By David Hargreaves
We’ve probably already reached the stage at which this Government has to decide whether it goes all-in to really do something about building more affordable houses or not.
The past week will have been a fairly dispiriting one for Housing and Urban Development Minister Phil Twyford and the pressure is clearly showing.
The launch last week of the so-called ‘Kiwibuild: Buying off the Plans’ initiative shows clearly the kind of brick wall the Government is already running into.
I note, in the spirit of fairness, that some interest.co.nz commenters actually like the scheme launched last week. I don’t, as I’ve made clear.
My main opposition to it stems from the fact that the Government’s putting taxpayer money at risk when it will have little control over the outcome.
For example, I could envisage a situation in which the taxpayer gets sued for the entire cost of a development that goes wrong – not just for the ‘Kiwibuild’ portion of it – whatever that is.
And of course the lack of actual specific ‘Kiwibuild’ house numbers to be built as part of this scheme is another problem. The delightfully vague word 'significant' is used to describe how much of a development should be Kiwibuild. That's not good enough.
As launched, the scheme looks like an attempt by the Government to effectively piggy back on already planned developments, so, that it can then claim some of these as ‘Kiwibuild’ and start establishing a running total with which it can fend off the National Party claims – which will keep coming – that the Kiwibuild initiative is failing.
Other interest.co commenters have validly said, okay, fair criticisms – but what should the Government be doing?
What to do
And that is a great question. I will have a go here in this piece but I really welcome your views on what you think might be done. There’s no ‘right’ and ‘wrong’ here. It’s a very tricky problem.
The reality is that fixing years of under-building in this country, with all its red tape, RMA, constipated planning processes stew, is a heck of a job. And probably more fool us for kind of believing Twyford and his constant refrains about the magical Kiwibuild taking us all off to the land of milk and honey.
It’s now clear Twyford never had a bomb-proof plan and really I do think the best thing right now for this Government would be to sit down have an honest talk with itself and the people of this country and re-work what it’s going to do.
Frankly it is going to be a nonsense if Twyford stands in front of a chalkboard and claims a running total of houses that are being built when those are houses that he’s effectively ‘grabbed’ and labelled as Kiwibuild. Because that’s classic government policy in play. Never mind the actual outcome – look at the activity. The effectiveness of a policy can and never should be measured in terms of the activity that goes into it. The only important thing is the outcome.
Simply 'tagging' houses that were already planned as 'Kiwibuild' is not necessarily going to lead to any more houses actually being built.
But in addition to the natural problem, which is a big one, that the Government has inherited, it's also created some problems for itself.
I think the Government has already hamstrung itself quite badly with some of its ideological and symbolic decisions.
Migration
Principal in this category are the so-called foreign buyer ban and the supposed move by the Government to clamp down on immigration levels.
These two things in particular become problematic because I think two fairly obvious avenues of approach to Kiwibuild would have been firstly to get offshore businesses involved in the supply of houses and secondly to have a very large scale temporary migrant scheme to bring in workers to construct houses.
Now, to take the second one there first, this will immediately get people screaming. Isn’t the huge inbound migration we have a large part of the housing problem? Yes, of course it is. There’s an obvious contradiction there.
Nobody’s been a bigger critic than me of the cynical gaming of the migration rules the previous National Government engaged in whereby ‘students’ could come into the country to do diplomas in stamp collecting (well not really, but you know what I mean - 'soft' courses), take up jobs and then convince everybody that they should stay. That’s flaming nonsense and has been a huge part of our problem.
Labour of course promised to do something about migration and since forming a government has deafened everybody with its silence on the subject.
Well, I still think the migration tap’s got to be turned off, particularly on that ‘student’ flow.
But in terms of building workers, well, needs must, sometimes. And if we had to get people here on a temporary basis – and make it damn clear it is temporary – to do construction work then so be it.
Foreign buyers
Okay, the other contentious thing I just mentioned before was getting overseas companies involved in construction. There would be two potential ways of doing that; specially invite companies in to tender building houses, or large-scale importation of pre-fab structures.
But the Government’s already cast doubts an whether it could do such a thing by the decision to push ahead with what is termed a foreign buyer ban.
This one again becomes contradictory. Basically from about day one of starting work at interest.co. nz in 2013 I have spoken in favour of a foreign buyer ban. Like the one they have in Australia; specifically say that people who don’t live in the country can’t buy an existing house there, but they can build one.
Unfortunately, and don’t fool yourselves, what this Government is trying to push through as legislation at the moment is NOT a foreign buyer ban. Not really. It’s much broader and cumbersome than that. It’s a dog’s breakfast of a thing bringing in all kinds of nonsense about sensitive land ownership.
It was the Government’s overly cute attempt to do a foreign buyer ban when existing trade arrangements we have mean we can’t do one like they have in Australia.
So, and I commend anybody to get through and actually read the draft legislation, what we have is an onerous, complicated piece of xenophobic looking law that will simply put overseas interests off investing here.
Now, it might get fixed in Select Committee and we’ll have to see what’s reported back to the House at the end of this month.
Fix it first time
Personally though, I’m always very wary of something that’s a mess first-up, which you then try to fix. Better to do something at least 85% right first time.
As it is this foreign ownership legislation is likely to ultimately have so many additions and alterations around things like forestry concessions and companies that have large offshore ownerships buying land as just part of their business that I think it’s likely to prove an unworkable atrocity. I will be happy to be proven wrong on that if it is the case.
But anyway, for the aforementioned ideological reasons, the Government’s already made its job of getting affordable housing built harder.
So, what are some ideas worth looking at that would be better than an underwriting scheme that would let the Government appear as if it’s doing something?
I think it was always clear that the Government would have to subsidise the building of cheaper houses. I don’t have an argument with that because the country’s got so behind the eight ball on this one now that ‘big’ solutions are needed.
But notice I say ‘subsidy’ rather than underwrite. When Twyford first talked about ‘buying off the plan’ he did so in broad brush terms along the lines of the Government going in and buying say large portions of an apartment block. Yeah, don’t mind that idea. That’s not what has now been promoted.
