By Greg Ninness
It was inevitable that a policy like KiwiBuild would become a political football, but it is likely to be at least the second half of next year before we get a reasonable indication of whether the project is a winner or should be kicked into touch.
In order to judge that success or failure we need to understand what the scheme was designed to achieve.
It has been set up to do two things.
Firstly to encourage developers to include more affordable homes in their projects and secondly, to ensure those homes are only sold to first home buyers.
One of the problems with such a policy is deciding how to define affordability.
After all, even million dollar-plus homes are affordable for someone.
So you need to ask the question, affordable for who?
Labour’s pre-election KiwiBuild policy didn’t address that question directly but skirted around it by defining affordable as the lower quartile selling price, the price point at which 25% of sold properties are below and 75% are above, a widely used measure to represent the bottom end of the housing market.
In October last year when the current Labour-led Government was formed, the REINZ’s lower quartile selling price in the Auckland region was $654,000 and within the region lower quartile prices ranged from $569,000 in Franklin to $835,000 on the North Shore.
Labour’s policy at the time was for KiwiBuild apartments and terrace houses in Auckland to be priced under $500,000 and for stand-alone KiwiBuild houses in the region to be priced between $500,000 and $600,000.
Since then, prices in Auckland have remained largely flat, with the REINZ’s lower quartile price increasing from $654,000 in October last year to $657,000 in September this year, while the lower quartile price in Franklin, which remains the region’s cheapest district, increased from $569,000 in October last year to $570,000 in September this year.
When the ballot opened on the first KiwiBuild homes in September it was for three bedroom houses in Papakura priced at $579,000 (well below the KiwiBuild limit which had been adjusted to $650,000 for homes with three or more bedrooms), and four bedroom houses priced at $649,000.
Both were below the lower quartile price for the Auckland region and the three bedroom house price was also below September’s lower quartile price in Papakura, which was $580,000.
But is that affordable?
Most banks are willing to lend up to 95% of the price of a KiwiBuild home and a mortgage for 95% of $579,000 would be $550,050.
For a 30-year term at an interest rate of 4.7% the payments would be about $658 a week.
The combined income level for typical first home buying couples in Auckland used in interest.co.nz’s September Home Loan Affordability Reports is $1628 a week after tax, which is the median take home pay for couples aged 25-29 and both working full time in the Auckland region.
For mortgage payments to be considered affordable they would need to be no more than 40% of their take home pay, ie, $651.20 a week.
So if the buyers of the three bedroom KiwiBuild homes in Papakura only had a 5% deposit, those payments would be considered unaffordable, but by less than $7 a week.
If they had a deposit of 10% ($57,900) the mortgage payments would come down to $623 a week, or 38% of the take home pay for typical first home buyers, putting it within affordable limits.
So at around the $579,000 price mark, KiwiBuild does appear to be delivering homes that could be classed as affordable, but only just, and buyers on average incomes would still need a reasonable deposit for the mortgage payments to be affordable.
But the KiwiBuild projects that have come up for ballot so far have been dribs and drabs from a few small to medium sized projects.
We won’t really get an idea of what is possible from the scheme until next year.
By then, the Government’s proposed Affordable Housing Authority, which will drive large scale housing developments, should be up and running.
And the Government has also been seeking development partners capable of driving down construction costs by setting up large scale prefabricated construction operations to service those projects.
If KiwiBuild is capable of delivering homes that are on the margins of affordability now, then there should be reasonable scope to bring prices down further, perhaps significantly so, in large scale projects that utilise more efficient construction techniques.
And that would put KiwiBuild homes well into the affordable range for first home buyers on average incomes, depending of course on where mortgage interest rates are sitting by then.
But it’s still early days for KiwiBuild.
By this time next year we should have a much better idea of what it is capable of delivering.
*This article was first published in our email for paying subscribers early on Tuesday morning. See here for more details and how to subscribe.
69 Comments
The median after tax income used here is biased high as at least third of the 25-29 age group has a student loan reducing take home pay 12.5% for any dollar earned above $19084. If you also assume both of these earners do 3% kiwisaver as would be prudent the true median income for this age range received in hand becomes $1513. This brings the affordable level down to $605/week.
