Government introduces major KiwiBuild overhaul

The Government has scrapped the 100,000 homes target and diverted $400 million to 'progressive home ownership' schemes required by the Labour-Greens confidence-and-supply agreement. Marc Daalder reports.

Housing Minister Megan Woods announced a major overhaul of the Government's flagship KiwiBuild program on Wednesday. The program will place an increased focus on access to housing for low-income people by reducing barriers to entering the housing market and sponsoring shared home ownership schemes.

100,000 homes no more

Woods has also scrapped KiwiBuild's central promise: that the Government would build 100,000 houses over 10 years. The lofty figure has been subject to ridicule from the National Party since KiwiBuild was introduced by Labour in opposition in 2012.

The Government has also acknowledged that the ambitious target is to blame for some of KiwiBuild's early failures. "It was overly ambitious and led to contracts being signed in places where there was little first home buyer demand," Woods said on Wednesday.

Woods' statement evokes situations like that in Wanaka, where six of the 10 KiwiBuild homes put on the market in October 2018 had yet to sell by February.

The houses ranged from $565,000 to $640,000 in a town where the median house price tops $1 million. Still, at more than $500,000, the Wanaka homes were out of reach for the people who wanted them. At the same time, the middle class earners who could afford them found them too small.

The Government has declined to put forward a new target for how many houses will be built under KiwiBuild. "Instead of the target, we will focus on building as many homes as we can, as fast as we can in the right places," Woods said.

This may open up the Government to further attacks from the Opposition for seeming to give up. National's housing spokesperson Judith Collins already labelled the policy a "failure" before the details of the reset were announced.

In order to track the progress of the program, the Government will introduce an online dashboard with a wide range of metrics that will be updated monthly. The dashboard will launch in late October and highlight the average weekly cost of a rental, the number of KiwiBuild and state housing homes built, the number of homes under construction, the number of KiwiBuild owners, and more.

Greens win big

The Green Party succeeded in reorienting KiwiBuild to support their own housing policies. This will chiefly come in the form of $400 million of KiwiBuild's existing $2 billion budget being dedicated to progressive home ownership schemes.

Such schemes could include the idea of rent-to-own, which entails a portion of a tenant's rent going towards building equity in the home. Once the tenant has built enough equity to act as a deposit, they switch to paying mortgages.

Another possibility floated by the Government is a shared equity scheme, in which a house is jointly owned by the people living in it and a third party. The household occupants might not pay rent to the third party but instead split capital gains.

These sorts of multi-party and multiple-individual ownership schemes are also supported through other actions the Government will take.

The KiwiSaver HomeStart grant - to be renamed the First Home Grant - previously only gave a maximum of $20,000 dollars to a group of buyers, or the equivalent of two individuals' grants. Now that cap will be removed, allowing a multi-generation family with four incomes to receive $40,000 in grants to put towards a deposit.

The Government estimates that these measures will help between 2500 and 4000 households buy a home.

In order to further lower the barrier to entry, the Government has dropped the required deposit for the government-backed Welcome Home Loan - to be renamed First Home Loan - from 10 percent to 5 percent. 

The Government is also cutting red tape around KiwiBuild which hampered the development of some projects. While buyers were previously required to live in the home they purchased for three years, that rule has dropped to just one year for buyers of studio and one-bedroom homes.

KiwiBuild developments were also entirely price-capped, meaning that few four-bedroom or larger homes could be built as part of the program. Now, as much as a tenth of the homes in a KiwiBuild development can be over the price cap if they are a four-bedroom or larger houses.

People who have previously owned houses but no longer do were eligible to participate in KiwiBuild as "second chancers", but they could not have assets worth more than 20 percent of the KiwiBuild price cap. Now, that asset-test has been scrapped, but an income test remains.

Woods has emphasised that even the new reset will take time to implement and its effects will take longer to be felt. "The housing crisis developed over decades and won't be solved overnight," she said.

"We've made a good start across the wider housing portfolio but KiwiBuild isn't working so we are changing it. When policies aren't working we are honest about that and fix them."

'Off the plans' failure

KiwiBuild started as an attempt by the then-opposition Labour Party to score a blow on National where it hurt: the housing crisis.

It was the sort of policy that could capture the imagination of the nation: build 100,000 homes in 10 years through developments on Crown land, designing medium-density suburbs integrated with public transport corridors, and just a little bit of help from buying a few in-progress houses "off the plans".

The brand-new suburbs would be built by Kainga Ora, the yet-to-be-created urban development agency that would have the power to ignore RMA restrictions. Buying "off the plans" entailed buying a portion of a development outright or promising to buy houses that don't sell in order to lessen the risk for developers.

These "off the plans" houses were supposed to help the Government meet early targets but otherwise play a minor role, for fear of opening KiwiBuild up to accusations of being welfare for property developers. That, coincidentally, is how Phil Twyford characterised National's development at Hobsonville Point while in opposition.

Less than two years later, as Minister for Housing, Twyford would be subjected to blistering attacks from Judith Collins for pretty much the same thing. KiwiBuild was over-reliant on "off the plans" developments and still struggled to get new houses built. Jacinda Ardern replaced Twyford with Woods in June.

Under the new KiwiBuild rules, the Government will reduce the amount of money developers are paid if "off the plans" KiwiBuild homes don't sell.

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