KiwiBuild projects will be under pressure if housing prices start falling significantly, Greg Ninness says

KiwiBuild projects will be under pressure if housing prices start falling significantly, Greg Ninness says

By Greg Ninness

As we begin to emerge from the COVID-19 lockdown tunnel the Government will face some difficult decisions about the shape and direction of the KiwiBuild scheme.

That’s because the housing market we see when we emerge from the tunnel could be quite different to the one we left behind at the other end.

One of the biggest differences could be around price.

As the market slowly kicks back into life it’s likely that prices will be down compared to where they were pre-lockdown.

But it could be several months before we know by how much, and even longer before we can plot a likely course for prices in the future i.e, whether they will keep falling, fall and then flatten out, fall sharply then begin a long slow rise, or whatever.

Such uncertainty makes life particularly difficult for developers (and their financial backers) looking to launch projects that won’t be finished for two or three years.

KiwiBuild will be affected because it works in conjunction with private developers to bring projects to market.

Although KiwiBuild can assist those projects get off the ground by providing an underwrite agreement where the developer can provide a specified number of lower-priced homes that are reserved for first home buyers, the developer and their financiers will still need to be confident that they will be able to sell the rest of the homes on the open market and make a profit, if the development is to proceed.

That confidence could be in short supply in the coming months, which is a shame because there are some very big KiwiBuild projects waiting in the wings.

One of the biggest is a plan to build around 3000 homes on land that was formerly part of the Unitec campus in the Auckland suburb of Mt Albert.

This will involve private developers partnering with the Government to provide a mix of social housing that would be rented to people on low incomes via the Government’s housing agency Kainga Ora, KiwiBuild homes reserved for first home buyers, and homes that would be sold on the open market.

The project was first announced just over two years ago but we have heard very little about it since.

With a general election scheduled for September we might normally have expected to see some basic details about the project rolled out about now, such as who the Government intended to partner with in the project, what the mix of housing in the project would be, and maybe even some indicative prices.

Such an announcement may have been put on hold while the focus has been on the unprecedented events of the last few weeks, but it’s also likely that all of those involved in KiwiBuild projects, including their private developers, have been running pencils over their numbers to see if they are still viable in the post-lockdown world.

It may well be that significant changes may be needed to such projects if they are to get off the ground, and with construction likely to play a key role in post-lockdown recovery and housing likely to remain a core election issue, the Government can’t afford to dally in making critical decisions around KiwiBuild so that these projects can get underway.

Fortunately it does have some options.

  • It could proactively take a hit on the value of land it has already acquired for such projects, writing down its value to a level that would allow homes to be developed at lower price points where they would sell more readily. This isn’t a get-out-of-jail-free card for the Government because the loss would need to be accounted for and possibly result in the need to recapitalise the entities involved. But it’s something that may be forced on them by market forces anyway if prices fall significantly.
  • Increase the percentage of homes earmarked for social housing or KiwiBuild buyers in projects, meaning the Government would take more risk and private developers less. This may also increase the total number of homes in each development.
  • The Government could completely take over some developments for social housing and KiwiBuild and proceed on its own if private developers were unwilling to do so.
  • Developments could be staged so that the social housing and KiwiBuild components were built first to get projects off the ground, and private developers would be brought in later to develop homes for the open market once the market had settled.
  • Finally, KiwiBuild could be put on on the back burner until market conditions are more favourable, and the Government could concentrate its efforts on substantially ramping up Kainga Ora’s social housing development plans. This would still stimulate the construction industry and increase supply at the bottom of the market where it is most needed.

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66 Comments

"This will involve private developers partnering with the Government to provide a mix of social housing that would be rented to people on low incomes via the Government’s housing agency Kainga Ora, KiwiBuild homes reserved for first home buyers, and homes that would be sold on the open market."
This'll take a year or two to sort out while the bureaucrats run backwards and forwards to their political masters to get approval for the right mix. The developers of course will want as many 175m2 plus and more like 200m2 houses to make as much as possible. The govt will probably use Fletchers and one or two others if there are any left after the swathe of liquidations. The bureaucrats will not want to get their hands messy by having to manage a large number of different developers and in all probability don't have the skills set any way. Much easier to call someone in in like Fletchers, let them define the scope and right the cheque out when the project is complete.