Control the process
First up the Government needs to have some level of control in the process. For a start, what about establishing definitively what a ‘Kiwibuild’ house should be and contain? I mean this in a very encompassing way, such as materials to be used, dimensions, room numbers, type of kitchen, fitted facilities, etc, etc. Specific stuff. That’s where prefabrication, however, that’s achieved, would be a useful leg-up.
Then what about construction, getting these houses built? I would suggest some special legislation that means the normal agonies of RMA and local government could be sidelined. If we believe this is a crisis, let’s treat it like a crisis. Look, if we could do something like that for the Christchurch rebuild we could repeat it around the country – and particularly in Auckland in order to get the housing situation looking something like under control.
In terms of building the actual houses – well, this idea of trying to piggy back on existing developments really is not a good idea.
The Government needs to be able to say, 'we want X number of houses built and they need to look like this'. Therefore the Government then has control over the outcome and the taxpayer is only exposed to amounts of money that have been pre-committed. Never give anybody a blank check with taxpayer’s money! Never expose the taxpayer to potentially open-ended losses!
I think the Government should establish ‘preferred suppliers’ from the private sector. Sign a contract with companies for provision of these houses.
Could the Government establish a publice/private company for the purpose? Could you maybe even look at listing it on the sharemarket?
Okay, the latter point is questionable, because it would suggest that you need to be able to generate a profit. But what about that? A public-private listed entity engaged in the public good of building the size of the housing pool. Has the NZ Super Fund been talked to in this regard? Now, I certainly don’t believe in the idea of using the Super Fund as some kind of slush fund – because that would then ruin its central purpose. But if something could be structured whereby the fund thought it was commercially viable, why not? We’ve already seen the fund get involved with an unsolicited bid for the Auckland light rail. It’s clearly interested in things that add to NZ’s infrastructure – if it believes it can get a reasonable commercial return.
Rent-to-buy
Ultimately, I think what needs to be looked at as the key part of any successful Kiwibuild strategy is rent-to-buy. I can’t see a better and more viable way because it gives everybody what they want and gives the Government more time to achieve it.
I know rent-to-buy was talked about in Labour’s agreement with the Greens upon the setting up of the Government – but I’ve heard precious little said about it since last October.
Logic suggests to me that this is actually the best way to go.
What would be required? Well, you’ve got to build houses that people would be happy enough to call a home over time, let them in as renters and then give them the chance to buy out the house over a long period of time.
Yes, that means putting taxpayer money up – but as a loan rather than an open-ended, possibly no-limit underwriting agreement as the scheme launched last week appears to be.
And as I say, maybe you could set this up as a separate, perhaps listed, company.
Now yes, I know the Government is planning a specialised Housing Commission, but it makes sense to go as far and as wide as possible in terms of getting people involved and on board. Therefore, a Government/private combination makes a lot of sense.
In terms of access to money – and this is where the Government needs to sit down and really talk – well, I think they probably should bite the bullet and say, to heck with it, we will borrow more, we’ll extend the debt ceiling.
Borrowing another say $5-$10 billion right now at such low interest rates is not going to bust the country.
It goes back to priorities. Kiwibuild was a flagship policy. Well, so far as I can see the flagship is already taking on water. If the Government’s really serious it would borrow more.
Disheartening so far
Last week’s announcement by the Government was very disheartening. It showed a desire to be seen to be doing something rather than to ACTUALLY be doing something – and it did it in a way that put taxpayer’s money at risk without any real sense of control on the outcomes.
The Government has to be able to control these outcomes.
Furthermore and looking out many years, once we’ve actually got the housing situation to a state where we feel its moving in the right direction, I think there needs to be an ongoing state monitoring authority that measures whether we have the right numbers of houses and where there may be future points of pressure.
We left it to ‘the market’ to sort out the level of housing in this country and the market has let us down, basically. So, the state needs to ride shotgun over it all in future – so, that we don’t in future generations, face this situation again.
What all this means is that the Government should be prepared to front up and state that this is all harder than it thought and that the solution needs rethinking. Carry on the way they are heading and I think it could be a disaster.
Would they have the guts to do a rethink now? Well, that could be a key test of this Government’s worthiness.
113 Comments
the sums simply did not add up .
"The sums didn't add up"....to what? The govt could provide "affordable housing" without these imaginary budgetary constraints. It could create all the financing it needed in a split second...if it had the political will. The idea that that this is all about constraints is pure nonsense.
It *could* work if the building process was made competitive. The labour component can be cut down by mass production methods but land and building materials, which account for about 3/4 of a new build are both at ripoff prices because of the red tape everywhere.
Okay fair enough Labour. It's all too difficult. It requires effort. No problem; How about dropping the immigration flow then?
Labour/NZF are just a wolf in sheep's clothing. They don't actually want house prices to be affordable by the dictionary definition. They just want housing to be smaller and come with a "KiwiBuild" stamp.
If all the parties are going to support high immigration neo-colonialism and 100% Pure Ripoff NZ ™ then I have to say at least National will give me a tax cut and drop the social justice crap.
It would seem that Labour is under considerable pressure to meet Election promises.
Interesting to see that Shane Jones was quick to commit very loud and publicly to Regional Development expenditure and Winston Peters to Foreign Affairs.
Is this now leaving Labour short on other promises such as GP visit costs, heating allowance for beneficiaries, and education spending which it is back tracking on.
The honeymoon period of idealism for Labour possibly appears to be over.
I put a lot of this down to a lack of effective leadership at the top. ‘Fake it till you make it’ is a strategy for juniors in office work, not those leading a Government.
The Manus refugee stoush was just the start in a series of multiple gaffes by the PM. In the Corporate world, Twyford would have met with his boss, the PM, and would have come out with an understanding of what was expected and what support he would receive from her while he achieved his KPIs. Instead, he and the COL have been harried and hustled by an Opposition and its followers, like me, into showing progress where there clearly is little to see. A PR disaster.
Imagine how different it would be if they had simply admitted their policy gaps from day 1 and asked for broad help? Instead their narrative is to look back and say it’s not great under us but it’s better than under National, antagonising 44% of the voters and even worse they are the ones that make things happen.
