David Hargreaves adds his voice to those exhorting the Government to keep its nerve on plans to build more houses

By David Hargreaves

Some people can be pretty quick to call something a failure.

In the eyes of some this Government's flagship KiwiBuild policy already appears to be yesterday's fish and chip paper and therefore worthy of dumping in the bin.

The risk is that the Government itself takes such feedback on board and summarily bins the policy, like the aforementioned fast food wrapping.

The big mistake Housing and Urban Development Minister Phil Twyford made, out of - I think - extreme naivety, was to put numbers on the houses that would be built. This of course was immediately the prompt for all and sundry to start producing  various counters on websites as to how the Government was doing against these targets.

This negativity and pressure seemed to get to the Government quite quickly and it was soon apparent that efforts were being made to garnish the figures - notably through the so-called buying off the plans scheme. Essentially this was a plan for the taxpayer to underwrite private developers building houses, which were then tagged as 'KiwiBuild' houses, all - as far as I could see - so that these targets could be kept up with.

But that's not worked. Twyford's admitted he's not going to meet the targets and he's now going to go back to Cabinet with a recalibration of it all. It will be of great interest to see what he comes up with.

As I opined towards the end of last year, nobody should have expected that an undertaking as ambitious as KiwiBuild, with the stated intention of building 100,000 houses in 10 years, would be achieved without teething problems and bumps along the way. And I also said the Government needed to sit down and rethink early this year and if targets had to be revisited and changed, then so be it.

If something's not working the trick is to ascertain whether it's not working because it's a bad idea, or if the way you are doing it is wrong. Don't throw something in the bin just because it hasn't worked out as you thought. Have a good look at it and see if the way you were going about it was wrong. And if it was, then change it.

Is KiwiBuild a bad idea?

No.

We haven't as a country been building enough houses. 

The Government finances are strong enough that with taxpayer backing the state can do something about increasing the stock of houses.

The other thing is that a lot of New Zealand's older housing stock is no longer fit for purpose (if it ever really was) and so therefore there's nothing wrong with ridding ourselves of draughty, damp houses and replacing them with newer properties that aren't a health risk to live in.

So, the idea is good. It's therefore a question of how you go about it.

No more buying off the plans, please

Personally, I hope the Government drops like a hot potato this whole 'buying off the plans' idea. 

The idea of underwriting developments being undertaken by private developers and therefore risking taxpayers money while essentially losing control over what happens never seemed smart to me. And it always looked like a way to artificially pump up the numbers of so-called KiwiBuild houses.

It's no surprise that Twyford has reportedly had difficulties getting private developers to change their thinking on the idea of fewer, high value developments rather than a lot of lower value developments. Again this has been naive from the Minister.

Look at it from the prospective of a developer. If your budgeting tells you that you can build one type of house with a potential profit margin of say for argument's sake $100,000, and another type of house with a profit margin of just $10,000, which are you going to go for?

To my mind it's a much safer bet for the Government to instigate developments of its own that it would control completely and with budgeting and costings of its own design. 

Now, I know that's happening anyway, but I think that would be the best way forward for KiwiBuild in its entirety.

Running the risk

Forget about this idea of trying to pump the figures by including other private developments that might have happened anyway.

If the Government does persist with the idea of simply trying to coat-tail private developments, the risk is that it will start offering bigger guarantees and inducements to the private developers - again in developments in which it has little or no control.

To me that would make no sense unless the Government was trying to keep up with some perceived 'target number' of houses.

Everybody has to accept that this whole process of building up New Zealand's housing stock is going to take longer than might have been hoped.

Surely a more realistic approach for the Government to take is to sit down and see how many of its own developments it could get up and running in some way this year. And make that the target. And don't be drawn on specific numbers.

I would have a lot more confidence in such an approach.

Balancing supply and demand

As for the affordability question, well, I think people have been putting the cart in front of the horse there. The only way houses surely can become more affordable is by having the supply and demand more in balance than we have had in this country for years. So, you build more houses and over time (though not overnight as some would wish it) the houses do become more affordable.

Throwing money at problems is never in itself a solution. But the flip side to that is that sometimes you do need to show that you have enough money.

I still think one of the Government's biggest mistakes on KiwiBuild has been the $2 billion allocated for KiwiBuild. This magic, elastic, sum of money that was apparently going to be recycled and build and build and build houses, never looked enough.

The Government would still I think give itself much more credibility if it found more money for KiwiBuild. 

To me it has always looked at though the Government's never been quite sure about whether to fully commit to the KiwiBuild policy or not. As I've said before, I reckon it should go 'all in'. 

