Political Roundup: KiwiBuild – fix it or ditch it
by Dr Bryce Edwards
Given the ongoing problems with the Government’s flagship housing policy, it seems inevitable that a major change of direction is required for KiwiBuild. A consensus is growing that the policy either needs to be revamped or replaced with something more effective and ambitious.
Today the New Zealand Herald has called for the Government to “think again about KiwiBuild” – see its editorial: KiwiBuild not only weapon in armoury. The newspaper emphasises that there are other options for dealing with the housing crisis, some of which the Government has already been successfully utilising: “Tax proposals, tenancy laws, banning foreign buyers, state house building and infrastructure bonds were all just as important.”
The problem with KiwiBuild lies at its very core, as it has not been well thought out: “Not much market research appears to have been done before KiwiBuild was adopted. Some should be done if the Government is determined to press on with the programme.”
For the most rigorous and important ideas about fixing KiwiBuild, it’s worth looking at what economist Shamubeel Eaqub proposes. He wrote the original book, “Generation Rent”, about the housing crisis, and especially how it’s impacting on those at the bottom. Two days ago, his strong views about how “KiwiBuild is not fit for purpose” were published in Catherine Harris and Bonnie Flaws’ article, Kiwibuild should build more rental properties economist Shamubeel Eaqub says.
Eaqub argues that it’s time for the government to shift to building rental properties – and perhaps even more state housing. He claims that KiwiBuild’s core focus on increasing home ownership is simply misguided, especially given that the Labour-led Government isn’t willing to adequately fund the programme. The economist says that even if KiwiBuild meets its target of 100,000 houses, and if the private market also builds 250,000 homes, New Zealand will still be short of 200,000 homes. So however you look at it, the Government’s current plans are inadequate: “Not only are we not keeping up with population growth we are not even meeting current need. We need to much more ambitious about scaling it up massively.”
Rental housing has traditionally been the best way to deal with a housing crisis according to Eaqub: “The reason why I think build to rent has to be the answer is because that is how they solved the housing crisis post-war in Europe.”
To achieve a big increase in rental housing, the Government has to go beyond the current KiwiBuild plans: “Eaqub said that the problem is too big to be able to fix with $2 billion, the size of KiwiBuild’s fund. Instead he said we could partner with institutional investors to build rental properties or use the deep pool of money in Kiwisaver.”
Back in December, Eaqub also made the case for the Government to move more into providing rental accommodation rather than the less-affordable KiwiBuild houses, saying that the market doesn’t have the capacity to provide much social housing: “At the moment there is no one who can really do that, but if the Government says we’re in the market to essentially procure X thousand units of ‘build to rents,’ and we’re going to underwrite the rent at some kind of indexation, the stuff would be built” – see Catherine Harris’ Kiwibuild could ‘underwrite rental and social housing’.
For further critiques of KiwiBuild by Eaqub, see Dan Satherley’s KiwiBuild: Government ‘recalibrating’ targets for under-fire housing scheme. In this, the economist argues that KiwiBuild is currently the wrong solution to the problem. He says it was “never going to fix the underlying problems of the housing market”, which include “planning rules, infrastructure and funding for local government”.
He reiterates that just trying to get prospective homeowners into brand new houses is the wrong approach: “The new houses are expensive. In reality, what we really want to do is increase the supply of rental stock. That’s what New Zealand desperately needs – good quality rental stock that’s owned by institutions and well-managed.”
Also questioning the focus on brand new houses is Massey University economist Oscar Lau, who says: “why do the homes have to be brand sparkling new? New properties inevitably attract high bids and poorer families who just want to own a modest home will miss out. Instead of building new homes, the Government could buy a wide range of existing properties of different sizes, ages and in different neighbourhoods – and auction them off to qualified buyers” – see: An alternative to KiwiBuild that makes economic sense.
Therefore, KiwiBuild could be selling existing homes rather than building new ones, and leave the expensive new homes to the private market. Lau explains further: “This way the Government doesn’t need to meddle in property development. It doesn’t need to struggle with construction schedules. To avoid exciting the market, it would need to buy gradually and orderly, rather than splurge. More importantly, it could release some KiwiBuild land to the market for development, so new supply will balance its purchases.”
