The Eye of the Fish

July 5, 2018


So the details are finally out. The way out of the Housing Crisis is to build our way out of the crisis. This is a Big F….ng Deal – the whole world will be watching. After years and years of the world – and especially New Zild – following the free market doctrine of “The Market Knows Best”, this Labour government is going to build and build and build.
Details released on Wednesday show that the scheme will differ around the country, meaning that it recognises that not everyone can fit into a “one size fits all” solution. Let’s ignore Auckland (as anyone reading this will probably be from Wellington), despite Auckland being the place where most of the KiwiBuild housing will get built. Where this concerns Wellington: a house for $500,000 for a single person earning up to $120,000 or a couple earning up to $180,000 per year. That covers just about every person in town – how many people do you know earning $120,000 per year? Certainly not excluding young architecture graduates just starting out in the world!

Already, apparently, people are rushing to get their name on the list, and who can blame them? There’s nothing to lose – and a lot to gain – and most people who get a new home aren’t going to flick it within the first 3 years. Hell, don’t most people stay in their first home for more like 10 years? Especially a warm, dry home after the years of flatting in cold damp houses? My guess is that people – young workers – are going to be cashing in their KiwiSaver to get their KiwiBuild underway. So the money is still staying within the system, if you look at it that way.

The next big thing, of course, is how we are going to get them. Minister Twyford is sending some pretty large messages out to the construction community: provide us with the homes, or we’ll buy them from overseas. He has indicated strongly that Prefab is likely to be only way to go, with the logic being that we cannot continue to build slowly, one house at a time. So, not like this:
not this
I think that the Government are looking at 1000 houses in the first year, and up to 12,000 houses per year after year 3. Fletcher Living have announced that they are building a factory that will pump out 1000 houses per year – that is roughly 3 completed houses a day – being driven out their door. Stuff have actually built a special Tracker to keep track of the numbers, which you can see right here.

But so a big factory from Fletchers won’t save the world. We would need another 11 factories like that. So what is going to give? Who else is building houses on that scale? In New Zealand? Hmmmm. Not many, if any, Aunt Fanny. But overseas? Ramping up their engines already. Coming your way soon: cheaply-made houses from China, with Chinese materials (or possibly even NZ radiata pine we grew and then sent them as logs?) made by cheap Chinese labour. Complying with NZ Building Code?

We (NZ) need to get it right, or this could be an even bigger disaster than the Leaky Home saga, which started right here in NZ about 30-40 years ago, when the then Government changed the rules over the Building Code. Nobody wants to go down that road again – our Building Code is already pretty crappy – so we need to make sure it is not relaxed at all, but strictly upheld and hopefully exceeded. What hope of that happening? Phil?

5 - 07 - 18

There will be lots of questions over this. Here’s one from the Herald:

“Yesterday Twyford said KiwiBuild faced five major challenges – land availability, workforce constraints, consenting time frames, development and build times, and growth capacity constraints.
He said the household income threshold had been set that high because the programme was “not welfare, but an aspirational middle-class policy”.
“We want to make it available to as broad a range as possible of young Kiwi families.”

5 - 07 - 18

This viewpoint from Interest NZ :

“If prefabricated homes could be produced for anywhere near the $1200 per square metre that Twyford mentioned, that could potentially bring construction costs down by around 40%.”

“If prefabricated manufacturers could supply KiwiBuild homes at more competitive prices than other building companies they would likely also be in a position to win supply contracts for Housing New Zealand and other social housing providers, and to bid for contracts with third party developers building homes for sale on the open market.
The scale of what could be involved is sufficiently large to cause a major shake-up of the construction industry that could affect both building companies and their suppliers.”

5 - 07 - 18

Well, the Herald has a different tack. It says here that Kiwibuild is now ‘socialism for the rich’

“If there was any excitement brewing at being able to enter a lottery to buy an affordable Kiwibuild house, it was certainly short-lived, as further details revealed that the “lottery of birth” has probably already scuttled most people’s chances. Disappointment is setting in as more people realise that the scheme is really only going to benefit the rich. This is because the houses are priced so high that few will be able to afford to even enter the final ballot for them. What’s more, many are asking why the income caps have been pitched so high that the scheme seems destined to be dominated by rich buyers who are after a good investment.”

I’m not sure that is right though. It is still going to be entered via a lottery – not restricted just to the rich – so, more of a game of chance (Lotto, Strike or Powerball) rather than Monopoly.