The risk remains though that with the negative publicity the policy has had over the past year that the Government tries to carefully begin to distance itself from the policy and even start to change it to a more generic policy in which we see more social housing (IE rental) being built. That's not what the country needs long term if we want our people to be financially secure as we face up to an ever-ageing population.

More help

My last thought on this for the moment is that Twyford needs more help on this. He seems to have a quite ridiculous workload. While he himself might not like the idea, would there be merit in making Twyford an out and out Minister of Housing and KiwiBuild and passing over the transport/infrastructure duties to someone else?

Certainly there's logic in having infrastructure and housing linked, but as one portfolio it just seems all too much.

That's my thoughts anyway. Interested as always in your thoughts.

My parting shot on this would be that the Government should not lose its nerve and should not be blinded by figures and specific 'targets'. Numbers in themselves mean nothing. What means something is the actual outcome. And if the outcome of KiwiBuild ultimately is more Kiwis in their own homes and a better supply and demand balance of housing stock then the policy would be a success - regardless of whether it builds 100,000 houses or not.

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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77 Comments

Lest we forget ............... this Government has , and will , "build " not one single house .

Zero

Recalibrate ? ........... my backside........... the word suggests "fine tuning " with a precision instrument.

Its a spectacular cock up , a mess that could not be "recalibrated " even with a monkey wrench and a ten pound hammer .

They have entered into a bunch of contracts with developers to "build " overpriced but cook-and -push, cheap and nasty shacks that dont pass muster .

And to make you feel you have won something , there is a lottery to get one .

Except the "winners" refuse to collect the prize

Problem is that most Kiwis can recognize a dud when they see one , and a 51m2 bedsit in Otahuhu at $12,000/m2 with no parking space is just such a dud .

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*yawn* Same old Boatman.

BUT unfortunately he is RIGHT

But at least Labour is doing something even though it is not working.
John Key's Government sat on their hands for 9 years, flooded the country with immigrants but did NOTHING of any significance about the problems high immigration would have on the infrastructure including housing.
In the early 50s we had a housing shortage but politicians were able to solve it , We cannot do it now, for some reason.

I get annoyed when National start criticizing Labour's housing policies when they certainly did not have any answers when they were in power.

Well at least National was doing something even though it wasn't working. The SHA's are actually allowing a lot more housing to be built because they forced councils to open up more land for development.

SHA was an attempt to address the problem rather than fighting head on against the problems. Removing the hill instead of trying to push shit up it.

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I disagree. The govt should scrap kiwibuild - it is not competent to run large projects like that, and given all its political vulnerabilities and the demonstrated low achievement levels of many politicians it never will be.
Coalition should instead be channelling all its efforts into the one area that most sorely needs it and the one area where they can have a big impact. Namely: removing the regulatory impediments that prevent the private sector from doing the job. Building costs have skyrocketed in last 10 years entirely due to excessive regulation. They also need to cut down materials supply cartels backed by regulatory barriers like BRANZ. BRANZ should not be used as a tool to prevent useful and cheaper products well proven overseas from being sold here - that only benefits the cartels.

Thank you Foyle ............ to this day we have not seen a single document on the mechanics of how they were ever going to build 100,000 additional houses (to be sold at less than the cost of an Auckland section ) , all done with no costings, no idea where so much money would come from , no idea where so much land would be made available , no consideration as to where we find enough builders to actually build so many houses , no strategy, no plan.................. nothing .

That was in 2017 , and we still have ............ nothing

The electorate must have thought Twyford was Moses with such promises of being led to the land of milk and honey , parting the red sea and all sorts of magic .

And Twyford must have believed he was Moses thinking he could command and it will happen .

Boatman you have made my day. Unfortunately if we don't laugh at what Kiwibuild is doing we will all cry.

The government is not competent you mean like fletchers and Fonterra. Bad government is the product of people who don’t believe in it.

Exactly. Some have misplaced cynicism on the public sector. Trust me both public and private sector are equally capable of stuffing up.
The whole 'lessen regulation' rhetoric is naff, and ideological.
Whether an organisation is public or private is not determinant of its succcess or failure.

Private entities can respond just fine if the incentives are right. The problem is NZ never has any real accountability for screw ups.
If a leaky house is built and the owner goes to court it either goes around in circles milked by lawyers or the wet lettuce leaf comes out or the company just folds and walks away. If the builders, material merchants etc were majorly on the hook for poor quality for several decades they might actually care about the durability of what they're building. Builders would have to get insurance to mitigate this risk and I'd imagine the actuaries would work out which builders and materials are risky and effectively ban them.

