The Housing Minister says if a developer is unable to sell a property at an ‘agreed upon price’ the Crown will step in and sell it for them

Housing Minister Phil Twyford says the Government will step in and sell KiwiBuild homes if developers are unable to unload them at an agreed upon price.

But he does not expect this to happen very often.

Speaking in the House on Tuesday, Twyford was asked by National’s Housing spokesman Judith Collins if he had been advised on the risks associated with the Government’s buying off the plans initiative.

This scheme was announced in May and is essentially an underwriting scheme, with taxpayers footing the underwriting bill.

He says that was assessed as part of a paper he took to Cabinet and the amount of risk “will depend on the particular contractual arrangements between each developer and the Crown.”

Collins asked the Minister what risk the Crown would take if the housing market fails.

The nature of the risk-sharing arrangement in the buying off the plans initiatives centres on the underwriting or buying off the plans itself, Twyford says.

“In that case, or in the case of the underwrite, if the developer is unable to sell the property at an agreed price, then the Crown will step in and buy that property at an agreed price and then on sell it to young Kiwi families.”

But speaking to Interest.co.nz, Twyford says this will be happening as “infrequently as possible.”

“This is about the Crown sharing risk prudently with developers and one of the reasons so many developments are not going ahead is that the developers are really struggling to get finance.”

He says KiwiBuild can bring its balance sheet to the table.

“We can underwrite or buy properties off the plan and our goal is to sell those properties as soon as possible on to young first home buyers.”

He doubled down on previous comments that the Government does not need any type of insurance to guard against this type of risk.

“I don’t think insurance is a substitute in this type of situation for an equity partner that is willing to back a scheme like KiwiBuild.”

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38 Comments

It's good to see opposition grumblings only serve to sharpen and further refine Kiwibuild. Still waiting for Bridges to commit to winding down Kiwibuild if they were to be re elected in 2020. I say, bring em on in the 1000s, create heaps of vacant rentals and commit political suicide if your seen to be standing in the way.

It seems to me that there are so many fish hooks in KB it may not get off the ground. I hear through offspring that it is popular to apply for KB not because they need or want it but it's seen as potentially a subsidy from the Government. I thought it was originally for poor people not couples earning up to 180k ? I would rather see this Government build and hold on to lots and lots of state houses or apartments so the true people in need can be housed you know the people on the minimum wage or just above, then I could have some respect for the COL.

That is a very advanced stage of thinking this CoL cannot possibly get to - if they were keen and honest about housing , they should start with the poor and needy ... but they dug themselves a big hole with bigmouth PT and kept digging until they got stuck ... Now it is impossible to retreat, For Labour, it is fighting till the bitter end on KB.

It was to address the housing affordability "crisis".

If we assume for now that KB happens and they can build/sell the houses for the prices they say they will - (and we all have our doubts on this)

Selling houses to middle income people that are currently renting does alleviate the housing crisis.. pretty much anything that increases supply helps.

Middle income earners who buy KB houses move out of rentals, increasing available supply to those who can't afford to buy KB and are stuck for now renting. Normal supply and demand rules kick in and prices should drop (probably not a lot).

I saw earlier today that the kiwibuild talks involving the greens originally involved some sort of rent-to-buy scheme.. thats been kept very quiet, or dropped completely?
https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=119...

"A rent-to-own scheme or similar progressive ownership models will be developed as part of Labour's KiwiBuild programme."

They could very well be working on that behind the scenes. Pretty hard to initiate a rent to buy scheme with no houses yet built.

Unfortunately there tends to be this idea from some commentators on this site that silence from Labour means things aren’t happening, the idea has fallen flat. It’s almost like they need hourly progress updates to help them sleep better at night.

Yeah, fair point that there can't be a rent-to-own scheme without the houses, but i'd still like to know how it might work, as I would potentially be interested in one of the KB houses.

They will have to, as hardly any of these buyers will qualify for the large mortgages needed to buy a brand new home.

If they serve to "sharpen and refine" they are not really just "grumblings" , are they ?

Half of them are in public housing developments, so whatever they don't sell to FHB they can rent out to HNZ

Winstone Gander's kite-flying on the Budgetary Limits is no doubt greasing the skids for this sort of bail-out. So when a developer gets 85% of the way through a project, then blames unions, snails, climate change, brown cardies and 'orrible banks for an engineered Financial Distress moment, the Gubmint will, after the usual thorough assessment (an A4 with half-a-dozen boxes to tick), pay 'em out, finish the shacks, and sell 'em on at whatever the market will bear. Possibly at a steep discount. Probably with Our Munny or Mo' Debt....

