David Seymour: The issues with KiwiBuild, from an ACT perspective

Opinion 08/02/2019

By David Seymour, ACT Party leader

OPINION: It was quite incredible to hear the Prime Minister this morning deliver her first domestic speech of the year without once mentioning her Government’s housing policy. This is despite the fact that, according to a recent email from her party to its supporters, housing is still the number one issue for Labour voters. But it’s no wonder she doesn’t want to talk about it.

The Government’s flagship KiwiBuild programme is a mess, nearly everyone agrees, but why? Why is the number of homes being built so far behind target? Why did the guy put in charge of it resign in mysterious circumstances? Why do serious economists such as Bryce Wilkinson say it not only isn’t working, but couldn’t work?

Nostalgia. The simplest answer to all those questions is that Labour took an old solution out of the closet and squeezed it onto a new problem. They recalled the first two Labour Prime Ministers, Michael Joseph Savage and Peter Fraser, who (they think) built lots of houses. In their mind, history can not only repeat, it is destined to.

Labour have been nostalgic for a while now. During their dark years of Opposition, they started selling retro tea towels, coffee mugs, and T-shirts featuring people such as Norman Kirk who died in 1973 and Michael Joseph Savage who died in 1940. Since things improved at the 2017 election, Jacinda Ardern has kept talking about the old leaders almost as if she knew them.

Labour have chosen stardust over substance, believing a fanciful version of their own history...

The famous shot of Michael Joseph Savage carrying a family’s dining room table into the first state house haunts KiwiBuild, but it should also ring an alarm bell. Savage was 65 by the time of this feat and the story goes that he plonked it down in the hallway the moment he was out of camera shot.

There are similar problems with the whole history of state home building. Much like Mr Savage’s effort with the table, the Government’s contribution to home building through the middle of last century made a token impact. For the years that separate records were kept of public and private home building, from 1938 to 1970, 528,000 homes were built. Of them, 82 percent (456,000) were built privately and 18 percent (94,000) by the Government.

What’s worse, it appears that the Government’s efforts took away from private sector building rather than adding to it. The years that the Government built more were generally years the private sector built less - and vice versa. For example, the Government’s biggest year, in 1950, was the 18th best year for the 33-year period, whereas the best year overall, 1966, was the Government’s 21st best year. The kindest interpretation is that Government took up the slack in lean years, but even that is not an argument for doing KiwiBuild now when the construction sector is well and truly at capacity already.

Section prices are the real issue

Even if KiwiBuild could build more houses, it is not solving the real problem. Houses are a combination of land, buildings, and infrastructure. The shortage is not in buildings, it is in sections, i.e. the land and infrastructure part. The most devastating evidence of what’s gone wrong with the housing market over the last generation or so comes from economist Rodney Dickens.

As Rodney calculates, the price of the median Auckland section has gone up 903 percent since 1993. Over the same period general inflation has gone up 66 percent and the construction cost per square metre has gone up 212 percent. In other words, building costs are a problem but section prices are the real issue. Dickens goes on to show that if section prices had gone up at the same rate as building costs, the average Auckland house price would be $500,000 - half of what it is now.

On the other hand, any solution that doesn’t deal to section prices isn’t getting at why homes are so expensive compared with the past, and with today’s incomes. The real problem with KiwiBuild is that it doesn’t do anything to generate more sections. It is simply a project to build homes on the (scarce and overpriced) sections we already have.

Reducing building costs

A final problem is that it’s not even obvious how KiwiBuild will reduce building costs. It is essentially a program of contracting the same people who are already building homes to build more or less the same homes, then running a ballot to see who gets them. This raises so many questions, articulated well by Bryce Wilkinson at the New Zealand Initiative.

Is the Government subsiding the homes, even just by guaranteeing risk? If it is, then it’s a pretty complicated way of putting taxpayer money into the housing market. If it’s not subsidising new homes, as Phil Twyford claims, then why does the Government need to run a ballot for select people to buy them at a particular price? Why does the Government forbid buyers from selling them within three years if the homes are sold at the market rate anyway? The answer to all these questions is probably that they are a little bit subsidised because builders with a taxpayer-funded guarantee can borrow cheaper, which is all tickety-boo until one of them actually calls the guarantee in.

So, Labour have chosen stardust over substance, believing a fanciful version of their own history instead of properly analysing the housing problem in the present time. KiwiBuild fails on all counts and should be abandoned before a new CEO is found to be tortured by trying to manage its impossible contradictions. Of course, it is politically impossible for any Government to abandon its flagship policy, so what could the Government realistically do?

Urban Development Authorities raises its own questions

Oddly, Phil Twyford is running a separate policy, Urban Development Authorities, that solves the scarce section problem. The first UDA, at Milldale north of Auckland, will roll over council planning restrictions to free up land and provides infrastructure funding so that extra homes can be built beyond those the private sector would have built, KiwiBuild or not.

The UDA is the right thing to do, but it raises its own questions. If KiwiBuild is the answer to the housing shortage, why have UDAs and vice versa? It doesn’t seem plausible that some areas are short of buildings and others short of sections. Second, if there is a shortage of sections due to planning laws and not enough infrastructure funding, why solve the problem in only a few select places where a UDA is declared?

The Government should make planning laws better in all urban environments, replacing the RMA with a law as set out by the Productivity Commission in Better Urban Planning. Such a law would set out infrastructure plans and let people build around it without restrictive zoning such as the municipal urban boundary. They should let councils issue targeted rates to pay for infrastructure for new developments and, if they really want to see building go ahead, get councils out of the building consent and inspection business. Councils are the bane of a builders’ existence and they didn’t stop leaky buildings anyway. Mandatory private insurance of new builds would be better.

That last paragraph is all ACT policy. Senior building executives tell me it’s the only one that would work. In the meantime, Labour need to abandon the nostalgia trip that is KiwiBuild because it will not and cannot work. It is not worth getting beaten up politically for another year over it. They should introduce a package of reforms that free up building everywhere and find a name for this all-encompassing reform effort. What should they call it? KiwiBuild, of course.

David Seymour is leader of the ACT Party.