Peter Thompson: KiwiBuild – Silver bullet or dead albatross

Peter Thompson - Managing Director, Barfoot & Thompson
Peter Thompson: KiwiBuild – Silver bullet or dead albatross

Comment: Rather than being a silver bullet in solving the housing affordability issue, KiwiBuild has the potential to become a dead albatross around the neck of the Government.

In the past few weeks KiwiBuild has taken two bruising hits.

The first was the Government’s admission that the cost of an affordable three bedroom KiwiBuild home in Auckland would cost up to $650,000*, an increase of $50,000 on the cost outlined during last year’s election.

SEE ALSO: OPINION: The risks associated with solving a non-existent housing problem

The second bruising hit was Government and Treasury falling out over the forecast expenditure on KiwiBuild over the next 5 years – in essence, how many homes would be built. Treasury’s forecast is half that of Government.

In part I have a deal of sympathy for the Government around housing supply, which is probably felt more in Auckland than any other city.

It is trying to solve an issue made even more complex by factors such as rapid population growth, the attraction of housing as an investment made more affordable by years of low mortgage interest rates, a sizeable portion of the population with the wealth and desire to invest a part of their wealth in their lifestyle, a shortage of trades people with the necessary skills to build and fit out houses, and entrenched building rules and regulations that impede speedy approvals.

As a country we are not alone in having a housing supply issue, as shown by Demographia’s 2018 International Housing Survey, which I covered last month.

And I commend the Government’s innovation in seeking alternative ways of financing housing such as dual ownership models. Such thinking is exactly what is needed.

What I’m not so impressed with is the hype being generated around KiwiBuild, and in the process denying the realism of the situation. Insisting that the election pledge to build 100,000 affordable homes in a decade is on track, with not a hurdle in sight, pushes credibility.

The reality is that the cost of land in Auckland, combined with the cost of making the land infrastructure ready, is putting too great a pressure on delivering a three bedroom home at a $650,000 price tag.

What must be avoided is cutting corners to meet an artificial target that in 20 years’ time has delivered homes which are then regarded as of poor quality, or densely occupied suburbs that lack the supporting facilities which makes them desirable locations.  

The question needs to be asked is the KiwiBuild programme unfairly raising the expectations of first time and limited income buyers that in a few years the price of a stand-alone, three bedroom home within easy commuting distance of Auckland City will be theirs for the asking.

KiwiBuild is undoubtedly a positive initiative, will contribute to increasing the housing stock and assist first time and lower income buyers.

However, it is not the silver bullet it is being positioned as.

My preference would be to see the rhetoric around KiwiBuild and a housing ‘crisis’ toned down and realistic targets** set for it. The Government has already refined the upper price target for the houses, so why not the number to be built?

After getting over the initial discomfort, it might give more air space to focusing on the multitude of road blocks to the building of more, and more affordable housing, for all.

*During September’s election campaign the Labour Party talked of Auckland stand-alone houses costing between $500,000 and $600,000, with apartments and town houses costing under $500,000.

**The Government target is for 2018/19 1000 homes; 2019/20 5000 homes; 2020/21 10,000 homes; and from 2021/22 12,000 homes.

Peter Thompson

Managing Director, Barfoot & Thompson

barfoot & Thomspon

 

SEE ALSO: OPINION: The risks associated with solving a non-existent housing problem

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