The pretentious nonsense that is KiwiBuild

Dr Bryce Wilkinson
Insights Newsletter
25 January, 2019

KiwiBuild – the government programme to build or deliver 100,000 homes in 10 years – serves no useful public interest purpose and promises to endlessly distract and embarrass the government.

That is the signal conclusion of KiwiBuild: Twyford’s Tar Baby, a research note released this week by The New Zealand Initiative.

The programme does not directly help those on low incomes; only the relatively well-off can afford KiwiBuild homes.

To subsidise such people would be unfair. That is why the Housing Minister has had to assert there will be no subsidy.

Yet to sell at below market value is to see taxpayers subsidise the purchaser. The very decision to allocate by ballot rather than by auction indicates Labour’s willingness to subsidise.

Other indicators of an implicit subsidy are the eligibility restrictions on potential purchasers and the resale restrictions and capital gains claw-back provisions.

At the heart of these contradictions is the fact that private developers exist to meet unsubsidised demand. Neither they nor unsubsidised buyers need KiwiBuild. The most likely reason they are participating in KiwiBuild is that the government is providing each side with an unpriced financial inducement at taxpayers’ expense.

Labour’s dilemma over the subsidy issue is heightened by its relatively weak incentive and ability to meet people’s needs as to types, designs and locations at unsubsidised cost. The risk to taxpayers is that it will commission homes that cannot be sold even at the posted price. The unsold KiwiBuild homes in Wanaka illustrate the reality of that risk.

The government’s commitment to a programme with such deep contradictions promises to endlessly embarrass it. If it has to ballot, the implied subsidy is inequitable; if it commissions homes that are unsold at cost, it loses face.

Both the government’s hands are stuck to this tar baby.

Our research note also explains why KiwiBuild is unlikely to materially meet its intended objectives of increasing the home ownership proportion or add permanently to the housing stock.

The ongoing political and public sector resources needed to manage KiwiBuild’s risks and shortcomings represent a massive distraction from what is needed – decisive action to increase land supply for residential housing (upwards and outwards) and to reduce construction costs.

Other aspects of the government’s housing policies are better directed in this respect, but the need is to see real progress on these fronts. The KiwiBuild distraction does not help.

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