By David Hargreaves
About 80% of the 1000 'Kiwibuild' homes the Government's targeting for completion in the 2019 financial year will likely be constructed as part of private developments that will be underwritten by the taxpayer.
Housing and Urban Development Minister Phil Twyford launched what's been termed the 'Kiwibuild Buying off the Plans Initiative' this week.
In effect it's an underwriting scheme - with the taxpayer to provide the underwriting.
The implication is that developers will find bank funding easier to get because they will be able to get guaranteed prices for the houses in their developments that are designated as 'Kiwibuild' homes - either by directly selling those to the Government, or by getting the Government, AKA the taxpayer, to cough up the difference in any shortfall they may have to take when selling Kiwibuild houses.
Developers have been invited to participate in the scheme, with applications closing on June 8.
Information for would-be applicants that's been prepared by the Ministry of Business, Innovation & Employment (MBIE) has outlined the following targets for the new underwriting scheme:
- 800 Kiwibuild dwellings in Financial Year 2019;
- 2,500 Kiwibuild dwellings in Financial Year 2020; and
- 4,000 Kiwibuild dwellings in Financial Year 2021.
This compares with the overall targets for Kiwibuild houses, which are as follows:
So, looking at those figures and comparing them, it means 800 of the 1000 Kiwibuild houses intended for the 2018/19 financial year will be underwritten private developments, IE 80% of the total.
In the following year 2500 of the 5000 will be built on private developments (so, 50%) and in the year after that 4000 of the 10,000 planned, so 40%.
To refresh memories, the affordable home criteria being applied to officially designate Kiwibuild homes is as below:
The new underwriting scheme is in the first instance going to be targeted in these areas:
- Auckland;
- Wellington Region;
- Hamilton;
- Napier / Hastings;
- Queenstown / Lakes District;
- Tauranga;
- Whangarei District; and
- Nelson / Tasman
However, MBIE says responses for other regions will also be considered "and progressed if appropriate".
While the MBIE document (which runs to 47 pages) goes into a lot of detail about how to apply and what's involved, it doesn't give any specifics about how many affordable, IE Kiwibuild houses a development must include to be successful in getting underwritten. It talks about a "significant" proportion of the development.
And while the MBIE document refers to the taxpayer buying the Kiwibuild houses at a discount to market price, it doesn't specify how much of a discount.
Under a section titled 'Why the Underwrite?' the MBIE document says the Government has the ability to utilise its balance sheet strength and "access to low-cost capital, and through the [Kiwibuild] Unit, to provide support for qualifying developments".
The document says while the Kiwibuild Unit will continue to develop the basis by which it can support qualifying developments, that support will depend on case by case development opportunities, and market conditions.
The current thinking is that Kiwibuild, as part of an underwrite, can be supported through the following approaches:
- Backstop purchase of unsold Kiwibuild dwellings: The Government enters into an open option with the developer for the Government to purchase unsold KiwiBuild dwellings (or to pay the difference between an eventual sale price and pre-agreed amount). A backstop essentially provides the developer (and financier) a form of insurance against the ability to sell the Kiwibuild dwellings when complete.
- Outright purchase of Kiwibuild dwellings on completion: The Government enters into a sale and purchase agreement with the developer to purchase the Kiwibuild dwellings on delivery at an agreed-in advance underwrite price (as if it were a private purchaser) and subsequently on-sells these to eligible purchasers.
The document says whichever approach is utilised for supporting a qualifying development, the Unit will establish processes to facilitate Kiwibuild dwellings being sold to eligible purchasers (once finalised), whether through the developer, or through the Government, or third parties.
In terms of developers envisaged as getting involved in the underwriting scheme, the MBIE document sees two potential types:
- Tier One – This is targeted at the established developer market. The approach will be focussed on increasing scale and pace to achieve volume (i.e. larger developments and ideally a pipeline of developments run by established developers).
- Tier Two – This approach will target smaller scale developments, and will focus on removing barriers to progression, trialling different KiwiBuild dwelling typologies, and trialling innovative practices. It will be available to both larger and smaller/newer developers. This may also allow Small and Medium Enterprises (SMEs) to participate.
The document also makes clear that developers would be welcomed to apply for the underwrite as consortiums.
82 Comments
Can you enlighten us with a plan to sort this horrendous mess that housing is in. The rot is spreading and housing is becoming unaffordable for far, far too many, rented or owned. If it does not get sorted somehow or other, you will paying out of your pocket forever to subsidize housing costs for people left behind by the garbage that went on for nine years.
I cannot believe what has happened to my country, it saddens me deeply.
