Sure, KiwiBuild has gotten off to a rocky start, but it’s far from a disaster, argues interest.co.nz’s David Hargreaves. In fact, with a few simple tweaks, it could even become a success.

Some people can be pretty quick to call something a failure.

In the eyes of some this government’s flagship KiwiBuild policy already appears to be yesterday’s fish and chip paper and therefore worthy of dumping in the bin.

The risk is that the government itself takes such feedback on board and summarily bins the policy, like that same fast food wrapping.

The big mistake Housing and Urban Development Minister Phil Twyford made, out of – I think – extreme naivety, was to put numbers on the houses that would be built. This of course was immediately the prompt for all and sundry to start producing  various counters on websites as to how the government was doing against these targets.

This negativity and pressure seemed to get to the government quite quickly and it was soon apparent that efforts were being made to garnish the figures – notably through the so-called ‘buying off the plans’ scheme. Essentially this was a plan for the taxpayer to underwrite private developers building houses, which were then tagged as ‘KiwiBuild’ houses, all – as far as I could see – so that these targets could be kept up with.

But that’s not worked. Twyford’s admitted he’s not going to meet the targets and he’s now going to go back to Cabinet with a recalibration of it all. It will be of great interest to see what he comes up with.

As I opined towards the end of last year, nobody should have expected that an undertaking as ambitious as KiwiBuild, with the stated intention of building 100,000 houses in 10 years, would be achieved without teething problems and bumps along the way. And I also said the government needed to sit down and rethink early this year and if targets had to be revisited and changed, then so be it.

If something’s not working the trick is to ascertain whether it’s not working because it’s a bad idea, or if the way you are doing it is wrong. Don’t throw something in the bin just because it hasn’t worked out as you thought. Have a good look at it and see if the way you were going about it was wrong. And if it was, then change it.

Is KiwiBuild a bad idea?

No.

We haven’t as a country been building enough houses.

Government finances are strong enough that with taxpayer backing the state can do something about increasing the stock of houses.

The other thing is that a lot of New Zealand’s older housing stock is no longer fit for purpose (if it ever really was) so therefore there’s nothing wrong with ridding ourselves of draughty, damp houses and replacing them with newer properties that aren’t a health risk to live in.

So, the idea is good. It’s therefore a question of how you go about it.

No more buying off the plans, please

Personally, I hope the government drops like a hot potato this whole ‘buying off the plans’ idea.

The idea of underwriting developments being undertaken by private developers and therefore risking taxpayers’ money while essentially losing control over what happens never seemed smart to me. And it always looked like a way to artificially pump up the numbers of so-called KiwiBuild houses.

It’s no surprise that Twyford has reportedly had difficulties getting private developers to change their thinking on the idea of fewer, high value developments rather than a lot of lower value developments. Again this has been naive from the minister.

Look at it from the prospective of a developer. If your budgeting tells you that you can build one type of house with a potential profit margin of $100,000, and another type of house with a profit margin of just $10,000, which are you going to go for?

To my mind it’s a much safer bet for the government to instigate developments of its own that it would control completely and with budgeting and costings of its own design.

Now, I know that’s happening anyway, but I think that would be the best way forward for KiwiBuild in its entirety.

Running the risk

Forget about this idea of trying to pump the figures by including other private developments that might have happened anyway.

If the government does persist with the idea of simply trying to coat-tail private developments, the risk is that it will start offering bigger guarantees and inducements to the private developers – again in developments in which it has little or no control. To me that would make no sense unless the government was trying to keep up with some perceived target number of houses.

Everybody has to accept that this whole process of building up New Zealand’s housing stock is going to take longer than might have been hoped.

Surely a more realistic approach for the government to take is to sit down and see how many of its own developments it could get up and running in some way this year. And make that the target. And don’t be drawn on specific numbers.

I would have a lot more confidence in such an approach.

Balancing supply and demand

As for the affordability question, well, I think people have been putting the cart in front of the horse there. The only way houses surely can become more affordable is by having the supply and demand more in balance than we have had in this country for years. So, you build more houses and over time (though not overnight as some would wish it) the houses do become more affordable.

Throwing money at problems is never in itself a solution. But the flip side to that is that sometimes you do need to show that you have enough money.

I still think one of the government’s biggest mistakes on KiwiBuild has been the $2 billion allocated for KiwiBuild. This magic, elastic sum of money, that was apparently going to be recycled to build and build and build houses, never looked enough.

The government would give itself much more credibility if it found more money for KiwiBuild. It has always looked at though they’ve never been quite sure about whether to fully commit to the KiwiBuild policy or not. As I’ve said before, I reckon it should go all in.

The risk remains though that the negative publicity over the past year encourages the government to begin to distance itself from the KiwiBuild policy and even start to change it to a more generic policy in which more social housing (ie rental property) is built. That’s not what the country needs long term if we want our people to be financially secure as we face up to an ever-ageing population.

More help

My last thought on this for the moment is that Twyford needs more help on this. He seems to have a quite ridiculous workload. While he himself might not like the idea, would there be merit in making Twyford an out and out minister of housing and KiwiBuild, and passing over the transport/infrastructure duties to someone else?

Certainly there’s logic in having infrastructure and housing linked, but as one portfolio it just seems all too much.

My parting shot: Government should not lose its nerve or be blinded by figures and specific targets. Numbers in themselves mean nothing. What means something is the actual outcome. And if the outcome of KiwiBuild ultimately is more Kiwis in their own homes and a better supply and demand balance of housing stock then the policy will be a success – regardless of whether it builds 100,000 houses or not.