KiwiBuild 'distraction from real housing solutions'

But without a subsidy, the Government risked the embarrassment of unsold homes, Bryce Wilkinson said.
But without a subsidy, the Government risked the embarrassment of unsold homes, Bryce Wilkinson said.

A new report has slammed the Government's KiwiBuild programme as a "bewildered beast" that has little hope of delivering on its goal of getting more New Zealanders into their own homes.

Bryce Wilkinson, senior fellow with the New Zealand Initiative and director of Capital Economics, said decisive action was needed to free up the supply of land for housing and reduce construction costs.

KiwiBuild was only a distraction from fixing the real problems in the housing market, he said.

The Government has pledged to deliver 100,000 "affordable" homes over 10 years through the programme, half of them in Auckland.

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"The simple fact is that Government does not need to commission new houses to increase the supply of land for housing or to reduce regulatory constructions costs," Wilkinson said.

He said regulatory red tape was to blame for property price inflation in Auckland, pointing to data showing section prices rose 903 per cent between 1993 and 2018. Construction costs rose 212 per cent per square metre over the same period, he said. Council costs added to the development bill.

Wilkinson said, if KiwiBuild resulted in more houses being built, it would increase the numbers of people renting and owning, not boost the proportion of home owners.

"[KiwiBuild] is not about social housing to help those at the bottom. Nor is it about helping struggling first-home buyers. They cannot afford KiwiBuild homes at current costs. KiwiBuild is for the relatively well-off. It is intended to be subsidy-free, since wealth transfers to the well-off are hard to justify. But its inducements to attract private developers are subsidies.

"Even more paradoxically, if there were no subsidy, there would be no gap for KiwiBuild to fill. Private developers will meet unsubsidised market demand. It cannot hope to increase the housing stock sustainably. Only enduring lower property prices can induce people to own more dwellings than otherwise. KiwiBuild reduces neither land values nor construction costs at the margin."

Minister of Housing Phil Twyford announces 68 new KiwiBuild homes in the Marfell area.

Wilkinson said KiwiBuild had become a "bewildered beast". "Limbs were carved off and diverse directions set for what remained. Practical realities have forced some of these developments. High land values and construction costs put new homes beyond the reach of most, regardless of who builds them. Limited industry construction capacity is another constraint."

The first KiwiBuild homes were priced at a level that was perceived to be below market value, and there was a subsidy for those who were able to buy them.

"The Government's ballot process accepted this reality. Arguably, it is also implicit in its provision to claw back for taxpayers 30 per cent of any realised capital gains within three years. To sell a state asset below market value is to transfer wealth from taxpayers to the lucky recipient. The subsidy is at the taxpayers' expense  

"The Government has found it hard to justify the wealth transfer. The first recipients were already relatively well off with good prospects. KiwiBuild is no longer about helping those 'locked out' of the housing market."

But without a subsidy, the Government risked the embarrassment of unsold homes, he said.

"KiwiBuild looks like a classic case of a headline-grabbing electioneering pledge promoted in Opposition to get media oxygen when the chances of having to deliver look remote. Once in power, the pledge is a tar baby that is bound to ensnare any Minister who has to attend to its nappies."

Economist Gareth Kiernan, of Infometrics, has been critical of KiwiBuild.

But he said Housing and Urban Development Minister Phil Twyford was aware of some of the issues the report raised.

"Perhaps something that has been missed or glossed over in the report are restrictions in terms of planning, zoning, or the Resource Management Act that are limiting the ability of developers to increase the dwelling stock through densification.

"I think it's important to recognise that urban limits serve a purpose to control where new housing is constructed and to limit or prevent urban sprawl, although one could argue about what the appropriate degree of limitation is.

"But as it stands, there seems to be considerable nimby opposition to densification occurring in the likes of Auckland and Wellington, using council zoning and the Environment Court to prevent more intensive residential developments taking place, Kiernan said.

"You can't significantly restrict both the ability to build up and out without having a major effect on the prices of land and housing."

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