Will houses be affordable?
THE Government’s KiwiBuild initiative will deliver 100,000 affordable houses over the next 10 years, giving hope to firsthome buyers and addressing New
Zealand’s housing crisis, Minister of Housing and
Urban Development Phil Twyford says.
Late last year, soon after the election, Mr Twyford made it clear to all and sundry he was on a mission to redress the wrongs he saw with the previous government’s housing policy.
He particularly picked on a boost to the building of state houses, affordable houses, and last week, announced a new housing development for the Unitec site in Auckland.
The land at Unitec’s Mt
Albert campus, just 9km from Auckland’s CBD, will be transferred from Unitec to the Crown with the intention of building a community of between 30004000 homes, according to the minister.
The size of the houses is still unknown but commentators say unless the houses go upwards, they will be tiny. Also, concerns have been raised about the state of the water and sewerage infrastructure.
Infometrics economist Gareth Kiernan said since Labour came into power, its KiwiBuild policy had been shrouded in confusion from contradictory statements coming from government departments, and within the Government itself about exactly what the policy would mean for the construction sector.
Mr Twyford had been adamant the overwhelming effect of the KiwiBuild plan would be to deliver new houses over and above what the private sector was delivering.
‘‘He has been quick to downplay the possible crowding out of private sector work.’’
The Government had indicated part of the policy was to buy some properties ‘‘off the plan’’. However, Mr Twyford had seemingly contradicted his statement, continually reiterating KiwiBuild would result in an additional 10,000 dwellings being built per year over and above what the market would otherwise have delivered, Mr Kiernan said.
The Treasury’s release of documents relating to KiwiBuild last month, under the Official Information Act, added some muchneeded clarity to the likely outcome of the policy.
The preexisting Crown building programme already allowed for more than 4000 dwellings to be built during the year to June 2020.
Work on redeveloping and reconfiguring Housing New Zealand’s portfolio had already meant the number of governmentbacked dwelling consents more than doubled over the last year to reach a 29year high of 1452.
Rolling the preexisting programme into KiwiBuild would account for almost half the 29,000 dwellings to be completed in the four years to June 2022, he said.
Offtheplan purchases accounted for about 22% of the 29,000 dwellings over the next four years.
Both the Treasury and Mr Twyford had argued those purchases increased building activity because those developments would not otherwise have obtained financing.
‘‘We accept Government backing for these projects will provide greater certainty and is
Gareth Kiernan, Infometrics
likely to accelerate the development process.
‘‘The assumption the projects would not have gone ahead at all, and that finance is the limiting factor on construction activity, is questionable given the strength of demand for housing and the labour capacity constraints currently being experienced.’’
Mr Twyford’s own guess of a household income of $60,000 a year to get into a KiwiBuild home appeared to be woefully short, Mr Kiernan said.
Other OIA documents suggested only 25,000 households renting from private landlords in Auckland would have sufficient income (estimated at $114,000) to buy a KiwiBuild home. The Government could potentially get only a 50% takeup of its ‘‘affordable’’ Auckland properties at $500,000 to
$600,000 each.
Assuming buyers of KiwiBuild homes would be able to obtain finance with a deposit of 10%, rather than the 20% requirement for most borrowers, a single person with an income of
$60,000 a year could borrow $403,000 from the main banks. A couple could obtain just $304,000, he said.
But using the banks’ calculators, and assuming a 10% deposit, suggested a single person would need an income of $71,200 to get into a $500,000 house. A couple with no children would need a combined income of $88,000 to get into a $600,000 property.
‘‘In other words, the Government risks bringing a large number of properties to the market for which there are few buyers who are realistically able to obtain or service the mortgage.’’
The net effect of the Government’s KiwiBuild policy could mean as few as 9200 additional properties added to the dwelling stock over the next four years, representing less than onethird of the programme pencilled in for the period, Mr Kiernan said. The figure did not allow for any crowdingout of private sector activity, which could reduce the net boost to total construction activity any further.
The Government could also find its definition of ‘‘affordable’’, particularly in Auckland, was still not cheap enough to enable many renting households to get into their first home.
There must be questions whether the Government could deliver properties at the price points it had nominated, he said.
Any costs not properly allowed for would either make the properties even less affordable for firsthome buyers or result in the Government making a loss on its developments.
‘‘All in all, Labour’s KiwiBuild policy is looking much less of a gamechanger for the construction sector and housing affordability than the Government has made it out to be.’’
Mr Twyford’s main political opponent is National housing and urban development spokeswoman Judith Collins. She said if home buyers thought a KiwiBuild home was going to give them a Governmentbacked legup into the housing market, those hopes had been dashed.
Ms Collins said Mr Twyford had claimed the reason the Government was inserting itself in housing developments was to share some of the risk to make it easy for the private sector to develop, build and sell ‘‘great places’’ for people to live.
‘‘But . . . he’s revealed that’s just not true because the Government is actually refusing to stand behind its KiwiBuild houses and will leave firsthome buyers to battle it out with private developers should any construction issue arise.’’
All that would happen was the Government would be paying the private sector more to build the houses which would have been built anyway, she said.
KiwiBuild would not result in more houses being built.
❛ ‘‘ . . . the Government risks bringing a large number of properties to the market for
which there are few buyers who are realistically able to obtain or service the
mortgage’’