Newsroom Pro's 8 things at 8 am: Kiwibuild vs Kiwibuild lite

Homes under construction at Hobsonville Point - which is the model for the Government's house building plan. Photo: Alexia Russell

In today's email we dig into the Government's house building plan to see how many more affordable homes it is likely to actually create.

1. Kiwibuild vs Kiwibuild lite

The Government has finally laid out its plans for house building in Auckland to compete with Labour's Kiwibuild.

The short story is that Labour is planning to build and sell 50,000 affordable houses over 10 years, and the Government plans to build around 7,200 affordable homes for sale on the market.

The headline figure for new houses announced yesterday was obviously much bigger at 34,000, but the number of affordable houses is whittled back to that 7,200 number because most of the houses being built will be sold at higher price points and some will be kept as state houses.

Social Housing Minister Amy Adams Adams announced the Government would build 34,211 new houses on Government land in Auckland over the next decade, although the net new addition to Auckland's housing stock would be more like 25,936 because the land already has 8,275 old state houses on it that will be demolished.

Of those net additions, Housing New Zealand will add 5,265 to its stock of state houses and the rest (20,671) will be what the Government describes at "affordable/market built."

Adams told Newsroom around 35 percent of these 20,671 homes to be sold in the open market as "market/affordable" would be classified as affordable, and she later said affordable meant a home costing less than $650,000. That works out at around 7,234 new affordable homes.

"Across the programme we're looking for 20 to 50 percent of it being affordable and the exact combination is negotiated on a project by project basis," she said.

2. HLC is the model

The model the Government is using is the one employed by HLC at Hobsonville Point.

It has masterplanned the former air and naval base to be a mix of some standalone houses, including renovated naval houses, some medium density town house developments and some apartments. It has worked closely with developers to plan the way the different types of houses work together, and has planned and paid for the infrastructure needed for up to 5,000 homes.

"HLC will be doing the bulk of it. HLC are a fully owned subsidiary of Housing New Zealand and they are the company that are going to be doing most of this work because they're the company that has got the experience having done the Hobsonville project and that is the arm through which Housing New Zealand will be broadly delivering it," Adams said.

HLC works with developers and builders such as AV Jennings and Fletcher Building to design developments with around 20 percent of houses being in the affordable range from $350,000 to $650,000. The rest are often larger terraces and homes sold for closer to $1 million.

Adams said the Government wanted to follow the Hobsonville model, which is also being used on Housing NZ land at Northcote and Mt Roskill, to keep the cost of the programme affordable for the Government, and because mixed communities worked better in the long run.

3. Why not all affordable?

The big gap between Labour's policy and the Government's proposal begs the question: why not aim for 100 percent affordable rather than 20 to 50 percent?

"You can do that (build 100% affordable), but it drives down the value of those parts of the development, which then drives up the extent which they have to be subsidised," she said.

Adams said the programme would cost $2.23 billion in the first phase of the project over the next four years. This would be funded from Housing NZ's balance sheet and through $1.1 billion worth of borrowing by Housing NZ itself. The second phase of the project would be funded from development profits and rental returns.

Labour's Kiwibuild policy is focused building 100 percent affordable medium density homes on both Government land and private land. The standalone homes would cost $500,000 to $600,000, while apartments and terraced houses would be sold for under $500,000.

Labour would start the programme with a $2 billion capital injection, with the capital eventually repaid from the proceeds of house sales.
Adams said Labour's proposal was not realistic.

"What Labour has to be challenged on is they're promising to do of this and they're just not going to be costing anything," she said.

"You could do the thing fully affordable, but that would significantly ramp up the amount of Crown funding required, and while we've done our numbers and tested and costed of all of that. Labour hasn't," she said.

"It's pretty to talk about these things as costless options. The decision we have to make is around the overall viability of the project."

Adams also challenged whether Labour's all-affordable developments would work as communities.

"You also have to think about the community cohesion at the end of it. Best practice for urban design is that a mix of first home buyers, more established buyers and social housing creates the right blend of communities, and that's the approach we've followed," she said.

