KiwiBuild's problems mean it should be tweaked rather than scrapped

There is probably no need for a scheme such as KiwiBuild outside of Auckland, Greg Ninness argues, adding KiwiBuild may yet have its day albeit not in its existing form

15th Jun 19, 8:20am by Greg Ninness

By Greg Ninness

KiwiBuild has been copping some major flak recently, particularly from Parliament’s opposition benches, with calls for it to be scrapped.

However a closer look at what the scheme is providing suggests that while it may have problems, it probably needs to be tweaked rather than scrapped.

The table below lists all of the locations where KiwiBuild homes are available throughout the country, according to the KiwiBuild website, and compares their prices to the Real Estate Institute of New Zealand’s lower quartile selling price for the same district. Where the KiwiBuild price is higher than the lower quartile price, it is highlighted in red.

What is immediately obvious is that most of the KiwiBuild homes located outside of Auckland have asking prices that are well above the REINZ’s lower quartile selling price for the same district, while in Auckland, Tauranga and Wanaka, the reverse is true.

The lower quartile price is the price point that 25% of property sales are below and 75% are above, representing the most affordable end of the residential property market. It is the part of the market that is usually of most interest to first home buyers.

So it’s concerning that the prices for the KiwiBuild homes being offered in Whangarei and most of those in Canterbury, are substantially higher than the lower quartile prices for those districts, pushing them more into the middle price range rather than the affordable end of those markets where typical first home buyers are more likely to be looking. That suggests that the open market may already be providing typical first home buyers more affordable options than the KiwiBuild homes in Whangarei and Canterbury.

However in Auckland and Tauranga it’s a different story, with almost all of the KiwiBuild homes on offer being priced below the lower quartile price of their respective districts. And the two exceptions that are above the lower quartile aren’t higher by much. That means the KiwiBuild homes in Auckland and Tauranga are much more likely to be of interest to typical first home buyers on limited budgets than the KiwiBuild homes elsewhere in the country.

While house prices have increased significantly throughout the country over the last few years, there is little to suggest that typical first home buyers on average wages have been pushed out of the market anywhere but in Auckland and Queenstown.

Interest.co.nz’s Home Loan Affordability Reports, which compare the mortgage payments on lower quartile-priced homes throughout the country with the median after tax wages of couples aged 25-29, show that as long as both are working full time, they should not struggle to meet the mortgage payments on a lower quartile-priced home anywhere except Auckland and Queenstown.

And even in Auckland, falling interest rates mean typical first home buyers there should be able to afford the mortgage payments on lower quartile-priced homes in many parts of the city.

So there may not be any need for KiwiBuild in centres outside of Auckland and Queenstown anyway, even if the scheme was able to deliver homes well below the lower quartile prices in other areas. Thus an obvious tweak to KiwiBuild would be to discontinue the scheme outside of Auckland.

But it could still be useful in Auckland.

Although the number of homes it has delivered in Auckland has barely scratched the surface of demand for affordable housing in the region, KiwiBuild probably won’t come into its own until the Government gets Kainga Ora, its new urban development authority, up and running.

The new agency will be overseeing some major residential development projects and will also be overseeing efforts to crank up prefabricated construction methods, which has the potential to significantly lower building costs.

That could see substantial numbers of more affordable homes coming to market over the next few years and if and when that does happen, it could be useful to have a scheme like KiwiBuild in place to ensure the most affordable homes go to first home buyers.

But what about Queenstown? Unfortunately Queenstown’s housing market is unique in this country. The nature of the town’s economy, it’s attractiveness to wealthy property buyers and geographical constraints mean its housing market will probably always be one of the country’s most expensive. And building cheaper KiwiBuild homes in Wanaka may not be a viable the solution for aspiring first home buyers working in Queenstown.

Queenstown may require a more creative solution, such as central and local government working together with employers in Queenstown to provide more hostel type accommodation for seasonal and low paid workers in its tourism industries. And such a scheme may need to be expanded to provide subsidised rental houses for permanent workers in sectors such as health, education and law enforcement that provide essential services but may not be highly paid.

So KiwiBuild may yet have its day, but probably not in its existing form.

The comment stream on this story is now closed.