Nòooo not another Fletchers monopoly. Have we learnt nothing from the Christchurch rebuild?

We learnt to buy Fletcher stock cus the government will always prop up their share price .. one way or another.

If the government can loan to small and medium sized businesses through IRD, they can take control of Christchurch City Council owned City Care, and use them as a vehicle to deliver social housing nationwide. Their Council wont mind selling them that business, in exchange for life support it needs.

Government are starting to reflex some muscle, and show these overseas robber barons there is much needed competition in the market, rather than swallowing more bad medicine from these super profit price setters.

Buy from locally owned businesses, as the profit and jobs stay local. If only past politicians cared for this mess they have created.

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Is kiwibuild still a thing?

Lol its only a thing in Phil Twyfords dreams , but thats what it always was to start with

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If house prices return to an affordable level, then kiwibuild isn't required anyway. Wasn't that the whole point to start with?

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KiwiFlop has been on hold for over 2 years.
Over a year ago Megan Woods came out with the KiwiFlop reset, and nothing since!
The Unitec excitement that was announced with all of its fanfare has had nothing said about it for awhile as well, as it didn’t seem to be a goer as there were a number of issues
The thing about KiwiFlop boxes that they have tried to flog off in Auckland or Hobbsonville are that they are just blatantly horrible and aren’t big enough for families, and are very cheap and nasty looking.
Leave the market to the private sector as this government have not got any ability to successfully run anything.

Looking back isn't going to do a thing. What was, was. As this article tries to advocate, it's only "what happens next" that matters.
"the housing market we see when we emerge from the tunnel could be quite different to the one we left behind ..."

I guess Labour can at least be safe that it wont be brought up in the election debates because if questioned then Nats would be expected to say what it is that they would do in it place.

Hobsonville houses are very popular and seem to get a premium compared to older houses of similar size and more land. I know a few people living there and they love it. Not everyone wants an old uninsulated 3 bed 1 bath house on a large plot that they have to maintain, and there are already plenty of them for those that do.

True older stock is terrible here but Hobsonville is pretty horrid. Most places have yards the size of a postage stamp and narrow roads so parking is problematic.

I'm not sure why urban planners for new build zones such as this allow such dense urban housing to be built.

I had similar thoughts before actually going there. The master planning and urban design thought that's gone into development means that you have minimal overlook into your property from your neighbours. It's way more private than my provincial detached home in the Manawatu. Lots of clever design thought. Sure the land area is smaller, but its way more useful than a whole bunch of 1.5m sideyards and 12m front yards that people tend to be completely unused in suburbia. I came away pleasantly surprised with what I saw and the people I talked to while walking around were overwhelmingly positive about their housing choice. Some had even relocated from lifestyle blocks and farms! I think this type of living is the future. If we can have good public parks and lots of vegetation in public spaces like roads, why would you ever need a giant yard? Enough space to host an outdoor BBQ, have a little vege patch and lounge out on a deck is more than enough for most people.

Older homes are not uninsulated.
The old homes you are talking about in Auckland mostly are cold hovels and cost plenty to repair etc.
We have lovely homes in ChCh that were very well built and stood up to so many quakes.
Every one of our rentals is fully insulated, very modern and comfortable and represent good value for our tenants.
Hobsonville boxes that I have seen on TV being promoted as KiwiFlop houses are terrible value for money.

Hobsonville overall, with a few flaws is nicely designed. Overpriced in my opinion though, given it is so far out on a limb.

Fritz, seriously, I have never been to Hobsonville and wouldn’t want to either.
From what I have seen from the plan and from photos it is over congested and full of small boxes!
You can keep those subdivisions!

Depends, we've been told that there's a supply shortage not just maniuplation of the market through regulation and central bank support of prices.

That being the case, it would be a good time to ramp up housing creation as part of infrastructure efforts after the lockdown. Help provide more Kiwis a more secure life over a longer period, and free them up for concentrating on productive enterprise such as export business.

