The NZ Initiative's Luke Malpass wonders what the logic is behind Labour's KiwiBuild policy; He says past policies were more specific

The NZ Initiative's Luke Malpass wonders what the logic is behind Labour's KiwiBuild policy; He says past policies were more specific

By Luke Malpass of the NZ Initiative

The announcement of ‘KiwiBuild’ by Labour leader David Shearer was certainly bold.

Under Labour, for the next decade the government will build 10,000 homes every year, for less than $300,000 each. Applicants for this housing will not be means tested. If there is more demand than supply, anyone wanting a house will go into a ballot and the lucky ones will be drawn out.

As rationale for this, the Labour opposition cites the economies of scale that government can achieve, and the cost pressures for first-home buyers.

However, the major problem with this programme, aside from the woeful economic analysis, is the lack of any clear objective.

New Zealand’s history has featured different government programmes to get people into housing. From state rental housing in the 1930s, to the progressive sale of those homes from the 1950s, to capitalisation of the family benefit, and 3% loans from the State Advances Corporation. For all these schemes, successive governments made as much land available as was required.

All of these policies were aimed at specific groups. State housing was state-built housing provided for poor people at cheap rent. The state advances and 3% loan type polices (there were many different incarnations) were part of the post-war welfare state in New Zealand, where it was believed vital to support returning servicemen, and the subsequent baby boom.

Agree or disagree with these policies, they did have an internal logic, clear objectives, and some moral direction. However, KiwiBuild has none of the above. Its underlying ethic seems to be a vague sense that people are entitled to cheaper housing and government should provide it.

Instead of trying to address the underlying factors of housing price inflation – housing supply and development incentives at the local level – a massive ‘nation building’ type scheme has been announced.

These unanswered questions need to be addressed: Where will the land for these houses come from (particularly in Auckland)? Will land only be available for this government project, not for private builders? Who will pay for the infrastructure?

Given that the top three residential building companies in Auckland could only build 535 houses between them in 2011, what are the odds of hitting 10,000? And most of all, what is an all-comers housing lucky dip doing masquerading as sensible policy?

These are only some of the questions that need to be asked of KiwiBuild – a solution in search of someone, anyone, to help.

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This piece first appeared in the New Zealand Initiative's Insights Issue #25. Sign up for the regular Insights here.

The New Zealand Initiative was formed in April 2012 when the Business Roundtable and the New Zealand Institute joined forces.

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Luke, this article is really very poor. The logic is that no new affordable homes are being built in Auckland. Our young people are leaving - tens of thousands each year - to Australia. Their incomes can't buy them anywhere to live. Housing to income ratios are at unsustainable levels. This is cronic drag on NZ's economic growth, misdirectign investment into housing instead of productive areas. It is a macro economic, regulatory and market failure of epic proportions here. The housing bubble has created an enormous debt to overseas lenders...this is a huge risk to the stability of the country. 1 in 5 New Zealand households are on an accomodation subsidy to pay their rent or mortgage because they can't afford somewhere to live...that's just to name a few of the serious issues.
Shearer at least is advancing a plan to assist with this, unlike National who have only given sham policies that won't do anything. As well as targeting the housing affordability issue this scheme would probably keep more of young people in NZ, lower accomodation subsiides, lower unemployement and lower our overseas debt.
There's some logic.
 

rp, you're missing the point of the article. Housing is expensive, there's no need to recite facts to prove it.
But having a non-means-tested, free-for-all housing system isn't the way to go. There's nothing to stop John Key buying his kids a $300k Labour built house for their birthdays. The article writer is simply saying that it needs to be targeted at the poor, where people need it.