Good piece David.
The government are disappointing me on the two key policies I voted for them on - housing and immigration.
In terms of housing they just have to bite the bullet and build housing on scale ie. the original Kiwibuild plan. But let's be a bit fair here - it was always going to take time to get this underway.
I would also like them to be a bit less obsessed around traditional home ownership approaches. They need to look at shared equity, leasehold etc. The Kiwibuild price points are still too high.
The government are disappointing me on the two key policies I voted for them on - housing and immigration
Immigration is a tough one for govts. It is probably one of the best ways of inflating GDP without actually doing anything to improve the output potential and productivity of the economy. Australian pollies have been using this ruse for years but some people are starting to fight back as their infrastructure and housing capacity begins to creak.
Being fair; just how long should we be willing to wait to see them building their promised additional 10000 houses before we call them out for it? That means lifting build rate from ~30000 per year pre-election up to 40000, not just bullshit relabelling a third of those 30000 houses as 'kiwibuild'. A house takes about 2-3months to build, and as govt they have numbers and powers to fix regulatory impediments and issues anytime they feel like it, should they be focused and motivated to do so.
They have billions to waste on bribes for middle class students, Winston's foreign jollies and Shane's big porky bribe fund, but with all those resources at hand it seems they just can't figure out how to get houses built, admittedly difficult when their only demonstrated skill is organising talk-fests for commercially ignorant lefties.
Those who can, do. Those who can't, teach. GB Shaw. (Looking at you Mr Hipkins)
The planning/consent process at the moment is adding a huge amount of cost to new houses for no benefit to anyone except council employees, and their arse-covering legal depts. I am personally aware of a 200m² house build where the council mandated foundations (30-40 piles, 400mm diameter, 20mm rebar, 4-6m deep into bedrock, 3 separate inspections required during installation) and a tiny culvert that could (without hyperbole) support a structures and vehicles 10x heavier than what they need to (with running water from a 1/2 hectare catchment about 2-3 times a year) adding >$200k and >6months, but added nothing to the finish house fit-for-purposeness. If you rolled back the regulatory regime to eg early 1990's (caveat emptor, copper based wood treatment) can you imagine how much that would be saving?
Councils pushing all of it's infrastructure maintenance/upgrade costs onto new house builders is great for vested interests of existing home owners. But it creates huge negative impacts on society with the way it raises the marginal cost of housing - establishing a far higher price floor for the market. It is better for the country if those new infrastructure development or upgrade costs are shared across the whole user base, as is done with most new roads etc, rather than eg creating astronomical service connection fees to cover water service upgrade costs and making all the new homes install measures (permeable surfaces, big soak pits etc) to eliminate existing storm water runoff problems, that has new builds effectively subsidising existing home owners. This would be a simple legislative measure that could knock up to $50k off cost of new houses.
Health and Safety has also become ridiculous - mandatory scaffolding for the most minor of work like clearing leaves from guttering. Exhaustive safety planning, armies of clipboard and cone-monkeys for anything near roads. It is effectively near impossible to build a house while being compliant, and it is adding 10's of thousands to build costs, without a positive economic business case (even accounting for slightly reduced accident rates). It has also destroyed our ability to build or maintain infrastructure economically. The price of this H&S regime is simply orders of magnitude higher than whatever cost it was trying to save.
Branz's effective defence of various building product cartels is also very negative. NZ building products are substantially more expensive than in other western countries.
Councils pushing all of it's infrastructure maintenance/upgrade costs onto new house builders is great for vested interests of existing home owners. But it creates huge negative impacts on society with the way it raises the cost of housing - and so establishes a far higher price floor for the market. It is better for the country if those new infrastructure development or upgrade costs are shared across the whole user base, as is done with most new roads etc, rather than eg creating astronomical service connection fees to cover water service upgrade costs and making all the new homes install measures (permeable surfaces, big soak pits etc) to eliminate existing storm water runoff problems, that has new builds effectively subsidising existing home owners. This would be a simple legislative measure that could knock up to $50k off cost of new houses.
Good point. The trick is getting people with the vision to carry this out, and the ability to get it past those who insist they should get their betterment without any of the burden.
What is the point of building 10,000 houses a year when they are letting in 70,000 or so immigrants and refugees.
They have run out of money to supply the basics of health and housing when they are throwing a billion at the Pacific Islands and embassies
I voted for Winston last time but never again.
This Government is no different to the self serving National mob we had before.
Next election I may as well go fishing instead of voting!!
So where a) do you get the land from? b) and who pays for it?
a) only on land outside the boundary can mass building be done, which isnt cheap unless you "confiscate it a rural prices and then re-zone and sell it cheaply. Politically this is so hot its nuclear, ie nationalisation of the land is just to toxic to even mention.
b) So build lots of houses, who fronts the money up and then as house prices collapse, who wares the loss?
"shared equity/ leasehold" is just more risk and cost being dumped on the tax payer.
"price points still too high" agree but there is no easy fix except a) and no pollie wants to die of radiation poisioning.
These two, and particularly Alan Johnson from the Salvation Army were talking a lot of sense;
http://www.newshub.co.nz/home/shows/2018/05/panel-social-housing.html
Housing is a three-pronged problem: housing those currently homeless; housing those that need state intervention (social housing); and making NZ housing more affordable based on incomes.
They also suggested that the government look to shared equity as a means to answer the last of those three issues, affordability, but Alan Johnson sensibly pointed out that the focus ought to be on social housing - urgently. Many of the people in sub-standard private rentals, receiving the maximum allowable accommodation supplement, ought to be in social housing. And if the government just got on with building more state houses and introduced a shared equity scheme for those tenants in future, should their lives become more stable and they succeed in obtaining full time, secure employment.
Hence, I'm kind of glad that the government isn't planning to borrow up large on Kiwibuild at this stage - as I suspect many of the qualifying (i.e., never owned their own home before) folks renting sub-standard properties presently, ought to be in a state house in the first instance.
