Māori architectural designer Jade Kake looks at the latest Kiwibuild news and offers some solutions.
Kiwibuild was Labour’s flagship policy in the last election, promising to deliver 100,000 homes over ten years for first home buyers, of which half are to be built in Auckland. So far, Kiwibuild has failed to meet expectations, and is far from meeting the government’s target of building 1,000 homes in the first year.
Essentially, Kiwibuild is a state-led building programme, delivered through a combination of direct provision and procurement. Direct provision includes provision of land (through the Land for Housing programme), and developments led by government (delivered, primarily, by Housing New Zealand Corporation and HLC). Procurement, through the ‘Buying off the Plan’ option, de-risks developments for property developers, with the government either pre-purchasing homes or guaranteeing a set purchase price (and lining up a willing buyer). This is important, as it provides assurance to the bank that the developer will be able to repay the loan, thus providing ready access to development finance.
Pre- and post- the 2017 election, a number of commentators pointed out flaws in Labour’s Kiwibuild policy, including Jen McArthur, John Tookey and Shamubeel Eaqub. Criticisms included construction industry capacity and capability, number of homes planned (inadequate to meet projected demand), affordability criteria (only affordable to those who are already reasonably well-off), lack of subsidies (which could be used to deliver housing that is actually affordable), and inadequate attention to demand side solutions.
In my pre-election analysis, I focussed on the affordability of Kiwibuild homes, and the income required to access Kiwibuild homes. Particularly, I discussed Kiwibuild as a solution geared towards the intermediate market – households who are not eligible, based on income, to apply for a state house, and yet are unable able to enter the housing market as a homeowner (based on mortgage lending criteria). My main criticism was that the policy would never provide enough housing (estimating that at least 200,000 new homes would be required nationwide over that period), and that as a result Kiwibuild homes will be taken up (primarily) by the upper half of the intermediate market.
Of the planned 100,000 Kiwibuild homes, 20,000 are tagged for Māori whānau. Recent statistics show that the percentage of Māori whānau applying for Kiwibuild homes is 13%, roughly equivalent as a percentage of the overall population. Additionally, government has partnered with eleven iwi nationwide, through the Land for Housing programme, for an estimated 2,260 units. Which on the surface that sounds promising, however, with Māori income levels sitting at around 18% lower than the general population, housing is even more unaffordable for Māori, and in particular the quarter of us living in Tāmaki Makaurau.
So why has Kiwibuild thus far failed to deliver?
Housing markets are a balance between supply and demand, including, on the supply side: building industry responsiveness, availability of land, and consenting requirements, and on the demand side: net immigration (including domestic), low interest rates and easier credit standards. Government has the ability to intervene through a number of measures, including taxation, regulation (laws), price controls, subsidies, better information, and direct provision.
Basically, the government has focussed too heavily on one supply-side solution – Kiwibuild – with inadequate attention given to understanding the complicated interrelationship between demand and supply side factors, and therefore the suite of interventions required to address Aotearoa’s, and in particular Auckland’s, housing issues.
Additionally, the success of Kiwibuild as a building programme is reliant on the capacity and capability of our domestic building industry. By providing developer incentives the market may respond and this may increase naturally over time, but the targets set were probably quite unrealistic given the need to rapidly increase and upskill the building industry (to meet those targets).
It’s not all bad news, as there are a number of potential solutions (many of which are already in the process of being implemented by government):
Build the capacity of the building industry
If supply is to be meaningfully increased, more needs to be done to increase the construction workforce, either through the introduction of policies to encourage migration of skilled construction workers. The government could also increase efficiencies across the industry by playing a greater role in the coordination of small-scale builders and sub trades to achieve economies of scale (both in terms of workforce and material purchasing), and through the use of technologies such as prefabrication (where appropriate) to increase speed of construction and improve quality.
Improve eligibility criteria and subsidies
Subsidies and more appropriately targeted affordability criteria would enable more first home buyers into home ownership. Whilst there is eligibility criteria in place (including a focus on first home buyers and income caps), Kiwibuild homes are not subsidised or affordable (relative to income) per se. The value to the homeowner is the opportunity to side-step competition to purchase a modest new home, built to a high quality standard.
Introduce targetted policies for Māori whānau
Given that a large proportion of Māori live in highly constrained markets such as Auckland, and our lower household incomes overall, it’s important that targeted policies be developed to support Māori through mainstream policies like Kiwibuild. This could include increased funding for Māori providers to identify, work with and support Māori whānau into home ownership.
Create partnerships with community housing providers
A further option is to allocate Kiwibuild homes to community housing providers (to own or manage), who can provide secure housing to the lower intermediate market through affordable rental, staircasing into progressive ownership models and recycling subsidies to assist more families into affordable home ownership.
Rein in financial payoff from speculative investment
The tax working group findings are due out next month, and likely will find that a capital gains tax is required. Although politically unpopular, introducing a capital gains tax would significantly assist with deterring New Zealanders from making the (currently rational choice) to invest in property as the primary form of investment, instead looking to build more diverse portfolio around other forms of investment.
Look into urban development authorities
A long game solution. By utilising a single authority, there is an opportunity to produce high-quality master-planned developments, with higher densities, transport oriented development, community amenity, and good access to employment centres, to coordinate infrastructure, speed up consents, and achieve some economies of scale in construction. From a Treaty perspective, where this policy has real potential is if leading roles for iwi/hapū are articulated at every level. Additionally, by controlling the tenure mix and retaining a higher percentage of state and community housing and more tightly regulated private rentals (possibly by having these owned managed by professional entities, in which individual investors buy shares) relative to open market sales, should help to stabilise market values in the long term.
Prioritise residential tenancy reform
Given home ownership has now become unaffordable to all but the affluent few, residential tenancies reform is urgently required to strengthen tenant rights to security of tenure, place restrictions on rent increases, and increase housing quality standards.
So, is Kiwibuild a failure, as the opposition and a number of commentators have deemed it? In my opinion, no – rather, Kiwibuild needs to be more appropriately targetted, and engaged alongside a more sophisticated set of policy interventions.
The Spinoff Daily gets you all the day's best reading in one handy package, fresh to your inbox Monday-Friday at 5pm.