David Hargreaves argues that the Government's difficulty getting traction with Kiwibuild points to a need for industry-wide overhaul of house building

David Hargreaves argues that the Government's difficulty getting traction with Kiwibuild points to a need for industry-wide overhaul of house building

By David Hargreaves

With every new Kiwibuild announcement issued by Housing and Urban Development Minister Phil Twyford it's becoming clearer and clearer that this country needs a massive overhaul in how houses are built.

And by that I mean the whole thing, from the cost of the land, to the planning approvals process, to the RMA, to the cost of raw building materials, maybe to labour costs and to the shape and structure of the building industry itself - fragmented as it is with a huge number of small scale operators.

The latest Twyford release to get attention is his weekend statement calling for proposals from the private sector to either start or expand factories that would produce Kiwibuild homes.

Was anybody else a bit surprised by this?

Twyford certainly talked about prefab houses pretty early in the piece as he was first getting his feet under the Housing Minister's desk, so, it's a little interesting to see an announcement of this nature essentially eight months into the Government's term.

I suppose the other thing is what do we make of the 'seeking of proposals' idea? 

My immediate reaction to that is that if there were companies out there that thought new factories or expansion of existing factories was a good idea they might already have stuck their hands up to do it.

You would have to deduce that some kind of subsidy/incentive is being considered by the Government in order to get these factories up and running.

That's not necessarily a bad idea, but if indeed there is some thinking along those lines it would be nice to see open and transparent arrangements.

In a sense my question of 'why has it taken eight months?' is slightly rhetoric.

What this shows again I think is how much harder Twyford's finding all this than he thought it would be when he was successfully nailing the National Party to the floor over its failure to respond to the housing shortages in its nine years in Government.

And we shouldn't forget how badly National did fail in this area. Don't let the gleeful blizzard of press releases coming from the National side of Parliament now fool us into somehow thinking they had a cogent plan. They didn't. They were making it up as they went along...just a bit as I suspect, unfortunately, the coalition is now. 

The last bit of the last statement might seem a bit harsh. And the coalition is definitely trying to live up to what was a massive pre-election promise (100,000 Kiwibuild houses in 10 years, lest we forget), so, definitely good on it for that. 

It's harder

But it is obviously proving difficult. However the Government thought it was going to get those 100,000 houses built, it's finding it much harder.

Clearly the combination of high costs and overly complex regulations make large-scale housing production uneconomic in this country. That's really the nub of it. And it's the problem that won't go away of its own accord.

Unless the various issues involved are tackled, this is surely a problem that's going to dog us as a country right through into the future, isn't it?

At the moment we seem to have a bit of an odd stand-off. 

The coalition seems unwilling to put up the perhaps truly momentous amount of taxpayers' money that would be required to simply go out and build those 100,000 houses.

Instead it's now trying to eke out the $2 billion it has committed to this by doing deals with the private sector.

Doing it because you said you would

My concern now remains that the target somehow simply becomes Twyford being able to say he's built 100,000 homes (because he said he would), or at least on the way to it. There's a difference between building a house yourself and taking credit for one someone else has built. Because the problem is they might have built the house anyway. Clearly what's going to happen is that the Government/taxpayer are going to end up underwriting and subsidising much of the housing development that takes place in this country over the next few years. 

It's worth it if you think this is going to lead to additional housing stock, but of course the concern is there might not be much increase in the rate of building - it will just be that the Government and taxpayer pay for all the new construction instead of the private sector.

I still think that going 'all in' on the Kiwibuild strategy and the Government actually building houses of its own accord, yes, with taxpayer money, is the way to go if we are serious about getting our housing market towards some sort of equilibrium.

Clearly though, much more is needed. 

We could eventually get housing stock numbers up with vast amounts of taxpayers' money - but surely the structural problems in our housing market that seemingly make large scale housing development uneconomic, would remain.

The symptoms not the disease

So, in that sense, simply throwing more houses into the mix with taxpayer money eases the symptoms but not the disease.

How would the structural issues in the housing industry be fixed?