In my opinion, anyone on the maximum Accommodation Supplement ought to be in a state house - as I'd rather be subsidising the use of state-owned assets with taxpayer dollars.
Hindsight is an exact science , I voted for Peter's , it was a mistake that will never happen again . It never even crossed my mind that he would actually go into a Coalition of the Losers.
Like many at the Takapuna Bowling Club , many thought that Peter's would get into bed with National and temper National's rampant immigration policies , thereby buying some time to get infrastructure like roads and hospitals built to cope with the numbers of newcomers .
It was not to be , instead we have a bunch of idealists mostly comprising arts, social science and political science academics who never learnt to do sums in Year 1 at school, promising to build everyone an almost-for -free home , with money that would fall like manna from heaven .
They made promises to a gullible electorate that they must have known they could not honour .
Labour also played the card called the "Politics of Grievance" , a risky card to play as it was used to play to those locked out of home-ownership and affected by immigration
Most people over the age 55 know only too well that the idea that "Wellington will provide " is a myth .
Peters is a political prostitute , and I would suggest that the vast number of members of the Takapuna Bowling Club are outraged at his deceit .
next time before voting ignore all public opinion and read the bios on each political parties website first and ask yourself the question "would you employ them?"
Apart from Parker the entire caucus are in my opinion "unemployable"
The fact that they can’t deliver on anything they electioned on isn't rocket science. It was entirely foreseeable
The fact that 35% of the voting public voted for the CoL is in itself concerning.
They're all liars, but Peters is the biggest liar of them all.
https://www.nbr.co.nz/sites/default/files/styles/article_full_300w/publ…
@ Davo36 the HONEYMOON IS OVER , we voted for them , they now need to perform , no more BS will be tolerated , no more obfuscation , wriggling , lying or cheating or spin will be tolerated .
They must be held to account or the Government should resign and hold a snap election
Pretty sure JK takes the cake for the biggest liar of them all....did you see how big his nose was by the time he left office....could have been confused with Pinocchio! But we put up with that lots lies and under performance for 9 years! This government has had 6 months...take a chill pill..Sure after 3 years, no performce, lets vote them out....but your bias is so strong that its impossible for you to pass judgement free of prejudice - it's a little concerning....Even if they did a magnificent job...you'd say 'they're useless'. So whats the point in listening to your opinion if you can't open your view a little and give them the opportunity to perform - then pass judgement?
I don’t think it’s an either or. I agree that if badly managed the developer thing could go wrong, but I’m assuming they are smart enough to minimise their risk and exploit their strengths.
Regarding the wider programme, here is what I believe needs to happen:
• The government needs to be building greenfields and at scale. If they aren’t taking worthless land on the outskirts and building a new suburb they aren’t doing it right.
• They need to exploit their control over transport spending. Land value goes up with good transport links. Buy the land, then commit to a new road, bus lane, and if possible train service. Bingo, the government is making money.
• Drive innovative construction methods. People building house factories need certainty of demand, sign a contract for a thousand houses. Bang. Do it with three suppliers, now you have a new industry. Better yet, force them (as part of the contract) to sell another thousand houses to anyone who wants one at a similar price. That way you can buy say 3000 homes per year but get 6000 built. The biggest problem for housing factories is finance, the government can address this by guaranteeing purchase of any private sales (based on same template) that fall through. What do they care if they have to buy an extra 100
homes on 3000?
• Break the building supplies duopoly (or whatever it is) by buying from new suppliers who meet quality standards. Also buy new materials like that fancy wood stuff.
• Create incentives for training - encourage apprentices and let people import some labour. As long as they are doing both.
• Think long term. Who cares what they do this year. Get the infrastructure in place for big capacity. Buy the land, set up the factories, then watch them come off the line. Focusing on the short term will miss some of the points I outline above.
The track record so far isn't good. Buying expensive land at full price. Twyford has stopped talking about prefabs and factories. Transport links to the outskirts are burdened with fuel tax. The building regulations are the same. Thinking is short term focus on sound bites and headlines.
If that is all true I’ll be the first to jump on their back but it’s premature.
The Mt Albert site was central and had to be bought as such.
You wouldn’t expect them to crack the industrial stuff yet. Those arrangements will take time, as will further land purchases.
But if they aren’t pumping houses out of factories for greenfields building by next election they will have a bloody hard time getting my vote. So they have 2.5 more years to get cracking. That is fair.
Great piece David, you really summed it up and called it as it should be called ... The fig leaves are dropping and we just need to watch that in horror.
Labour has tangled itself with too many ropes and nooses ( not only public promises) to the extent that it really looks like a loser and cannot effectively backtrack without losing face.
I think they have put themselves between a rock and a hard place regarding the housing market. The contradictions are everywhere be that in KB and Rentals, Investment, and business elianation.
Creating virtual enemies ( landlords, boomers, business) during election campaign have hurt them badly.
Now, it is not surprising that they would resort to deception by shamelessly claiming and branding parts of actual projects as KB - how much lower can we go ?
Gov's duty is to look after the poor, the homeless, the vulnerable, and the needy including its senior citizens in need.
If the Gov takes care of the above, The markets will rebalance and its complicated mechanisms will correct itself in due course. Prices and supply has to meet Demand - that's how markets work.
Whenever Govs attempt to fiddle around with big markets , the results will always be disastrous ... even if it was run by clever technocrats and experienced industry players.
It is impossible to expect results in key important areas like housing when the key ministrs managing it are either clueless ex-Activists or strangers to the industry let alone day dreamers with left field ideology !
I was expecting these results a bit later in the piece as it was quite obvious that just smiles and moaning cannot build houses and this CoL will be exposed sooner than later. But they proved that they are already drowning in a shallow puddle ( with their fully costed budgets) !
If they wanted to solve the housing issues, they should bring in the industry players, swallow their pride, and HELP them solve the crises. Not the other way around!
A clever Gov knows what levers to pull at the right time to negotiate the best outcome for the people instead of imposing its wet dreams on everyone.