Forget didling around with the process with council inspections, piles of $BRANZ certifications and just hold people to account if certain outcomes are not met. No hiding behind limited liability entities. Another problem is the banks' attitudes since the debt follows the borrower they don't care so much if the house is a rotten egg. If mortgages were non-recourse they'd be more careful lending to builds involving dodgy materials or workmanship.

"Is KiwiBuild a bad idea?"

Yes. It's middle class and developer welfare at best. Can still get the housing stock growing with more state house building, but Govt retains ownership of them, and uses them to house those most at need, and let the market deal with the rest. No shortage of housing for sale in Auckland. About 34 more houses being listed everyday on realestate.co.nz since mid Jan.

Well thought out article. .
There are numerous folks that have ridiculed the process just because of vested interest

There are numerous people that have ridiculed the process because.. well, because it is ridiculous.

Make no mistake,i am not an intelligent man but i am beginning to think that the Govt should have no part of building houses to sell.
I believe that they should be building houses for the needy etc.
What they should be doing is launching inquiries into material costs and consent costs etc.JMO.

Agree on housing, Govn should be expanding housingNZ and not building homes for the middle classes kids, its retarded.

Material costs are an interesting one, we lack scale and certainly competition. Are consents a gravy train? Id certainly like to see this one put to bed once and for all. Personally I suspect there is no smoking gun but I
would certainly want to see that the charges are not a profit centre ie being used to subsidise existing rate payers.

Disagree.
If your middle class fails, so does your society and country.

The middle class would be quite able to look after itself once you take the artificially propped up bottom end of the market away.

No.
Without those lucky enough to get a lot of help from the bank of mum and dad, a large proportion of middle income households will struggle to buy in Auckland.

Not once you rip the arse out of the low quality rental market propped up by accommodation supplement/WFF. Take those people out of the market, put them in state houses and watch as property prices fall as landlords offload the shitboxes, dropping the land prices, making redevelopment cheaper. It also needs the govt to sort out the RMA and consenting hurdles.

Ok, interesting points.
What would you do with the RMA that hasn’t been done to date?

Maybe its mostly the BS consenting and not the RMA.. either way, reduce the bullshit hurdles to redevelop into cost effective high density housing.

https://thespinoff.co.nz/auckland/30-08-2018/this-ludicrous-dominion-roa...

Kiwibuild will not be a success.

That is because it will not make house more affordable and it will not increase house ownership.

The government will make a spin on Kiwibuild to make it look like a success by showing lots smiley faces of those lucky purchasers on TV, and claiming house prices in AKL stop rising because of Kiwibuild, which is really caused by a downward economic cycle and increasing new house inventories.

The government has done Nothing even to attempt to identify, letting along, solve any root problems to high house price.

Sounds like a strategy straight out of the CCCP play book.

The supply of housing has not kept pace with the demand for housing - the demand being driven by an immigrant population explosion over the last 25 years.
The government is trying to address this by increasing the supply however the supply sector is geared to much lower levels of demand than that resulting from the 50% immigrant driven population increase. Quite simply it is not possible to solve this problem by increasing supply without addressing the demand and governments can not address demand when the voting immigrant population has increased the total population by nearly 50% over the last 25 or so years.
No government can deal with a voting block of immigrants who have driven a 50% population increase in 25 years by the introduction of policies ceasing immigration or even ceasing chain immigration.

Schmuck

The answer Phil boy is staring you in the face. No need to reinvent the wheel. The owners of the 550,000 rental properties in NZ would be happy to build more properties. All you have to do is take your hand out of my back pocket and leave my hard earned money alone. I currently pay way more tax than you need.

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You've (landlords, not you in particular) had more than a decade to rise to the occassion.. you failed. Of course that didn't stop you from sucking up every available dollar in tax free capital gains and accommodation supplements.

you didn't build any..just snatched the home ownership opportunity from our young. Quite a contrast to the forefathers who sacrificed their lives for the young. Don't expect to be celebrated at a dawn parade.

I built some. How many have you built? Zero I bet.

And it was the worst time in my life. Dealing with Auckland Council is a living hell. 2 years of crap to wade through and no profit at the end.

I suggest you stop being glib.

Ah yes, stopping being glib. I can definitely pay a massively inflated mortgage with not being glib.

"Hello, bank manager, I'd like you to know I'm going to pay 60% less in repayments, but I'm going to be a lot less glib! What's that? You won't accept worthless baby-boomer bootstrap nonsense as payment?"

And so on.

