Housing Minister coy on actual numbers of houses to result from the Kiwibuild 'Buying off the Plans' tender

By David Hargreaves

Housing and Urban Development Minister Phil Twyford  says the Government's Kiwibuild 'Buying off the Plans' initiative attracted "overwhelming" interest - but he's not giving specifics about exactly how many houses might result under the proposals the Government has received.

He says "almost 100" proposals have been received from developers in response to the tender conducted by the Government, which closed last Friday but appears reluctant to be drawn on how many actual houses that might produce.

In effect the initiative is an underwriting scheme - with the taxpayer to provide the underwriting. The outcome of the tender is therefore important for the Government, with Kiwibuild being a flagship policy.

Asked on Wednesday by interest.co.nz's Jason Walls how many actual houses the proposals received may amount to, Twyford said the proposals "could result in anything up to a few thousand new homes”.

The Information for would-be applicants that was prepared by the Ministry of Business, Innovation & Employment (MBIE) outlined the following targets for the new underwriting scheme:

  • 800 Kiwibuild dwellings in Financial Year 2019;
  • 2,500 Kiwibuild dwellings in Financial Year 2020; and
  • 4,000 Kiwibuild dwellings in Financial Year 2021.

So, according to those documents, about 80% of the 1,000 Kiwibuild homes planned for the 2019 financial year would come from the Buying off the Plans Scheme.

Across the first three years of Kiwibuild some 7,300 of the 16,000 planned homes would therefore come from this initiative. Twyford's response on Wednesday though was that in total the Government had received proposals that  "could result in anything up to a few thousand new homes”.

Asked specifically on the number of houses that might result from the initiative in 2019 (given that the stated target was 800), Twyford suggested, "several hundred".

This was his full answer to that question:

“In the first year of the Kiwibuild plan from July 1 we’re planning to build 1,000 affordable homes and we are doing that in a mix of ways – one is by Housing New Zealand building Kiwibuild homes in their redevelopments, we’re also looking to deliver several hundred through this buying off the plans, but there are also large scale development projects and the Land for Housing Programme where we repurpose Government land and have third party developers do that work.” 

Asked how many overseas companies had put in proposals, Twyford said: “I’m not aware of that number.

"I know I think roughly half were based in Auckland and others from around the country.” 

In his earlier statement on the tender outcome, Twyford had that while said the Government's early market testing indicated  it would get a healthy response "I did not envision this level of interest".

"It shows that the people who actually know how to build the homes this country so desperately needs are right behind Kiwibuild."

Easier funding

The implication from the buying off the plan scheme is that developers will find bank funding easier to get because they will be able to get guaranteed prices for the houses in their developments that are designated as 'Kiwibuild' homes - either by directly selling those to the Government, or by getting the Government, AKA the taxpayer, to cough up the difference in any shortfall they may have to take when selling Kiwibuild houses. 

    Twyford said the Buying off the Plans initiative is one of four ways the Government will build modest starter KiwiBuild homes for families.

    As well as buying off the plans, Kiwibuild homes will also be built by:

    • Converting existing Crown land and purchasing additional land from the private market (under the Land for Housing programme), which will be on-sold to development partners who commit to delivering KiwiBuild homes.
    • Identifying and leveraging opportunities to deliver KiwiBuild homes through existing Government-led housing initiatives, such as those being undertaken by Housing New Zealand (e.g. McLennan development)
    • Doing the groundwork to enable new urban development authority (once established) to undertake major urban redevelopment projects in partnership with iwi, councils and the private sector. Investigations into the first large-scale projects are underway.

    “A common challenge faced by developers is the need to sell a significant proportion of dwellings off the plans in order to secure funding for construction, which means that developments can sometimes stall or be shelved," Twyford said.

    "By underwriting or pre-purchasing homes in a proposed development, the Government can provide developers the certainty and backing they need to proceed. In return, we’re accelerating the speed of these developments and ensuring they offer more affordable housing, so more first-home buyers can get onto the property ladder."

    Twyford said the next step would be for the Kiwibuild Unit to evaluate all the proposals and advise which ones were suitable to progress to commercial negotiation.

    "While it’s unlikely that all 100 proposals will proceed, I want to thank all the developers who clearly put a significant amount of effort into preparing these detailed proposals and still back the Kiwi dream of affordable housing."

    It will get worse before it gets better

    Speaking to media on Wednesday, Twyford said he felt that things were going to get worse before they get better in housing affordability in this country.

    “...And we need the kind of massive intervention in the market that Kiwibuild offers.”

    He didn't believe the challenge was insurmountable though.