If it increases supply by that amount, it will end out reducing prices overall so help fix the problem - for the poor and for everyone else. More supply at a given level of demand = a lower price

So, what about the young couple who have saved hard and bought just before this policy comes in and it does what you say.  Is it fair that they are plunged into negative equity.  
Governments should stick to their knitting and look at the policies they brought in that has added huge costs to the process (Labour last government) and get rid of them.  Also young Kiwi's should be able to build their own houses,  look at the price of Kithomes,  but nobody objected when the law to stop it was pushed in even though no self build has ever led to a leaky home. 
As to us having high prices compared to other countries I suggest you look at the link below and thank your lucky stars you live in such a great country.
http://www.numbeo.com/quality-of-life/rankings_by_country.jsp

kerwin, if people buy houses to live in it doesn't matter too much. If they buy them as a potential for capital gain then there is a problem. Not only for the young couple buying their home before this policy, but if people buy houses for capital gain generally it's destructive for the economy

Well that's their problem Keriwin. If they're buying it to live in, then it's no more expensive to live in after a crash than before, they've lost nothing, they just happened to choose to jump in at the wrong time.
 
Given that all the signs of a bubble are there right now, you're foolish to buy for capital gains right now, that ship has well and truly sailed.
 
Buy now if you need a place, but given that only 8% of people in Auckland think it's a good time to buy according to a survey published a fortnight ago, it shows that it's better to wait and see than buy now.
 
You either buy a house to live in, or buy a house to make money off. You can't buy a house and then complain when its value drops by 30%, much like you can't with shares, or currency, or oil.
 
That's the problem with property, EVERYONE seems to think that houses increase in value all the time by right and that this just makes everyone richer.... you either accept we have a runaway market and it's going to be impossible for kiwis to own their own home in future, or you accept that current homeowners are going to need to take a haircut at some point... either way, some people are going to be pissed off and disadvantaged... but that's life! You can't insulate everyone from this all the time!

Well said. Everyone seems to want property to be protected from corrections even if it was bought for speculative or investment purposes. Both governments and banks are committed to property as too big to fail and have made it the only engine for the economy even though it runs and depends entirely on expanding credit

 
I wonder what planet you guys are on,  is it fair for a political party to change the rules to affect something that has nothing to do with politicians in a free market economy.  Also what if the owner has to sell for any number of reasons and now has negative equity forced on him by politicians,  that is not fair and you would not like it either if it happened to you.  If it happens in a free market then that is a different matter.

What is a free market though? Is it a free market if billions of dollars of artificial stimulus are pumped into the housing market each year through subsidies, accommodation supplements and working for families? Is it a free market when Chinese buyers can come here with 1% finance and park their money in our market when local borrowers are paying 5%? Is it a free market when people are prevented from building their own homes without forking out $130k to the Auckland council for the priviledge? Is it a free market when capital gains on housing are tax free but returns on other investments attract tax?
 
What we're advocating is a return to a free market and just removing some of the external stimulus, which tilts the table in favour of existing homeowners and property speculators. What could be more fair than that?

"And most of all, what is an all-comers housing lucky dip doing masquerading as sensible policy?"
Exactly!

Ultimately this is just government trying to muscle-in on the private sectors function, so as to look like a "doing something" hero. But like you suggested...what does it mean if they're not seriously looking at (and attacking) the underlying problems making housing so costly?

Whatever the government achieves, it can and will only do so at the costs that the private sector would have to pay out; minus, maybe, a bit of gain via economies of scale (though with the right incentives/regulations the private sector could drive the same advantages - and probably better).

Behind it all this is a do-nothing policy. Again, it's just Labour suggesting the government should become a property developer but WITHOUT attacking the central cost problem.

And what do they intend to do with immigration? Their policy means nothing without reference to the effect of population pressures. It's a demand to supply ratio game.

true, the underlyinbg probelms still remain - land supply, council over-regulation, council overcharging, immirgation out of step with housing supply, non-New Zelanders stashing money here buying residential property, a tax system skewed to residential property etc... However, if they can increase housing supply at a reasonable cost, that will be a good step in the right direction

It goes without saying that we need to build more housing, but the worst thing we can do is allow this policy intiative to be seen as a solution - because it isn't.

Government need not have the same costs as the private sector. 
For example

  • They can buy up cheap land zoned rural and then working with the councils have it rezoned to residential.  Or allow increased density in existing residential areas.
  • They can drop or slash many council consent fees
  • They can make it GST exempt, as they would only be taxing themselves anyway

If this is true (if...)  why cannot it all be done now?
 