Eco bird - this is disruption. Industry players are great but they need to be on board with operating at scale. If they want to do status quo then we need a new batch of industry players. That is what the industry players need to understand, there will be those that contribute to kiwibuild and prosper, and those that don’t and proposer a lot less.
@Hardly,
For starters, Industry players ( of all colors and shapes) know that the prices PT has hanged himself with are not feasible in Auckland ATM ... No one will work to lose money. hence as I said , a clever Gov can make things happen by adjusting its parameters to be more realistic. It can also use its influence to free up land and initiate big projects not steal existing ones!.
I agree that duopoly needs to be broken fast, but you need to elect a Gov with Big Balls to do that - everyone was hoping that this CoL with big mouth WP, JA, et al will do it, but like immigration they seem to be hesitant and busy pissing business off in other ways and areas ! they are more like looking after their mates in the TUs and enjoying splashing the money. The public is not stupid and will take all this into account.
They can also award projects to smaller contractors or invite international project bidding and allow import of basic building materials to speed up projects - it is ridiculous, by any measure, for buildings, roads, infrastructure and bridges to take years instead of months to complete while costing twice or even 3 folds the actual price.
While it is good to have politicians with visions and ideas, but putting dreamers and noobs incharge of a huge workshop is disastrous and no one should expect any less.
Contrary to common belief, the market works perfectly on S&D and adjusts prices accordingly - there is no monopoly in the housing market.
Building will flare up as soon as market confidence and trust is restored.
So instead of chasing Property investors out, pissing business off, Taxing everything that moves ( land or CGT) , and putting spanners in the wheels, this CoL should get on with Land release, clipping the RMA and Local Gov wings, and reduce bureaucratic barriers and contributions towards building cheaper houses by the developers.
By doing that, they will encourage developers to employ more people, take on apprentices, build more houses, and bring the prices down as cost decrease. ... AND increase income tax intake !!
‘The market works perfectly on S&D’ - a statement that is demonstrably not true.
You claim you can’t build a house for $600,000. We need to take house building back to first principles as Elon Musk would say.
• Building materials cost too much - easy, use the governments buying power at 10,000+ houses per year to drive that down 30% to Australian prices, buy them in bulk Fromm australia/China if you have to.
• Land - we know it’s expensive, buy it where it’s cheap and if people get silly use other powers to get it.
• Consents - building everything the same state house style and streamline the consent process, use legislation if you have to like someone else said.
• Labour - build it in a factory so labour is more productive.
One of the reason houses are expensive is we don’t think big enough. Once you commit to 100,000+ houses and I mean really commit to it the prices will fall for the reasons I’ve stated above.
Seems it's standard play for governments, the last government did the same by establishing some of the SHAs around subdivisions in Weymouth that were already underway. I always felt any counts of housing supplied by the SHA framework should have excluded those that were already underway before the SHA existed.
We are like mushrooms , kept in the dark and fed occasional bullshit when it comes to housing policy .
Having read this piece a second time , ( always a good idea ) I agree its well written and to the point .
It would be good if we also discussed what the actual stance of the Government is w.r.t. landlords/ residential property investors .
What does the Government actually want ?
Landlords are as maligned a group as the untouchables of India , but an essential part of housing provision in the country , given something like around 40% of Aucklanders live in rented accommodation.
The Government clearly does not want people investing in Residential Accomodation , its going out of its way to make it unattractive
But Why ?
Helen Clark was instrumental ( I understand ) in making it easier for the private sector to supply rental stock when she realised that the NZ Government could not be a benign landlord to everyone .
She had the sense to realise that HNZ previously Housing Corp. was an utterly shambolic extension to the Social Welfare system , many tenants in State Houses would not / could not / refused to , pay any rent whatsoever .
So State housing became largely for the poor, the unemployed, the under-employed and the indigent
The cost of extending state housing to everyone would result in destroying the productive sector as the tax rates would need to double .
Thats why we have what we have now .
its time for the Government to state its case explicitly , preferably documented , instead of in dribs and drabs by making excited announcements after Cabinet meetings and making up policy on the hoof .
it also needs to clearly outline its strategy with timelines that are achievable and make practical sense ,
Until its honest and open with the people , we are all just mushrooms , in the dark and fed occasional bullshit.
Landlords are as maligned a group as the untouchables of India , but an essential part of housing provision in the country , given something like around 40% of Aucklanders live in rented accommodation.
Why are they "essential"? How many landlords add to the housing stock? They are looked upon with scorn when they say that they "take risks" in a system that is overwhelmingly designed to "remove risk." The problem with that is it creates market distortions and heightens other "risk".
So JC who is going to provide houses to rent if there were no landlords or residential property investors ?
We know that many renters will simply never have the deposit to buy , they either don't earn enough or are hopeless at saving , or worse they have a bad credit record .
They dont qualify for a State House ( and there are not enough State Houses ) , so the Beehive cannot provide houses for them .
They are forced to rent from landlords , its the harsh reality , but it is what it is
So JC who is going to provide houses to rent if there were no landlords or residential property investors ?
The "provision of houses" is completely different to "providing a house for rent." The former adds to housing stock, the latter doesn't. In the case of the latter, "ownership" does not increase supply of anything. Landlords have always existed. It has just become a more attractive proposition shaped by the FIRE industry and govt policy.
The govt could buy existing houses and sell them at "affordable prices" and taking a loss. Not too much difference in doing it this way! Because the private developers would presumably continue to build what they were going to in the first place. And of course sell them at market rate.
Problem is that its simply uneconomic for developers to build small low-cost houses given the cost of land .
Quite simply the profits are much better in the upper end of the price market , maximise the size and the price seems to be the policy .
Its a joke that a 1 bed Kiwibuild is going to be $550k .
Problem is that its simply uneconomic for developers to build small low-cost houses given the cost of land
OK, a similar problem to S'pore, Shanghai, Hong Kong, and Tokyo. How have those cities dealt with high-land costs? At least one solution is to build high-density, state-owned accommodation. S'pore and Tokyo have done it quite well as a social policy in a "free market" environment.
Lets not forget how the homes in Singapore are funded .
