Shearer eyes affordable housing

Property

Labour leader Shearer visits 'affordable housing' project; Each 4-bedroom unit built for NZ$300-350k, valued at NZ$495k

21st Nov 12, 5:10pm by Alex Tarrant

By Alex Tarrant

Labour leader David Shearer spent Wednesday promoting the housing policy he announced over the weekend, which was overshadowed by leadership speculation he hopes was put to bed yesterday.

Labour promised to build 100,000 new dwellings over ten years if it got into government in 2014, at an average build cost of NZ$300,000. The majority of early builds would be in Auckland.

Shearer said Labour would issue NZ$1.5 billion of 'housing affordability' bonds to pay for upfront costs for initial builds. Dwellings built would be sold for a slight profit - 1% above the government's debt financing costs - and those profits would then be reinvested to pay for further building work. This would make the scheme 'self-funding', Shearer said.

Government and council-owned land would be used for new dwellings, and the government would also buy land off private owners for developments.

In Wellington on Wednesday, Shearer visited a handful of new four-bedroom units built by the Wellington Housing Trust for NZ$300,000 to NZ$350,000. The units each had a market value of NZ$495,000.

The Trust got funding - an interest-free loan - for the units under the Housing Innovation Fund set up by the previous Labour government.

A representative from the Trust told Shearer they charged rents at about 70% of market value, and made sure rent payments were not more than 35% of a person's income. Market rents for the units were NZ$650 a week, she said.

Yesterday afternoon Shearer received the 100% endorsement of Labour MPs to remain as leader and demoted rival David Cunliffe to the back bench.

See Shearer talk to media about the policy in the video below:

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26 Comments

by BigDaddy | 21st Nov 12, 6:00pm 1353474028

Olly Newland asks some questions about this policy seeing it's such a major plank in Labour's policy:

http://www.ollynewland.co.nz/

by wtf | 21st Nov 12, 9:10pm 1353485427

At first glance that is a butt ugly house. Surely $350,000 will give you something better architecturally with passive solar design etc. Has no eaves with what looks like Axon sheet cladding. Admirable intentions from the Trust though.

by John | 22nd Nov 12, 1:26pm 1353543975

Got a house built like that in the 80's luckily its block wall construction so the leaks caused by the lack of eaves did not do any major damage, but stopping the leaks has required redesign of flashings, all because council did not check/ensure that eaves on the plans were actually built.

Ditto my current extension, roof leaked, council did not even check roof for water tightness, just assumed the roofer would do, but god help me when I wanted to move the widow and bridge the drains.

by Happy123 | 22nd Nov 12, 11:33am 1353537235

Agreed, the first thing I thought when I saw that picture was leaky building. No eaves, cheap cladding, it'll be on the leaky building register within the first few years. If space was a problem why not make them terraces, that would mean there was room for eaves and no need to clad two sides.

It is admirable that the government is trying to provide affordable housing. Now all that needs to change is first home buyers expectations.

by Chris-M | 21st Nov 12, 9:27pm 1353486478

It is a great scheme. Should cost next to nothing in the end and apart from providing affordable houses and hope to a lot of New Zealanders, it should reduce cost to the government of the housing supliment (several billion per year and rising dramatically). This is far more effective than building more state houses which cost the government well over $300 per week above rent per house recieved. (treasuries admission to Bob the Builder when he was an MP)

There is an urgent immediate need in Auckland and Christchurch, but the proposition that continued population growth in Auckland and NZ in general is a good thing is pure bollocks. As I have illustrated before, Auckland doesn't ecconomically support it's current population, so more people will just make it worse for the country in general. From the total NZ perspective, the lions share of the net national income is generated by a comparitively small number of people in the agricultural and tourist industries. Untill the government can figure out how to hang onto our present industrial capacity let alone expand it meaningfully, the rest of us are relatively unproductive overheads. Immigration is totally unwarranted and if it were stoped now the present trend of population loss would have to extend for quite some time before we get to a point where our productivity is any where near appropriate and give us decent wages and lifestyle.

by wtf | 21st Nov 12, 9:39pm 1353487142

Easiest way to increase productivity? The same or more output from fewer people with better equipment and systems. Is Japan producing less as it population declines and ages?

If we let hardly anyone in for two years but 50,000+ continued to leave over the same period, what would happen with 100,000 fewer people? There would be greater supply of cheaper property and business would have to employ and train some of the currently unemployed or invest in labour saving plant. No extra housing required.

