KiwiBuild stock take: Govt currently $26 million out of pocket buying and selling KiwiBuild houses; 406 houses sold, 728 under construction; Mixed response from developers to reset

KiwiBuild stock take: Govt currently $26 million out of pocket buying and selling KiwiBuild houses; 406 houses sold, 728 under construction; Mixed response from developers to reset
NZ Living apartments at Mason Square, Auckland

There are $26 million of unsold KiwiBuild houses on the Government's books, according to figures provided to interest.co.nz by Kāinga Ora.

The Crown has spent $59 million buying 90 KiwiBuild houses it contracted to be built on the basis it would buy them upfront, and 47 houses it had to buy because they weren’t selling. It has received $33 million for on-selling 72 of these houses.

So the Crown is currently $26 million out of pocket. This will change as houses are bought and sold. 

The Government had, from the launch of KiwiBuild, allocated $2 billion towards the programme, with the idea that money spent would be recycled as houses sold and the proceeds were reinvested.

KiwiBuild has received a lot of flak - how is it actually going?

According to Kāinga Ora, the Government has agreed to underwrite a total of 2177 houses via the KiwiBuild programme.

The bulk of these are houses that have been built/will be built by developers that are guaranteed by the Government.

As per the above, the Government has also committed to purchasing some of the houses from developers upfront.

  • 1 in 5 houses to end up on the open market

However 433 of the 2177 houses will have the KiwiBuild brand removed from them and will be sold on the open market, further to the KiwiBuild reset announced in September 2019.

Housing Minister Megan Woods acknowledged at the time the Government made a mistake agreeing to underwrite these houses in Wanaka, Te Kauwhata (Waikato) and Canterbury, as demand in these areas was lacking.

A Kāinga Ora spokesperson said the Government could end up buying these houses if they aren’t expected to sell “depending on the nature of the contract and the prevailing market appetite for the homes at the time of completion”. Only 83 of these houses have been completed.

In addition to these houses in Wanaka, Te Kauwhata and Canterbury, developers have removed the KiwiBuild brand from 11 houses and sold these on the open market.

So one in five houses that were meant to be “KiwiBuild houses”, ring-fenced for first-home-buyers, will be sold on the open market.

  • Total of 406 houses sold

While the Government has agreed to underwrite 2177 houses, 406 houses have been sold (as at December 31, 2019). A further 728 are under construction.

It is difficult to say how many low-cost houses would’ve been built if the Government hadn’t removed some of the risk for developers via KiwiBuild.   

How has the KiwiBuild reset changed the programme?

  • Sweeteners for developers reduced 

Changes made to KiwiBuild following the September reset have seen the Crown’s exposure to risk reduced. More of the risk now sits with developers.

While the level of underwrite provided by the Crown will differ between developments depending on the contracts negotiated, the Government is underwriting a smaller portion of individual KiwiBuild houses.

So rather than telling a developer it will pay 90% of the market value of a KiwiBuild house that doesn’t sell for example, it might only agree to pay say 70%.

It is also only agreeing to underwrite smaller portions of developments - not entire developments.

  • Pool of potential buyers widened

But to developers’ benefits, the eligibility criteria for prospective buyers of KiwiBuild houses has been loosened to boost demand.

For example, it’s now easier for people who have owned houses in the past to qualify to buy KiwiBuild houses, and owners of one-bedroom studio apartments only need to live in their properties for a minimum of a year (rather than three years) before being allowed to sell them.

What do developers think of the changes?

  • Underwrite swung too far the other way

NZ Living managing director, Shane Brealey, told interest.co.nz the Government over-reacted with its changes to the underwrite.

He said the Government had been “over- zealous” and has now swung too far the other way by not agreeing to underwrite more than 50% to 60% of a development.

Brealey acknowledged this spreads the KiwiBuild dollar further, prevents developers from taking short-cuts and puts the pressure on them to ensure they have a solid product that’ll be appealing on the open market.

Yet he wanted the Government to be a little more flexible around the portion of a development it underwrites, based on its merits.

He said the benefit of the underwrite for developers is that it makes it easier for them to get loans to get their projects off the ground. If the Government agrees to underwrite fewer houses, their equity is reduced, so they might need more presales.

Legacy Property managing director, Gary Gordon, made the same point regarding finance.

