Written By: - Date published: 8:42 am, November 23rd, 2018 - 126 comments
Categories: housing, labour, national, phil twyford, Politics, same old national, Simon Bridges, spin, the praiseworthy and the pitiful, you couldn't make this shit up - Tags: KiwiBuild
What is it with National and grandiose claims of billion dollar deficits?
During the past election Steven Joyce claimed infamously that there was a $11.5 billion deficit in Labour’s budget numbers. No one, including all the country’s leading economists, could find it. But this did not stop National repeating it and repeating it and repeating it and repeating it …
Bridges has decided to get in on the act and has claimed that there is an $18 billion deficit in Labour’s Kiwibuild, at least if it wants to build ten thousand houses a year.
From the Herald:
National Leader Simon Bridges said as Labour’s pre-election policy was for the Crown to build the homes, MBIE’s data shows Labour undercosted KiwiBuild by $18 billion.
He said the $2 billion Labour had promised for the Crown to build 10,000 houses a year would only be enough to build 1000 homes and therefore the policy had been undercosted.
The promised funding, according to MBIE, would mean a 9000 home shortfall and the estimates to reach 10,000 homes a year were $18 billion off, Bridges claimed.
Because of this, he said the Government shifted its focus from building KiwiBuild homes to underwriting private developers to build them.
“Labour had nine years in Opposition to come up with policies. It’s unbelievable that one of its flagship policies that it campaigned on in the election was miscalculated by such a huge amount.”
He said rather than increasing the budget tenfold, Labour shifted the policy from “KiwiBuild to KiwiBuy.”
But the reality is somewhat different. There was never an intention for the Government to build the houses all by itself. From Henry Cooke at Stuff:
National Party leader Simon Bridges has used the advice, released to his party under the Official Information Act, to claim the “original model” of the housing policy was $18b underfunded at the election. This is achieved by taking the assumption that only 1000 homes a year could be built solely by the Government with the $2b and then multiplying the $2b by ten to come up with 10,000 homes a year.
But this assumes that Labour’s election policy never involved “buying off the plans” and interviews published prior to the election suggest Twyford had always seen private sector developments as part of the plan, although it was not very clearly promoted.
Twyford explains it in these terms:
“It was never the intention of KiwiBuild that the Government would nationalise the property development industry and build all the houses ourselves,” Twyford said.
“We have always been committed to working with the private sector.”
His office pointed to a pre-election interview where Twyford said “Many of the KiwiBuild homes are going to be delivered in private developments, where a developer will come to us and say, ‘we think 30% of the homes we’re going to build could well meet the KiwiBuild price requirements.’ Then we’ll buy them off the plan, thereby de-risking and speeding up developments and guaranteeing a certain percentage of affordable homes.”
Let’s dumb the situation right down. Kiwibuild is a $2 billion dollar fund. The idea is to build as many houses as possible, sell them at cost, then repeat as many times as possible.
Let’s assume that the average cost of a Kiwibuild house is $650,000 and that it takes on average three years from acquisition of the land through subdivision consenting and building and then sale of the property. To build a thousand houses using this model you would need $650,000,000 and multiply that by three and the fund is pretty well used up.
Using this model you would need $20 billion to build 10,000 houses a year and hence the claim that the fund is $18 billion short.
What if you could persuade private developers to shoulder the cost of construction, build to your specifications and then sell them to you allowing you to onsell them. Then lots and lots more houses could be built and you would not need to sink all that capital into getting them constructed. And what if you could buy houses in the process of being constructed thereby shortening the turn around time and releasing your capital earlier? Then again you could sell lots more units and quicker as well as allow developers the certainty needed to go ahead with development projects.
There is nothing new in the proposal. Labour’s housing policy from last year’s election said that it would “partner with the private sector to build 100,000 affordable homes”.
Bridges’ claims show either a fundamental misunderstanding of the policy or a complete indifference to reality or both. But expect claims of an $18 billion deficit to be repeated for a while.