Prices of KiwiBuild Homes Compared to REINZ Lower Quartile Selling Prices
Location	Number of Bedrooms	Price range $	REINZ lower quartile price for district $ (May)
Whangarei	2,3	460,000 - 500,000	408,500 (Whangarei)

Auckland:
Mt Albert	1	480,000 - 500,000	730,000 (Auckland central)
Mt Albert	Studio	435,000 - 480,000	730,000 (Auckland central)
Pukekohe	3	575,000 - 600,000	575,000 (Franklin)
Papakura	2	529,000 - 570,000	550,000 (Papakura)
Onehunga	Studio	380,000 - 385,000	730,000 (Auckland central)
Otahuhu	2	580,000 - 600,000	640,000 (Manukau)
Panmure	1,2	435,000 - 600,000	640,000 (Manukau)
Huapai	2	600,000	725,000 (Rodney)

Tauranga	2,3	485,000 - 500,000	565,000 (Tauranga)

Canterbury:
Rangiora	2,3	470,000 - 480,000	375,000 (Waimakariri)
Woodend	3	465,000 - 479,000	375,000 (Waimakariri)
Kaiapoi	2	360,000 - 430,000	375,000 (Waimakariri)
Rolleston	3	459,000	490,000 (Selwyn)
Prestons	2	459,000 - 499,000	367,000 (Christchurch)
Halswell	2	419,000	367,000 (Christchurch)
Somerfield	2	470,000	367,000 (Christchurch)

Wanaka	2,3	565,000 - 635,000	790,000 (Queenstown-Lakes)

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38 Comments

by Dgm | 15th Jun 19, 10:35am 1560551746

Looking at medians in this case is ridiculous..

A like to like comparison of dwelling type and building age (New builds) would be more appropriate...

by David Chaston | 15th Jun 19, 10:54am 1560552842

The comparison in this article is not with medians. It is with lower quartile prices.

by Dgm | 15th Jun 19, 11:07am 1560553655

Pardon me. Agree. But even comparing lower quartile isn't fair, as the existing houses are old, damp, and in many cases need ongoing expense in maintenance

by Doris | 15th Jun 19, 1:05pm 1560560728

They tend to have bigger sections and more character to compensate. The Kiwibuilds are nasty little crammed together boxes, IMHO.

by Peri | 15th Jun 19, 11:02am 1560553323

Thanks for compiling the information and the analysis Greg, your inferences seem reasonable given the available data.

Somewhat off topic, I do have some reservations about the Home Affordability Reports which infer affordability on the basis of mortgage payments as a proportion of weekly income, with mortage payments assessed on a 30 year mortgage. This might be a reasonable assumption for mortgage holders aged less than 30, but for mortgage holders in the "older family" grouping surely any responsible lender would only offer a 20 year mortgage?.

by Brendon | 15th Jun 19, 11:12am 1560553978

Interesting and useful analysis Greg. The pricing of Kiwibuild in Canterbury where I am from certainly needs to be better.

I am hopeful that when the Urban Development Authority is up and running that lower priced units built around rapid transit will be attractive to the market.

In Christchurch the recent PwC report showed the city has a transport not housing problem. The city needs more transport choice and the means to achieve that is integrating housing with rapid transit.

I have a paper on how a more defined spatial plan for Christchurch can help it develope a more efficient transport system.
https://medium.com/land-buildings-identity-and-values/can-the-hand-solv…

by THE MAN 2 | 15th Jun 19, 11:27am 1560554828

Good article Greg.
The so-called KiwiBuild should only be in Auckland and Tauranga mainly.
The fact that Mr a Twyford engaged with Mike Greer and decided to take the houses as KiwiBuild houses is an example of
Just how much out of his league Mr Twyford is!
The Christchurch and Canterbury houses are ones that had either been built or were well underway.
It was only to try and get KiwiBuild no.s up which are so pathetic it isn’t worth talking about.
KiwiBuild is a total flop and was never ever going to work with the current minister in place.

by Brendon | 15th Jun 19, 11:29am 1560554999

Says the Christchurch landlord who likes the status quo.....

