Note: This article was first published on 30 January 2019 and does not incorporate developments since that date.
Much attention has focused recently on KiwiBuild, in particular the promise to deliver 100,000 ‘affordable’ homes over the next decade. This is illustrated by a recent public policy ‘think tank’ article critical of KiwiBuild,[1] and acknowledgement by Housing Minister Phil Twyford that he can’t guarantee KiwiBuild achieving its first policy deadline: to build 1,000 homes by June 2019.[2]
We examine the criticism and consider what KiwiBuild represents in the context of wider Government policy initiatives regarding urban development.
ChanceryGreen does not express a view on public policy initiatives of Government. Rather, this article represents a summary of published views, together with consideration of the wider legislative and policy context, including the role of the proposed Housing and Urban Development Authority.
KiwiBuild in a nutshell
KiwiBuild was a policy proposed by Labour in 2012, while in opposition, to address housing unaffordability, particularly in Auckland. As it currently stands, KiwiBuild is a programme “to deliver 100,000 modest, affordable homes over the next decade”.[3] According to the Ministry of Housing and Urban Development, “1000 homes will be built by June 2019 and a further 5000 the following year before the programme ramps up”.[4]
The scheme has been re-positioned to include not only new builds, but also (a) buying a house off a developer’s pre-existing plan, and (b) providing a free back-up Crown purchase guarantee to a developer for the KiwiBuild home component of a development.
From a purchaser perspective, certain eligibility criteria are imposed on purchasers. An income cap exists of no more than $120,000 for a single purchaser, or no more than $180,000 for more than one purchaser.
Will it work?
There is consensus that house prices in New Zealand are high relative to income, particularly in Auckland and other centres. However, it is far from clear whether KiwiBuild will restore housing affordability. It has been questioned whether KiwiBuild will even achieve its three core aims:[5]
increase home ownership in New Zealand
increase the supply of affordable homes in parts of New Zealand where there is a shortage
use government procurement to foster innovation and reduce the cost of building new homes
Distilling the arguments against KiwiBuild into their simplest form, it seems they can be expressed as follows.
First, the level at which the income cap has been set has led commentators to suggest that KiwiBuild is not aimed at low-income first home buyers. The obvious difficulty pointed out is that income limits needed to be high enough to meet banking criteria for mortgage loans, to avoid a lack of buyers.
Second, it is questionable what extent, if any, KiwiBuild is adding to residential construction activity. By including within eligible criteria purchasing off pre-existing plans, and provision of a back-up Crown purchase guarantee, it seems clear that many KiwiBuild houses would otherwise have been constructed anyway. Longer term, it is argued that private industry will supply the number of new dwellings for which buyers can be found even if government builds none at all.
Third, while difficult to quantify, it seems clear that there is some subsidy attached to KiwiBuild houses (either for the purchaser, and/or for developers), although the Minister has repeatedly rejected that suggestion. There is criticism of whether any subsidy is justified, particularly in light of the above criticism that buyers are obtaining the homes they would otherwise have bought.
Fourth, it is argued that the real housing affordability problem is that central and local government laws and regulations have artificially driven up prices. Various examples are provided of the tenfold increase in value of land inside Auckland’s urban boundary (compared to just outside the boundary), increases in building costs, and regulatory barriers to achieving economies of scale – presumably including infrastructure limitations. Critics suggest KiwiBuild is unlikely to do anything to address this underlying issue.
Media attention has focused on KiwiBuild of late, with Housing Minister Phil Twyford admitting that the initial target is unlikely to be reached, suggesting that only 300 homes are likely to be built during the first period. Deputy Prime Minister Winston Peters subsequently contradicted this statement, suggesting that he believed the 1,000-home target would be met. Whatever the outcome, the actual number of homes ‘built’ appears to be secondary to the more fundamental issues associated with tackling the country’s housing shortage, in relation to which KiwiBuild is one initiative among several local and central government proposals.
Role of Housing and Urban Development Authority?
Questions over the practicability of the KiwiBuild targets may need to be considered in the regulatory context. Government has clearly signaled the impending creation of the Housing and Urban Development Authority (see our earlier article on UDAs here).
One of the Authority’s key focuses is to: “drive the delivery of 100,000 KiwiBuild homes”.[6] While much of the detail is yet to be publicly released, the suggestion is that the Authority will be focused on the delivery of the Government’s urban development and housing agenda, including KiwiBuild through “transformational urban development”.[7]
Summary
Whether KiwiBuild is ultimately viewed as puffery (the concept was introduced while Labour was in opposition), as some critics lambaste, or whether it represents a phoenix, through which the Housing and Urban Development Authority rises, remains to be seen.
The Authority will be a Crown agency with access to a range of statutory powers to better enable development when undertaking large-scale, complex projects in a timely fashion. Until further detail is available, it is too early to assess whether this is, in practice, the most appropriate vehicle to construct a significant proportion of new residential housing stock. In the interim, it is also worth considering whether changes to reduce regulatory/construction costs; together with possibly introducing some mandatory element of affordable housing on new, private industry development (such as the ‘retained affordable housing’ as initially proposed in the proposed Auckland Unitary Plan, but later removed) might offer a more targeted, effective solution.
[1] The New Zealand Initiative, Research Note ‘KiwiBuild: Twyford’s Tar Baby’, 22 January 2019.
[2] https://www.stuff.co.nz/national/politics/110100100/phil-twyford-cant-guarantee-kiwibuild-will-meet-its-target.
[3] Ministry of Housing and Urban Development website, https://www.hud.govt.nz/residential-housing/kiwibuild/follow-our-progress/.
[4] Ibid.
[5] https://www.hud.govt.nz/residential-housing/kiwibuild/.
[6] https://www.hud.govt.nz/assets/Urban-Development/Housing-and-Urban-Development-Authority/Factsheets/HUDA-Factsheet.pdf
[7] Ibid.