Indeed, it is so easy when you hold someone else's cheque book to guarantee as much as you like. So the risk is unquantifiable and naturally Inherited in the building contracts ... ? lol

How do you expect businesses to build up confidence when business people listen to this kind of BS in Parliament from a lead minister related to a major project that may affect the country's budget ?

So forget about trade wars and star wars, we are doing a great job in pissing businesses OFF and creating our own recession and demise !

Who, in his right mind, would employ a person coming up with such a flimsy answer to such a serious and dangerous question?.... he is prepared to sell his shirt ( and ours) because the previous Gov didn't look after the young Kiwis and built affordable homes !!!.

The only customers this Noob minister is going to sell houses to is HNZ and some other Gov agency to house the homeless - i.e. he will be giving them away in the name of KB.

Are we really in a first world country ? - Is this the darkest and stupidest episode in NZ history? .... Or are we so stupid to keep up with this nonsense for long ?

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=120...

What are the consequences for “pissing businesses off?

“Oh I’m so pissed off with Labour, I’m not going to hire that extra Storeman that I need, I’m not going to open that new branch in Timaru despite the market growing exponentially in that region. That’ll teach Labour for messing with my emotions”.

It's a shame that the government wasn't able to work with Matrix Homes to get started on some Kiwi builds. It seems there were many discussions but no orders came from it.

https://www.stuff.co.nz/business/105580647/prefab-company-matrix-homes-i...

You would think being a worker manufacturing homes during a housing crisis would be a safe job wouldn't you? Nope. Is there really a crisis?

https://www.stuff.co.nz/business/105677735/former-matrix-homes-workers-u...

The mass production, production line, prefab scenario whether it's building houses boats cars or mass production repair of these items is only as good as the supply of work / sales / orders and the pre-organisation of these orders / sales / repairs. A mistake I have seen often is that to much emphasis is placed on the "bells & whistles" production facility, which in fact will only turn a profit when at full or near full capacity (the production, that's the easy bit). To make these facility's profitable an equal amount of research, work and investment needs to go into how consistent supply of orders & materials is going to be organised and maintained to fuel the profitable operation of the facility. NZ is a small place, to line all the ducks up for these types of facilities is challenging.

Apparently developer covenants in the new subdivisions prevent this type of housing being placed on sections, which rules out the majority of buyers for them.

I asked a room full of planners attending a lecture on the high cost of housing whether they thought covenants contributed in a significant way to the high cost of housing - there was a resounding YES from the whole room.

I then asked, well then why not get rid of them - and there was a resounding - YOU CAN'T from the whole room.

I didn't get the chance to put forward my proposal, but the point is - it is planners who grant resource consent for subdivisions - and when they do they place any number of conditions on those resource consents. I can see no reason why one such condition can't be for NO COVENANTS on the subdivided land parcels.

The legality of such a move would likely be tested via an Environment Court challenge, but with housing affordability being the issue it is, there could well be a robust legal argument in favour of council's with affordability issues to impose such conditions.

It's definitely an issue that central and local government should explore.

Good luck with that. Would you buy in a subdivision where anything could be built next to you?

I live in one now. This particular area was subdivided in the 1960s - no covenants whatsoever. That would be the case for much of the established neighborhoods in NZ.

What relevance does a 50 year old subdivision in a dormitory suburb have to the debate? This is about maximising value of land for a private developer. Covenants obviously increase the value in the modern age.

You asked me if I would live in a subdivision where my neighbour could build anything next door - and I said yes, I would do (in future) and I do (now) and I have always done (in the past). We personally don't like newly established subdivisions.

I represent a typical homeowner - most people aren't bothered about whether their neighbour does or does not have at least three roof pitches; an attached garage and a minimum house size.

I agree that covenants are all about maximising the value of land for the developer... that's my whole point, they serve to artificially inflate the value of the land and moreover they also force higher build costs and limit choice and innovation.

Why in the world would we (as a society) tolerate/permit them if we have a regulatory mechanism to change that aspect of land value price gouging where newly consented subdivisions are concerned?

So a subdivision with no covenants, that is literally any multimillion dollar suburb in Auckland then, even most the million dollar ones too. Covenants are no indication of quality or even of the residents ethics. After all I find more reason to discriminate against those who think covenants are a good idea, and especially suspect the homes built more recently in the 1990's-2000's.

So you are arguing that convenants don’t affect the value of the subdivided land?