by THE MAN 2 | 15th Jun 19, 1:29pm 1560562188

The thing is that we should only have people who know what they are doing in ministerial positions!
Mr Twyford has had no business success and has been put in a ministerial role that he has know idea about.
There has not been one KiwiBuild home bought in Canterbury as at last week, which is not that surprising.
There are plenty of better buys inCanterbury than the houses with KiwiBuild tags on them.
First home buyers shouldn’t necessarily be buying brand new, and that is part of the problem here!!!!!

by Brendon | 15th Jun 19, 12:07pm 1560557246

You know in my experience I have found business men and women narrow minded and not good in governance roles. Although when business people make the leap to considering the wider community interest they can be exceptional leaders because that on-the-ground experience is very valuable.

I think a lot of people are disappointed about the progress of Kiwibuild. But that just shows what a difficult problem fixing our towns and cities is.

The government needs to throw the kitchen sink at Kiwibuild. It is a flagship policy so it needs to work. If they throw in the towel by sacking Phil Twyford then they are essentially saying that Judith Collins is right i.e. that there is no place in NZ for a government backed housing build programme and that the housing crisis can only be fixed by RMA reform.

by THE MAN 2 | 15th Jun 19, 1:54pm 1560563679

Twyford said it was easy.
He was going to have all of these affordable homes built and he was clearly telling porkies, and should fall on his sword.
Government should keep out of stuff it knows nothing about.
There is a helluva difference between Oxfam and business success!Everyone is disappointed with the progress of KiwiBuild and that is hardly surprising as every other policy thst was campaigned on has also been a flop.

by Brendon | 15th Jun 19, 2:08pm 1560564508

TheMan2 you are creating a strawman. Twyford never said it was going to be easy. The housing crisis has built up over 30 years. Turning that ship around was never going to be easy.

TheMan2 we all know you have form for denying the housing crisis exists and wanting to maintain the status quo. So you desire for sacking Phil is about you wanting the government to give up on its housing reform agenda.

In reality what Phil and this government needs to do with housing is take a political fortitude lesson from Bill English and 'get back up'. They need to redouble their efforts until they succeed.

by THE MAN 2 | 15th Jun 19, 2:38pm 1560566286

Brendon, he said they were going to build 100,000 so-called affordable homes in 10 years, which is plainly dumb as they wont be in power over that length of time!
There is no housing shortage at all in NZ, but a shortage of houses that everyone can afford to buy!
Reality is that not everyone wants to own a house enough, or they would change things!
Mr Twyford is clearly not the man for the housing portfolio as he stumbles from one thing to the next.
Government should keep out of the housing business as they have never ever been successful at it!

by Brendon | 15th Jun 19, 3:19pm 1560568754

I see you are being honest about your belief that the government should keep out of the housing market. Well done for finally being clear about your ideological beliefs.

Of course NZ governments have successfully intervened in the housing market. Most famously the 1st Labour government and all subsequent governments until the 1980/90s.

Overseas many governments have been very successful when intervening in the housing market -most famously in Vienna and Singapore.

Of course there is nothing stopping a mix of improved public and private housing supply interventions. That is where I think NZ is headed.

by THE MAN 2 | 15th Jun 19, 4:30pm 1560573003

Brendon, you only need to look at the State houses that have been built, to show that the government needs to keep out of providing housing.
As landlords they are not that Flash!
The government has been extremely hypocritical in regards to the nee Healthy Homes Act where landlords have to have their houses fully insulated to a good standard.
The fact is that State houses in NZ are the worst insulated rental properties in the country.
Yes they will be insulated but they are given more time to have it done.
The State houses do not even have regular property checks done on them, and you can tell how poorly maintained they are just by driving past them.
Nothing that the coalition has brought in to deter private landlords has had a detrimental affect on us, but it has on many less experienced investors, which will not be great for current tenants.

by Brendon | 15th Jun 19, 5:00pm 1560574854

The first state houses were well built and were of a high standard for there day. I think that a government house building programme should raise standards. In fact NZ could subsidise building construction so as to jump forward to the highest global build standards. I wrote about that on this website a few weeks ago.
https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.intere…

by THE MAN 2 | 15th Jun 19, 4:30pm 1560573003

by Carlos67 | 17th Jun 19, 10:11am 1560723105

I agree Twitford is made of straw. He is probably only capable of being stuck on a pole in the middle of a field to try and scare the birds away. Currently he is doing a great job of scaring the voters away so birds should be an"Easy" target.