Well, seemingly it would take a while. I am very much a layperson. I certainly wouldn't know where to start. But as a country we are way past the time when we need to get these sort of issues in focus and in some sort of control.

Really, if it is at all possible there needs to be a two-pronged approach - tackle the current housing shortage and start to make long term plans for how New Zealand can have a sustainable house building industry. You wouldn't fix that last thing in a fortnight. I certainly would applaud any moves by this Government to look at the industry-wide issues, such as building materials costs, planning costs, labour costs etc.

And okay, that is sounding dangerously like another review, and this Government's getting a bit of a rep for that. But if this issue isn't worth reviewing - given it was such a big part of Labour's election platform - then what is?

In many respects that 100,000 houses target is already looking like a curse. 

Throw it away

I for one would like to see this Government throw it away and set new realistic goals. But I don't think they will because they've got too much public goodwill capital invested in it. 

That's a shame, I think. 

Simply putting your hands on 100,000 houses that you may or may not have built yourself possibly proves some sort of point in the Parliamentary debating chamber. But it might not do a lot for the country long term, unless extra numbers of houses really are built, and some substantial moves are made towards a more sustainable house building market.

The trouble is, everybody wants everything now. And they don't want to be told different. 

It would take great courage for this Government to look beyond trying to furnish the 100,000 houses figure and pledge something for the future.

But, let's face it, this country doesn't have a great track record in terms of Governments planning for the long term.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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I'd like to see build quality privatised in the form of a compulsory 20 year build quality insurance taken out by the builder before the house is sold. Insurance companies have much better ideas about risk and pricing risk than the council does. They also have a much better history of paying out when things go bad. If my house burnt down tomorrow I'm pretty sure my insurance company will pay out. But if it fell down tomorrow due to shoddy workmanship, I doubt the council will pay out, especially without a legal battle.
Insurance companies can allow cheaper materials if they don't pose a risk. They can use simple logic rather than ridiculous testing (e.g. this plyboard has been used in Aus for 30 years without issue, it will be OK here). They would encourage good building practices as the premium will be based upon the builder's history of building quality. They would encourage standard design and material choices as the premiums would be lower. They can refuse to insure crap buildings without being accused of discriminating.
I think if insurance companies were responsible for build quality 30 years ago they wouldn't have allowed houses to be built out of crap materials, and if they had they would have paid out a lot easier.

@jimbojones . your're dreaming mate , not one builder will still be in business in the original company in 10 years , let alone 20 years ........... and secondly imagine the cost of such insurance ?

Aust is insured by the state govts who the builders pay an insurance premium to. The process works very well there even with all those crims running it haha

Yes I imagined the cost - to be much lower than council costs are. Surely 10k or so should easily cover a 400k build from severe defects. That’s probably the council cost but in addition there is all the hidden costs- paperwork and stopping for untold inspections and having to use overpriced monopoly materials. You want to see the hundreds of pages detailing all sorts of crap that is needed for consent. All just to build a simple residential house. And at the end you are left with no real guarantee and if the council does pay out it is at the expense of other ratepayers.

I'd rather sue a giant insurance company than my local council. The former worries about its reputation whereas the latter uses my own rates to pay expensive lawyers.

Whatever could you mean... next you'll be telling me they spent half a million pursuing a case against themselves..

https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12061825

The problem I see with a local factory is they’d need to source the raw materials from the usual suspects so the numbers just won’t stack up.

An overseas factory on the other hand has scale, processes and suppliers in place and could disrupt the local building industry.

Of course the councils and govt would take years and millions to approve any offshore suppliers and not to mention vested interests in status quo running interference so the reality is prefab housing from offshore or local won’t be happening any time soon.

