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KiwiBuild reset shows how badly policy was bungled

The Government's major overhaul of KiwiBuild demonstrates just how serious a failure the policy has been to date, Marc Daalder argues.

The figure that will define KiwiBuild 1.0's legacy isn't the scrapped 100,000 house target, but the $207 million that the Government spent on houses in Wanaka, Te Kauwhata and Canterbury that won't sell to KiwiBuild-eligible buyers.

Now, the Government is having to put the homes - 211 in Wanaka, 175 in Te Kauwhata and another 75 in Canterbury - on the open market for anyone, even potential speculators, to buy.

Housing Minister Megan Woods says the Government still expects to turn a profit on the houses and will funnel the proceeds back into KiwiBuild, but the entire situation underscores how significantly the Government's flagship policy was bungled.

A mea culpa to end all mea culpas

Woods understated the case when she said in a statement on Wednesday that the Government's 100,000 house target was "overly ambitious". The target was, it now seems, impossible.

As Henry Cooke reported for Stuff, the number was selected because it sounded good, not because it had been found feasible. Everyone involved now acknowledges that the 100,000 target - and the more immediate 1,000 houses in one year goal - motivated KiwiBuild with perverse incentives.

Instead of building houses where they would sell, the Government underwrote risky developments in places like Wanaka, where the average house price tops $1 million, in attempt to drive KiwiBuild numbers up. No one who could afford to avoid it wanted to live in medium-density housing and no one who wanted the Wanaka homes could afford them.

Now, the Government is forking over millions to property developers and hoping that its bad investments will still sell to a wider market, letting them at least break even. The obsession with buying houses "off the plans" was, Woods now admits, wrong-headed.

"With the early developments, that was obviously the emphasis. That's where things went as we waited for the large-scale developments to come on stream. We did see that the target was driving to buying off the plans and going for quantity of houses rather than the right house in the right place," she said.

"That's what we're looking to reset today and that's what we're changing."

KiwiBuild houses at Te Kauwhata, south of Auckland, remain unsold. Photo: Lynn Grieveson

Money better spent elsewhere?

That's not the only thing that changed on Wednesday. KiwiBuild was originally designed to help the middle class get a foot in the housing door, while state housing would address the concerns of low-income people.

Now, $400 million of KiwiBuild's $2 billion budget is dedicated towards "progressive home ownership" (ie rent to own) schemes meant to help low-income people. But the Government concedes that only 4,000 people are expected to benefit from this.

That's 20 percent of the KiwiBuild budget put towards helping put people in just 4 percent of the now-scrapped 100,000 homes. While that money will eventually be paid back to the Government and recycled into KiwiBuild, that could take years.

This raises the question: wouldn't the money be better spent on state housing?

Woods insisted that the two programmes had to co-exist. "We are working incredibly hard. We are building more state houses than we have in decades and that is something that we will continue to prioritise," she said.

"It's not either [KiwiBuild] or [state housing]," Woods insisted, but she declined to elaborate on how KiwiBuild is worth the money.

KiwiBuild has so far contracted 1,546 homes and has another 8,363 committed or forecast, Woods said.

At the end of August, the state housing waiting list hit an all-time high of 12,644.

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