Economist warns KiwiBuild is set to disappoint

Thursday, 8 March 2018

Housing Minister Phil Twyford says government backing of off-plan developments will ensure they happen.

The Government's KiwiBuild programme could add as few as 9200 extra properties to New Zealand's housing stock over the next four years, an economist says.

KiwiBuild has been touted by the Government as a key part of the solution to the country's housing woes. It aims to deliver 100,000 houses over 10 years, over and above what the market would have produced otherwise. Half will be in Auckland.

The government wants to create 50,000 affordable houses in Auckland - but data indicates only 25,000 renting households earn enough to buy them.

But economist Gareth Kiernan, of Infometrics, said the scheme looked set to disappoint.

Data released by Treasury showed that, including the existing Crown building programme, 29,000 houses will be completed between now and 2022. The existing programme, including redeveloping and reconfiguring Housing New Zealand's portfolio, will account for almost half of those homes.

Another 22 per cent of those homes will be off-the-plans purchases.

The Government has argued that these developments would not otherwise have obtained funding, so the houses can be counted in its 'over and above' target.

'We accept that Government backing for these projects will provide greater certainty and is likely to accelerate the development process,' Kiernan said.

'But the assumption that the projects would not have gone ahead at all, and that finance is the limiting factor on construction activity, is questionable given the strength of demand for housing and the labour capacity constraints currently being experienced.'

Without those two components, the net increase in construction was just over 9000 dwellings, he said.

'And that figure makes no allowance for the crowding out of private sector work by the increase in central government activity – something that we see as being a substantial risk in the near term.'

Kiernan said the Government was also understating how much income would be needed to buy its 'affordable' KiwiBuild homes.

'Other OIA documents released by the Ministry of Business, Innovation and Employment (MBIE) suggest that only 25,000 households renting from private landlords in Auckland would have sufficient income to purchase a KiwiBuild home.

'In other words, the Government could potentially get only a 50 per cent take-up of its 'affordable' Auckland properties at $500,000 to $600,000 each.'

He said, assuming buyers could get a 10 per cent deposit, a single person would need an income of $71,200 to get into a $500,000 house, while a childless couple would need a combined income of $88,400 to get into a $600,000 property.

'In other words, the Government risks bringing a large number of properties to the market for which there are few buyers who are realistically able to obtain or service the mortgage.'

He said there was also a risk that the Government would not be able to deliver its houses at $2000 per square metre, as hoped.

'Any costs not properly allowed for will either make the properties even less affordable for first-home buyers or result in the Government making a loss on its developments.

'All in all, Labour's KiwiBuild policy is looking like much less of a game-changer for the construction sector and housing affordability than the Government has made it out to be.

'The policies aims might be admirable, but we think that solving Auckland's housing crisis will prove to be a lot more complicated than Labour has thought.'

A spokeswoman for Housing Minister Phil Twyford said he was unavailable to respond.