Sadly I cannot PA and I don't think anyone can.
What I will say is that the vast majority of NZ is affordable (even according to Interest's "affordablitity index") except for Auckland and Queenstown. Is it not normal that FHB struggle to buy/rent in the most expensive cities in their country? I'm just asking, is it not akin to lamenting that young people cannot afford to buy brand new german cars?
Assuming immigration goes to zero, 10k house increase per annum is about right for the organic growth. That is, the population increase caused by the people already here having babies in excess of replacement amounts.
As to causes, I'd be looking at the Auckland council of a decade ago, which essentially strangled new land development for housing. There is also the immigration thing... :)
As to fixes, time to make good on election promises in regards to immigration as well as housing. To date, the CoL has been equally as effective as the previous govt in terms of fixing the problem. It seems that the default answer regardless of party affiliation is that the market should sort it out. Sadly, setting a floor on house prices is not likely to result in increased affordability.
That's what many - including very many younger Kiwis - have been wondering. But it was National that expanded the PTE sector study-to-work route to trigger a massive influx of new population over the last few years, and it was Bill English who - when questioned about the many negative economic signs - cited high immigration numbers as a positive economic sign (and noted that increasing house prices off the back was also a great economic sign). It was his singing of praises of nominal GDP growth through simply adding more and more people to the pile that stood in place of real economic policy.
It's been young Kiwis lamenting the downward pressure on wages and the upward pressure on housing costs that this has caused.
And Michael Reddell has provided some good recent blog items suggesting the costs of this policy may well outweigh the benefits. But it's too late to send all that massive Auckland population increase back, so now the infrastructural deficit needs to be addressed.
Surely no one would have presumed it was only younger Kiwis who would face increased costs from this economic policy?
All that said, the pressure needs to be put on the current government to keep moving on reducing overall immigration volumes so they're not so wildly out of kilter with OECD norms and with sustainability. No more relying on it as an economic crutch, short-termism with a pretense of sound fiscal management.
No it's not even remotely related to buying cars, unless they are warm and dry for sleeping in, I suppose. The rest of the country is not particularly affordable especially for those who already live and are now priced out just the same as Aucklanders by those Aucklanders fleeing and forcing prices up in the regions. It is broken up and down the entire country I am glad someone is trying, even if it is way more difficult than first thought, too damned the last lot didn't, eh?.
"underwriting" means Govt. agrees to buy a finished house at a fixed price and sell it on to KiwiBuild approved purchasers.
That should facilitate developments by removing risk around sales and thus freeing up financing and lowering risk premiums.
If the developer doesn't get through construction they don't have a house to sell so Government isn't on the hook.
Or am I reading it wrong?
Without changing the regulations this will result in smaller houses rather than lower per sqm cost. If houses have to be made of ripoff certified materials this won't change much.
Sure cookie cutter houses are cheaper to build but that doesn't fix the fact that ordinary materials like cement, timber etc are at ripoff prices.
When politicians say "affordable" what they mean is smaller and sh!tier.
They need to get in touch with one of the big American or German construction companies like Knauf. You can't fix the problem by using the same people that caused it. Same building code. Same builders. Same materials. Same outcome.
This just transfers current building supply under the government umbrella so Labour can say "look we built X,XXX homes" while the total number built remains near enough the same.
To be fair, open question - who else were they going to get to build these homes?
Law of unintended consequences applies of course - this effectively sets a floor (Y) for the prices of these homes, if a developer can't get X for them privately, then they know they can get Y from the government. The impact on the price can't be anything but inflationary - as the price floor removes risk and downward pressure (if any) and at the same time these houses are taken out of the private pool, reducing supply thus providing inflationary pressure - not just for these houses - but all other houses in these pricing bands.
So, in their efforts to bring prices down, they'll first put prices up...
Spot on. I;ve always argued that Gubmint-devised price schemes act as a floor, and, worse, as a global pricing signal...Just ask the question - why would one evah price the shack at X when the Gubmint will give ya Y via either Welcome Home, Kiwibuild PPP or some other effusion of a bureaucrat sized brain?
Where's the GETS system - issue a spec, invite tenders, and get a known product for a price (in all probability) less than Y above?
In Christchurch, a house plus plot starts with a 4....or even, a bit further out, a 3...go figure.
Sigh.
Right on cue. I love your work on this waymad, I think it's true. The government should stop the handouts and let the market do its thing. The government is actually destroying the economy by effectively setting a benchmark for the minimum amount a battler should borrow to get into a home. It's like QE on QE. It's a total waste of money and it's sickening.