    “I don’t think that anyone’s under any illusions that this is a crisis. Even the Opposition now use the words ‘housing crisis’ that’s why we have a bold reform programme, but it will take years of work across a number of different fronts to fix this thing.”

    And he said that people should not give up on being able to own a home.

    “I’ve never been fatalistic about this for the reason that there are dozens of cities and countries around the world who don’t have these problems and they build more houses – they build better houses and they build more affordable houses. There’s no reason we can’t do that.”

    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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    47 Comments

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    23

    "It shows that the people who actually know how to build the homes this country so desperately needs are right behind Kiwibuild."

    What is shows is that the developers know the market is about to get 'rubber ducked' so cosying up to the most stupid buyer in town who is happy to pay a price no one else is going to makes good sense to them.

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    12

    "What is shows is that the developers know the market is about to get 'rubber ducked' so cosying up to the most stupid buyer in town who is happy to pay a price no one else is going to makes good sense to them.

    You don't need the rest. Just the fact that the Govt we will guarantee to pay is enough.

    We will pay the full amount (including repairs) Regardless of market, quality (lack of) of build, liquidity, personal financial situation, or any other reason a normal person wouldn't pay.

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    10

    Hell yes - my firm has small development 8 flats SHA - - was meant for long term social housing clients - flats would probably sell around 620K in current market -

    ITP means i can get 650K - guaranteed - bank super happy- and almost certainly lease them back to provide the same social housing that was originally intended

    its money for Jam as my dad used to say - just like PT's first 18 kiwi build houses were actually already planned and going to be built but the developer had cashflow issues - they are not extra houses - just the same builds that were already planned - there are no 10,000 extra houses not now and not for a very long time to come

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    19

    Show me a company that isn't interested in sucking on the taxpayer teat and I'll show you a politician who doesn't lie.

    Got you there, Jacinda doesn't lie - she said so.

    [sarcasm]

    Show me a property speculator that has not sucked on the taxpayers teat.

    dp

    Govt guaranteed and tax payer funded housing project is like a risk free government issued bond but with a market rate of return if not higher.

    Only a no brainier is not interested.

    all a bit negative guys?
    Sounds positive to me.
    We might start to see housing built in Auckland that is priced a bit more competitively.

    Short response: lol

    Long response: the Government is going to pay too much for some uneconomic deals. Subsidising what may be bad projects does not make much sense at all. There are bound to be a few good projects in there but they are unlikely to be enough to make a difference.

    The Government needs to get serious about building efficiently and adding industry knowledge to achieve this. Instead of creating a new department to fill up with current government employees that couldn't survive in the commercial environment.

    well, I work in and around the development sector, and I know several who have expressed interest.
    For them, it means they will need to forego some profit margin to hit the price points. But that is mitigated by the certainty on offer.
    There will be strong conditions to protect the government.
    This is great news - in my opinion, at least.

    You are dinking the cool-aid a bit there. This isn't as great as the government is making it out to be, it's just business reacting to incentives and no one should be surprised.

    When you announce you don't know what your doing but have lots of money spend people get in line to take their shot at taking you for a ride. The proof will be how many of these get done and how good they turn out, celebrating the number of submissions is pointless.

    let's wait and see.
    At least - unlike the last government - this government are actually doing / trying things

    Why does everyone keep using the "well they are better than the last lot" line? I don't care and that is still to be seen as well.

    I live in Auckland, my family lives here and I intend to stay. So I have a very long term view of my city and my country and I don't care WHO fixes it just that they do and they do it well.

    All that being said I don't see paying a premium tiny S%&t boxes as a sustainable way forward. Nothing has changed, cost to build is still to high and I haven't heard anything that is going to change that or innovative new ways of providing housing. In fact having the private sector squabbling to deliver these crap boxes feels like it will make it worse and we would have wasted taxpayer money and effort (which everyone seems to forget are limited) to do it.

    EXACTLY, I agree

    Because the last lot literally did jack shit and the reason why the price point is so high on these tiny shitboxes is because of the lack of doing anything for 9 years.

    And that's why we voted them out and all there leaders left, we celebrated then and we had reason too.

    But now its almost been a year and we are celebrating talking about making things worse. How are any of you ok with this? National sucked, fine, cool, awesome... but this ok because its "our" team that is F&%king up our country.

    I don't think you understand that accepting what these idiots do without voicing our concern is how we ended up with National doing nothing for 9 year in the first place. I voted to improve things, not to change from inaction to self-harm.

