How KiwiBuild is going

They were elected last year, but the official beginning of the Government’s 100,000 affordable home KiwiBuild programme was only yesterday. Henry Cooke looks at what the Government’s done so far and the long, long road ahead of it.

It’s finally getting started. After months of preparation, hundreds of opinion pieces, and hours of spats with Judith Collins, Housing Minister Phil Twyford’s KiwiBuild policy officially started yesterday.

In one year’s time Twyford expects to have 1000 affordable homes on the ground. In 10 years’ time he wants 100,000.

The road to 1000 is already hard enough. To achieve that number by next year the Government needs to build roughly 2.7 homes a day for the next year. Once the programme is ramped up he will need to build closer to 33 a day.

If the policy works it will have an immense impact on the property market, where almost half of all our household wealth is tied up. New Zealand currently builds about 30,000 homes a year.

When KiwiBuild is going full-bore in a few years, the Government wants to build another 12,000 a year on top of that 30,000.

As the head of the KiwiBuild unit Stephen Barclay told journalists last week: It’s going to do something. Rents and property prices should stabilise or even drop with more property flooding into the market. Whole new suburbs will pop up. And the construction industry will have its capacity greatly expanded.

But this all relies on the policy working, and not everyone thinks it will. There are the obvious critics – the National Party, random internet commenters – and actual economists, like Gareth Kiernan, who says the policy will disappoint. If you’ve been reading the headlines about KiwiBuild for the last few months you would be forgiven for thinking the policy was dead-on-arrival, or at least a bit of a mess.

And KiwiBuild is a bit of a mess right now, a hodge-podge of different building sites with different styles of developers who have different levels of accountability to the taxpayer. One price cap for Auckland homes embarrassingly has had to be boosted by $50,000. But it’s way too early to surmise whether that complicated mess is going to fall over.

What KiwiBuild actually is

Labour has been talking about this policy for more than half a decade, but it’s worth reiterating its exact shape.

The Government wants to build 100,000 modest starter homes over the next 10 years, on top of those built by the private market, and then sell them to first-home buyers for an affordable price. Half of the houses would be in Auckland, the remainder spread throughout the rest of the country. ‘‘Affordable’’ changes depending on where the property is.

In Auckland and Queenstown there’s a price cap of $500,000 for a one-bedroom home, $600,000 for a twobedroom, and $650,000 for a three-bedroom – up $50,000 on the election promise. Outside of Auckland and Queenstown everything will be capped off at $500,000.

There are already homes in Auckland selling for $600,000, but the country is undoubtedly short of affordable homes – especially as the Government estimates that just one in 20 new builds is sold in the lower-quartile of prices. The incentive to build houses that are much more expensive is clearly strong.

Some estimates put the overall national shortage at 71,000 homes, which would explain why Auckland’s median property price is about nine times the median household income – people usually consider around three times to be the affordable amount, although KiwiBuild homes are likely to be more in the range of five times the median household income.

We should find out very soon who exactly will be able to buy them, as Twyford is taking the eligibility criteria to Cabinet today. We know there will be a randomised ballot system, that only first-home buyers and ‘‘second-chance’’ home buyers (usually those who have lost their house in a divorce) will be eligible, and that whoever does get into a home will not be allowed to sell it on immediately and pocket the capital gain.

Why the clock is just starting now

A lot of people assumed KiwiBuild’s 10-year timer would start the moment the Government came to office in 2017, and we could expect close to 10,000 homes on the ground come November. Labour didn’t exactly work to lower expectations on this point – especially since it allocated the $2 billion to get the policy started in the December ‘‘mini-budget’’.

But Twyford has said all along that a ‘‘ramp-up’’ would be needed, and has now made clear that the 10-year clock in his mind begins on the first day of the full financial year that his Government is in control – July 1.

The ramp-up is steep, with 1000 expected in the first year, 5000 in the second year, 10,000 the year after, and 12,000 every year after that. We’re expecting an election just before that 12,000-a-year moment – more on that later.

What’s happened so far?

No KiwiBuild homes have been finished yet, despite Twyford saying last year that he wanted to be walking into one by about now.

But letting the timer start on July 1 allowed the Government to get a few ducks in a row ahead of time.

A 33-person KiwiBuild unit has been set up in the Ministry of Business, Innovation and Employment, while a separate development-focused Affordable Housing Authority will take shape over the next two years.

To deal with those industry constraints, it has implemented two years of fees-free study for apprentice and industry trainees. The KiwiBuild ‘‘visa’’ idea has been replaced by something more controversial that will be set up in a matter of months: a KiwiBuild Skills Shortage List that will enable developers to bring in overseas labour with far less effort than usually required, similar to what happened for the Canterbury rebuild. (These people will all need a place to live, however.)

And some 430 houses are already under construction.

How will the houses be built?

There are three major streams of housing in the works, all on different timeframes.

The first stream is the simplest and will make up the vast majority of the homes in the first two years: properties bought ‘‘off-the-plan’’ from regular property developers. The Government says these should still count as homes ‘‘on top’’ of the private market because generally developers aren’t building modest and affordable homes without the prompting of the Government, and the Government’s balance book will make sure developments that might not be viable will be able to go through. So far roughly 100 proposals have been received from private developers, roughly half for homes in Auckland, and Twyford expects 700 to 800 of them to be built this year.

The second stream is the addition of KiwiBuild homes to already under way developments on Housing NZ land. So far this includes the 30 homes in McLennan, in South Auckland, and 300 in Northcote. The problem for the Government is that the developments started under National. In fact, the Northcote development, launched in 2016, was always going to include ‘‘affordable’’ homes – although a price cap wasn’t set.

The third stream is also the slowest – think whole new suburbs of thousands of homes, complete with transport and schools, probably not ready until nearer to the end of the KiwiBuild timeline. This is where the Greenfield Unitec development in Auckland fits in – the Government has bought a lot of land but is still deep within the planning stages.

What happens if they lose the election?

This is not the first ‘‘Kiwi-’’ scheme. The last Labour government launched KiwiSaver and Kiwibank before leaving office, but both of those brands remained intact through nine years of National rule. So will KiwiBuild also survive if Labour loses to National in 2020?

Hard to say. Even if it is entirely on track the programme will only just be getting into fullsteam mode at the next election. Collins, who would be the next housing minister if National wins, acknowledges New Zealand needs a lot more houses. She has said that she probably won’t end anything that’s working well – but she also doubts that it will be.

There is, in general, quite a lot of continuity between New Zealand governments. The houses on the way for KiwiBuild are part of developments born under the previous government. And one of the main criticisms Collins has levelled at Twyford is that KiwiBuild is just a branding sticker that will be placed over houses that would be built anyway. That it is just a ‘‘sticker’’ would make it easy for Collins to simply rip the sticker off but continue to let the government help the private market build as many homes as possible.

But there is power in a brand. It brings definition to a multi-layered and complicated policy.

National was helping to build plenty of homes in Auckland, some of them affordable, but that message didn’t get across to voters because it wasn’t part of a capital P branded policy. There’s also power from the fact that the sticker actually means something right now – a price cap – and it is stuck in voters’ minds.

New Zealand has a long history of state-backed property development. Home buyers are still salivating over mid-century state homes. If the policy does work, the brand ‘‘KiwiBuild’’ could still be on voters’ lips for decades to come.