As many as a quarter of homes built in the 2020s could be KiwiBuild homes, which could seriously dent house values across the market. Thomas Coughlan reports.
Housing Minister Phil Twyford said that currently only five percent of new buildings in New Zealand were priced at the lower quartile of the housing market.
“Private developers basically make bigger margins by building larger and more expensive homes on expensive land. They make bigger margins that way, therefore they choose to build at that end of the market,” Twyford said.
But he hopes KiwiBuild homes, which will cost between $500,000 and $650,000 in Auckland and Queenstown, and less than $500,000 across the rest of the country will redress this balance.
And it could redress the balance in a way that brings house prices down across the board by the time KiwiBuild is operating at full capacity in 2020/21.
Twyford hopes that by 2020/21 a full quarter of new houses would be KiwiBuild homes priced at the lower end of the market, up from five percent at the moment.
This would be achieved by adding roughly 10,000 houses a year to the current 30,000 new builds each year.
“That will be a quarter of the country’s throughput,” Twyford said.
Asked if this will have an effect on house prices overall, Twyford said he believed it would be “significant”, but said the modelling was difficult to do.
But Bruce Kohn of the New Zealand Building Industry Federation was doubtful this level of building could be achieved, at least in the short term.
“That is achievable probably only in stages as residential construction capacity is grown to cope with that demand,” Kohn said.
In the early stages, achieving an additional 10,000 homes above the current 30,000 builds a year would be difficult. Currently 1000 KiwiBuilds are slated for 2018/19, 5000 in 2019/20 and 10,000 in 2020/21.
And even if the homes could be built, there is still some doubt they would bring down the cost of housing overall.
Bindi Norwell, Chief Executive of REINZ said the additional 10,000 would “go some way to easing the housing shortage”.
But she said the shortage was so severe that house prices would continue to remain unaffordable until the overall housing shortage was addressed.
“The Auckland shortage alone is around 60,000 properties - an additional 10,000 homes a year across the country still means there is a significant housing shortage,” she said.
“Until we’re able to start to back-fill some of that shortage, houses will continue to remain unaffordable for first-time buyers and those on lower incomes,” she said.
A $650,000 home in 2028 — perhaps even less
Currently each KiwiBuild home has a maximum price, with the most expensive capped at $650,000 for a three-bedroom home in Auckland or Queenstown.
Twyford thinks he can offer homes below this price cap in 2028, when the last of the 100,000 KiwBuild homes are built.
“I hope that we’ll bring build costs down over that time,” Twyford said.
This would require KiwiBuild to defy any inflationary pressures faced by the construction industry in the next 10 years. But Twyford said that three-bedroom houses of a quality sold in Auckland for $900,000 are currently being built in the United States for closer to $250,000 to $300,000.
Bringing these efficiencies to KiwiBuild would enable him to keep costs low as the programme advanced in the 2020s.
The starting gun
The first year of KiwiBuild officially begins on July 1. Twyford expects 1000 homes to be built in this first year.
A website where prospective buyers can register their interest will be launched shortly. A ballot system will be used to allocate the first homes as Twyford expects demand to outstrip supply.