I've maintained from the get go that for kiwibuild to acheive its objectives the private sector should be left out of the equation as private construction firms in this country simply do not have the scale-ability to deliver the build numbers kiwibuild is envisioning. While there is an attempt at a housing factory production line as part of Fletchers Homes it is not of the magnitude that is available in other more productive economies. Given what has come to light in the Southern Response enquiry, do you really trust the likes of Fletcher at all anymore? Best the private sector focus on what works for them, high cost bespoke builds. In the meantime doing the whole Kiwibuild delivery via Kianga Ora seems the best approach as it offers the opportunity to greatly streamlines things, hopefully keep quality levels intact and bring cutting edge manufacturing processes to the table too and perhaps then they can get some runs on the board.

Agreed...

The sooner the equivalent of the Ministry of Works is brought back the better. Great training ground, and price competition to the cartels which extent. Would allow them to import competitive products at scale, that these ugly multi nationals would have difficulty stopping. Keeping their prices more honest.

Wonder whether the government can set up a supermarket chain too?

Indeed. It will actually work out well for the private sector as there will be a steady stream of 'properly' trained tradespeople who have learned their skillset in a structured workplace not learned their bosses bad habits and been signed off only to rain holy terror on who ever is ill fated to hire them......as it is all too often. On supermarkets...Costco is here and judging by how they operate I would not want to be a Pak N Save owner...lol.....take that stick man...

Hold up, I thought we were building houses because we had a housing shortage? If there is a shortage of housing, the price of existing houses is irrelevant as we still have the same number of houses.

The flood of vacant AirBnBs to the market (regular rental or sale), and the investors who were holding vacant properties for now non-existant capital gains selling up should solve any supply shortages shortly. The lack of international students, and arriving migrants helping also.
However i can see all the kiwibuild houses that are under construction being quietly handed over to Housing NZ as demand soars. I expect the govt will just tell housing nz that they can stick their over the top quality criteria somewhere uncomfortable and take the bloody houses. Or that'll be behind the curtain, and the public excuse will be a Housing NZ review of criteria in light of construction costs, yada yada yada.

Interesting. My cousin bought a KB townhouse off the plans, it's only just started construction. I had a look at the contract and it said that no dwellings in the complex should be tenanted by Housing NZ tenants. I would have thought then that the developer can't sell any of the KB townhouses to HNZ, without my cousin's agreement?

Easily solved.. Create a "Covid-19 housing response" agency, its not Housing NZ then. :)

I think the build contract is one thing and covenants another. Doubt if a build contract can stipulate who and who you can't rent to. Now covenants are another thing and if that restrictive suspect the govt. agency in charge knows nothing about covenants.

Short term letting and international students have certainly caused their fair share of issues by soaking up huge numbers of homes will be interesting to see if they can be readily reconfigured for families etc. On kiwibuild homes going across to HNZ, I suspect you are looking at HNZ's own redevelopments not a kiwibuild home per se. Theres hundreds of new builds springing up on old HNZ sites all over the country, should be interesting to see if it helps reduce poverty illnesses that old damp houses cause, like rhumatic fever and so on.

I'm aware of the difference between housing nz builds and kiwi-not-build, I used to drive past the Roskill South Housing Nz development daily on my drive to work, back in those long lost days when people actually went to the office.

"I thought we were building houses because we had a housing shortage? If there is a shortage of housing, the price of existing houses is irrelevant as we still have the same number of houses."

We might soon find out if the real issue is:

1) shortage of housing
2) shortage of AFFORDABLE housing

This downturn is an opportunity for Kainga Ora to buy up thousands of already built houses in new subdivisions at discounted prices for use as state houses.

Millwater, Milldale and Long Bay in Auckland are examples of a massive subdivisions close to ammenities which could become a mix of private and state housing.

Kind of like QE for the property market then! And quite likely too....

If govt were to plant a whole lot of state housing in those suburbs then it would quickly depress prices and make housing far more affordable (but way less attractive) in those areas.