  • New rule could further expose taxpayers

Gordon also noted the reset has seen the Government say a developer can only sell KiwiBuild houses on the open market if less than 15% of the KiwiBuild houses in their development aren’t selling. If the houses they’re struggling to sell make up more than 15% of their KiwiBuild stock, they need Cabinet approval to sell these houses on the open market.

He was concerned this new rule would force developers to call up the government underwrite when a more desirable option for both them and taxpayers would be for the unsold KiwiBuild houses to be sold by the developer on the open market.

  • Demand-side changes welcomed

Gordon was pleased the reset saw the eligibility criteria for prospective KiwiBuild buyers loosened, but wanted the Government to go further and scrap requirements for the length of time buyers need to have lived in the house before reselling them.

He pointed out the restrictions on KiwiBuild houses imply buyers are receiving some sort of discount, when this isn’t the case.  

If they could buy a similar property in the same development without ticking all the KiwiBuild boxes, they’d opt for this.

  • Mixed developments desirable 

Equinox Group development director, Elliot Knight, said his firm isn’t putting KiwiBuild applications through as “it all gets a bit too hard” and it isn’t a priority for the business.

Nonetheless, he believed KiwiBuild was achieving its goal of encouraging developers to build smaller, lower-cost houses.

He described the tweaked underwrite as being more “traditional” and was of the view that even though the sweetener from the government had been watered down, it was an incentive nonetheless.

Knight also pointed out that it was desirable for developments to have a mix of houses - not just KiwiBuild houses - “otherwise it looks like Coronation Street”. A range of houses also prevents a development from being stigmatised as “cheap”.

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88 Comments

12
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KiwiBuild is one of the reasons why the Government's chances of re-election are limited.

We were sold a pup - and an expensive one at that.

TTP

18
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Well at least it's a pup that's tangible. The Flag Referendum was $22 million and what did we have left at the end of it?

13
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Good value when compared to Labour's re-entry to Pike River mine, $36 milion and counting...

Yeah, the entry into Pike River that Key promised, then bailed on claiming it was too dangerous when it manifestly isn't, and they then spent money making the re-entry more expensive by putting in multiple seals.

You're blaming the wrong people here.

That one of the few things JK did right, re-entry of Pike river is nothing but a huge waste of time and money. The sooner Labour admits its not happening the better.

Not if you consider that it is the investigation of a crime scene.

Sorry, still not worth it, we know there was a huge amount of negligence, we don't really need to gather evidence from inside the mine, the existing records are enough to prosecute if there was any point in doing it.

I think we have evidence of corporate negligence, but is that adequate to bring together criminal (i.e., manslaughter) charges? If I'm not wrong, we don't yet know what the ignition source was - which I imagine is fundamental knowledge/evidence needed to then fully investigate culpability.

Except no criminal charges have been laid due to lack of evidence. That is likely to change after the investigation is complete.

Got a link to somebody with the police force saying that, or is that just conjecture on your part? Not every fatal industrial accident results in criminal charges.

Do you have any idea the cost of investigating one homicide? It is about $3.9 million per homicide https://treasury.govt.nz/publications/wp/estimating-costs-crime-new-zeal... read below the table as it gives that figure for homicide investigations. Now times that by 29 and I think you will see that this is not an overwhelming figure. Do these people not deserve this, at least to best of the ability we can muster for it?

At least $16m of that was the cost postal votes and unless you want a flag changed by Prime Ministerial decree then you're going to have to ask the public somehow, and that costs money.

'cept nobody really wanted the flag changed....

Yes after all the Queen is still our head of state and we continue to bow to mother England and the union jack, who would want to see that changed, certainly not this old fool

Its More that nobody really cares, its just a f'n flag. Has zero impact on your everyday life.

11
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it was JK's legacy i.e what he would have been remembered for
because he did FA for the rest of the nine years in power to move NZ forward

That's not true, the key contribution he will be remembered for is playing with ponytails. And then quitting when it looked like he'd lose the next election.

With respect TTP, not everyone was sold on their KiwiBuild clap trap.
If it was possible to have all these houses built then it would have happened by the developers themselves without any meddling by the Labour Party.
This COL is totally out of their depth in running this country.
Anything touchy freely Jacinda is Queen but anything to do with finances and successful policy she is just lost, despite there still being beleivers

Ttp, in time you'll be proven incorrect, far more expensive to the taxpayer to pay accom supp in return for shitty old private rentals that make their tenants ill and add more cost to the public health system. Bye bye private landlords!