Then, we'd all benefit from exactly what you've pointed at:

  • No MUL-induced capital gains as land switches from rural to urban at the stroke of a Planner's Pen
  • No 15% tax on the first rung of the housing ladder (but how can you tell a first-time buyer from a newly minted company done online by a dog in Ugivzashitistan?)
  • No Council consent fees

And of course you've neglected some of the other cost drivers:  let's abolish Them too:

  • No development contributions (upwards of $50K/section, I'm told)
  • No duopoly profits on materials
  • No Elfin Safety craziness
  • No certification for Working At Heights (let the drug-addled hammer hands drop and die, saves on the ACC bills and Vote:Health)
  • No fencing of sites
  • No scaffolding for a gutter or roofing job
  • No certification of every power tool and cord used on site
  • No Licensed Building Practitioners

 
Question is:  how?
 
Because you've offended:

  • every bureaucracy in the Gubmint
  • The Councils
  • The Banks (bigger mortgage=bigger interest revenue streams)
  • The established Building Industries (not that any of 'em does actual Volumes as such)
  • The aforesaid Duopoly
  • The insurance industry (let folk Build it Themselves?  Risk!!!)
  • Every existing homeowner (who's either paid triple the new rate for their shack, or is a mortgage slave with a suddenly underwater feeling  or is depending on hocking siad shack off to their neighbour come the Magic Age of Retirement to fund those Endless Winter Holidays)

 
All of whom have a Vested Interest in the status quo....
 
Ah, Thought Experiments!
 

Good points, but you have to admit the preferential rezoning for government projects is still fair to everyone and passes the savings on directly to the first time buyers.  If these areas were rezoned now the developers and current land owners would make a windfall and nothing would get passed onto the first time buyers.
 
Even if GST was exempt from all home builds I suspect land prices would simply increase as building becomes a more attractive option and demand goes up.  Developers would also keep the savings rather than pass it on.
 
That's the key dofference I think you're under estimating, unlike private developers where the goal is always to maximise the money they take from the buyer the governments mandate would be to minimise the money they take from the buyer.

But they still have to go through the resource process,  mine cost $30k per section and all I have got is a few pegs in the ground. Still have to pay roading, council conributions that will take it over $50K per section.  How can they sell sections for $50K with these kind of costs.  Labour are brain dead.

Julz - I think you have forgotten the Government is funded by the Private sector. And now you think the Government should be able to tax the Private sector and then write themselves special rules so that they have an enormous advantage over Private Enterprise in supplying housing. It is this sort of Socialist nonsense that has got NZ and other countries into financial difficulty in the first place. Let the nonsense continue at your peril.
 
The National Government needs to restore freedom back to the market and ensure that bureaucracy is kept to the bare minimum. Labours plan is to appeal to voters and has nothing to do with providing afforable housing to those in need.
 
 
 
 

I consider not-for-profit projects like supplying affordable housing as a charity. Suggesting they have an advantage over you is like suggesting a soup kitchen has an advantage over a restaurant!

Admittedly waving council fees would mean taxing the private sector more (happy to drop that one) but the rezoning and dropping of GST does not require any additional taxation on private developers (GST is a general tax paid by everyone after all)

"Ultimately this is just government trying to muscle-in on the private sectors function" 
 
They won't be muscling in because the majority of houses being built now are 4/5 bdr, 3 bathroom monsters for $600K+. The reasons for this are many, but if the government can sort them using their regulatory muscle and sell smaller starter houses at cost, then they're on to a real winner. If they can build them in huge numbers then they might actually fix the supply side issues with housing. After all at the moment they're spending over $2B a year as a subsidy to landlords and getting exactly nothing from it!
 
From an economics point of view, there is a real opportunity here- massive spare capacity in the labour force and manufacturing sector, cheap capital due to low interest rates, and an almost guaranteed demand from employed people on low NZ wages who just can't compete with property investors and inflows of foreign capital for the scant stock of housing. Socially the benefits of home ownership and skilled employment are obvious.

You are living in cloud cookoo land,  look at my other responses above to see why.  The best thing you could do is to put pressure on the Government to repeal the self build law,  look at A1 kitset.co.nz as an example of what you could build if you did it yourself,  after all is that not the Kiwi way?