What's wrong with an efficient steady state polulation and economy?

by Chris-M | 22nd Nov 12, 6:47am 1353520027

We would also be able to direct our capital and human resources to overseas funds earning activities rather than playing catch up and borrowing huge amounts of overseas funds to provide infrastructure and services for an ever increasing population. It isn't just Japan that is doing well with this approach. If computers and automation are harnessed efectively we need less people not more.

by Matt in Auck | 21st Nov 12, 9:37pm 1353487062

Agree it's a good scheme but those houses aren't affordable

Even in NZ it should be possible to build 3 bedroom, 120 square metres good quality single storey cottages with a carport on circa 250 square metres for $200,000. With land that should be $350K in a low value suburb, or $400K in a mid value suburb. NOT $495K!

I know some bigger families might need 4 bedrooms, but a 5 person family should simply have the two youngest kids sharing, at least till age 8-9

by Matt in Auck | 21st Nov 12, 9:37pm 1353487064

Agree it's a good scheme but those houses aren't affordable

I know some bigger families might need 4 bedrooms, but a 5 person family should simply have the two youngest kids sharing, at least till age 8-9

by Ricardo | 21st Nov 12, 10:05pm 1353488715

Labour has to be commended for this bold idea...the problem with National is they are several years too late in giving the issue proper attention, and no decisive solutions are imminent besides waiting for Councils to do a better job...whereas with this scheme Labour seem to be front footing the issue.

by steven | 22nd Nov 12, 12:10pm 1353539412

while labour is at least a decade....if not 15 years...

ho hum

regards

by kiwichas | 21st Nov 12, 10:31pm 1353490316

Sounds like Freddie Mac/Fannie May v 2.0

How on earth can you say something that cost300k is automatically worth 495k??

Now that is creative accounting

How does a 1% profit make it self funding??

Just limit immigration, take the heat off our environment

by Matt in Auck | 21st Nov 12, 10:50pm 1353491446

300K will be the build cost, 495K will include the land cost

by waymad | 22nd Nov 12, 9:54am 1353531251

The elephant in the room here (as well as the absent itemised, costed bill-of-materials natcherally, that makes it Two elephants) is of course the glib phrase 'Council and Government Land'.

In other words, kiss goodbye to local parks, reserves, riparian strips and other vacant green space??

Or perhaps wave a Magic Cleansing Wand across some old industrial dumps?

Or lay claim ter some Foreshore and Seabed and fill 'er in?

Or is there some Magical TerraFormer technolgy in the offing, to make more of the landy stuff?

I smell lots of Magic in this whole proposal.....but there's certainly enough Vote-Buying Magic to get this sorry bunch elected....

by waymad | 22nd Nov 12, 9:59am 1353531579

Oh, and lets apply the Median Multiple to this situation: AKL household income is around $70K IIRC, so at an 'affordable' multiple of say 2.8 (takes off socks, thereby doubling computational power) why that makes the price limit for house+land - um - $196 grand.

That's quite different to what's on offer here....and the kicker is that for the target demographic, household income is gonna be a darn sight less than 70K.

Question time, BH!

by Boatman | 22nd Nov 12, 12:23pm 1353540188

The house in the example is NOT CHEAP at a build cost of $350,000.In fact its ridiculously expensive given the rinky-dink look which clearly shows cheap materials such as the roofing

And thats part of the problem , at over $2500 /m2 its way out of line with a good quality build in Australia, or for that matter even Canada .

The problem is that with an effective oligolpoly in the building materials business , there is a rampant price gouging in New Zealand .

by waymad | 22nd Nov 12, 12:45pm 1353541557

Oh, it gets better, Boatman.

Duopoly in materials (see the Productivity Commish on this)
Massive front-loading of fees on the land by Rapacious Local Governments who have Four Wellbeings to house and feed
Cheap credit, which fuels the fire
Licensing of every tradie, tool, and anyone silly enough to consider a new build
Planning which generates an unearned and untaxed capital gain (typically 10x rural land price) as soon as yer draw that MUL squiggle on a map
Land banking (in the reasonable expectation of said CG) by Them with Knowledge and Insight (and a tame Planner or three on the Inside)
Elfin Safety, which typically adds 30-50% to the raw cost of e.g. a roofing or other at-height job (scaffolding, railing, harnessing, it's a Long List)
Inspections and Engineering Certification, which can easily exceed the raw materials cost by a wide margin
And never, ever forget the time value of money, throughout this ponderous process. Recall that the 'Mericans built the Empire State in 18 months. Yer'd be very lucky to get a Notified Resource Consent through in that time, and all the while the interest costs tick up, your Banker smiles at the interest revenue stream (or Frowns when yer miss the payment), and the Gumnuts of the world reject yer Permit Application for the 13th time because you haven't Detailed that there Joint in the Gubbinses by the Roof Thatch, which is another three-week go-around with your Engineer not ter mention his Fees. And did I mention that the Banker's grin is getting wider?
Plus (the icing on the cake, economical dead-weight-wise, ht PhilBest) is that all this cost-loading then transmits osmotically throughout the entire housing market, enrichening (and without being taxed on the CG generated) every existing houseowner. Because if'n she sells, and buys new, she'll haveta pay all of the above plus the agent's commission on the sale, to get an equivalent place. Universal pricing signal! Perfection, ain't it?