Anyone remember Neill Housing? Most of the Auckland suburbs were built with the government underwriting private development. I expect this also applied outside of Auckland too.
Companies like Neill were built based on reputation; they were built for the long term. Conversely, who'd trust a house built by one of the Fletcher residential companies?
Yes they are nuts.
Broken policies one after another!
Originally KiwiBuild was going to be $500k for apartments and 550- 600k for standalone houses in Auckland.
Now it has been changed by Twatford to 1bedroom 550k 600k for 2 bedroom and 650k for 3 bedrooms.
This is affordable 550k for a one bedroom box in Auckland surrounded by 3999 other boxes.
The Coalition of Loser supporters must be now thinking they have stuffed up voting for this absolute bunch of
Incompetents.
One party says that this Maori Thing is going to be compulsory in schools and the other 2parties say that is Wont be!
One stuff up after another, they are self destructing and will be quicker once Winston steps up to the fray as he looks to be out of his depth when interviewed tonight on TV!
It is looking rather grim and how much worse are the commuting costs for the owners of these boxes going to be now that petrol tax is going up, at the same time that oil is getting more expensive in NZ$? I wonder what any COL voter thought they were going to get with Kiwibuild? I haven't read any comments so far from potential buyers to say if they are happy or not.
Another "very well oiled" policy I take it ! ... Well, this is, or will be, as good as it gets I reckon.
So where is the $2B revolving capital for kiwibuilt ?
Are these in addition to the BIG kiwibuild plan and Mt albert Unitec project or this is it ?
Setting aside all the boring details, this indicates the following, I hope I am wrong :
1- this plan was prepared beforehand, the 47 pages were unlikely cooked up last night .. meaning that this was probably Plan C, or D. maybe PT is actually pulling out all the stops after he realised that his dreams were shot down in flames!
2- Shaving down Kiwibuilt numbers from 11000 to 7300 in the first 3 years means that the 100,000 figure is anything but a big shambules ...!
3- The announcement of this scheme means that All the INTERESTED Investors PT was talking about few weeks ago and those who SJ went to muster them from AUS did not eventuate, so they did NOT find any idiot to take the risk and put his money in such building projects ( without Guaranteed buyers).
4- Where is all the talk about prefab and the rest of that piece of theatre gone ?... no one is drumming that anymore.
5- Which brings us to today's Plan C, i.e. the Gov will become the solution or owner of last resort after chasing private investors and developers out and freaking the rest of professional building companies with tons of uncertainties and off the cuff regulations. hence we are in for a big failure!
If this is the best that this CoLs can achieve, then sorry to predict that every FHB or tenant who have been holding their breath are in for a real rough ride and disappointment in the next 3+ years. And there won't be any light an the end of the tunnel if the CoLs stay at the helm after 2020.
I suspect that almost half or more of what will be built will be owned by HNZ to house the homeless as they should be given the first priority and there will be no recycling of that money.
But there will be more taxes on the horizon to pay for incompetence and mismanagement....oh , and donations to others instead of domestic charities !!
Yes he is certainly a very angry and grumpy old boomer. They are obviously starting to hurt his pocket. He says he is okay and he is only thinking about how they are affecting the country but I do not accept that as you only have to look at how he talks about his loser tenants. He has no empathy for anyone and only cares about himself.
Just a quiet add on - Auckland Council owned 41% of the Tamaki Regeneration Project that seemed to do very little for a few years - except kick people out of State Houses - but that was under Nats watch. I am not a fan of Twyford at this point but at least something is happening so prepared to give him the benefit of the doubt.
Absolutely, and we wish him good luck and success ....
but he keeps disappointing everyone everyday, and that is depressing. Anyone with half a brain would conclude that he does not know what he is doing!... he had a dream and a project ( like DP) but he does not know how to realise it and bring it to fruition.
The opportunity for the Gov to make a change is NOW while they have the money and almost full employment .
they should gain ( earn) the trust of the private sector to help in with the issue, not chasing them out and punishing them !
Instead, they are busy throwing money around, eroding the trust with business, and sending us mixed messages about its competency ...
PT is pushing the market in a deep down spiral with apparent lack of experience mixed with left leaning social ideology.
We just hope that the mess is cleanable after he leaves.
Fritz, what housing crisis are we talking about?
There are plenty of houses for sale in Auckland so there are no shortage of houses.
A crisis is when there are not enough houses available and this would only be the case if there were hundreds of people in camping grounds or sleeping in the streets.
Yes no doubt there are some that sleep in the streets in Auckland, but in most cases this will be thru choice, as we have a more than generous welfare system so they do get money.
