Kiwibuild faces tall order
A shortage of housing is just one of the market’s problems, Shamubeel Eaqub writes.
We need to build more houses. But the track record has been mixed. At the peak of the cycle we seem to be building enough houses, but not for the rest of the time.
There needs to be a fundamental shift in how we approach housing, including creating entirely new classes of housing.
The Government’s KiwiBuild policy is still taking shape but it needs to be ambitious and careful if it’s going to create a step change.
A quick look at the type of housing we’ve built over the past year shows around 31,000 homes were consented, including detached houses, townhouses, apartments and retirement villages.
The large majority (two thirds) of new homes continue to be standalone houses. Townhouses, flats and units make up around 15 per cent of supply, representing medium density housing.
Apartments only make up 10 per cent of housing supply and have never recovered from the failure in the 2000s of finance companies, which were a major provider of capital for risky and large scale developments.
Retirement units make up around 6 per cent of supply and the sector is steadily growing to meet the demands of an ageing population.
Supply is the big problem. We need to build at around current rates for many years to create enough houses, particularly in places like Auckland, Wellington, Tauranga and Queenstown, where the problems are abundantly clear.
A more hidden problem are rundown houses, and houses that are no longer suitable for an ageing and changing population.
So unless we build at medium and high density, the pace of supply will be too slow and too spread out, needing even more investment in transport and other infrastructure.
Because the peaks and troughs are so big, construction companies tend to be small and averse to investing in latest technologies.
Finance is shy of large development, in case the cycle turns before the project is completed.
The small size of the New Zealand market, plus the big swings in the cycle mean that prefabrication technologies, common overseas, are missing in New Zealand.
Those trying to get prefabrication in New Zealand are doing some really clever things, but they still need a base level of orders to make them viable.
KiwiBuild and consolidating other large buyers of housing, like Housing New Zealand and social housing providers, could offer a way to do this.
Right now, purchasing and procurement remains fragmented.
The current Government has ambitious plans to remove many of the barriers to housing supply. The proof will be in the pudding.
The optimistic assessment is supported by our history. Through the 1950s, 1960s and 1970s we built huge numbers of houses.
Many policies worked together to do this – supply of state houses, support for group builders who built spec houses, and subsidised lending for new builds.
But we need to recognise that to really increase supply, any new demand from the Government through Housing New Zealand, community housing providers, or some other means must be in addition to what the private sector already provides.
And we need to encourage new forms of housing supply. Build-torent is a common model of development overseas, but not here.
If it develops as an industry in its own right, the supply of capital for medium and high density will not be nearly as difficult as it is now.
The KiwiBuild policy is still taking shape. It needs to create housing supply that does not crowd out existing private sector supply, to encourage long term improvements in the sector like prefabrication and build-to-rent, and reduce the volatility of the cycle.
Unless KiwiBuild changes these things, we will be stuck with a dysfunctional housing market.