There are in fact some 'Factories' anyway:

  • Lockwood and Fraemohs both do solid wood houses, and they are both well-proven for resilience in both hurricanes and earthquakes. With a 'Wall o'Wood' upon us, this is an easy direction as the technique is so well established.
  • Mike Greer started off Concision which is a conventional wood-frame method automated. The blurb says The 94m2 three bedroom dwelling was built in the Concision factory, and it achieved 100% accuracy with no manual adjustments required. From the factory, the home was transferred to the designated building site on one truck, with the walls being stood in 3 hours and 30 minutes and it was weather tight within 4 hours and 56 minutes – quite impressive.
  • Kingspan do Structural Insulated Panels (SIP) and have a long overseas history with their methods
  • That ol' Duopolist, Fleecers - gotta love Spelling Suggestions, eh? - Fletchers, is gonna enter the KB space with its own factory in an obvious attempt to Opolise the space and soak up that Juicy Gubmint KB Munny.

No doubt there are others, but this short list should put paid to the notion that Factory Builds are not available off the shelf right now.

So I am not sure about the need for Gubmint to underwrite new ones. Just contracting with a selection of the existing ones would shurely do, no?

Let’s just face it we have been lied to by all these false promises that this coalition government have come out with.
Pike river, No
100k houses No
Reduce child poverty, No
Reduce immigration No
Plant all these trees, No!

Etc.etc.etc
Now we are going to be inundated with strikes left right and centre, because the unions know that this coalition is extremely weak!

We are in for one helluva rocky ride until National get back in at the next election!!!

I agree TM2, Unions are thinking its Now or Never, lets get some money out of our mates before they spend it all.

So MBEI , IRD employees and god knows who else will follows, its open CoL season ..lol

I’m thinking about going on strike too. I work in the private sector but hey I might as well.

Count me in. The only problem is I own my own business. The CoL will probably still payout.

I’ll be lobbying for an increase in WFF eligibility and payments. Everyone should be entitled to WFF.

And who says by 2020 will National be keen to go in and clean up the Mess----

The awful reality is that Governments for the most part cannot organize anything other than sit on their backsides and pass laws .

Getting things done themselves is almost impossible .

This Government I would bet does not have one single MP who even knows the front from the back of a nail gun ............ let alone anything about putting up a building .

All they have to do is make it way easier to build houses , and the market will do it for them

Spending taxpayers' money is always fun ... ask ACC and Phil Goff !!

Wasn't there an Irish company that indicated they could do the lot as prefabricated builds? Seems like the way to go, it'll take too long to scale and get down the experience curve if they don't already have substantial large scale development experience.

Fast house is the Irish company, reported in a Stuff article.

But I would surmise that it has run slap-bang into three classic NZ tropes:

  1. Voided because it was started on the Previous Lot's watch
  2. Not Invented Here
  3. We Know Best

One of the issues cited is land cost but there is more to it. Project management skills and experience are important too such as in this dismal case reported in today's waikato times.
Te Rūnanga o Kirikiriroa learns the hard way on 'extremely ambitious' Enderley housing project | Stuff.co.nz
https://www.stuff.co.nz/business/property/104975198/te-rnanga-o-kirikiri....

I know there are eager, newbie developers who would benefit from extra support and mentoring to crack the industry. PT, are you listening?

lol, Watercare prices will go up by 2.5% and 3.3% for water and wastewater respectively from the 1st of July ....cool bananas ! hope they don't go on strike too.

Looks to me that the Unions do not believe that their MATES will last beyond their first term so all knives are out to carve a healthy economy before things go sour !

I am all for a reasonable wage negotiation and increase as most employees have some accumulated backlog to catch on and they were left short changed by CPI numbers -
However, that should stay within reason and spread over few years.

In many ways the housing crisis sums up nicely the unsustainable outcomes and the fallacious nature of the neoliberal policy settings successive governments have followed in this country since the mid eighties. There has been no incentive for longterm thinking or investment only pillaging whats on hand for a short term gain. The inability of the voting population to stop thinking like this is the real failure because they will vote in the next goverment that will be just as poor through lack of accountability. On kiwibuild, go offshore and bring in an army of foreign builders, the NZ construction industry is hopelessly outdated and definitely not fit for purpose in tackling such an aspirational target.