I like your name which is very true, you are "fullofit" haha. The income affordability calc is influenced by the amount of deposit that the fhb puts up. So it's a simple solution, although not an easy solution, that the fhb stumps up more deposit and therefore owns more of the home. Too many of the young generation, for whatever reason, just spend all they have, and don't save up a house deposit
A couple can put away 500 a week for 5 years to get to 20% of a lower quartile home (650k). And good luck to them saving half a grand a week even living the most frugal lifestyle.
Only works for people given handouts by their parents with years of subsidised rent.
"A couple can put away 500 a week for 5 years"
I thought rule of thumb was save 50 percent of income which would mean a young couple with no kids and no burdens can save far, far more than that. In the early nineties we saved that much, 2k per month. That effort has paid off hugely
So out of touch with reality. The old "avocado on toast", "it was different in my day" thinking.
What about the first paying off $30k+ student loans. Then paying 30-40% of your income on exorbitant rents, while trying to save to get the 20% ($130K) required for a deposit. On mediocre NZ income. Many are trying. Trust me.
Tell us, did you save $2,000 a month in your 20's & 30's?
Which is why the easiest way to save money for a deposit and get a head (if you've skills/qualifications) is to get the hell out of NZ as fast as possible. Many of us have done so, gone overseas for 2-3 years or more, earned better money than we could in NZ, saved our arses off and got the money for reasonable deposit and then some of us returned home. Wages have been crap in NZ for decades- my advice to any young person wanting to get head was, is, and always will be simple- get out of NZ and somewhere you can earn better wages.
...too bad for the people who live here and prop up the state so you can come back after not contributing to it and price them all out of the market for a roof over their head, right?
The right of NZers to return to NZ whenever they feel like is our second biggest problem after mass-migration. They should be treated like any other foreign investors in this country.
Easy comparison, NZ experienced engineer wage: 60k-80k NZD, US start up engineer wage starts from 150k US retainer with additional shares, wage and bonuses. Yeah even for that money you could afford to have private medical insurance, fly home every month and save for a NZ house, (you could buy a US home outright with only a portion of the retainer). Aus is not as good as that but the politics and culture is easier to stomach.
There really does need to be a realisation that the only smart professionals who decide to stay in NZ are either on a gravy train already, or are literally forced to stay due to other life conditions. Why risk the life of your family by staying in NZ unless you have to. The majority of junior engineers and graduates who have been constantly told that there is a huge demand and need for more engineers (by the government and companies which is why they bring in thousands of migrants), cannot even get work in NZ when the competition is often 200:1 at best for any job but overseas find getting good work far, far easier.
It is odd but as an example of the state of the industry a major industry association sent around an email and advertising brochures talking about their new service to offer to all physiological and counselling help due to the incredibly high stress and depression rates in the industry, offering discounts and group support. It is noteworthy that worsening mental health is now so common it is not only expected but industry bodies feel the need to help prevent suicide and burnout rates.
So the definition of Affordable is now $654,000 ? Really stupid politicians trying to sell this as affordable housing
FACT = in 1996 a 5 bedroom 2 bathroom brick & cedar home on a 450sq metre section with a seperate double garage structure all built in 1976 cost me $600;000 in Chelthenam beach Devonport
This home was only 3rd house back from the beach
The house I sold to purchase it was a 4 bedroom 2 bathroom house with double garage and I had a hard job getting $250;000 for it in 1996 and that house was on a full quarter acre just up the road from another east coast beach
I did not have any student loans indeed I was paid to learn and was debt free. University was also free
The pressures on my children bare no resemblance to the easy life I had when young
Time to make the politicians face up to the tragic situation they created by allowing open speculation by foreigners in our housing market Why did a John Key a man of eminent financial knowledge allow foreigners for so long to buy & sell kiwi homes & repatriate their profits without paying any taxes of any description ?
Why does the current government bluff New Zealanders by pretending to clamp down on foreign buyers when the government knows full well that properties are being purchased on behalf of foreign nationals by NZ residents using various structures
So we have the affordable housing lie and the dealing to foreign buyers with legislation lie
Perhaps you should learn how to make a point instead of throwing really weak childish insults?