HLC has already built 1,000 houses on its site in West Auckland and is planning for 5,000. It has focused on building a mix of different types of houses and home owners to build a community.

It has also used the opportunity to sell more expensive homes to bring in developers and builders, given margins are higher on more expensive homes.

4. Who keeps the profits?

Adams said the Government would ensure developer margins and profits from the sale of homes were controlled, and if there were any unforeseen profits from the sale of land and houses then the Government would share in the profits.

She cited the agreements already used in housing developments in Christchurch and in the Crown Land Programme in Auckland.

"Housing New Zealand will be engaging builders to build the social houses that they will retain and where they're doing market/affordable blocks they'll enter into a number of development agreements with particular companies for each of those sites, as they have done in Hobsonville. There's quite strict conditions about what they have to do in what timeframe and with what production," she said.

Developers and builders needed the incentives to be involved, she said.

"This is the blend that both meets market needs - because you've got to have a project that developers want to build and to be attractive to the developers to come in to do it, there has to be a mix of market and affordable - and that affects the overall viability and funding of the project," she said.

Land was not simply sold to developers before the houses were built and sold.

"When we sell the land it's not a straight sale and purchase. There's all sorts of mechanisms in there so the developers make an agreed margin on the development and no more than that. And if there's a profit over and above those margins, then the Crown shares in those profits as well."

5. 'Wish they'd taken it all'

Labour Leader Andrew Little was dismissive of the Government's policy and said it was too little, too late and inadequate to the task of dealing with Auckland's housing shortage.

"I really wished they'd just stolen our policy and called it theirs. That would be more flattering. This is an embarrassment," Little told reporters in Wellington.

"I can understand why they held this policy over until Bill English was out of the country. This is not a serious response to the housing crisis we've got at the moment," he said.

"For a city like Auckland that is 40,000 houses short of what it needs at the moment, to then say we'll fiddle around with 26,000 houses over 10 years and we won't say who's going to be able to buy them, is not a credible response."

Little said developers and the Government would have small margins to keep costs lower than the Government's plan. Labour's Kiwibuild policy would also use prefabicated building techniques and bulk procurement of building materials to keep costs down.

6. US a winner in TPP 11 too

Newsroom's Foreign Affairs Editor Sam Sachdeva is travelling with Prime Minister Bill English and Trade Minister Todd McClay to Japan and Hong Kong this week.

He reported overnight that one of the quirks of keeping the TPP minus one deal is that American companies could still benefit from the deal.

McClay conceded to reporters there would be some changes as a result of the original TPP deal which would be open to all countries to benefit from, including America, such as with Pharmac.

See Sam's full story on Newsroom Pro.

7. Auckland Port company for sale?

Could the Auckland Council sell the Auckland Port and keep the land under it?

That's one potential outcome, as reported by Newsroom Co-Editor Tim Murphy yesterday.

One source this week suggested either a sale of the operating company, or a part sale of the entire entity could be aimed to raise $500m for the Council to use on other projects, Tim reported.

8. One fun thing

This tweet from Politico reporter Jack Shafer captured the mood yesterday after the Washington Post and others reported that President Donald Trump has revealed highly classified information to Russia's foreign minister last week.

"Used to be called Five Eyes. Trump makes it Six Eyes."

Incidentally, Newsroom's Sam Sachdeva reported from Tokyo overnight that English had said New Zealand’s intelligence alliance with the United States has not been affected by Trump’s decision to share highly classified information with Russia.

“Look, we have no reason to be concerned about our security relationship with the US, we’ve worked with them through Five Eyes on the basis of trust and confidence," English said.

“Until and unless it’s established there’s some real, systemic problem that would affect New Zealand, frankly we don’t really have anything to comment on.”

An issue to watch, given Trump's approach to shared intelligence and international diplomacy.

And one final thing, Goldman Sachs reckons Sweden and New Zealand are the most vulnerable to housing busts, which Goldman defines as real price falls of more than five percent in two years. Here's the Bloomberg report.