the designs have been finalised, then dwellings can be manufactured to these designs similar concept to the state house designs of the 1940’s, 1950’s and early 1960’s. Prefab NZ – the manufactured dwellings trade association have said, once their members get these designs, then the can finalise prices for Kiwibuild.

  9. The road to hell is paved with good intentions and I fear that this is another “good intended” policy.

    First, the idea that they will only build houses that would otherwise would not be built seems more like a wish than reality. Remember, governments don’t build houses rather they employ people to do that. Recently, Treasury stated that Auckland is short of 9,000 builders; where are the builders going to come from? The government doesn’t have builders in reserve doing nothing; the Ministry of Works is long over. The government will employ private-sector builders who also aren’t doing nothing. So unless we see a huge number of builders migrating the government will employ builders who would otherwise be building for the private sector.

    Second, the biggest cost for housing and the inflation we have seen in this area over the last 10 years is land. This Kiwibuild program does not address the cost of land and I have yet to hear of any government policy that does. Unless the cost of land comes down I can’t see how housing overall can be brought down. However, you may recall that the PM before being elected stated that this Kiwibuild program will not reduce the price of existing housing which would seem to defy basic economics. I have yet to see from this government how they will streamline the consent process and remove restrictions in building in areas that people want to live in i.e. the inner suburbs.

    Third, and finally is tax. While there is a tax incentive to invest in property a rational person will invest in property. The tax working group has just begun but the government has already stated that the “family home” will be exempt. I cannot see the logic in that but I think I am the minority on that.

    1. I believe trades training is going to be significant part of the programme. This is one of the reasons that the rate of building will ramp up over time, the government acknowledges that there are simply not enough tradesmen in NZ at the moment.

      1. Training will be significant but how long that takes will be an issue. Of course that doesn’t change the other issues.

        1. The new government may well be saying Kiwibuild won’t lower land prices, but that’s to be expected, it’s not politically wise to be talking about prices coming down.

          However, it is inevitable if we increase the supply of housing in the numbers proposed that prices will come down.

      2. I agree with you that trade training is part of Kiwibuild. The government realise this and the proposed Kiwibuild Visa will require 1 person to be trained to every 3-5 Kiwibuild Visas issued. I believe that ration will be fixed once all the details of Kiwibuild has been released to the public.

  10. Updated: I just added another section on crowding out. Thought it was worth looking at in more detail. Thanks all for the comments above 🙂

    Edit 1: Oh, and stay tuned for later today when the banner image at the top will hopefully be replaced with a Photoshop of Phil Twyford as The Man With No Name!

    Edit 2: Dang, I missed an opportunity to say something like “Kiwibuild: For A Few Dollars More”!

  11. All Kiwibuild homes will be for first home buyers only
    I’m not sure I see the reason for this. I don’t mind the government entering a market that isn’t working well, but I’d like to see them sell the houses on the open market without such restrictions. I probably wouldn’t mind a restriction requiring owner occupiers only.
    These kind of rules make these houses a massive subsidy for some people (we could be talking hundreds of thousands of dollars), while other deserving people miss out. For example someone who owned a house 20 years ago and had to sell due to marriage breakdown or similar, or someone who bought a house recently for stupid money and wants to downsize

    1. +1: I can understand the restriction for the first couple of years or for, say, half of the homes, but why keep it for all of them?

      If I ever want to move back to Auckland I won’t qualify, if empty nesters want to downsize, they won’t qualify, many divorcees won’t qualify!

    2. Agree. To me the main value from Kiwibuild is increasing the supply of houses in the market, which will help with house prices for first home buyers and everyone else, and also getting a better balance of housing types.

      1. Jezza – I agree. That is one of the concepts of Kiwibuild to supply dwellings and stablize prices at the affordable end of the market, so future new home buyers have a step on the property ladder. I think, Phil Tywford has said that a buyer must keep their dwelling for 5 years and is sold back to the Urban Housing Authority (Kiwibuild) at an agreed price, so that dwelling can be on sold to another buyer at an affordable price.

        I believed those people who plan to use the ‘rent to own’ scheme must keep their dwelling for 10 years before it can be ‘sold’ back to the Urban Housing Authority.

        All will be revelled when the government officially launches Kiwibuild.

  12. John, on a somewhat-related note, are you concerned that the foreign buyers’ ban will have an impact on private investment and thus housing development?

    I can imagine a lot of investors, faced with the requirement to sell the new build they funded within 12 months, will shrug and decide to invest in an Australian apartment instead. Apartment builds already struggle to gain funding, and if the government’s strategy is to buy off-plan, but then ban foreigners from doing the same, might we be back to square 1?

