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How Phil Twyford’s ambitious housing plans ignore the brute realities

Phil Twyford: bridging the affordability abyss. Photo/Getty Images

Bailing out dozens of failing property tycoons is not quite how KiwiBuild was described by the Labour Party in its election manifesto.

There’s some sort of Bermuda Triangle effect in New Zealand around the figure of $11 billion. Steven Joyce steadied National’s vote overnight in the last election campaign by pointing to an $11 billion fiscal hole in Labour’s figures, despite a chorus of economists saying he was wrong. The National-led Government last year earmarked $11 billion for new infrastructure, much of which Labour has now mothballed. Our superannuation bill was $11 billion last year, and it’s doubtful that its growth will be offset by the resumed contributions to the Super Fund. Now, Housing Minister Phil Twyford is boasting that his KiwiBuild could add as much as $11 billion to house construction by 2023, when the Treasury has just halved its forecast of the contribution to $2.5 billion.

It’s hard to say whether Twyford should take up poker or not. His “hand” is a rival report from Ministry of Business, Innovation and Enterprise (MBIE) officials forecasting $11 billion as its upside projection. But the Treasury, which predates MBIE in the august-institution stakes by 172 years, is seldom out by anything like 77%. Twyford has already been made to apologise for calling its officials “bean counters”, out-of-touch and “kids”. Attacking public officials, who cannot defend themselves, is mean and unworthy – and pretty silly when the brute realities, and the politics, are all on their side.

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Since the election, the intractable problems of land and infrastructure supply, and the building-labour shortage have pitched Labour’s flagship policy from KiwiBuild to KiwiBluff. For the next two years at least, the only Build going on will be that undertaken by developers, whose stalled plans are being rescued by the Government. Technically, these are new houses that might not have been built but for the Government. But bailing out dozens of failing property tycoons is not quite how the policy was described in the election manifesto.

Nor is it music to people’s ears to hear Twyford talking excitedly about “buying off the plans!” The only reason that signing up for unbuilt homes touted by failing developers is not sheer madness is that they’ll have an effective Government guarantee. Even then, they will not be many people’s definition of affordable.

If this is how upbeat Twyford is when he’s beleaguered, imagine the marathon “Hallelujah” chorus if he ever succeeds. Not known for his modesty, he recently told a housing forum he was refreshed “not to be the most ambitious person in the room for a change”. Considering the obstacles, his renewed KiwiBoast – 100,000 homes for first-home buyers by 2028 – makes him the Muhammad Ali of political rhetoric.

Twyford recently regaled Parliament with the great news that there were now more builders free in Auckland than there used to be, and KiwiBuild would be availing itself of them to erect affordable homes. Responding to further Opposition questions, he conceded that this new workforce was the result of the failure of a number of projects by private developers which, he tried not to add, the Government was now bailing out. He spoke as though this was not a sequence of events, but separate developments not at all connected: a new army of tradies had simply appeared in a puff of magic smoke.

The house that Phil built

There’s a nursery rhyme revision in here somewhere: “This is the house that Jack nearly built/This is the developer’s capital, all forlorn, that lay in the house that Jack nearly built/This is the bank, all brutal and frank, that refused further finance on the capital, all forlorn, that lay in the house the Jack nearly built/This is the Government that reassured the bank that refused further finance …” And the happy ending being: Jack and the bank and the Government went on to build the house. Naturally, the rhyme is now officially known as The House that Phil Built.

But what about the people, all forlorn, who still can’t afford to buy the house that Phil built?

To little fanfare in last week’s crowded news menu, Twyford announced a new measure which, although doing nothing to alleviate the housing shortage, should help bridge the affordability abyss: a shared-equity scheme.

There’s little detail yet, but Twyford has instanced a family taking out a $400,000 mortgage on a $600,000 home, with either a bank or state agency acquiring the $200,000 balance. The arrangement means more people could get onto the property ladder, needing a much smaller deposit and facing lower debt-servicing costs. They’d still get a decent house, the ability to increase their equity, and may eventually be able to buy the remaining equity from the institutional owner.

The deal should appeal to private lenders, because as long as the housing shortage continues, housing equity growth provides plenty of ballast. Of course, if Phil really does have the better poker hand and solves the supply problem, lickety-split, in the teeth of Treasury forecasts, then the need for such a leg-up will abate. It’s hard to see a political downside in equity sharing.

The real cost of renting

Economists will doubtless emphasise the foolishness of investing in housing as our primary capital-builder rather than renting and using surplus cash for savvier financial investments, but most people would respond: “what cash?” The New Zealand rental market is not only astronomically expensive, but it lacks the settled, long-term culture of rental markets in other countries. Being a tenant here, particularly a low-income tenant, has measurable social disadvantages, not least potentially being only three months away from having to move. Education researchers say children lose six weeks’ learning time every time they have to change schools. Transient populations are bad for social cohesion. And there’s a psychological benefit in home ownership that the economic argument doesn’t factor in.

As for Twyford’s philosophy, who’s to say pie in the sky isn’t more nourishing than jam tomorrow? When a future prime minister travels via Auckland’s new light-rail network – $6 billion, but let’s round that up to $11 billion – to open the new waterfront stadium – $1.5 billion, but perhaps that’s also short a “1” – and cut the ribbon on the old Eden Park site’s new housing development of Twyfordville – well, then the kids at the Treasury will only have Steven Joyce to commiserate with over where their figures went wrong.

This article was first published in the June 2, 2018 issue of the New Zealand Listener.