I tell you what covenants have done, they have turned every subdivision I can think of into a dull beige landscape. I recall Neil Young once saying of his time with Crosby, Stills and Nash as being in the middle of the road, in the end he had to back to the gutter to where life was far more interesting.
Whenever I have be in any of these new subdivisions it is all I can do not to throw up.

I wanted to buy this type of housing at one point but there is almost no land that allows it unfortunately.

That said, some of the covenants on my land seem reasonable - like no unpainted corrugated iron which would look ugly and affect others' quality of life. Only one covenant is a problem - minimum floor size 200 sqm. I can't see how a small but good looking house would have a negative effect on qualify of life.

Or even how a house of a different unapproved beige colour would detract, or for that matter why is the letterbox only of an approved brand & design... really some go all out there including fines if the residents are not cleaning the streets from other road traffic, and fines if unapproved colours get used. They are laughable. It reminds me of the xfiles season 6 episode 15 Arcadia https://www.youtube.com/watch?v=iDYXE8GAHtw.

Indeed, covenant free good sections are often very thin on the ground... hard to find, but worth the effort.

You can imagine builders cutting all kinds of corners. Who really needs windows in each room and proper carpet on the floor. Labour will have to keep a very close eye on all the details.

> Who really needs windows in each room and proper carpet on the floor.

Probably the building code? There are minimum standards set for a reason, if the buildings aren't holding up to those standards, it will be on the builders to resolve those issues before anyone will sell.

Our building code is laughable. It creates a whole bunch of work to achieve a very low standard. It won't stop them putting in a kitchenette instead of a kitchen or using all of the north side sun on the garage and bathrooms. And yes cardboard thin carpet is acceptable under the building code. It won't stop them building Hong Kong density out in the middle of nowhere.

Labour would basically need to specify exactly how many north facing windows, power points per room ,carpet thickness, etc etc etc. Time will tell if that happens.

> minimum standards set for a reason

Nah mate it's mostly to keep Fletchers, BRANZ and your local council rolling in money. If we a a nation really wanted better buildings we'd be allowing people to build with more freedom but higher responsibility for any mistakes (personal responsibility - no more hiding behind limited liability companies).

How on earth is there able to be a rent to buy scheme?
The repayments will need to be more than Bank loan repayments, and so many wouldn’t be able to meet those, unless it is going to be interest free, which won’t go down well with most who pay Bank interest.
Who is going to want to put money into a shared equity scheme as well?

If a property is cashflow neutral/positive, why wouldnt a rent-to-buy scheme work?

Eg if rent covers outgoings then I dont see why it wouldnt work.

Remember we would be talking about Kiwibuild prices here - which puts a lot of suburbs that are currently cashflow negative into cashflow neutral/positive territory.

KBKIWI, how on earth is it going to be cashflow neutral.
650k home repayments would need to be $700 per week at the moment.
How many people would be able and want to,pay that for 25 years?

If the govt is underwriting/holding the mortgage the interest rate can be much lower.. last govt bond issue I saw was 2.75%, so at 3% the govt is more than covering its costs. And if gets the govt out of paying accommodation supplements to private landlords and extra healthcare costs from 1960s drafty slums its a double win for the govt.

Do you know what people are actually paying in rent these days? $650k is for a 3 bedroom KB house in Auckland. $500K everywhere else - about $550 per week, + another $70 for Rates/Ins - so CF+ around $620 people pay close to that or more already for a 3 bedder in wellington etc.

However you forget one major advantage - it stays around that amount for the life of the program - whereas if people were renting it they would be paying double or more in 20 years time.

Plus over the lifetime of the program the equity increase is also massive.

In simple and clear terms, if a developer cannot sell an apartment, the crown = us the taxpayers, will pay for it, then sell it to a FHB at a loss.

I DONT BELIEVE THE MINISTER EVEN HAS THE VAGUEST UNDERSTANDING OF WHAT HE IS DOING!

Does he even have a clue as to how financially unstable many developers are ?

Does he not realize that by offering to become buyer of last resort , that's precisely what will happen ?

Does the Minister understand the dynamics of a market where the State intervenes and distorts things

He just needs to look at :-

The rort in the Kindergarten business
The former rort in the Physiotherapy busniess
the rort with the accommodation supplement

All of the above are cases of good intentions paving the road to ............ a mess

This may explain why he has not implemented his election promise to negate the Auckland RUL. Kiwibuild cannot withstand new homes falling in cost, so he is trying to keep the land costs as high as possible.

Not his department, speak to the council, I hear they are having trouble with land bankers even with the SHAs.