Government 'risks lack of KiwiBuild buyers'

Monday, 12 November 2018

​KiwiBuild is at risk of not having enough buyers that meet its criteria, one analyst says.

The government plan to build 100,000 houses over 10 years has been in the headlines over recent weeks.

First, there was anger that a graduate doctor was among the first buyers.

Then the Wanaka ballot deadline had to be pushed out because there were only 20 entries received for the 10 homes.

**READ MORE:

* Kiwibuild at threat of going 'Kiwibust' over 'plummeting [popularity'

​](https://www.stuff.co.nz/national/politics/108471157/kiwibuild-at-threat-of-going-kiwibust-over-plummeting-popularity)* First KiwiBuild families welcomed to new homes by Prime Minister

* KiwiBuild not for low-income families, says housing minister**

Now it's been revealed that there are only 338 pre-qualified KiwiBuild applicants, even though contracts for 3375 houses have been signed off by the government. 

How do you become pre-qualified?

The Kiwibuild criteria requires that buyers are permanent residents or citizens, first-home buyers or in the same financial position, will live in the house for three years as their primary residence, and have income of up to $180,000 for a couple.

The application can be done online, but requires proof of residency and income, financial pre-approval from a bank, and proof of deposit.

The low number of pre-qualified buyers might simply be a sign that the KiwiBuild developments so far are not in the areas first-home buyers are hoping to find houses. 

There's been South Auckland, apartments in Onehunga, a Te Kauwhata development billed as 'near Auckland' and Wanaka.

The pre-qualification process only lasts six months, so people might wait until they wanted to put in an offer before being signed off.

There have been 1477 ballot entries so far for KiwiBuild houses.

But Infometrics economist Gareth Kiernan said the government still had a risk over the medium-term of not having enough buyers available to meet its criteria.

Buyers must have enough income to service a mortgage big enough to buy a KiwiBuild home - a $600,000 mortgage is about $1600 a fortnight on a good first-home buyer interest rate. But they must not have been able to buy already, and must want the entry-level properties the scheme provides.

'The policy appears to be struggling because it is a solution to a problem that hasn't been well-identified by the government,' Kiernan said.

'It's not clear whether the government is trying to increase the overall supply of housing, or just increase the supply of affordable housing, or help first-home buyers into the market, or bring house prices down overall, or something else. 

'Ultimately, the inability to properly identify the problem means that the policy is ending up treating symptoms rather than root causes, resulting in the confusing signals and mixed messages coming from Phil Twyford and the rest of the government.'

Nick Goodall, head of research at CoreLogic, said KiwiBuild's success would be evaluated on an ongoing basis.

'I think they've been restricted with the control they have for the early developments, given the timeliness of going to market,' he said.

'The consistent message I've received from KiwiBuild is that they will continue to assess the successfulness of location, property type and buyers throughout the programme. Ultimately the best measure will be whether they're being sold to first-home buyers as they're being designed for.'

What's the KiwiBuild benefit?

Under KiwiBuild the government can either back entirely new developments or buy off-the-plans from existing projects. It's the latter approach that's been deployed so far. It agrees to buy a percentage of the development at a set price, and passes that price on to buyers.

In, Auckland and Queenstown, the price cap is $500,000 for one-bedroom, $600,000 for two-bed, and $650,000 for three-bed or larger homes. Everywhere else, the cap is $500,000 regardless of bedroom count. 

The government says there is no subsidy involved for buyers - it is just ensuring that small, affordable houses are built. 

Without that guaranteed buyers of KiwiBuild, developers might otherwise opt to build more expensive, higher-margin homes.

The theory is that increasing supply of these more affordable homes will help to drive down prices overall, as heat is taken out of the market which was driven by lack of supply of new homes.

But sceptics point to places such as McLennan, south Auckland, which currently has two-bedroom terraced homes listed for sale from $619,000 - compared to the $579,000 paid by those who qualified to buy three-bedroom KiwiBuild homes there.