And again, if buyers can't get finance, and the govt keeps signing them up at todays pricing, the govt is going to have to give them away at tomorrows prices. They still need to find another 200 buyers in Wanaka for what they have already signed up. How much of a loss are they going to take on those?
My one hope is that the government experience of having to manage a good number of house builds means they fix some of the gross inefficiencies in the process. I would actually rather they just focused on the land and planning end because that seems to be problem enough.
As to affordability, it might be affordable now but what about when rates normalise. Do we seriously think we can have lower rates than in the USA? Surely the banks will lose all of their US funding?
Like this new State House that was built for $1.5 million.
https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11790137
Given the choice between a new shoe box in a suburb with a lower socio economic demographic vs a more spacious home on a larger site house in an established suburb at around the same price, the lack of interest in Kiwibuild was predictable. And when the price relationship between pre-owned and new build moves even more in favour of the former (as it cyclically does), KB will be consigned to history.
Kiwibuild - Promises vs Reality
Affordability to most people means value for money. For politicians it just means smaller and crappier houses.
National no friends have still not got over FPP, one day it will click MMP means more than one party needed.
they have not helped two potential parties in the last two elections, in one case setting their attack dogs to destroy it.
so unless they can find another JK or labour do a david lange and self explode they have next to no chance next election
The government needs to get into the long-term fixed-rate lending business. That is the only way they can open up the pool of available buyers for Kiwi Build. Trading bank affordability rules will leave too many potential buyers locked out. As they will be judged as not able to cope with any interest rate rises or income disruption.
Could be like some government rent to own scheme. If someone walks away from the property (redundancy etc) allow them to take a cut of the payments they’ve made back less any imposed interest and repairs/maintenance. Government then signs someone else up.
After the property is paid for then full ownership is transferred.
These houses would be ideal for turning into permanent, dedicated rentals/leasehold houses, with the lease being on a similar basis to those you find in Europe, or something closer to our commercial leases. You could also allow investment in them by allowing shares in them to be bought by those interested, including tenants. This would give people who currently have zero hope of permanent occupation some hope and a stake in the ground. Watch the improvement in society when there is something attainable for those on the lower rungs to aspire to beyond week by week uncertainty in the current rental market. Going to email Twyford and suggest this.
It's hard to figure out what's worse, the banks greed, the government's naivety or all the FHB's buying at almost full tide (for this cycle). It sure is getting complicated out there.
With house prices in Tier 1 cities in China still rising (and rapidly) this is my pick for the start of the next economic earthquake. It appears that house buyers in China are plainly oblivious to the greater planetary issues (Chinese censorship) or that they are simply greedier than the average Australian Bank. If ever there is a house of cards it must surely be Chinese property market. If that crashes (and surely it must on the back of all that corporate debt) then all those beautiful homes sitting empty in our nice suburban streets of our larger cities will also be on the market.... & that my good readers will be a global & bloody thing.
I repeat, it will not be pretty to watch, & the West is right in the firing line, as that's where those who have any brains & money in China have spent their hard earned Yuans over the last 30 years.
The more the likely hood of a price drop, the greater the owner equity or security the banks will require.This makes it harder to qualify for the more 'affordable' properties. It's first and foremost about protecting the banking system.
The rules of the game require prices to be supported by any means possible. It is best to keep the price at the present level, and make it more 'affordable' by way of lower deposit or lower repayments by way of lower interest rates.
Once the debt is locked in, it is locked in irrespective if the price goes down.
But an industry across the board price drop by the Govt. introducing a scheme to make housing more affordable ( I mean truly more affordable on a like for like basis) is never going to be allowed.
It's one thing to provide subsided housing to the poor, but once a Govt. needs to subside the middle class, then the country is stuffed, both in ideology and economically.
People can still do very nicely thru property, but the ones that moan about prices being too dear, will always be renters.
Start at the bottom and move up the property ladder, it still can be done if you want it enough.
Buy undervalue, improve it and sell, buy again improve it and sell.
Not rocket science and is achievable but talk to people who have been successful.