Exactly. And even better, buy sites that have consents but haven't been developed yet. Build the developments either as state housing, or sold as first homes at cost.
There is no reason that the construction sector should crash if the govt assists.

ha ha ha -- written as if Kiwi build was a real boy :)

Kiwibuild is and always was a dog ..............and a pretty nasty dog too , the type that even the animal shelter has no hope for

More than one-in-16 people in New Zealand today – or more than 300,000 in total – is a migrant without residence status, living here on a temporary work, student or family visa.
Until we know how many of those people will be able to support themselves in a New Zealand with 10%+ unemployment and what the government will do about those Visa holders that can't support themselves. We can not make any decisions about building more houses.

@westie , many , many , many of them are teachers , medical staff , IT staff, Quantity surveyors , Pr. Engineers of all types , project managers and skilled people who have skills in demand .

If you look at the people maintaining all our power-lines they are almost all Filipino's, South Africans , Fijians and other islanders .

A tree blew down at night and broke the power lines in our street about a month ago , and my wife took them hot coffee and biscuits and the whole crew who did the repairs were speaking that Afrikaan language from South Africa .

Really nice people and they told me that almost everyone at work were foreigners on visas .

They will not lose their jobs

Sure, we need them.
But not all those thousands in hospo and retail.

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Only here because we wouldn’t invest in our own youth. Much cheaper to throw them on the scrap heap and import some cheapies. A disgraceful policy, largely the legacy of mr key.

Take a look at rising youth unemployment if you want the evidence.

An no one talks about this. All the young men and women sitting around home drinking and drugging. Getting up to no good. We can't just leave the to do that.

Covid-19 brought along the much-needed push for our economy to snap out of the hospo and tourism-led growth cycle it was stuck in.

These industries and our agricultural sector don't need more than a working pair of hands and legs for most of its tasks, and so the willingness to pay well and invest in your workers' growth is limited as well.

From here, we either grow better industries for inclusive growth or fall back to our old, broken ways towards a demographic disaster.

3/4 of them will be low skilled. The ones you mention will be in the minority.

Tighten the criteria for post-study working rights and remove NZ qualification points for residency and see how that ratio improves dramatically.

Our current migration system allows an easier access to permanent residency to low-skilled migrant worker with an NZ qualification than to a high-skilled worker without one.

I guess the best way to grow high-value industries in NZ would be to begin with killing off our 'export education' sector. Those few billions in tuition lost in the short run shall bear large economic dividends in the longer term.

Yup agree. Of course, we need many of these people. But if only 10% of the 300000 need to leave because they can't support themselves. That's 30000. Average 4 per dwelling = 7500 dwellings not required any more. Mostly in Auckland.
FEB 12th News. Auckland's shock "housing surplus" has been revealed, as a population correction means the city is now on track to meet demand. But the Salvation Army warns the 7168 house surplus won't fix the housing crisis but instead shows that the shortage is caused by unaffordable housing and low-income levels.

Now incomes are going backwards. Housing will become more affordable and there will be no shortage until it is politically acceptable for immigration to restart.

I just smile cynically .............. watch how Kiwibuild will not even get a single mention by Labour in this election campaign .

Radio silence , taboo topic , and if any Minister wants to risk getting fired he just needs to mention it .

With labour supposedly polling at 55% I doubt it will matter!
If I was Jacinda I would get to alert level 1 ASAP then call a snap election claiming it is the best time due to no lockdown. I doubt she would do that tho.

We need to pray very hard for such misfortune to not befall us , we simply cannot have these incompetent losers running the country for another day more then necessary

Gregg is correct about house prices in future but check Lobbying Propganda /Experts with Biased Vested Interest below :

https://i.stuff.co.nz/tarana/latest/121329855/housing-market-has-just-sl...

Is it what one calls paid......

The housing market's not dead, it's just resting!

Dormant just like all that seismic and volcanic potential under our small islands.

I think perhaps more like the famous Norwegian Blue parrot

Attempts to reassure and provide confidence to potential buyers, so as to give potential buyers confidence to transact. Hard to restore confidence to buyers to pay current asking prices (& take on high amounts of debt), when potential buyers have concerns about income security, and cuts in household incomes.