    They’re not my team. I voted National last 3. I’ll give Labour a full term and if there’s no progress from then I’ll judge.

    lol, yes trying is a blessing by itself .... for "some" !!

    And for those who are benefiting from the status quo of ever increasing house prices, they would like the market to be left alone so they can continue to personally benefit from ever increasing house prices. Not sure what they see the end game as however... Multi generational mortgages?

    No doubt Government lawyers will draw up some absurd contract documents which will scare a lot of genuine offers away. A healthy level of skepticism needs to be applied.

    I don't see how it can be good news. Wastefulness is never good news.
    There is a fundamental shortage of builders in Auckland. People do not earn enough to pay the inflated prices being charged for houses. There is at best, a duopoly on building supplies making it expensive to build. Planning restrictions seem to be onerous, expensive and too time consuming. There is a shortage of infrastructure, the beaches are already flooded with sewerage a lot more often then I would like. Nevermind power, water, phone lines...... Public transport is way behind where it needs to be.
    Can anyone explain how Kiwibuild will overcome these fundamental problems? Indeed can anyone explain how forcing this extra demand into a building market that is already running pretty hot, will not make these problems worse?
    Is doing something necessarily better then doing nothing?
    Aside from the fact that there isn't a shortage of housing anyway. Average people just can't afford to buy what there is. And kiwibuild is not addressing affordability either by the governments own admission.
    So what are we doing here?
    It is the "dream" of every kiwi to own a house. But since when did it become governments role to fulfill peoples dreams? Good education, safe streets, enough to eat, basic shelter (that can be rented or provided by the state for the poor-it does not have to be owned), a decent health system......I think it's fair everyone can expect those basic needs. Where does house ownership fit into that, and what business is it of government?
    Government doesn't always do a particularly good job of those "easy" things. Let alone getting itself involved in peoples "dreams".
    "Don't just do something, stand there".

    Tradies often have a terrible attitude when building a house for an insurance company or housing NZ.

    An anecdote I heard recently involved a sales person calling a tradesman on loud speaker with a customer in the same room. The tradesman said something like "oh never mind about the quality it's just an insurance job ".

    The KiwiBuild attitude will be exactly the same from design to foundations to painting. "Oh don't worry about that problem, we've already sold it anyway!". You'll end up with crap houses people just don't want to live in.

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    10

    What has been changed here? Building code, BRANZ, RMA, five figure water connections, $150 per hour council fees? Ripoff building materials? Land banking?

    None of it.

    The only difference is that the government will put a KiwiBuild TM sticker on the front door. And hey if the builders erect a soggy gingerbread house the market doesn't want uncle Phil Twatford will bail them out.

    The right wing diehards are out in force

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    16

    True, but the problem is they are not wrong.

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    12

    A once in a lifetime zero risk opportunity for developers courtesy of the taxpayers. Of course they’ll be clambering over themselves to get a piece of the action.

    As Taxinda said to the year 13 students “this years on me”.

    Every mom-and-pop builder with two brain cells to rub together will be in. No need to worry about:

    • How to make next month's lease of your tricked-out 4WD DC ute and her Remuera Tractor
    • How to pay every creditor next 20th
    • How to get a buyer for the two speccies already sitting there mouldering
    • How to convince yer bank that you Rilly Are a Good Risk (for the thirteenth time)

    Good, fast, cheap. Any two.....

    Comment of the day Delboy

    Think of snouts in troughs ..........

    That's exactly what I'm thinking... https://i.imgur.com/GkGNT3k.jpg

    Just imagine if politicians wore the logos of their owners like rugby players.

    Thanks for the link , I had a good chuckle ......... and thank God for free speech !

    "In return, we’re accelerating the speed of these developments...."
    Is that all? Is that Kiwibuild?

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    13

    Kiwibuild is fatally flawed.

    Building costs are extraordinarily high in NZ and local authority consent processes are overly complex - and also damned expensive in themselves. Anyone who has undertaken a significant building project in NZ over the last decade (or longer) knows that.

    It's a fallacy that affordable homes can be made available en-masse through Kiwibuild. Government hasn't got the dosh for that anyway.

    As far as developers are concerned, Government will need to tread warily: developers have become seasoned experts at exploiting opportunities for their own pecuniary gain. They are good at cutting corners - but never interested in cutting their profits.

    There is a huge clash of cultures between the various interest groups associated with Kiwibuild - so it's a recipe for disaster if it's allowed to proceed.

    The government ought to turn to encouraging economic growth in the regions/provinces - providing/ encouraging many more jobs there (with emphasis on the new hi-tech industries). That's where lower priced housing is ALREADY available. Building more houses in Auckland and Wellington would only add to those cities infrastructure and congestion problems.