Agreed.
Good kitset designs that have a proven track record are an obvious choice for affordable housing. New, warm, dry, double glazed.
Maybe have the chippie sign off on the foundation, framing, roof... but flooring, drywall, insulation installed by homeowner... good savings there.

This is great news for Shearer...all the free media attention he could want...and all he had to do was make a promise he knows he could not keep.
Next up we will hear, how under Shearer, Labour will  increase takehome pay, if they become govt.
Then we will get the one about 'under a Labour govt the rich will pay more taxes'
Followed by...' a fair and just society where each person is treated as an equal'
 

It is amazing how many people fall for all this rubish from Labour. Taito Phillip Field summed up Labour well the other day.
http://www.stuff.co.nz/national/politics/7994728/Gay-Labour-has-lost-its...

A corrupt fool like Philip Field probably isn't the best person to quote...
Taito? Yeah, right.

Yeah, hardly............
regards

Your right of coarse but he still knows the Labour Party better than us.

Shearer has as much show of leading Labour to victory at the next election as I have booking a flight on the next Moon landing.......innocuous, ineffectual , invisible , in fact he and Bollard could swap success stories, now that wouldn't take long....duh.
Phillip Field has had time to reflect and realized he's even more innocent than when convicted, a real life Pacific Martyr rooting out gay conspiritors who may again be seeking to seize power and give us the bums rush.....once more into the britches, dear freinds, advance with gay abandon....May I offer a title for Phillip's recollections...?
The Truth as I see it.....The inside story of a man persecuted for doing what comes naturally.
Yes of course the gay political community including Clarke pushed agendas through during their tenure, but what the Devil was Peter Dunne pushing...? Everybody in there has a self serving agenda going on whether it be paramount or secondry in importance .....it's in the nature of things...
Politicians like diapers should be changed often for the same reasons.
 I see Mr. Norman once again outpointing Mr Shearer with his rightful assault on TPP's actual benifits as opposed to Nationals somewhat embellished version......
 Even in sound bite  now, Norman looks and behaves with more political savy than  Shearer appears capable of......maybe the Greens will allow them a minor role in coalition....maybe not.
Smile and wave has become Smug and finger.

Norman certainly looks more effective than Shearer and the Greens are far tighter and more organised than the Labour Party. They have taken the lead on the Stop Asset Sales petition for instance. Labour look more and more like National with a few of the nastier edges knocked off. Same neo liberal ideology at their core though. Light years from Savage and Lee.

Your right,  shame ha lives in a dream world.

In some ways...maybe the Greens simply havent been around long enough to see the "floatasm"  get to the top....hopefully though that wont happen....
Norman comes across well but Im not so sure the policies are that robust.....or realistic.....
In terms of Labour's  idealology, well they (HC etc) had to go to the centre like Blair  to get into power....and lets face it their quasi-keynes economics was in tatters...a proven failure...so they jumped on what was left.....an even bigger failure mind....lol.....oh dear.
regards

Have to agree there's no clear objective. Doesn't address immigration, bank credit, council zoning or consent process, existing house prices, land banking, land tax, cost of building materials. It assumes that the current market is okay but just needs some assistance at the "bottom" end. All it does is support the current status quo.
 
Now if he said we think the property market is 50% overvalued relative to wages and the interest is sucking the life out of the economy and this is what we intend to do.... then I might have some hope for Labour. At the moment National and Labour are fully committed to supporting both property and the banks as too big to fail.

I wonder what planet you guys are on,  is it fair for a political party to change the rules to affect something that has nothing to do with politicians in a free market economy.  Also what if the owner has to sell for any number of reasons and now has negative equity forced on him by politicians,  that is not fair and you would not like it either if it happened to you.  If it happens in a free market then that is a different matter. How do you delete this,  it was a reply further up?

Well if its forced on them, vote for the other team.....There is no such thing as the free market, its one huge con....its just a licence to pillage freely...
regards
 

The government controls demand (immigration) and supply (regulations that allow houses to be built - or not. And at what cost). The government has EVERYTHING to do with the market.
Negative equity will not hurt unless you ultimately want to down-size, and cash in. Housing unaffordablity must stop. People have a right to a home at a fair price. 
The far-reaching macro-economic cost of land scarcity is enormous - shutting down land supply is like shutting down power plants.