26
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Just use them for state housing then. We are spending way too much on temporary accommodation for people who need state houses.

Would you rather live in a house, or a hotel? I think Jacinda should sell the house and buy hotels for temporary accommodation.

that's a completely different proposition.. she aint playing monopoly mate.

thats what they should be doing, contracting the developers to make properties for the state and if they can on sell to FHB all good if not use them
either way saves on the accommodation supplement and emergency housing

They are very LUCKY to have temporary accommodation at all, most countries would not even bother , the USA I doubt it, there would be an uproar, this money should be going to create jobs , they would argue, luckily Kiwis are caring. In Asia NEVER

The Government already tried. HNZ rejected the properties as they fall below the minimum standards for HNZ social housing. Imagine that.....

can you provide a reference for that?

Seems to me like HNZ needs to pull their heads out of their butts on that one, they are brand new houses built to modern building code requirements.

Agree.
Heaven forbid, maybe they could put a bunk bed in a bedroom!

Yeah. Seems like bureaucratic stupidity. I know for a fact that there are thousands of families on the HNZ waiting list who would absolutely leap at the chance.

12
up

What a terrible mess, if this was a private developer he'd be bust a long time ago

This is why they work for the Government; they have no idea how to do a job, or to apply skills or knowledge.

Not if private delelopers are guaranteed sales to the govt like this. Easy money for wealthy developers.

$26 mil is only $5 per kiwi. Even if they blew $50 billion ($10k each) it would be worth it for the chance of fixing the housing market.

$26 million is $60k lost per house, and 400 houses in 2 years is about 0.7% of houses built. Expensive way to do something insignificant.

Housing crisis solved, thank you Jacinda <3

10
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The Wanaka and Te Kauwhata under writes were especially misguided. I assume they went through because of target pressures. Talk about perverse unintended consequences.
Some really poor advice and decision making through government agencies.

2020 will see the completion of the Auckland-Hamilton SH1 upgrades and the opening of Drury South Crossing Business Park. Soon Te Kauwhata might be a good prospect.

True.

Te kauwhata is getting a train station!

You would think Twyford would have thought this thru when he was in charge of this AND transport. But alas, he builds houses in places like Te Kauwhata and Hobsonville with no consideration of how ppl are to commute. Then Labour wonder why no one wants to buy these houses.

Its a classic example of government thinking they know best. They would have been better off providing cheaper loans to FHB and let them discuss with the developers what they wanted.

This 'Labour knows best' attitude is what rubs everyone up the wrong way. It was often called the 'nanny state' in Helen Clark's days and Labour hasn't changed their spots. Its the same academic idealists with crooked smiles and no life experience telling us where to live, what to eat and how to raise our kids.

What is the valuation for the 65 houses still on the books? That needs to be compared with the $26m remaining outstanding to determine if/how much of a bath the Government will take. $400k a house doesn't look too bad (of course depending on where the house is and the quality of build).

Given 72 houses have been sold for $33m ($458k per house) a bath is not sure thing. 137 houses in the mix for little or no cost is a move in the right direction IMO.

Yip, may not have been what they promised to deliver, but it's still more than nothing.

And cheaper than bailing out South Canterbury finance investors like Bill English did.

Investigate the research who change the law for this to happen, Who followed the Aussie
The Previous Labour Govt did. National had to tidy the mess up

May need to research that yourself... yes Labour put in place the government guarantee following Australia... but then National chose to extend in 2011 and include South Canterbury Finance, despite that being against the advice of the RBNZ and Treasury who said South Canterbury Finance was not materially significant and as such need not be covered. IMO extending it to cover SCF was Bill listening to his electorate... not his advisers.

Good point re state advice Fritz. It's been pretty mediocre for a while now across a range of state agencies as articles on this website (& others) have testified to. I know that they (CoL) couldn't get anyone of any senior competence to work for them for the first 18 months. Plenty of deadheads signed up however. Public Service employees now way over 55,000, up from 46,000 2 years ago. And that's not counting the consultants.