    Let the private sector do its thing in the big cities - and pay all the associated costs. Government ought to concentrate its job/housing initiatives in the regions. That way, a far better balance would be achieved for the country as a whole and we'd all be better off.

    TTP

    Well said. Kiwi build does not make more builders, more competition between building material suppliers, more consents, or increase the average income.....all things that are generally regarded to be the things holding back first time buyers.
    Rather, it will put massive pressure on many of those areas, pushing up costs, lowering efficiency and ultimately dooming the whole thing to failure.

    House prices are underpinned by the cost to build a house.Do something to lower the cost of building and houses will become more affordable.Combine that with the incentive to build bigger houses instead of multiple smaller ones and it isn't surprising there is an issue. 90% of the new houses that I see being built around the place are not remotely affordable for first home buyers or even second home buyers (240sqm+). 5 brm, 3 bath etc. Cheaper to build than 2x2brm (120 sqm each), 1 bath due to council costs and extra selling costs. $1.2m for the first option and for the second option council wouldn't allow and if they did they would be $750k+ each.Really stupid given the area they were in.

    This is fabulous news ... So happy for FHBs who will finally get a home of their own .. whether or not it will be a good idea or financial decision is yet to be seen - a shoe box is what it is and might cost a bit more to keep without significant capital gain... but it is a home for the desperate.

    The Good news is that Rubbish stock will gradually drop in value and get cheaper until prices come down to its land value.

    The Better news is that, both existing and new, quality 3,4,and 5 bedroom house prices will rise once this takes off - there will be labour constraints and probably lesser supply going forward if this amount of interest is actually true. In Auckland, this caters for about 1/2 the buyers in the market. For an owner occupiers it is time to buy in the new development areas before they miss out.

    I take anything that PT ( the kid in the candy shop) says with a grain of salt - obviously he is strangled by the amount of money budgeted yearly for this project and the recycling rate of the $2B ...no matter how many developers are interested.

    Let's not forget Community Housing portion of building projects which will compete with this too.

    Time will tell, but it is good news galor ....

    It's hardly surprising many developers are taking on the government's Kiwibuild guaranteed scheme. It's like a dream come true, all the upside with none of the risk, since we, taxpayers, will guarantee the developers sale price.

    It will add some "affordable" housing but not that much because it will mostly shift private development to the Kiwibuild scheme.

    Wellington house prices are dropping, and that’s sending shivers through the Capital.
    The hidden surprise in Wellington's house price drop
    https://www.oneroof.co.nz/news/the-good-news-hidden-by-drop-in-wellingto...

    looks like the water is flowing in the other vessels rather than Wel city ! .. just another day in the RE market equilibrium process, I say

    DGZ, there blows your mate TTP's theory that Wellingtons latter cycle strength would prove to be supportive to Auckland's oscillating orbit around Eco Birds ever re-calibrating equilibrium.

    I suspect that you understand the meaning of either words RP ...lol

    Double-GZ - this is very unlike you, or has your account been targeted by hackers?

    The 'shivers through the Capital' however is nothing to do with anything other than the constant cold Southerly wind.. But please don't tell them that prices are falling that fast, they are already struggling to pay the mortgage and the heating bill and have a crazy belief that prices always go up.. That fall is like $14,000 - $15,000 off the price of a shed in a month. Ouch. They do say that Wellington is like a mini - Melbourne though and they are 5% off in that last 3 months. Has Winter arrived yet?

    Like others here, I sincerely hope Kiwibuild does not morph into a taxpayer rort. Enlisting the services of builders and their labourers in the midst of a slump is an excellent time to extract valuable labour for money. Right now, I do anything to avoid hiring in today's climate. They're always in a hurry to get to the next job and leave yours unfinished. Such greed prevails.

    That’s exactly what’s happening right now in NZ. Builders and sub trades either rushing jobs resulting in poor quality or simply not finishing off jobs.

    Couple's open home nightmare - the mystery toilet user had tried — and failed — to keep things clean. ^^LOLdgz^^
    https://www.oneroof.co.nz/news/couples-open-home-nightmare-35030

    A similarly sized building undertaking in NZ was the earthquake recovery. The National Government put an indemnity clause in Fletchers contract so Fletchers were not liable for any damages or poor workmanship caused by their contractors.
    Seems like the government in general are more about getting the job done and then mop up the problems afterwards themselves than trying to fool-proof the contracts and paying a lot on lawyers to get their pound of flesh from those who try to rort the system anyway.