Many of the people that need housing already are in a state house but not enough bedrooms and that is because they have brought the circumstances on themselves by continuing to have children that clearly they can’t afford.
Housing affordability is not a major problem throughout NZ but localised in only a few locations.
What the current one term government is doing to landlords is only going to make the situation worse But it is not their fault as they really don’t have any idea about how business works thru lack of business experience.
There has and always will be people who will never own their own home , it is no different worldwide.
What we need to be educating into our teenagers is responsibility for our actionS.
From our experience with tenants in Chch they do not seem to have the same discipline and willingness to work to get ahead that my generation had.
Generalisation I know but if you want to get ahead in NZ then it is achievable but moaning about the cost of housing in Auckland is a waste of energy.
The Man
There may be affordable housing in parts of NZ but Auckland is the major growth engine and where the most jobs are.
The market has failed to deliver housing at lower price points, despite a very liberal unitary plan, so the only solution is for the govt to step in and build housing - like it has en masse in the past in NZ.
I guess another option could be to stop all immigration and adopt a one child policy....
The market has failed to deliver housing at lower price points
Bzzt. Wrong. The market has no incentive to deliver anything of the sort: there is a price floor inbuilt to both KB and to WH loans. Why, if ya was a building company, would ya clonk together something that cost Less than that Gubmint-imposed figure?
See my comment above re the utter stupidity of universal price signals...
Liberal unitary plan? What?
The unitary plan is extremely restrictive and has cut land supply to Auckland City in half.
Phil Twyford promised to get rid of this restriction, but that was a lie. So now he is getting the tax payers to pay $billions to build houses, so that Auckland Council can keep its stupid restrictive anti-housing policies.
Everybody loses. Polluting sprawl paves over the exurban Auckland countryside. Auckland property remains uncompetitively over priced. Poor people get to remain homeless. And the taxpayers get to pay for it all.
And all because Phil Twyford breaks an election promise to liberalise Auckland planning.
This is a good scheme.
Developers will be able to plan developments with confidence. Some will be willing to lower their profit margins to meet the KB price points, knowing they have guaranteed sales.
Time will tell how successful it is - however it is a very good start and I know a number of developers who are very positive about it.
Where are these developments going to be?
The government stated that THEY were going to be build8ng these KiwiBuild boxes and now they are just underwriting them and the price of the affordable homes are now not going to be as affordable as they stated.
What happened to the 500k homes, yeah that is right, shoot from the hip and then don’t follow thru with it!
I’m no demographer but, even when scaled to peak supply at 12,000 houses per year, the number of houses built wouldn’t even cover population increase by net migration based on the current median household and rate of immigration. The first thing I’d ask is if that strategy is likely to work? If it’s not going to scale to meet demand then go back to the drawing board, don’t pursuit a plan with an undesirable outcome. No half measures.
Residential sorting, pepperpotting and gentrifugal forces - just a few of the ghostly apparitions of yesteryear which shall return to haunt us as soon as all this kicks off. But make no mistake this government is doing its best whereas its immediate predecessor was profoundly more cynical. I am of two minds though on whether intentional social engineering from the left is as insidious as that of the more incidental and laissez-faire view of the right. But if history is anything to go by I already know the answer. Haha, I can already hear the hum of the gathering throng of apologists and those who are blinded in their dogmatic devotion
Well lets hope for Auckland they don't decide to build in our volcanic lava fields with our 50 volcanoes, which ironically are in some of the most expensive areas within AKL. That could be a bad investment in future years, not sure if you've been following the latest news in Hawaii and their recent volcanic lava flows consuming residential property. Could it happen here?
Interesting article from GeoNet: The current eruption of Kīlauea: could it happen in Auckland?
https://www.geonet.org.nz/news/1AmXcETiNGImgwywkKc88K
Hawaii News: There are now 14 active lava fissures in Puna. Here's where they are
http://www.hawaiinewsnow.com/story/38118779/there-are-now-10-active-lav…
Were has Interest.co.nz's critical reporting gone? I can't believe it has bought the government's spiel without seeing what's relly going on. The real headline is:
THE GOVERNMENT RENEGES ON ITS PROMISE TO BUILD 100'000 AFFORDABLE HOMES"
The difference between "BUILDING and "UNDERWTINING" is:
"BUILDING" is doing something, taking action, finding Land then hiring Surveyors, Architects, Engineers, costing a project, designing it, tendering a main contractor, obtaining a building consent, doing the project management which means dealing with numerous tradespeople until the building is completed and a Certificate of Completion is obtained.
"UNDERWRITING" means doing nothing except using the money from our taxes to protect the devloppers margins.