Its done through something called the CPF which its a pension -fund backed system where you contribute up to 30% of your weekly wages to your pension and when you have the deposit you draw it down .
If you sell you put the proportionate share back into your CPF .
We are Kiwis, not Confucians , we dont save 30% of our wages in a pension or other savings accounts , we prefer to spend the money , in fact we spend more than we earn on tick , cards , etc
OK, you do have somewhat of a point, considering that S'pore's h'hold debt to GDP is approx 40% of what it is in NZ. However, that does suggest that public housing model (through HDB and CPF) has been a relative success. Why? It's clearly obvious that NZ h'hold debt is largely comprised of mortgage debt for the purchase of existing housing stock (I didn't say all).
You have to admit that there is no strong reason why the land cost needs to be more oppressive in Auckland than in S'pore or Tokyo. And as I suggested, if the status quo in NZ cannot be changed, following these housing provision models should be a viable option, even if the manner in which they're funded is different. Of course that is likely to mean that NZ's public debt will explode. But so what? Are the implications really that bad?
I agree.
There is going to be a big and growing hole in the Auckland rental market unless the government starts building rental housing for those on lower-middle to middle incomes.
The private sector won't/ can't build this sort of housing and Kiwibuild is for above middle income buyers.
This -rental housing for low/middle and middle income earners - is the big elephant in the room.
HDB housing is all 99 year lease hold as well. It will be hard to change the mindset of kiwis into buying that.
OK. Let's assume that affordable housing is unpalatable politically, culturally, and economically in NZ.
What happens then? Persist with the status quo?
No one is stopping anyone from challenging the status quo. However what works in one country may not work in another. It may seem simplistic on the surface to copy Singapore's housing program but in reality our countries are poles apart in many aspects.
Ever wondered how asian countries can develop their infrastructure at eye watering pace? Eg. Months to build a new motorway instead of years. Building a complete lightrail network takes years instead of decades.
Countries like Singapore have very little red tape, no need for endless consultations and hoops to jump through, whatever the government says goes.
Also many asian countries have no minimum wages which enables importing thousands of foreign workers temporarily for a project. This will be opposed here due to a right of a minimum standard of living, stealing local jobs etc.
I think to you will be closer to finding the answer to "What happens then" if we can understand how a society like Singapore (with no natural resources) can have contrary outcomes compared to western nations like:
-no minimum wage but have one of the highest average household incomes worldwide
-no social welfare yet virtually no poverty or homelessness
-no superannuation but most people retire comfortably
-being very tough on crime and have low crime rates (may seem like common sense but it is widely accepted in western nations that there is no correlation)
No superannuation, no welfare.. they have the CPF, which from my quick reading seems to be effectively compulsory govt run kiwisaver with deductions around 20% from the employee side, and something fairly similar from the employer side, and deductions split between a retirement account, medisave account and ordinary account (which can be used to help buy a home like kiwisaver).
So it's different, but not exactly laissez-faire.
The big difference, which would not go down well with a lot of kiwis, is as you say, the govt says this is happening, and there is little/no consultation or citizen objections tolerated, the govt just does what it wants.
"I would suggest some special legislation that means the normal agonies of RMA and local government could be sidelined."
This is crux of the problem furthermore why should the Govt be exclusively exempted from its own rules. The Govt have clearly discovered just how hard it all is. How insanely complex the process of developing and building houses has become they have effectively thrown in the towel and turned to the private sector. The solution must be strip back the RMA and local body road blocks, ensure true building supply competition and allow market to deliver.
I agree 100% with you. Funny thing though is that this government loves regulations and planning the economy. The fact that this PM said that capitalism has failed is evidence of their incredibly naive understanding of the world. The best solution is actually create a free market - remove the building restrictions and allow people to make their own decisions.
Well if we want to play that game....what's your address? I'll ask all the homeless to pitch their tents on your front lawn and given we want free rules around economic policies, lets do the same around law shall we? I want to do this or that without regulation, then lets do this or that without regulation....
Why can't they use SHAs in Auckland's rural area?
Do what Queenstown did. Ask for expressions of interest, council can set reasonable expectations around urban design, affordability etc.
don't do a plan change in parallel. That kills the incentive to build. Make it 'use it or lose it'
I built 3 apartments some years ago. Never, ever again. Auckland Council made it a nightmare.
I don't mind the normal commercial risks, but when all of the risks are what council are going to do to you before during and after you build it's just not a proposition I'd consider again.
From my older experience,
council is very fluid in its demands, moody, and very flexible with time.
Compliance, building details, engineering queue, ridiculous askings and exaggerated demands at times when details are not that straightforward and open to interpretation ( let alone asking for a perfectly correct job to be redone).... time has no value for the council .. while your till is continuously ringing.
The last thing you would want to do for living is be a planner, property developer, or contractor with council related work.
Fritz, I blogged about it on Property Talk, then my own blog, but it runs to 60 pages! It was quite cathartic!
I was also in the Herald and on Leighton Smith's show. Such were the egregious things they were trying to do.
I actually got them to pay me money at the end! They had to reimburse me for my costs in fighting them.
Nearly all the problems were with the planners. Arrogant bunch of ba***rds. The RMA allows them to put more or less anything in a resource consent they like. And then you have to fight them on those conditions.
I'll quickly detail one issue: Existing 2 level commercial building in CBD area, south Auckland. I build 3 apartments and an office space on the 1st level and a retail space and car parking on the ground floor. Each apartment and the office space had a balcony out over the footpath set into the veranda.
Everything is all signed off, CCC issued. Then the SuperCity is put in place. Then I go to put them on separate titles. Auckland Transport say to me "Those balconies are in our air space. you will have to lease them back from us..." So the fu**ers want to take the balconies and lease them back to me... on their terms which were along the lines of: 5 year term, any rent they want to set from time to time, they dictate usage, hours, noise levels. Lease not necessarily renewed after each term blah blah blah.
That was just one of 7 quasi legal battles I had with them...
I don't like to invest in apartments,
1) there's no land attached to it (the bit that actually rises in value over time)
2) there's generally no way to improve the value of your investment (you can't change it, make it bigger etc)
3) you're always at the merci of the body corp rules.