by JimboJones | 15th Jun 19, 12:56pm 1560560171

I think kiwibuild should focus on appartments and townhouses in centralish Auckland. They seem to be too high risk for the private sector.

by GV 27 | 15th Jun 19, 2:40pm 1560566402

Central-ish Auckland is very good at keeping those kind of developments out of Central-ish Auckland.

by BuyLowSellHigh | 15th Jun 19, 1:15pm 1560561358

Kainga Ora - sure to be a great success.

by Wrong John | 15th Jun 19, 4:50pm 1560574201

CoL is a collective straw house humanity. If they actually knew what was going on it'd be a fine thing indeed. Their community of committees are slowly reporting back, as only they can do (????) which is both painful & pathetic to watch. It's actually only in power (so they can get govt to pay for it) that they finally get serious about actually governing, which shows up their collective immaturities, inconsistencies & incompetences. Roll on October 2020. I just hope the Nats have their house in order by then as the current lot are outdated already.

by Brendon | 15th Jun 19, 4:59pm 1560574797

Let's see if Judith and the National Party can announce RMA reforms that would genuinely fix the housing crisis. That's the big question mark I have about the National Party. The last time they were in government they wasted 9 years being in denial about NZs housing situation.

by Sluggy | 15th Jun 19, 6:34pm 1560580479

Isn't Aunty Judith on record stating she wanted to protect Mum and Dad investors a couple of days ago ? Or was that 8 house Amy ?

by Fritz | 15th Jun 19, 7:11pm 1560582671

The RMA is an easy scapegoat. There's certainly room for some improvements, but I think it's pretty marginal stuff in terms of housing.
I remain deeply cynical of Collins' position until I see something more specific. Even then, I'm not really sure what they could do that would really make a difference.
Remember too, that some RMA changes are expected this year with a new Urban National Policy Statement, I'm not hoping for much but there's one or two things I'm aware of that might help.

by The_4th_estate | 16th Jun 19, 9:39am 1560634768

I think what most commentators here fail to acknowledge is that Twyford is taking on the biggest wealth creating mechanism in the economy and it doesn't like to be told what to do by politicians. As evidenced by the pathetic flailings of the previous administrations in failing to address the issue. Particularly the total failure to reform the RMA, which I eternally argue was intentionally written to underpin endless property inflation by its very nature..... Yes, Twyford was enthusiastic about targets but the industry required to do the work sure wasn't. Afterall it has been happily creating vast wealth out of piles of old dirt and rotten houses for decades, why would it care to get involved with anything that could threaten that river of gold? If theres anything stopping Kiwibuild from succeeding, in my opinion, its the deeply entrenched wealth building property industry thats threatened by Kiwibuild that is more likely the culprit. Try shining some light in that direction interest.co.nz

by Hardly | 16th Jun 19, 12:39pm 1560645570

This paragraph is the important one:

“The new agency will be overseeing some major residential development projects and will also be overseeing efforts to crank up prefabricated construction methods, which has the potential to significantly lower building costs.”

We should be evaluating kiwibuild on three criteria:
• Is it resulting in more houses being built than otherwise would be, particularly in a counter cyclical fashion.
• Is it incentivising and underwriting investment in the development of new construction techniques that once part of the mainstream will lower the cost of building.
• Is it effectively cycling capital so that it is able to be reinvested repeatedly towards these objectives.

If all three of these are being met then no other goals are particularly important. The scheme got hijacked by a welfare narrative - let’s subsidise FHBs into homes - and completely lost sight of its transformational objectives. The government walked into that one but it’s not too late, given the dire straits Simon Bridges is in, to wipe the slate clean, do a reset, and make kiwibuild a quiet achiever.

by THE MAN 2 | 16th Jun 19, 1:38pm 1560649128

KiwiBuild does not subsidise first home buyers into homes!
I have not personally viewed any KiwiBuild houses, but have seen them on TV and photos.
You are dreaming if you think they have been underpriced just because they are KiwiBuild, probably quite the opposite and that is why they are not selling.
KiwiBuild is dead in the water we all know that, hasn’t worked and never was going to!
The Kiwibuild refit speech is going to be very hilarious!