    1. As soon as every wanna be developer [whether local or foreign under the OIC rules] has a guaranteed buyer of qualified properties in the development by the government. Then all finance issues for new builds will disappear.

      There is plenty of overseas finance available for NZ companies to do this themselves.

      We don’t **need** overseas developers who do everything from design, finance, build, onsell –
      and then carry the cost of unsold apartments or houses until they are sold.
      We can use their finance, they get a good return, and in some cases we’ll leverage their building skills to build, but everything else NZ Inc can manage.

      So the new overseas investment rules won’t be as negative as you think.

      When the government of the day wades into the housing, waters, of course it gets murky for a while, after a time, the murk settles, and the new situation gets clear for everyone to see and understand. And guess what? it wasn’t as bad as it first looked.

      Its just a shame that the governments collectively have been so believing of the “the markets will deliver” whatever the problem is mantra, for decades now, that there is a lot of mess to clean up.
      But someone has to start somewhere.

      1. However the problem is that its these investors that are being driven away from these rules. Only in very rare cases are the homes build, designed and Financed from overseas. Normally the finance comes from overseas to a NZ company such as universal homes, equinox, dominion etc who design and build the properties.

    2. Yeah, it is a concern I think. When Labour was talking about it last year, they said it would be similar to the Australian rules, so ‘foreign investors’ would be able to buy new homes only, but they’d be able to keep them.

      Then more recently they said foreign investors would have to sell those new homes within a year. I think that change was daft, and means that the only people who’d want to do it would be speculators rather than investors. They’re literally speculating that the home goes up in price by the time it’s finished, and then they have to sell it. Labour’s rhetoric pre-election was almost all about the problems caused by “foreign speculators”, but their proposed change cuts out all the foreigners except the speculators.

      There’s been a lot of pushback on that change, and Phil Twyford is now talking about not making it after all. I think it’ll get dropped.

      I lean towards the traditional economics view of not wanting restrictions on who can buy housing… but if we are going to have restrictions, I like the idea of channelling the foreign investment into new housing. But it’ll only work if the investors can keep the homes when they’re completed.

  13. RE: tradeoffs

    1.
    3000/year indefinitely is robbery. That’s 150k over 50 years. Amortise the cost over 50 years and then package all these into a government backed bond to fund it. No cost to government. Fair cost to the new house owners.

    Also makes it easier to on-sell.

    2.
    Hopefully building a scale with minimum standards will sort this out. Lets hope for Greenstar Six x 100,000.

    3.
    Cheaper land outside the city, just means higher cost of living. Also means people in the center of the city continue to have their greed lifestyles. Further out is also less sustainable.

    4.
    You missed land. One trade-off is government holding the land value vs freehold. Four houses on a million dollar plot = 250,000 per house. Makes an affordable level that much harder.

    1. 1. Maybe $3K a year is a bit high in the example – I assumed a discount rate of 6%, maybe 5% or 4.5% is more realistic. In which case maybe it’s $2500 or $2250 infinitely. If you’re paying off as a 50-year bond then it’d be a little higher than that.

      4. You’re right, the government could hold on to the land. But they should still charge market rates for it, otherwise it’s a big subsidy to the home buyer, and not done in a very transparent way.
      There’s so much negative market perception of leasehold that I don’t think people would go for it if they had to pay ‘ground rent’. If not for that perception, then yes this absolutely would be a viable way of trading off the short term vs the long term costs.

      1. 4. Yes. I think, in order for land to be removed from the equation it would also need to be amortised over 50-100 years as well.

        Again doesn’t have to be a land rent. If the goal is to get as many into houses ownership as possible. High up front house prices prevents this.

        The government has a high credit rating. It can hold the land on it’s books and borrow against it. The book value of state land is bound to be lower than market rates anyway.

        Package up this debt and resell as bonds.

        Put in place a buy out option for the house owners in 50 years. Let the government have 50% of any capital gains on the land as a share.

        Social outcomes.

        1. Pressed the wrong button and lost my long reply, but… what you’re talking about here sounds like a hidden subsidy. I’m strongly against those. I’m not convinced that first home buyers are more deserving of a wealth transfer than renters, say, or people at the lower end of the income distribution. If we’re selling Kiwibuild homes at an artificially low price, it’s just middle class welfare.

          1. (I usually copy and past long replies into notepad – I’ve a few too many.)

            There are no easy answers. We have painted ourselves into a corner.

            The homeless at the moment are giving everyone else a “hidden subsidy”.