Still, if I had to answer your question, I'd say 6-7% min yield to cover mortgage, rates & body corp fees. (I don't believe in negativley geared investments)
Thanks.
And that's why we are going to have a big rental crisis.
You have raised common, valid objections. And any investor at today's new build prices will be doing well to get a yield of more than 5%.
So that is one of the key reasons that private sector apartment development has slowed.
Pricing is rational based on overall return of which net rental income is part. I currently earn 3.50% gross on my one year term deposits. With no prospect of capital gains it would take a net 5% plus return on an apartment to even get me slightly interested. I really like the long term apartment shell concept. I don’t want to fund all of the things that people wreck. I’d happily go 20 years plus on an asset if I thought the regulation environment was neutral. However I don’t think it is.
Tony Alexander wrote the following in his weekly piece 3 days ago, and I quote
"One of my properties is a little studio in Auckland.
At a stretch it might sell for just under $300,000.
Let’s assume it did. I could bank a capital gain
and feel clever. But what would I then do with the
money as a conservative investor?
If I put the $300k in the bank I could get 3.5%
which after tax would deliver $7,000 in the hand
each year. After ten years I would have saved up
$70,000 plus some compounded interest.
If I keep the apartment I also will get about $7k in
the hand after expenses and tax adding up to
$70,000 plus some compounded interest.
Am I indifferent between the two options? No.
After ten years my $300,000 term deposit will still
be $300,000 plus the accumulated interest. My
little apartment however is really, really unlikely to
still be priced at $300,000 a decade from now. I
would expect it to rise at a pace of at least 2% per
annum.
Therefore, attractive as the thought of getting
$300k in the hand is at the moment, if the
alternative is placing the capital on term deposit
and watching inflation eat my capital away I opt to
keep the property and rent it out.
Of course there are other alternatives such as
investing in equities. Would I personally do that? If
I did I would space my entry into the markets over
an extended period of time, say 12–18 months. I
would also probably not pick my own stocks and
opt for whichever fund had the lowest fees. Over
the long-term investment in a diversified portfolio
of equities tends to yield good returns. You can
opt for a portfolio biased toward high dividend
stocks if you want some decent cash income
along the way."
From a near retirement builder I know:
Old math (20 years back) used to be 1third land, 1third building and 1third profit (from sale price), and a builder could do 3-4 houses per year, they would occassionally have a major loss on one but average was OK and finance costs were low (because median house prices was say~$400K).
Now $6-700k for section and $400k for build gets you a house you might be able to sell for $1.2. Profit margin is small, and more frequently a loss, with much higher financing costs due to long drawn out build processes due to slow consenting and inspection processes.
Building houses in Auckland is a bad business to be in at the moment.
I am in my late forties and my father is 77. His first property project was converting an old villa into 2 dwellings. Must have been around mid 60s.
To get a building permit, his brother drew up some basic plans showing where the internal walls would be and they went down to the council office who issued a permit within a week or so.
Then they did the building work and got it signed off at the end.
Compare that to what you would have to do today...
Isn't part of the problem that we've allowed the cost of leaky buildings to be socialised instead of requiring private industry to stand behind the quality of their work? Councils would naturally push up compliance requirements to protect themselves from having to pay for the bad quality work of the construction industry again.
That private industry was ever allowed to say "But it's your fault, you didn't stop us from building leaky buildings" and pass the costs onto taxpayers is a sad thing indeed. No personal responsibility, no standing behind the quality of one's work. Plenty of hiding behind LLCs and subsidiaries that could be wound up.
There isn’t an easy way for the government to extricate themselves from this commitment. They may just need to just commit the resources be that directly or through a PPPs to scale supply.
That said if they were under pressure to deliver I would have expected them to tighten up their stance on immigration already to ease demand. Having prices falling nationwide for an extended period would probably be sufficient progress to point to next election. Obviously they've not so perhaps they know something we don't?
Watched the particular clip again – goes more along the following lines in terms of immigration policy/settings:
“changes will be revealed in a couple of weeks’ time”
I would imagine Corin wouldn’t throw this out without a reasonable degree of credibility.
Can only but wait – perhaps the Government finally responding to the wide ranging assault on “deafening silence”.
Fritz - Perhaps they've planned for Peters to announce it! Whilst PM!
Then he can say something like "I've been working very hard behind the scenes coming up with our new immigration policy..."
And it will have been done on the back of an envelope the night before over a nice dinner and drinks on the taxpayer's dime.
The government has to commit.
There is no natural market for new homes for the poorer in society. Normally they get the 2ndhand houses which are in short supply due to the high immigration rate & inelastic land use planning rules.
The government also needs to turn down the immigration rate to a sustainable level.
Reality is that the current government was always going to be a total failure, when you have 3 different parties with differing views amalgamating solely due to underhanded tactics, not in the best interests of the country.
There is so much lack of business ability in the government it is not funny, and yet they get to make these ridiculously stupid decisions that are not in the best interests of NZ.
Winston can give away over 900 million without a blink of an eye and is allowed to get away with it.
The supporters of this Govt. are now few and far between and are realising that they have made a big mistake voting for these 3 parties to the point that they are going to be a helluva lot worse off under this one term government.
TM2 that may all be true but how does that explain why NZ has been totally ruined in the last 6 years.
* Worst homelessness ever
* Biggest infrastructure issues ever
* Ques for Hospitals
* Worst home ownership ever
* Worst affordability of homes ever
* Worst immigration numbers ever
* Education rorts where piss poor degrees are given for residency
and thats not even the half of it.
Basically in the last 6 years or so NZ has been sold down the gurgler, into a place I don't recognise. I suppose if being a smart businessman is a psychopathic tendency to lay waste to everything so people can personally gain, then the last government were certainly that, with their combined portfolio in housing they did very well, just look at the head honcho, sold his property for 20 mill to an overseas buyer no doubt. Way to work the system.
Actually, the way National ran the country is a bit like how a corrupt CEO of a big public American company runs it.