by Hardly | 16th Jun 19, 1:53pm 1560650022

I didn’t mean to suggest they were subsidised so much as a perception that they should be cheaper than a non-kiwi build home. We don’t need the government to undercut the market, what we need is the government to increase the supply. I don’t mind if they build houses for rich people as long as it increases supply. I also don’t mind if they focus on social housing for a while.

by Brendon | 16th Jun 19, 2:57pm 1560653852

Hardly for a government backed building scheme to transform the market as you argue will require economies of scale. That can only be achieved if the institutions responsible for the government backed building schemes target the broad cross-section of demand. KiwiBuild only focusing on getting middle income earners into home ownership will not work. There is not enough demand. Likewise only building subsidised social housing (state houses) for the lowest decile will not work. But schemes targeting both groups plus the missing build-to-rent group could work.

by Brendon | 16th Jun 19, 3:11pm 1560654707

Here is an example of how the Urban Development Authority could build a variety of housing types for middle and low income earners in Wellington for about $400,000 or less. Whilst leaving the private sector the space to build the larger and more expensive houses.
https://medium.com/land-buildings-identity-and-values/can-a-eco-city-so…

by Hardly | 16th Jun 19, 5:00pm 1560661212

It’s an interesting idea/site.

I wonder what it would cost to bend the johnsonville line to connect that site as well as Grenada.

It’s a little frustrating that land bankers have the foresight to grab these strategic pieces of land rather than council/government. I dont begrudge him though, he has taken the risk. Which has turned out to be quite risk given that tossing project has been cancelled.

This is where the countercyclical part of kiwi build is useful. It’s hard to justify the infrastructure needed to make this work. But, if the economy was to tank, the business case as a stimulus project would be stronger.

by Brendon | 16th Jun 19, 5:50pm 1560664249

I can't see a obvious train route from Johnsonville to Grenada. Maybe a more engineering oriented person can? Also the Johnsonville train is quite slow -24min to J'Ville. So would it be worth it?

by Computer | 16th Jun 19, 10:24pm 1560680666

Park & ride at Takapu Rd, about 12 minutes to Wellington from there.

by Hardly | 16th Jun 19, 4:42pm 1560660142

I completely agree regarding scale and that is why they should find a piece of land near Auckland - manipulate the planning laws and build transport infrastructure themselves if they have to - commit to building 10,000 houses on it, and then pay someone to produce 1,000 houses a year using innovative methods - preferably built offsite. That would give a company certainty to build a factory for housing and they could then market surplus capacity at the margin to FHBs and developers. 10,000 houses over ten years is a lot less of a milestone than 100,000 originally promised but its the innovation and transformation that matters, not the build number.

by Brendon | 16th Jun 19, 5:47pm 1560664022

You would only need 10 to 20 sites in NZ. I can think of 2 in Christchurch that would be as good as Wellingtons. NW Auckland could have several. Sth Auckland quite a few. Add a few more in places like Tauranga and within a decade there is 10,000 government back houses being built every year.

by Brendon | 16th Jun 19, 3:16pm 1560654979

Re: "...but it’s not too late, given the dire straits Simon Bridges is in, to wipe the slate clean, do a reset, and make kiwibuild a quiet achiever".

I agree resetting KiwiBuild to being a more explicit government backed build programme designed to transform what the housing market delivers is definitely still doable. Actually it is an exciting opportunity for NZ on some many different levels.

by pin3cone | 17th Jun 19, 4:23pm 1560745392

I really have to disagree.. I'm familiar with the markets in Hawke's Bay and Wellington and in neither area are first homes affordable relative to the incomes of FHBs. Only with help from parents or by taking out 'affordable' eye-watering loans (that could rapidly become unaffordable at the slightest inconvenience in one's life plans) can FHBs get into the market in those locations. Land is being sold to the highest bidders, with covenants to boot to ensure the look and feel of the developments match the prestigious aesthetic that wealthy homeowners apparently rightfully deserve. We are in dire need of some relief in these centers, whether it's kiwibuild or something else.