The bureaucracy is full of policy generalists, generally clever people but often with no or very little expert knowledge in their agency's field. Bit of a debacle to be honest.

Started with the neoliberal reforms that purposefully split operational and policy functions - and then paid policy folks higher salary rates than the operational ones. And yes, experience/expertise in the field was deemed not necessarily needed, in fact it was often seen as detrimental as those individuals with specialist knowledge and skill sets associated with technical/operational matters were often thought to be more susceptible to policy or industry capture.

10
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Unlike National the COL gave it a go. National has no heart and never gave a stuff for those trying to get on the property ladder. The COL will fly in in September. Bridges has no mates and will look like a big dick when he debates with Jacinda.

Most people have no faith in Bridges, he should NEVER have questioned that leak in expenses, people think, whats he hiding and the business with Jamie Lee,, to many unanswered questions. I doubt he will get in. National will unseat him if he loses the election. They are grooming Luxton for his job, Labour and NZfirst knows this, I am sure

Apparently he used his background as a crown prosecutor to deduce that Trevor Mallard was lying and that the speaker's office had leaked the details (despite not being in a form possessed by their staff), so he wanted to dig the dirt and show that the speaker couldn't be trusted and should be fired.

So he really has questionable judgement.

The COL gave it a go!!!!!
What an absolute cop out. It was the biggest failure that it could possibly be.
It couldn’t have been more useless as an attempt just like all their other policies have been totally failed.

Unemployment down and wages up. Looks like pretty good progress. All National has done is pander to us boomers. They could not even admit there was a housing problem as us boomers don’t have such a problem generally. No heart and tossed out for at least two terms.

No, the biggest failure it could possibly be is if it resulted in houses being destroyed, or the houses were rushed and as a result manifestly unsound (like National's leaky buildings) or if they just built swathes and swathes of them in ridiculous places that couldn't be sold.

The situation we have is hardly the "biggest failure it possibly could be"

Maybe for once take a look at the facts. I dont agree with everything the government does, but this is not abject failure. We all know you are a right leaning free market landlord type. from your writings it could be deduced that you don't need to be the sharpest tool in the shed to be such, maybe a considered factual approach is sometimes worthy.

Gave it a go? This isnt the Weetbix kids triathalon. Kiwis deserve better than a participation award

Not really. Trends in consented dwellings started in 2011, rate of growth slowed after 2017 slightly. (source: stats NZ)

National started modernising and expanding social housing, giving HNZ the ability to increase debt from $400m to $1bn (now $7bn off the books) and using social housing groups to help out. Criticised by Labour (Twyford, RNZ, November 2016) it generated much of the COL contribution to housing builds in this term. Now their position is "There is no silver bullet when it comes to housing" "there was no simple solution to solve the housing crisis" Megan Woods, NZ Herald - 4/9/19.

As for "gave it a go", Labour said since 2014 that they had all the answers, they didn't. They've resorted to lifting the Nats road building programme cos they can't make things happen themselves.

I do agree with you in one area; they'll get another term - despite their lack of competence and Bridges lack of likeability - because we haven't voted out a first term government in 60 years. People with an open mind see the COL's poor performance, but will give them another chance to prove themselves.

Debates? Jacinda knows words, she has the best words.

National made HNZ pay a huge multi $bn dividend over there 9 years in government thereby taking capital that could have been used to build state houses. State housing stock dropped down to 62000 houses from a peak of 69000 (roughly from memory).
National tried to broker a deal with the community housing sector for them to replace HNZ but the sector rejected it.
National then looked to bring in foreign for profit investors but they lost the 2017 election so did not implement this plan as the public did not trust them wrt housing.

The community housing providers said National's proposals made no sense. In Australia the government gave the houses away to the providers, who were then able to use the equity to build more houses.

National wanted to sell the houses at market rates, effectively just changing the body that was administering them from HNZ (who have a massive cheque book to deal with maintenance etc) to the community housing providers who are running off the smell of an oily rag.

National's proposal shows they had no real interest in housing the needy, they just wanted another way to sell down government assets to plug the deficit hole they made by cutting taxes during the worst recession in living memory.