            During the election cycle at a meeting at the Onehunga Church one of the teachers in the audience was telling about a mother she was working with – she and her kids were sleeping under the Onehunga library at nights.

            I’d personally be happy to take 100 psqm off the value of my land if it fixed that problem long term.

        2. The land worth nothing if there is no ground rent from it, unless the owners are forced to buy the land after 100 years at an inflation plus interest price, which would be very expensive.

      2. “There’s so much negative market perception of leasehold that I don’t think people would go for it if they had to pay ‘ground rent’.”

        Isn’t all of Wynyard lease hold/ground rent? Doesn’t seem to have stopped those selling like hotcakes. I think it’s a good idea for some places (former rail yards in Frankton, Hamilton maybe?).

        1. Wynyard is leasehold, but with the ground rent ‘prepaid up front’ i.e. no rent to pay for the next 100+ years, and the amount paid up front is pretty close to what it would have been to just buy the land. If it was for sale, which it isn’t!
          That leasehold model is what is being used in all the new leasehold developments around the place, not just Wynyard, so there definitely is a negative perception for the old style of leasehold with ground rent and periodic reviews.

          1. Part of this problem is the mechanics of one house on one plot.

            The market is YELLING at people regarding value of urban land and the way we live on it.

            The city urgently needs more density.

            With density also comes both increased supply to hopefully sort out this land price pressure issue. Plus a leasehold increase is easier if it is shared among more than one household, and easier to challenge if there are more people involved.

    2. 4. that’s a strange point. Surely one of the key requirements to affordable homes is being able to build more than one home on $250,000 worth of land? Leasing that amount of land would be, what, $10,000 per year?

      How does leasehold work in practice anyway? You are invested in a place (you own a house, in which you potentially invested to make it your home, and moving requires finding a buyer), but you still have the risk of rising rents forcing you to move anyway. And since you’re more invested in a place your landlord has even more power to rise the rent. To me it seems to have the downsides of both renting and owning, and none of the advantages.

  14. One big supply issue that is forgotten is skilled builders and tradies. Many older ones now were trained in the days of government delivered services. Private builders simply do not train enough new people. Importing builders simply increases the housing problem. A program of government offered apprenticeships in building, plumbing and electrical trades would help both deliver Kiwibuild and provide an increased supply of qualified builders in the long term. By the time Kiwibuild winds up, many older builders will be nearing retirement anyway, so this is needed with or without Kiwibuild.

    1. Can’t even find unskilled labour (broom pushers) whom turn up to work at the moment. So who are we even able to train up? Most of the labour we find is from backpackers looking for temp work.

      1. I’ll come and push a broom. I want $40 an hour. The problem is never that labour is scarce, only that it is underpaid.

        1. Haha and there goes the ‘affordable’ aspect. Labour on many construction sites are normally over $22/hour in workers pocket (unless you go through labour hire company of course). That’s pretty high given the productivity (on-sale value) of this work.

          1. Perhaps your on-sale value is too low then. We’re in a construction boom, after all.

            Given that there is still relatively high unemployment in New Zealand, the only conclusion that can be drawn if employers can’t find unskilled labour, is that wages are too low.

          2. The problem is trying to price at the ‘affordable rate’ is just unaffordable to build for, I can pay all my staff $40/hour, but in doing this properties are going to be well above ‘affordable’, then as others in the industry have, will be out of business as it will be more expensive than Fletcher Building Homes.

            I dont believe its the rates however, more the work ethic. I’ve taken on over 30 people from WINZ who were happy with the $22/hour starting rate. Only two turned up for work consistently, the two that did failed on-site drug tests, the rest likely just wanted a signed letter to provide to WINZ saying they attended the interview, not the job itself.

            The problem is we have to put them through H&S training, tool training, supervision, provide them with Safety Gear etc. When someone just doesn’t turn up for work, all that investment is lost money that needs to be recovered through project overheads.

            It takes approximately 6months before labourers start making a profit on their work, any less and you are losing money taking them on. The building boom actually increases the risk, as your skilled labours costs, material costs, land costs, compliance costs, consultant costs, insurance costs are so high that margins are being squished. (Council Compliance Costs are huge).

            Also unemployment is at all time lows, unfortunately those that are capable of work are either not willing to put in the work, or dont want to work a normal week (in construction a normal working week is 60hours). Also if you are wanting to work in such a hazardous industry, you need to be able to pass a drug test.

  15. How about Transport is upgraded, not merely more roads, proper transport like trains and bus routes and the like too match the pace of building. Aucklander’s will be housed, but spend too much time in traffic going no where!