He (they're always a 'he') does various things to increase sales in the short term, breaking whatever rules are necessary so that his stock options go up and his remuneration goes up. Then the company fails, he pockets his huge gains and retires to the Caymans.
National used immigration to drive GDP, so they could say they're doing a fantastic job. Kept up the housing boom, then JK sells out...
Investment banking strategy through and through.
Lets take this from a personal point of view, I'm selfish that way.
Always had a job, so no change there, but what has changed is that my wage hasn't gone up in relation to my costs. Cost of housing and food. A trip from my home town into Auckland would take 44 mins give or take a minute. Now it takes 1.30 to 2 hours. Beer has now reached 12 bucks for a small bottle, and even in my home town in the country big bottles are 8 bucks.
I walk along queen street and queen street has changed there are homeless people all around, I come through immigration and where there were no ques there are ques. My kids will need to buy homes when they are older, but will struggle at current rate of price increase. My kids will need to go to hospital but may have to wait in ques. This is the legacy that is left behind.
For me its not half full but my wallet is definitely 3/4'ters empty.
I’m in a similar boat. Always worked, and agree costs are going up faster than wages. Although I lay this squarely on government, both central and local. Not business. It’s bad regulation, and a bloated state sector loaded with useless managers and not enough doers. Why do we have a duopoly in supermarkets? Why was this allowed to eventuate? Bad government. So do something about it. break the duopoly.
I’m out south east and my commute is half what it was 5 years ago, so don’t agree there. Maybe we are lucky. Irrespective what I do see is progress all over the place. Although fragmented, progress all the same. Council is trying to make up for 30 years of inactivity
Queen street has always been a hole. Nothing different there. Sadly homelessness is a worldwide problem and auckland isn’t immune.
Swapacrate, I am currently I’m Melbourne, and I can tell you that there are heaps,of so-called homeless people sleeping in the streets here and begging.
I would say it is worse than NZ so anyone that thinks that Oz is far better than NZ are dreaming!
Oz Govt. Also loves to tax heavily as well.
NZ is a great country compared to countries that I have visited and there have been opportunity to get ahead if you were prepared to take your chances.
However this Coalition of Losers is trying to stuff every business they can except that of child rearing even if you can’t afford them.
We are going to be in one helluva mess if petrol does get to $3 as everything involves transport to some extent.
It has been a catastrophic mistake that the voters of this COL have made, I guarantee!
I’ve been thinking about it and where this policy has got into trouble is in part due to messaging. The objective should have been to lower house prices. But the politics of promising to drop the asset value of a large number of New Zealanders was problematic so they promised to sell people affordable homes while maintaining house prices. This is silly.
What they should have done was establish a Kiwibank style housing company. That is a company designed to make money, but not a lot of money, with the primary purpose being stirring up the market.
Then that company should be building homes below market price based on standardisation, working at scale, efficient techniques, and some streamlining of consents and such. It really wouldn’t matter if the houses were 600, 800 or 900 as long as they were priced below market for a similar house.
Using this approach would give more latitude in terms of design and execution. The trick is ensuring you are building in ways that complement the market and don’t substitute for it.
Agree. That's the Building equivalent of getting an Aldi into the supermarket space and stirring the duopoly into life instead of taking large dives into their vault fulla Customers' Munny (I grew up on Scrooge McDuck and the images are eternal...).
But I am afraid that the Gubmint, as has been well explained in this generally useful thread (which follows a simply Excellent Article, thanks, DH) has muddled itself into a severe case of Left Hand vs Right Hand incomprehension:
- The 'sensitive land' OIO caper has had the oh-so-predictable effect of scaring off foreign investors, who are generally the only ones with enough money and IP to be able to assist
- The local Specuvestors net, with altered bright lines, regulation via WOF's and bolstering of tenant rights, has scared off local mom-and-pop-style builds or buys. This sector will be mopped up by large corporates, to the extent to which #1 allows..with the distinct possibiliy of more Opolies.
- Building of any sort is a mug's game in Awkland, for the reasons so well set out in the thread above. The Gubmint is not about to throw Phil Goff, The UP and AC's numerous Planners under the bus because tribalism. So canny builders will switch to commercial builds or the top end of residential - fairly much what can be observed now.
- Small builders are amongst those characterised by Lees-Galloway as 'if you cannot pay everything we are gonna throw at you, get another line of business'. This is pure poison to new entrants and start-ups, so kiss goodbye to That possibility. Enter the large corporates and their Opolies, stage right. Thanks, Iain.
- And this is all happening when the oil price is climbing, the NZD is dropping, so imports, transport and material are all gonna climb in local delivered price. Recall that as basic a material as Cement is now not produced anywhere in NZ - all imported by the (say it quietly) Holcim monopoly. Construction cost inflation is probably heading for the mid-teens, which is a doubling period of 5 years or so for costs. Oh, happy happy joy joy
No doubt other common taters can think of other ways that the Good Intentions Paving Company (2017) Limited can foobar things in the housing space, but the above is a good start.
Not only will buying places that are already in the current build pipeline not contribute to more houses being built, it may have the effect of reducing the number of houses being built. If some developers are now being underwritten by the taxpayer, making their developments zero risk, with the houses being offered at below market prices to buyers - then other developers are going to be left wondering how they will be able to compete, with the banks wondering the same thing when they consider whether to finance these developments or not, and at what interest rate. Many developers may simply not want to take the risk on.
If the Government were serious about providing low cost housing to low income buyers then the obvious solution is to return to leaseholds. The Govt buys a large block of land, builds low cost housing on them, and then sells the house only to buyers while charging a nominal rent for the underlying land on a 999 year lease. Maori iwi should be doing the same thing with their land holdings. That would cut in half the price of a house in Auckland.
I have seen reports suggesting $2 billion is to be spent over the next 5 years to build 100,000 houses. That is equivalent to $20,000 per house! The present average value of houses in NZ is about $465,000 (Auckland $850,000). Bad news Jacinda you need a huge lot more for 100,000. let alone 10,000! I smell a stinking problem, what about you?
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