If landlords got out of the rental business it would help families to buy their own homes.
Landlords like to think they are helping solve the housing crisis by providing accommodation.
Nothing could be further from the truth.

We are lead to believe that houses would disappear if landlords sold up.

Instead it would free up houses for owner occupiers and save taxpayers millions in subsidies!!

The naivety of this particular school of politicians is being publicly shown up. They never had, nor will ever have, any clue as to how to run a house, let alone a large scale national building project. This is the result of Winston's choice - perhaps even deliberately - so he can pull out of CoL 6 months out from the next election and nestle up with the Nats to get re-elected next year.
The article however, does have a good point, keep building. If you want your cost of housing to come down just keep building. The real problem in all of this is that the people who need a decent home can't afford them nor can fit all their kids inside them, unless it's 4 per bedroom. These people are our perennial problem. They do not, nor ever will, add anything to themselves, their families, their communities or their country & they are encouraged by our naive welfare system to breed uncontrollably. This baggage will sink the good ship NZ Inc in the end. The problem is not about having enough houses, it's about having too many kids when you can't afford them.

If National even entertains going with Pestilence Peters then for the first time in my life I'll vote for someone else.

I think that there is 46% of New Zealanders will do likewise. EX Pat

I'm happy to call it a failure. Right from the onset, it only dealt with the symptoms not the causes. The gov ironically gave themselves more power in overriding Auck council and the unitary plan, clearly identifying it as a problem but not improving any private individuals rights, only their own.
This is what I really dislike about our current gov. They don't want us to have the tools to improve our lot in life, they want to look like the hero's swooping in to save the day. Kind of like a bumbling self appointed "good" samaritan who needs to "help" so they can justify taking money from you in the first place.
I guess this is how the provincial growth fund is justified too?

DH, you state: "The big mistake Housing and Urban Development Minister Phil Twyford made, out of - I think - extreme naivety, was to put numbers on the houses that would be built"

Sorry but that is rubbish, any successful business needs to have targets, even more so when the project is very large, it needs to be cut down in smaller pieces with targets (numbers) set for intermediate periods

I agree - what was Labour supposed to do without their 100k target?

"We will build a lot of houses, so many houses, the likes of which you've never seen, it's going to be huge"

First thing National is going to ask is "how many?"

Plenty of unsold houses out Hobsonville way. Problem is that they're less-affordable 3 and 4 bedroom homes, not affordable 2 and 3 bedrooms. And those that are more affordable are too small for a family.

So the problem isn't "we're not building enough" but "we're not building the right kind of homes, and new homes are too expensive"

Interesting fact.. >20% of all properties listed on realestate.co.nz in the House category for Auckland are 5 or more bedrooms. We must have a lot more big Catholic famillies than I thought.

Multiple generation accommodation

So the average ppl/property is increasing with more immigrants? So the housing shortage calculated according to the old number of ppl/property is overestimating demand, particularly with the revised immigration numbers?

Bring on the census results.

Exactly, hence I'm hoping KB will change that behaviour...

I agree that "building 100'000 affordable houses in 10 years was a far too lofty promise, the problem is that the government got elected on that promise (and on cutting immigration)

Like no other government ever has told porkies to get votes. Yeah Right.

John Key personally told me, a year before he was elected PM, that he would ‘sort out the housing mess’...ha ha ha ha ha ha ha ha

John Key promised a brighter future....

They haven't done a thing to cut immigration other than introduce new accounting measures that make the problem seem smaller.
The voting public was lied to in regards to promises made to cut immigration!

Immigration is down and treasury is forecasting a decrease to 25,000 per annum net migration.

I'm calling BS on that - how do you cut immigration 'by offering a no strings work permit to every international that finishes a L7 diploma at a PTE'; just wait two more years for the flood of these new immigrants when they complete their PTE diplomas!
The enterprising institutes are now all rushing to offer graduate diplomas at L7 so it will be just 1 year in a PTE before newly minted immigrants on a no strings 3 year work permit can join the hordes looking for accommodation.

Umm the previous government promised to provide affordable housing but when it realised it couldn't and completely failed it decided that it wasn't actually a failure but a sign of success? Fake news? Not sure...perhaps you just decide what you initially thought was bad and turn it into a good thing when you want to....flip/flop leadership. Here everyone - put on these rose tinted glasses. We haven't done what we've said we've done but like us for it anyway....smile and wave boys, smile and wave...