Exactly Lanthanide. Also the non-profit Community Housing sector in NZ said that if they were given capital grants of a few hundred $m a year for build-to-rents that by 2040 they could grow to the size of HNZ. But National were not interested in that idea either. Instead Joyce gave another $500m/year to landlords in increased Accomadation Supplement payments in 2017. This taxpayer money has provided little benefit to renters as already rent increases have eaten up all that benefit.
What a waste. NZ cannot afford to piss away $500m a year on stupid decisions...

National only worked for the elite.

The state housing they did sell off went to a charitable trust owned by Paul Adams, who signed a long term lease arrangement with Accessible Properties Ltd (ex IHC).

Accessible Properties was only used as a front, and search of titles will show a first mortgage to Westpac and second mortgage to the government. This was nothing more than another state asset sell off (at bargain prices) to cook up a temporary government surplus; and Bridges has his figures prints all over this.

https://www.rnz.co.nz/news/national/408482/slow-sales-expected-in-tarana...

Summary: Terrible location, over-priced, but hopefully someone will buy them.

With Kiwibuilt is was to help the below middle class families get a house. It should only have being for New Zealanders born here or for people who had PR for 20 years. it was not implemented properly. they need to build state apartments, like the old days. These people are lucky to have a place at all

Location doesn't sound terrible, particularly if they are bulldozing all the state houses. Its basically going to end up as a new subdivision.
Overpriced? What does an equivalent new build elsewhere in New Plymouth cost? New 3 bedroom builds in Waitara and Bell Block going for $450k to $500k.. doesn't seem too badly overpriced, if its a decent quality house, I assume the land parcel isn't very generous.

Quite right, location on Paper is good, and as it gentrifies it will only improve.

But it is forced gentrification, as opposed to natural. So you can't charge the "Gentrified" price.

Yes, obviously this is the problem with the narrative, as per the analysis above's statement:

It is difficult to say how many low-cost houses would’ve been built if the Government hadn’t removed some of the risk for developers via KiwiBuild.

They are NOT low-cost houses.

$300-$400K is low-cost - and even that with a 10% deposit is a high risk mortgage for low and middle income families.

When will someone in government admit this?

Kiwibuild as originally envisioned by David Shearer was a STATE led mass building project.
If driven by the state, homes could be built and sold at no profit. This would lower prices substantially versus the developer built KB homes.

Exactly. National's SHA initiative, turned into KB and that same market-led ideology hijacked it. Thank goodness they are ramping up the state house builds as it is becoming more and more obvious that market rents and market-led house builds for many, many households are unaffordable. The other thing I think we need to think hard about is household composition. The way our current system of targeted benefits operates, it discourages sole parents and other individuals on benefits from cohabiting. How stupid is that?

The problem is Twyford, Wood and their mates are not as transformational as they think. They are only a *slightly* red tinged version of the Nats.
You hear it in a lot of Twyford's rhetoric, about cutting red tape etc etc. Which is straight out of the Nats housing rhetoric.
I must look up the Greens' housing policy. While they have some nutty ideas, maybe voting for them is not a bad option if it keeps Labour's (and NZ First's) centrist tendencies in check.

The biggest criticism from renters is Kiwibuild prices are too high. Analysis of this demand proves this to be true. Only about a quarter of the roughly 600,000 renting household have the means to pay for a KB priced home.
What is needed is a big build programme targeting affordable rent that renters can afford. This being a living rent that is less than 30% of their income.

30% of their gross income, or their take home income?

Twyford proposed a $450m Affordable Hous Fund to build affordable rentals.
https://i.stuff.co.nz/national/politics/115558795/phil-twyford-made-fail...
But this was rejected by Cabinet. So the not very transformational Ministers include Grant Robertson and Jacinda Ardern. Probably also the NZF ministers. In particular it is disappointing the Jacinda did not go into bat for transformation which was meant to be her brand.

Kate, will you admit that with a GST rate of 15%, subies charging $60 an hour, minimum wage of $20, expensive building material etc) it will be practically impossible to build something of quality in any big NZ cities for under $350k?
the current construction system in NZ (and its inputs) are very expensive. Unless there is an alternative method, building cheap houses will be only a dream. This would require real innovation. Pouring money into a system with the mentioned parameters can never deliver the desired outcome. You will need a system with a different set of parameters.

Yes, I would agree. But presently everyone seems to be fixated on new builds and greenfield development.