If the Government is determined to focus on home ownership, then it’s going to have to get more ambitious, and find some bigger and better ways of delivering. One such way is to use mass prefabrication, which the Government has so far been reluctant to invest in with KiwiBuild, probably because of the initial cost outlays.
Other countries have, however, successfully used mass prefabrication to solve housing crises. For the best outline of this, see Catherine Harris’ The key to Sweden’s million houses target – and Kiwibuild’s.
Here’s the key part of the article: “If you think the Government’s KiwiBuild target to fix the housing shortage is overly ambitious, just look at Sweden. In 1965, with a population of 8 million, the Nordic country began its ‘Million Homes’ plan to build 10 times as many houses as New Zealand’s target within 10 years. By the end of 1974, it had exceeded its target by 6000… How did they do it? Largely through prefabrication.”
In this story Harris says, “Research suggests offsite manufacturing can slash 15 per cent off the cost of building and speed up the time it takes by 60 per cent.”
One person with an interest in this is Warehouse founder Stephen Tindall, who says “You can construct houses for almost half the price that they cost here” – see the Herald’s If anyone can bring house prices down, it’s him: REINZ welcomes Tindall’s KiwiBuild interest.
According to this story, “The Real Estate Institute has backed Warehouse founder Sir Stephen Tindall’s interest in KiwiBuild, indicating that if anyone can bring down house prices in this country, it’s him. Bindi Norwell, REINZ chief executive, welcomed Tindall’s announcement that he was assisting one of the 102 off-site manufacturing KiwiBuild tender parties”.
Perhaps, therefore, the Government just needs to contract one big company to progress KiwiBuild. This is the view of “construction industry expert” John Tookey, who is reported as arguing that KiwiBuild “would have been more efficient to award a large scale contract to one company” – see Emma Hatton’s Building industry not surprised KiwiBuild won’t hit target.
The same article also suggests that the current KiwiBuild bureaucratic processes need streamlining. Property Council chief executive Leonie Freeman is reported explaining why developers haven’t been more involved in KiwiBuild: “Some of the feedback we’ve received is that from then on the process has been slow and very bureaucratic.”
Others in the construction industry are forecasting some big changes to KiwiBuild. For example, Property Institute chief executive Ashley Church outlines expected alterations: “This will take the form of changes to eligibility criteria, a coordinated Government ‘charm offensive’ to private developers, or some form of state subsidisation or delayed payment, or any combination of these” – see Catherine Harris and Bonnie Flaws’ article, Kiwibuild should build more rental properties economist Shamubeel Eaqub says.
The same article also draws attention to the Government’s progress on establishing Urban Development Authorities (“UDAs have the power like the NZ Transport Authority to use the Public Works Act if necessary to confiscate land”), and the promise to establish some sort of “shared equity scheme” for new home buyers.
In terms of possible rent-to-own schemes, it’s worth reading Stephen Forbes’ The Labour-Greens confidence & supply agreement promotes ‘progressive’ housing ownership models.
Here’s the key part: “Under the confidence and supply agreement between the Greens and Labour, both parties agreed to develop a rent-to-own scheme, or a similar progressive ownership model, as part of the KiwiBuild programme. Despite comments from minister for housing and urban development Phil Twyford last year that the Government was looking at the feasibility of shared equity housing, no details have been officially announced to date.”
But is the problem of the housing affordability crisis even one of supply? This is apparently what KiwiBuild is predicated on, and Peter Lyons challenges this in his column, Housing issue more complex than Govt might have thought.
Finally, is the Labour-led Government even inclined to fix KiwiBuild? Chris Trotter has written an extensive and insightful column about how the KiwiBuild scheme was created specifically within Labour to uphold neoliberal or conservative policy settings, and therefore there will be little appetite amongst the “Labour right” to bring about a housing programme based on “transformation” or “kindness” – see: On how middle class housing subsidies overwhelmed the social housing priorities of the Labour Party’s rank-and-file members.