So long as we don't build anything like those featured in this 60 minute clip from Australia
https://www.youtube.com/watch?v=vRSdiq3sOTc

The problem is that Kiwibuild got distorted from a programme to increase house building and as a result general affordability to a programme about delivering houses to needy people at a price they could afford. It’s a bit late to change these expectations but they need to refocus on building and building using innovative means. I’m sure there are heaps of businesses who want certainty of demand for houses, these relationships will just take to form.

The reasons why kiwibuild was a good idea are:
• it stimulates the economy
• it creates good paying jobs
• it creates scale that was lacking in the building sector
• it can take the long term view and invest in the infrastructure of building houses, not just the houses
• it can operate counter cyclically.

None of these rationales have changed. They just need to learn from their mistakes.

All of that also applies to State house building. And initiatives like the HLC

I’m not against state house building. In fact the two programmes should go hand in hand but if you build a
state house it costs $x. If you build a kiwi build house it might cost $x and then be sold for $x+$y where $y is a small profit to fuel the scheme. So kiwibuild is always going to be able to be bigger in scale.

State house = Cost of land( zero if its upgrading existing state housing land like Mt Roskill South, Owairaka) labour and materials, reduction in accommodation supplements and private rental houses contracted by HNZ, at risk people moved from substandard housing to healthy homes reduces DHB costs too.

Kiwibuild = Cost of land, labour, materials, developer profit, RE agent commission, running silly ballots and marketing programs

Trust speculaters to despise the days of humble beginnings.

I do not like your plan, but the land-bankers shall rejoice in your ideas. A plan is to spend many $billions building housing even when there is no way to do it profitably, is a godsend to the landowners. A recipe to funnel taxpayer cash at today's asset rich, to "help the poor".

Personally I think we should be opening restricted land supply and getting costs down.

I do not like your plan:

Throwing money at problems is never in itself a solution. But the flip side to that is that sometimes you do need to show that you have enough money.

Inflate a bubble, with a much much bigger bubble. Funded by the taxpayer, not the banks.

Good article David

The government needs to be building mass housing for low to low-middle income buyers, but it needs to be a different model ie. shared equity.
The problem with Kiwibuild is that it is far too conventional

Yes and to do it, they need to sidestep all you planners aye Fritz?

Planning has nothing to do with the financial mechanism that the government uses to deliver housing.

Planning has a huge effect on how much "financial mechanism" is required.

Please tell me how planning relates to a government initiating a shared equity housing programme. A shared equity house building and selling programme is simply reliant on government building and selling homes on its own land under a different tenure arrangement. Planning has no, or at least very little, impact on its ability to do that, other than in terms of how much housing the government can build on its land under zoning controls.

Please keep ignoring that the lines drawn on a map double the cost of land, causing the need for the shared equity program in the first place.

What lines? Please specify. You mean the rural urban boundary?
Getting rid of the RUB would do next to nothing in Auckland. Most of the land beyond the RUB is either flood prone, too steep, too fragmented or too inaccessible to have utility for housing.
Having no urban boundary in a place like Houston ‘works’ ( in terms of land economics, if not quality settlement patterns) because it’s effectively surrounded by a huge area of fairly flat and accessible land.

All off the lines. RUB, H4 zone, H5, H6 etc. View shafts, They all affect pricing of the land. Designate land for industrial use, reserve land for future infrastructure and parks reserves then let people buy and build what they want on the remaining land subject to civil engineering practicalities.

Well, I think a lot of people place a lot of value in views of the maunga in Auckland. Some things are worth protecting, even if they do have a cost. You have a very very utilitarian world view.
Also getting rid of viewshafts could increase land values if the result is significantly increased development rights. Plus the cost of building ‘up’ is expensive.

Cool, protect the マウンテンビュー, but accept that the result is sprawl, and high prices.

Very black and white view

Physics is like that. If up isn't an option, and down is also not an option, then sideways it will be.

[ Just don't do that. It is childish. And responses are unnecessary too. Ed. ]

Really - all the land between Westgate and Kumeu that cannot be used for housing?

Your negativity towards 'buying off the plans' assumes that government can build for remotely the same price as private developers. After over 25 years in building industry working with private developers and various govt depts (HCNZ, Education etc.) I can assure you that anything built by government is hugely more expensive than the equivalent built by a competent private developer. The government building does not equate to better quality either (look at schools). I suspect this is due to very different motivations and the numerous extra layers of bureaucracy government departments require to spend money. What underwriting private developers does is remove major expenses (funding, presales risk) so developers can finance projects with a smaller profit margin (funders set developers required profit margin). Contrary to your claim a smaller quicker certain profit is more desirable to many developers than a bigger, uncertain profit further in the future. Smaller required profit margin + no govt management = cheaper houses.