KiwiBuild
A real-estate scheme which aimed to build houses to reduce market prices
What Is KiwiBuild?
KiwiBuild was established by the New Zealand Government in 20181 as a response to beliefs that property market prices were too high. The aim of this policy was to attack the problem from the supply side by building more properties, then selling these properties to the public at market value. The idea being that (based on a the rudimentary economics of a Supply and Demand diagram) increasing the supply of properties on the market would decrease the price of properties.
KiwiBuild initially set out to build 100,000 houses over the next decade (up to 2028) and would cost $2b, but that money would be recycled as houses were sold2.
For the general public to be eligible to buy a KiwiBuild home, “buyers must be purchasing their first home, or be ‘second chancers’ - those people who haven't yet had an opportunity to own their own home or former homeowners who've ended up in a similar financial position as a first home buyer, for example a divorced couple.
They must be New Zealand citizens, permanent residents or those who ordinarily reside in New Zealand, and intend to own and live in the house for at least three years.
The income caps are $120,000 for sole purchasers and $180,000 for couples”3
What Happened With KiwiBuild?
By 2019 the government decided that 100,000 houses was too ambitious and they decided to fund houses that were already set to be built anyway by partnering with building companies.
Other KiwiBuild changes4:
Buyers of a studio and one-bedroom homes can commit to living there for one year; previous rules mean they had to stay for three years
A max of 10 percent of KiwiBuild homes are able to be over the price cap if they are four or more bedrooms; previously there was a blanket price cap on all homes
People who have previously owned a home no longer have an asset limit when looking to buy a KiwiBuild home; previously they were not allowed to have assets worth more than 20 percent of the First Home Grant price cap.
By October 2020 the scheme had produced only 602 homes, with rumors abound that many of this number were actually purchased from private developers in attempt to make statistics look better.5
By May 2021 this had increased to 1,0586
Analysis
The government buying houses from developers meant that they didn’t actually increase the housing supply. Instead they increased the demand by placing themselves as a middleman to the process. This pushed up house prices because they would have to outbid private buyers of properties / construction resources in order to win contracts.
Therefore I would say that the KiwiBuild scheme was not only a failure, but had the opposite effect on house prices than intended, albeit in a small way due to the lack of success in its implementation.
It was also a waste of tax money.
[OPINION] What is more concerning about the failure of KiwiBuild is the naivety of the government in thinking that to make more properties, they could simply pay builders to build more properties. Did they think that the builders were just sitting around not doing anything during a hot property market with demand pushing up prices?
[OPINION] It worries me that they weren’t aware of a governments role in manipulating market forces by incentivization and dis-incentivization. A better policy would have been to entice more builders and associated tradesmen into the country through immigration incentives or via direct contracts with foreign suppliers. Another angle could have been to consult with existing construction companies and address any issues causing inefficiencies in the industry and slowing builds down. A longer term solution could have been to encourage more people into the construction industry with incentives for people to become builders, education incentives and incentives for companies to take apprenticeships.
[OPINION] Additionally there was criticism that price caps were too high for low-income buyers to be able to compete with those receiving higher incomes7. Although I would personally argue that due to the sound, fundamental economic concepts of the Supply and Demand diagram, introducing housing supply to any part of the market would have a reducing effect on the price of properties, even if these all ended up in the hands of investors/landlords.
[OPINION] Anecdotally, I also recall criticism at the time that KiwiBuild properties were being built in locations that were not in much demand by the free market and therefore were also reducing the supply of construction to areas requiring housing more.
What actually happened:
• Phil Twyford said he'd like to build 100,000 homes. This got a great reception so he kept saying it.
• Once elected he realised he couldn't do it without getting money from the Minister of Finance, but the Robertson didn't want to give him the money.
• Twyford was sacked, Megan Woods was brought in to clean up the political damage.
• Woods cut some deals to sort of make it look like the govt was upholding its promise but without costing the govt much money.
• Woods' plan didn't build more houses but it did drag out the failure over a long enough time period that it was hard to say exactly *when* it failed and thus no single, huge, damaging news story.
There was never any real intention by Labour to build houses. Labour and National don't make serious plans while in opposition because it's simply easier to wait until the public to get sick of the current ruling party's bullshit and then win automatically. This is why they try so hard to make the govt of the day to look bad.