There will be financially stressed sellers. Time constrained sellers may experience a "liquidity vaccuum".

Surely, with plenty of unused capacity within our economy, this is the perfect time to scale up a housebuilding program akin to the UKs "new towns" post WW2: https://en.m.wikipedia.org/wiki/New_towns_in_the_United_Kingdom

Not allowed to build on farmland nowadays. Which makes some sense of course. But we keep importing people but also putting up hurdles to house building.

Arrgh, no, please no. I lived in one of them wonderful New Towns. It was a disaster. Tomorrows slums today. Brutalism at its absolute worst. Carefully crafted to be as anti-human and depressing to the spirit as possible. Best to do the opposite of whatever the Brits did in the fifties, sixties and seventies.

Homes for the working class poor & the hopeless has a real case to answer for. This was Labour's original support base & one they should be targeting hard. Mixing them in with FHB's sounds like a tough sell to me, but not impossible. However, we may not need quite as many homes as we thought with current events over-taking everything in its path.
PS: That 5 millionth person must have missed their flight? Oh, that's right. There are no flights.

To be honest, Kiwibuild and many more ?builds will not be needed that much in the future. Tourism is dead, a whole bunch of Air BnBs to return to being what they were supposed to.
Immigration will be stopped in its tracks.
Result: I believe we are going to see a surfeit of houses before too much longer

Kind of sounds like Nationals response to the GFC. It didn’t work out well.

Auckland rental listings up to over 4700 now. I think before lockdown it was late 3000s

I actually wonder if there will be a bit of housing demand after lockdown. We are lucky enough to have upgraded to a bigger house a few years ago but had we not I think the lockdown would have driven us mad, especially with work from home. I think we would have been looking to upgrade as soon as possible had we not already.

Covid-19 fixed our immigration problem immediately and in a few weeks its also going to start to fix the housing affordability problem. Sadly it took a virus and not the government to fix the problem, who would have thought.

"Sadly it took a virus and not the government to fix the problem"

Government (& legislation) is subject to the influences of lobbying and political donations by various interest groups.

COVID-19 is agnostic to lobbying by special interest groups.

Gosh, Kiwibuild lives. I thought it had been quietly taken out and shot.

Somehow it has always seemed an ugly sort of mess, more about being seen to be trying to do something than an actual idea whose time has come. An election slogan for an election they expected to lose. I can't help thinking there is a really good solution staring us in the face.

If the overseas worker and student population shrinks, plus Air BnB and regular motels being available, plus the desire to finally sort out the malignant growth in the RMA, surely we can sort the whole housing mess. Not sure how the gubermunt fits in, but re-setting the rules that prevent development would be a good start. Isn't that their primary job, legislation?

As most of the non-value added rentier overpricing is in the cost of land, and that is where property prices need to be discounted back first.

As a sign of things to come, watch first for the price of undeveloped sections to fall in value as if they have no non-value-added capital growth and cannot generate yield unless they are developed, then they are a dead weight to the owner and are generally one of the first surplus assets to be liquidated along, with the bach, boat and golf clubs.

Of course, developers can try to hide the fall on the land in the discount on house and land packages, but it's the land that the value comes off. The cost to build is not coming down anytime soon.

And now is the ideal opportunity for the Govt. to remove land-use restrictions both up and out to reset pricing and remove land banking.

There is at least $500 billion in non-value-added speculative gain on NZ residential property that could go, ie the value above its true cost of production. Unfortunately, any mortgage debt that you have that falls into that extra unproductive portion won't disappear. Not that it all sells by any means, it's just that a lot of people end up owning dwellings and the land underneath it where the price ain't going up anytime soon so they just have to sit and grin and bear it.

Depending on the urgency and size of the developer, any price correction can take 6 to 18 months to roll through, although I expect it to happen faster this time around.

There were also stories of land speculators who were buying up undeveloped land in hope that they could sell at a high price to land developers.

Kiwi what?

Kiwi-rent
Kiwi-lease to own
Kiwi-flop
Kiwi-extinct