TM2, it was you that previously commented the Coalition wouldn't last six months! The new normal just sucks don't it? What's more, you slated them for breaking another election promise to re-enter Pike; https://www.stuff.co.nz/national/politics/108581760/were-going-in--gove…
Retired- P. Yep, your 'new normal' sure does suck - a minister sacked for ineptitude and deceit, another for physical violence, then we have Jones's trees debacle, Lees-Galloway exposed as incompetent and Twyford not so bombastic these days as his Kiwibuild increasingly resembles a slow motion train wreck. If it were not for a media still largely seduced by the Bollywood obscurity to princess Ardern story and healthy economic data delivered by past economic policy, this coalition of the desperate would be struggling for survival.
A Little has only just announced Pike River re-entry and is already piking out. 1 "health and safety is paramount" 2 "the courage of all to say no if we are uncomfortable" 3 "he preparedness to reassess, reset and re-plan when necessary, and knowing when to call it 'quits'."
All are code for, this is too big, too risky, national were right but labour was just toying with you people on the west coast.
Yeah because encouraging more deaths with an unsafe entry would send entirely the wrong message don't you think. They have this same issue on Mt Everest where even for rescue missions it is more likely the rescuers would die instead, hence unless a person can walk down the mountain and is already in a known location with safe conditions rescue missions are not sent at all. Pike river we already know the men are dead, sending people to their deaths to find them would only add to the tragedy and be outstandingly irresponsible.
Actually all you need to do is buy and do some home improvements yourself, look after the property by actually doing the maintenance yourself, and just hold it for 15 years and your successful. You do however need the right skill set and no you don't need to go to University either. The problem with the current generation is they cannot even make their own smashed avocado on toast.
"Start at the bottom".... except the entry-level housing has been decimated by land prices and boomers renovating for quick tax-free capital gains.
"Move up the property ladder"...except too bad about the deposit requirements for existing houses, right?
"Improve it"...not quite so straightforward with a shortage of tradies, council requirements, compliance costs, etc.
"Not rocket science" No, but also not hard to see how the market has been totally rooted by the greediest generation who can't figure out the shit wages they pay people isn't enough for them to by mythical 'starter homes'.
Where there's a will there's a way:
1 Use Shane Jones's slush fund to grease the wheels. My calculator says that if you build 10,000 houses then $1,000,000,000 allows a subsidy of $100,000 per house. Astonishing.
2 A plane ticket plus bribe is cheaper than building a house. Offer $10,000 per person to bugger off overseas for a bit. Result, a house freed up for $40,000. Again, astonishing.
These are both what I call "silly ideas". I put them forward on the basis that perhaps someone cleverer than me can make them really cool and shiny.
When Kiwibuild was drafted one large cost cutting policy - removing the Auckland RUB - was included. Then it was implemented, but without the cost cutting measure. And now here we are wondering why it isn't working very well in Auckland, wondering why the price is so high. It is all a complete mystery.
Aussie bankers are making lots of money.
Aussie, Aussie, Aussie, they win every time when it comes to taking our $$$ off us. Debt farming beats serfdom any day. We compete with each other to pledge the most income to the Aussie banks in return for a better barn. Labour should be renamed Labouring for Ausbank, and National should be National for Australia Bank.
Huh, they cannot see Papakura from a position of generational entitlement. Poor people only exist to be abused, (including their zero hour contract service staff), and large scale retirement villages are predominantly on the shore looking at ducks and multimillionaire properties brought back in the 70's & 80's for 85k. Been in a few of them, it is good to move around a bit for the different pools, gyms, events, bar features etc.
For anyone who thinks kiwibuild homes are small and expensive if you want an education try prices and size on retirement homes, (many previous existing buildings also needed cladding replacement due to faults): https://www.villageguide.co.nz/retirementvillages/available-properties/…
(side note and telling that the price filter does not work or has not been implemented to actually filter out the apartment properties over $550k)
Those prices are before they go into additional management, body corp type fees & service costs that steeply increase year on year.
Frack instead of just FHB the next generation of retirees after baby boomers will need kiwibuild offers as well.
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