Whereas, there are lots of existing properties that could easily be converted to house more than one household. One could decide that any such subdivision (of an existing single home land title), conversion or addition (to an existing dwelling, to make two separate self-contained dwellings) could be GST, and resource and building consents free. Would save $100K on many such builds right there.

To my mind, we don't so much have a housing shortage as we have an affordable housing shortage - and much of our current stock desperately needs upgrading anyway. I can't get over the number of largely redecorate flips going on - which aren't improvements as much as they are catching up on deferred maintenance. All the money/energy spent on that kind of endeavor however does nothing to increase housing stock... really only serves to inflate price.

I agree, particularly with your last paragraph.

The first is a lot harder to see happening though. Govt seem intent on not only keeping the red tape, but adding to it.

The first isn't about reducing red tape but paying for those costs of compliance (to existing homeowner developers) via taxpayer funding.

So, one wouldn't get rid of resource consents or building consents (i.e., the red tape), such a regulation would see local government pay for the consenting services via the General Rate where a single unit dwelling is remodeled to become a multi-unit dwelling (and title), or where a single section with an existing dwelling is subdivided and a separate dwelling constructed.

And the same principle applies to the GST refund on the building costs - not a change in red tape, but a tax incentive.

Agree with that.
Which is why the government need to build and sell at no profit. It's impossible to build and sell lower cost housing on the market now, once you factor in all those costs plus the need for a profit margin (20-25%) and GST.

That then means a three bedroom townhouse that would have sold for 650K could sell for circa 475K.

And a two bedroom townhouse that would have sold for 550K, could sell for 400K.

If the government did leasehold housing, then those prices could come down to the 300's.

Odd how all those who don't want the problem solved, those who benefit financial most from the issue, bash the people who are attempting to fix it - who'd have thought? The ethics and morals of parts of NZ society have become very questionable.

Agree.
Having said that, Labour's performance has been pretty woeful.

Trying to fix something must be accompanied by competent actions in the direction of fixing. If the solution is daft from the get go, and the outcome proves it beyond any doubt, the claimant cannot hold the line that "at least i wanted to fix it". He has wasted so much time and resources that could have been allocated to something useful.

I'd love to buy a kiwibuild house! Too bad the closest one to me is about 300km away.

Lets look at 5 Te Rito St, Christchurch. It failed to sell when the developer was marketing it, so they passed the lemon to the Labour n00bs, who stuck a Kiwibuild sticker on it and tried to sell it for $459,000. This is despite the fact that the same homes next door sold for $422,500 and $425,000 in late 2018 and mid 2019. Presumably this is one of the houses that Labour had to purchase at the full Kiwibuild price because it failed to sell - it is currently being advertised at $439,000 and remains unsold. Its RV is $415,000. I am assuming that Labour paid these developer-inflated underwritten prices for everything, and everything will have to be sold at a loss (also known as "market value").

I think a high school business studies student could have seen this problem coming. How anyone in Govt can be so gullible is beyond me. Developers must have p***ed themselves laughing when the policy was announced.

The GV of those properties dropped from $435K in 2016 to $415K in 2019. So QV conveniently inflated the new build value for the developers, did they?

The properties werent built in 2016, so yes the RV would be what the developers told the Council it should be. Even so, the Kiwibuild price was $25k higher than what the developers were originally selling it for. Not to mention the $10k discounts the developers gave on the other houses in the street.

The summary and slant of this article are somewhat misleading. It seems very likely they will break even, or show a slight profit. If the rest of the houses sell for the same crude average price, they stand to make around 3m, and this is the *worst* of them.

I dont think we should be rubbishing Kiwibuild,they have had some success,sold all the houses in whangarei and are building more,stand alone houses close to town.good deal.

It's interesting to me that this has been allowed to fail. In terms of raising productivity ("almost everything") enabling economic migration to pursue higher paying employment opportunities was likely one of the growth strategies that had overwhelming support. It was clearly the lowest hanging fruit.

The Governments idea to increase the quantity of affordable housing by bribing developers into building lower priced units was ill-advised.

They would have done a much better job if they had done their homework to find the right markets, bought the land themselves, fast-tracked all the red tape for consents and infrastructure, paid a local construction firm to do the development, then offered them to FHB's, adding them to social housing stock if they didn't sell.

At the end of the day, the properties offered under the KiwiBuild banner are still not affordable to those on a median income.

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