KiwiBuild will benefit the few, not the many: Economist

Thursday, 20 September 2018

KiwiBuild could prove to be a lottery giving some first-home buyers a financial headstart in life, leaving others lagging in their wake.

The ballot is open for buyers who want to purchase some of the first KiwiBuild homes to come to the market.

There are 18 already completed in South Auckland and another 25 apartments in Onehunga are under construction by a private developer.

Nick Gentle, business owner and operations manager at specialist property investment real estate agency iFindProperty, said KiwiBuild seemed to be 'the new Lotto'.

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'Those who are picked, will get a house for less than it's worth with very few restrictions on selling. Particularly in places like Queenstown it seems to be $200,000 under.

The ballot is open for KiwiBuild houses in South Auckland.

'Also, it seems [Housing and Urban Development Minister Phil] Twyford's team has concluded that they will sidestep a lot of the planning costs and red-tape that make building expensive but only for KiwiBuild.

'What that means is those properties will become as expensive as others, based on replacement cost, and home-ownership for most will not really get any cheaper so this is just going to be a blip to make a few better off and not actually fix anything fundamental.'

There are limited restrictions on future sales of KiwiBuild homes. Buyers must only intend to own and live in the home for at least three years.

Economist Gareth Kiernan, of Infometrics, agreed it was a policy that would benefit a few.

'For it to benefit the many, who have been 'locked out' of the housing market, it would need to increase supply sufficiently that price-to-income ratios were reduced significantly,' Kiernan said.

'However, we know that, given the massive undersupply of housing in Auckland and the relatively slow ramp-up in KiwiBuild building activity, a big reduction in the ratios isn't going to happen anytime soon.

'Furthermore, it's doubtful that the Government would want to engineer a sharp correction in house prices, even if it could, because the negative effect on the wealth of a large proportion of voters world be economically unpleasant in the short-to-medium term and amount to political suicide.'

But he said there were better ways to address housing unaffordability than KiwiBuild, which had limited scope.

'Phil Twyford is at least trying to get at these with some of his other areas of action, such as the urban development authority he wants to use to override zoning, speed up consenting processes, and so on.'

The first 12 three-bedroom houses completed in Papakura are priced at $579,000, and four-bedrooms are $649,000.

This compares to a median CoreLogic value for the area of $684,500 for three-bedroom homes built since 2000.

In Onehunga, apartments are selling for $380,000 for a studio, through to $600,000 for two-bedrooms. Homes.co.nz chief data scientist Tom Lintern said the area's median price for new builds under 100sqm was 10 per cent higher than the highest KiwiBuild price.

'KiwiBuild properties are interesting as they are likely to be sold for values less than what market forces alone would indicate.'

Twyford rejected the suggestion the system was giving successful buyers an unfair advantage.

'KiwiBuild homes are not subsidised. The Government is choosing to build affordable homes because in recent years only 5 per cent of all new builds have been affordable,' Twyford said.

KiwiBuild homes are being sold at cost and those who buy them will have to be able to service the mortgage.

'We are building thousands of KiwiBuild homes throughout the country. While the current shortage of houses means the first KiwiBuild homes will need to be balloted, as housing supply increases there will be less and less need to ballot.

'House prices have already started to stabilise as our Government begins its comprehensive housing reforms, including changing the tax settings and stopping offshore speculators buying existing houses,' he said.