Are we surprised that the workers in New Zealand want more in their wage packet and I include the teachers and nurses in that category. We are not a perfect nation. We have a low wage economy yet it is expensive to live here. Overseas visitors and expats visiting are amazed at the cost of living here. I was in Europe last year and if you earn euros it is a lot cheaper to buy food, power and other necessities compared to what it costs here. My best friends daughter has just scored a job in a cafe in Western Australia earning $27 per hour with super on top compared to the minimum wage in New Zealandfor the same job. National kept wages down. The workers want a bit more and without them the country would be stuffed. They should share in the spoils just like everyone else.

If wages are low and living costs are high where’s the money going? Surely business owners aren’t greedy are they?

Agreed. Its not till you go to Aus or Europe etc that you realise how expensive NZ is. Turns out the 'reforms' of the 80's till now weren't market based at all, they have simply delivered duopolies for the most part and had a catastrophic impact on the workers of the nation. In my observation there are quite a lot of greedy business owners who I think are able to exist simply because their low staff costs are subsidised by working for families and the accomodation supplement taxpayer subsidies. Knowing the state is going to top up your workers wage packets doesn't drive a business owner to be especially generous or pay a worker a living wage does it?

Simple solution is to become your own boss then, isn’t it? There’s nothing stopping them doing that.

We are better off importing pre fabbed houses. The government will need to twist arms significantly to get around the building supplies cartel in this country, including BRANZ. They will need to run roughshod over council, and do them out of,000's of dollars of inspection fees.
By the time we get a factory built, and produce to "NZ Standards" the crisis will be over, immigration will be in negative territory, overseas interests will be dumping houses on the market, and Straya will be trying to put a cap on the inflows from here.

There needs to be some differential between Kiwibuild houses and privately developed houses, otherwise there will be no privately developed houses as they won't be able to compete with the government subsidised ones. Banks either wont lend, or will risk adjust the price of lending, to developers who are not being subsidised. I think we are going to end up with less houses being built overall, as private developers walk away as a result of an uneven playing field, especially with the risk of falling house prices and curtailed bank lending staring them in the face.
Kiwibuild houses should be leasehold - built on Government owned land. The Government can then sell them for a lot less than freehold houses, and made available to low income people. Private developers can continue to provide more expensive freehold houses to those who can afford them. Leasehold houses would eliminate all speculators looking for capital gains, thus removing one of the pain points in the property market.

I get the feeling Phil Twyford and his mates (encouraged on by all the armchair experts) might be edging towards changing the standards we have set for housing. These standards relate to fire ratings, weather proofness, insulation, structural strength, electrical safety and so on. We have already seen say the meth contamination myth busted. He did not do this by changing the standards but just by saying everyone especially Housing New Zealand were going to ignore the standards. If we ignore the other standards we will be able to supply homes for people well below five times household income.
I wonder if any thinking person really wants this. Homes made out of cardboard and sheet plastic built on public parks perhaps ?

We need to treat the cause not the symptoms.

1) Its simply not possible to ramp up the building sector capacity fast enough to meet the rate of demand growth.

2) The excess demand growth is almost entirely in Auckland, and its the immigration rate which is the cause. The immigration rate is so high that it is causing diseconomies of scale.

3) Reduce the immigration rate to something sustainable. (Give the overall immigration rate to the RBNZ to manage as a macro tool along with interest rates and seek to maximize gdp per captia). If necessary price immigration so that it goes to the industry sectors willing to pay the fee (rather than train up NZers) get the resources they need.

4) Yes, everything else mentioned in the article needs fixing, but we simply cant build our way out of the problem in a reasonable timeframe.

Just what is the point of building 10,000 houses a year when we are letting in up to 75,000 immigrants a year?
Even if immigration drops to about 50,000, then we will still be going backwards.
Nearly all our problems in NZ stem solely on unsustainable immigration, made to make the GPD figures look good.
Sadly these good figures of GDP are only temporary and we are in for a very hard landing as a result and we are all going to suffer!!

GDP good but not great. Caused by immigration and longer working hours. GDP per hour worked: flat. NZ stands still except for the rich getting richer and the poor get poorer.