Matthew Hooton
Among the sceptics are the Treasury and Reserve Bank
Housing Minister Phil Twyford has blamed a lack of liquidity for the supply of new houses in Auckland not, in his view, meeting demand. According to the minister, dozens of Auckland property developers can’t get the banks to fund them. Several hundred potential housing units are being delayed.
Twyford, whose previous career was at Oxfam, has proposed two strategies to fast-track these projects. The first is paying a deposit to buy new units off the plans. The second is underwriting the whole development.
These strategies, Twyford believes, will open the banks’ vaults. The $2 billion of taxpayers’ money to be invested in KiwiBuild will thus boost residential construction by up to a net $11.6b over the next four years.
Twyford’s number is taken from a three-page Ministry of Business, Innovation and Employment (MBIE) memo and assumes no capacity constraints in the construction industry nor any substitution of other developments.
The magic occurs because Twyford believes his $2b will be recycled rapidly over the next four years. Seamlessly, the government will fund a development, see it built in just a few months, quickly sell the units and then put the money into another project, faster and faster.
Among the sceptics are the Treasury and Reserve Bank.
The former refused to include Twyford’s numbers in its Budget forecasts, prompting the minister to
Twyford faces the same problem as Donald Trump and his wall.
call its officials “kids . . . disconnected from reality”.
Unlike MBIE, which assumes no capacity constraints in the construction industry, Treasury thinks the sector is stretched. It also doubts Kiwibuild capital can be recycled as quickly as Twyford asserts.
Treasury therefore calculates Twyford will be able to turn his $2b into no more than a net $2.5b of new residential construction over the next four years.
For its part, the Reserve Bank says construction activity is already high and facing capacity constraints. It fears KiwiBuild could crowd out private sector investment. Its estimate of how much new residential construction can be expected is therefore much closer to Treasury’s $2.5b than MBIE’s $11.6b.
Twyford is, of course, right that liquidity is a factor in some developments not advancing as quickly as they might, but he could usefully reflect on why. Frequently cited are a flawed building code and overloaded Auckland Council consent processes that can delay revenue by years and double the total cost of loans.
Watercare, Vector, Chorus and Auckland Transport are seen as too slow to put in basic infrastructure for new developments. Crown Infrastructure Partners, which was meant to help fast-track essential services for new developments, is known to simply refer developers back to the utility companies.
Then there are the capacity constraints that worry Treasury and the Reserve Bank but which MBIE ignores: land, labour and basic materials including cement and concrete. Twyford faces the same problem as Donald Trump and his wall: no amount of nifty capital recycling can magic up real resources, and Twyford seems to have gone cold on his earlier proposal to expand Auckland’s urban limit, instead falling into line with the prodensity cycling, walking and tramway crowd.
Most ironic is the effect of the implausible political promise he continues to make: to build 100,000 new low-value units over the next 10 years above those that would be built anyway. The banks know full well that would inevitably crash the market for apartments and other cheap dwellings, including those recently completed, under construction or still on the drawing boards.
There are ways to increase supply of houses. Twyford could return to his idea about the urban limit. He could look at a massive development of a new sub-city between Auckland and Hamilton, as proposed some years ago by right-wing Auckland mayoral candidate John Palino and left-wing Auckland urban geographer Ben Ross. A tax on land-banking might quickly bring Auckland’s 30,000 empty houses on the market. Labour and its Green allies could drop their doctrinaire opposition to comprehensive Resource Management Act reform.
Twyford also could look at the demand side. The one element of population policy the Government controls — arrivals by non-New Zealand citizens — has hit a record of 98,332 in the year to April. Labour, NZ First and the Greens all promised in opposition to cut immigration. None has shown any inclination to keep that promise.
Perhaps they should, for at least a while. That would give the Prime Minister time to find someone competent to implement the KiwiBuild policy that David Shearer’s Labour first promised nearly six years ago, but for which the party has done nothing in the meantime to consider how it might be sensibly executed.
● Matthew Hooton is the managing director of PR and lobbying firm Exceltium