Tip all these ingredients into a supply-starved Housing Context, mix 'em together, and Watch Them Prices Explode!

And, like getting Milk from a Latte, or populating an Aquarium from Chowder, un-Mixing this sorry mess is a trifle, shall we say - challenging!

by Brendon | 22nd Nov 12, 1:18pm 1353543492

Waymead you forgot to mention that because of the delays in getting consents, those developers with building permits have a local monopoly http://www.newgeography.com/content/002471-florida-repeals-smart-growth-law .

So house prices are the result of bureaucratic monopoly times building duopoly times developers monopoly. With the banks and existing property owners being cheerleaders for their own selfish reasons.

The reason it is so hard to reform this rigged system is the above vested interests are so powerful. Your demilking the latte metaphor aptly describes how difficult it is.

by Chairman Moa | 22nd Nov 12, 1:26pm 1353543966

Ship them all to Aust.. houses are much more affordable here..

by steven | 22nd Nov 12, 2:14pm 1353546866

Comments on the US housing bubble in 2005,

http://www.calculatedriskblog.com/2005/04/housing-speculation-is-key.ht…

gee look how they played out...

regards

by Rob | 22nd Nov 12, 2:49pm 1353548992

The quality of materials in the house shown in the photo looks pretty low spec, and the design is ugly as.

by steven | 23rd Nov 12, 7:44am 1353609897

Personally I cant see a huge amount in the shots, but it looks like std materials....the window frames look low maintenance type....the roof is steep, which I like but I'd like 600mm eves...otherwise its OK...

Ugly, well depends on the market, looking at these and they look very typical modren townhouses at entry level put on the market by a developer from here.

regards

by drelly | 22nd Nov 12, 8:48pm 1353570502

Forget the design the costings or any of the details... the idea is destructive and will ultimately create more problems than it will solve. I've explained why KiwiBuild is a stupid idea in this blog.

by steven | 23rd Nov 12, 7:38am 1353609488

Read a bit and dont agree its really mostly a political rant......Labour is right on several counts, the biggest they are reoving is the obscene margins,

a) Land margin, the Govn can buy and sub-divide at a small margin, unlike land bankers.

b) It can have say 10 standardised designs so do mass approvals as one offs and then just repeat. There should be no cost over-runs, past maybe the first build...after that its rinse and repeat.

c) It can strike bulk materials discount deals with vendors. Lots of choice with standardised designs.

d) Labour costs would be interesting....thats the weak point I see, but with a standardised design and private builders it should be fine. Assuming of course private builders play ball....if you have a shortage of such trades they ae not going to build for a small margin, they will go elsewhere.

e) Marginal final profit margin.

So really you take the greed out of it....except for thelucky buyer of course....they look to make a hansome profit when they are allowed to sell.

Labour is really though not addressing the real issue, crazy speculation fed with low cost and easy credit....but putting in LVRs is a vote loser.....no pollie wants to go there...

regards

by drelly | 23rd Nov 12, 9:04am 1353614696

No, it's not a political rant. I'm happy to blog against stupid ideas from any political party :)

You say Labour are right...

a) Land Margins - these are not as big as you might think. The cost of subdivision is huge these days due to excessive regulation and rising council costs. It's about double what it was 10 years ago.

b) Standardised Designs - Builders already have standard designs and have done for donkeys years.

c) Bulk Deals - Yes but you should read my whole blog. What happens when the houses stop being built and the market returns to normal?

d) Labour Costs - Builders will be in very short supply over the next 10 years as Christchurch is rebuilt. They'll be in a strong position to negotiate rates.

e) Marginal Final Profit Margin - This is going to create a huge problem. What happens with the equity that is gifted to the first home buyers? Let me give you a hint... if you have a supply of something and then you give away a heap of money to people who want them, what happens to prices? Read the blog...

Labour are not only "not addressing the issue" but creating another bubble that will make it even harder for first home buyers further down the track.

by bob | 23rd Nov 12, 9:34am 1353616455

Shearer should talk to HCNZ. They have been the government building houses for decades and finally realised that they are not good at it. In a smart move they have recently started JV type projects with the people who can provide the most bang for the buck - private developers who thrive or go bust on their knowledge of maximising value. They know that as a government dept. they can not build affordable as they have no iontrinsic incentive to do so.