  16. My main concern is that it will be business as normal going forward. HNZC already have a target of 10’000 homes per year, and are struggling to meet this due to constrained resources. Having personally tried to bring in skilled labour from overseas, due to lack of labour in NZ, it a huge struggle even when there is huge shortages, something this government (NZ First influence) wants to make even harder.

    At the moment the Master builders are dictating to their members that their charge-out rates should be $80+ per hour. Putting that almost the same as electricians, plumbers, engineers etc all of whom have higher overhead costs alone, and that doesn’t account for the extra costs due to H&S (safety nets, scaffolding, documentation, training etc) and increased material costs. (This rate doesn’t include the 10% – 20% margin they put on materials).

    Anyway, no doubt the government will include any homes that are already being constructed in the ‘affordable’ bracket, including the HNZC build, private developments in south and west Auckland and the influx of apartments that will be entering the construction market (currently under construction) towards these targets, so I’m sure they can fudge the numbers like any other government does.

  17. One thing Kiwibuild need to watch out, is dodgy developers can build minimum compliant but shitty looking, poor craftsmanship, cheap parts dwellings that no one wants. Those project just pass the minimum criteria so Kiwibuild has to fund them regardlessly.

    For example sometimes it only costs a little more to use long lasting parts in plumbing and electrical, but under the Kiwibuild buy back schemes, dodgy developers will use cheapest low quality parts that doesn’t last. It will cost a lot of money to replace them in long term.

    Same thing applies to vanity, appliances, bench tops, cabinets, lightings. The cheap one will fail in few years, where the mid range will last forever.

    Therefore the Kiwibuild buy back scheme needs to have Market appeal criteria.

    I would suggest the government buy back scheme only fund projects that appeal to people, based on a high percentages of off the plans pre-sold rate.

    That ensures undesirable projects by cowboys developers that no one buys will not go ahead.

    Also it give incentives to reputable branded developers keep their reputation by building high quality products that are trusted by people. So those branded projects will sell like hot cakes and Kiwibuild keep them busy.

    1. You mean low percentages sold off plans? Cowboys are likely to have high percentage product of pre-sold rate, Developers with low percentage pre-sold homes are more likely to rely on quality build to sell homes.

  18. A few flaws in Kiwibuild:

    Bank funding:
    Banks don’t like the 2 year minimum living period for Axis homes in Hobsonville – so they require a 20% deposit. Kiwibuild minimum living period is proposed to be 5 years. Banks might not even lend to first home buyers without a generous deposit. A lot can happen in 5 years, making it risky for banks.

    Affordability:
    Homes are only affordable once. Affordable Axis homes purchased 3 years ago for under $485k now have CVs of $700k+.

    No income cap:
    There’s no proposed income cap for Kiwibuild buyers. Wealthy parents from Remuera can help their professionally trained kids to qualify for Kiwibuild, and will be equally eligible as the young couple who would never otherwise afford a home.

    1. I don’t really see what the problem is with children of Remuera parents buying these houses is. It means they are not buying a house elsewhere, which reduces demand for other houses. The success of Kiwibuild will be increasing the overall supply and supply of specific house types, it doesn’t really matter who is occupying a particular house.

      Regarding affordability, I’d be very surprised if we see the same level of capital gains in the next three years as we have in the last three.

      1. A Kiwibuild buyer will always inherit a gain when buying an artificially low (below market) price property – regardless of what the rest of the market is doing.

        Say if prices don’t rise for 5 years, a Kiwibuild buyer might sell their 500k home for 650k (its true market price). The next buyer has to fund that capital gain with debt and the home is no longer ‘affordable’

          1. That assumes the second buyer of a Kiwibuild home is an eligible first home buyer. The second buyer might a recently divorced single parent who has already owned a home. Might be a new immigrant to NZ who doesn’t qualify for KB. Might be an investor looking to rent out the home for $600 a week.

            Point being that the formally affordable home is on the open market, the original owner is making a gain on sale, so the house was only affordable once.

          2. From what Twyford seemed to say last week at PBA. The next buyer would be the UDA. I think they will try bake in restrictions on resale.

            I forget the details from his talk. So take that with a pinch of salt.

        1. I agree – they shouldn’t be selling homes for below the market value as this is effectively a subsidy to the buyer of the house.

          I haven’t heard anything that confirms this is what is happening. There are other ways of achieving affordability targets, such as building a house type that can be sold within the cap but at market value.

          I would prefer they didn’t have any affordability requirements but I don’t think that is politically acceptable.

          1. +1, a small two bed apartment shouldn’t cost more than $500,000, especially if the government builds 30,000 in Auckland.

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