While they aren't perfect interest.co are a lot better than the mainstream media whom are paid shills of the FIRE industry. I couldn't find Kiwibuild mentioned at all let alone criticism on the home pages of NZH or Stuff.
It seems like those guys only hold Labour et al to account when they appear to be a threat to house prices. As soon as Labour want to pay property developers it's all good apparently.
Yvil. Interest.co is good journalism and have not fallen in the way of news and information being a commodity. Interest.co and us common taters together give you quite a good understanding on what's up. Contradictory information mostly, but it's a contradictory world.
Yvil, Are u sure thats what underwriting means, in this kiwi build.
From what I've read in the article, all it means is that The Govt. promises to buy a kiwibuild house for that $600,000. ie.. they create a "minimum price ".
I don't think it is underwriting the actual developers.... They have to stand on their own feet..?? If a developers budget blows out , they have to wear it, they can still go broke..
Yeah, I think we could use some more sound analysis of what they're doing here than the ranting and whining comments are providing.
When previous government build activity - along with the other efforts that boosted supply (e.g. housing corp loans) - were used to address previous housing shortages to the benefit of many of the older commentators here, how did public, private and collaborative initiatives play their part?
(We know, for example, that Fletchers grew out of this.)
If the government significantly increases supply by subsidising development, that's at least a better option than continuing to throw money at landlords and other private landlords. At least building has an end game rather than just being another of many ambulances parked at the bottom of a cliff, as were the payments to motel owners.
When are the COL supporters here going to be honest to all of the prospective home buyers that read these pages that Twatford doesn't have the answers to affordability problems? I'd venture never.
Taking a $3 chocolate bar, breaking it in half and selling each half for $1.75 is not a real solution unless you are happy with half a bar.
I understand your point Rex Pat, but you should address the fact that houses being built currently are much bigger than in the past, which contributes to the affordability issue. So maybe we are really talking about splitting a king size chocolate bar into two normal size chocolate bars.
Part of the reason the govt is doing this is to encourage developers to build reasonable size houses (and therefore more affordable), where that incentive is not currently there.
Of course, the devil is in the detail about what minimum standards we should aspire to.
Personally, I would rather any govt focus on the core issues of why developers are incentivised to build bigger and more unaffordable, and the core issues of why land is so expensive, and the core issues of why building costs (including consents) are so expensive.
Hopefully that is their intention at the same time.
I wonder if this will lead to poor quality dwellings? If I was a developper knowing I'm guaranteed to get $600k for each unit, (even if I can't find a willing buyer) I would choose the cheapest materials, doors, taps, plumbing fittigs, lights, tiles, carpet, curtains etc... so I can maximise my profit. I.e. wether I spend $500k or $550k on each unit I know I will sell them at $600k so I have no incentive to use nice or quality materials.
Maybe that is what should be expected anyway as these are "affordable" (i.e. entry level) dwellings?
How is this any different to a presale in a private development?
Are you assuming that the contract with the govt will not include any specifications? Why? You must have more information that you are not sharing.
Or could it be that you are looking for problems to suit your pre-determined ideology?
So, this all means Labour had better get the full 3 term run at governing, since solving the New Zealand housing crisis will be a medium to long term project. Hang in there boys, this is ultimately for people currently in their teens and twenties. they need somewhere to live.
There was always going to be policy on the hoof. The challenge was always going to require an evolving set of policy measures to meet conditions. Said it from the start.
Using the 'hoof' analogy, that's like backing a Clydesdale in successive Melbourne Cups in the belief that it can eventually win if you just believe. The COL has no workable solution. Face up to facts. Twatford can't make houses affordable in the way some people are blindly hoping.
One can just imagine the shake-down the taxpayer is going to be subjected to .
Builders are going to take advantage of this largesse , and the next Government is going to be left to clean up the mess .
Taxpayers are also going to be paying for this for many years to come
Exactly Boatman, shakedown and clean up will likely consist of
- developers going bust mid devlopement, ie, unfinished houses and/ or developments
- variablility in finished product for same type of dwelling, ie cheap finishings, etc
- variability in workmanship between dwellings, ie shoddy construction, after sale warranty fixups.
- Price of non-KB dwellings in same development subsidising the affordabale KB dwellings , ie cross subsidisation (like what has happening already in developments with percentage of affordable dwellings)
This will simply be another tax payer funded handout to big firms like the ones that got the money in Christchurch. Just look at what the man in the street property owners got for their money there.
I already provide many needy people with a roof over their head. Why not help me by guaranteeing my rental payments.
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