60 MPa
7 - 07 - 18

If I wasn’t over the income cap I’d be in like Flynn

Quite a few people would be over the combined income of 180k

Either way I disagree with the theory that people won’t cash out or be under pressure to cash out – if you paid 500k for something worth a mill or even 900k then why not keep it for the 3 years then cash out, buy a small place in the country for 300k and retire on the income from a decent chunk of change?

IMO the scheme will get redesigned once people start doing exactly this

The value collectively of NZ housing will slowly go down as more houses come onstream but not that fast, that far

7 - 07 - 18

Maybe, 60 – but only if house prices keep going up, right? And right now – or at least since Labour has been in power – house prices have (mostly) stabilised.

Yes, maybe I’m out of touch with the rest of the world / NZ – while I don’t know anyone (single) earning over $120k, I guess there is more likelihood of a couple having a combined $180k. But I still don’t know any couples earning $90k each….

Just went to a couple of bank websites and used their “calculators”.
Kiwibank said if I had an income of $120k then I could borrow $120k more, as long as I had a $30k deposit. Goes up from there. A $30k deposit is possible if you have been in Kiwisaver for 5 or more years.

ANZ says if I had a deposit of $222k, and if I had an income of $120k, they would loan me $886k.
Repayments would be $5,193 per month over 30 years. That’s about $1300/week, which considering I would only be taking home about $1730/week, doesn’t make any sense at all. Working further into their calculator, we end up at the same point: a $30k deposit and that salary gets me only a loan of $120k.

Turns out you have to have a deposit saved up of at least $125,000 and a salary of $120k/pa to get offered a loan of $500k. That brings your repayments down to $2930 / month – or approx $732 per week. That’s doable – as long as you can come up with a deposit of $125,000 to start with – sell your sister into slavery, auction your brother into bondage, force your parents to see their home – I mean, how do you get there, especially if you have a Student Loan of $60,000 hanging round your neck?

60 MPa
8 - 07 - 18

Oh I quite agree

The hurdle to ownership is definitely the ability to save circa $125k as an individual- this is why I see people going into cheap doer-uppers in Stokes Valley and Pomare with a contract amongst friends, or starting with a basic brick and tile unit in the outer burbs and driving a cheap car.

There is a real shortage of cheap simple starter apartments that aren’t going to have a fabric wrapped scaffold stuck over them in 5 years time like St Pauls Apartments do now – more leaky homes crap

Even Featherston has gone from 170k to 300 ish in the last decade or so as more people move out from under the big prices
Otaki is selling well in anticipation of T/Gully which I find a very depressing sentence to write – I’d rather see more cool duplexes in Mt Vic/Newtown/Aro etc but for the NIMBYs and BANANA (Build Absolutely Nothing Anywhere Near Anyone) crowd

I think Kiwibuild is a good idea in principle and at least Labour are doing something about the housing problem rather than National’s lassez-faire/don’t care approach – I just think that the actual numbers will need a bit of tweaking so as not to distort the incentives

Analogous to this is my mate who makes his self-employed earnings dip below the threshold for WorkForFamilies so his wife has no incentive to get a job
Why should my tax dollars go towards them breeding?

8 - 07 - 18

Hit the nail on the head there 60. I find it really strange with the cult of the family, given that the last thing this world really needs is more people breeding, and especially less poor people breeding. Putting it very bluntly: the world has far too many poor people, and they should be discouraged to breed.

Yes, it is almost impossible to save up that sort of amount on your own. I’m presuming that most people just simply cannot get to $125,000 on their own, so they have to have either an aged aunt or uncle die with no offspring, and a big heart, or their parents die, or….?

Actually, thinking back, I did it all on my own with no money from parents. Invested in shares and held onto it for over 10 years. That worked ok in the stock-market boom years, but it would be hard to do it now.

9 - 07 - 18

There’s a new article on Stuff which mentions deposits right at the end:
Included in the Cabinet paper was a rough idea of how long Kiwis would need to save for a deposit on a KiwiBuild home.

Aucklanders on the Auckland median income would need to save for five years for a 10 per cent deposit on a home at the $650,000 price cap, and ten years for a 20 per cent deposit.

Wellingtonians, who have a higher median income but a lower price cap for KiwiBuilds of just $500,000, would only need to save for three years for a 10 per cent deposit or six years for a 20 per cent deposit.”

So, saving a 10% deposit over 3 years i.e. min $50k, would mean you would need to save $16,700 a year, or $321 a week. You would have to be pretty dedicated to do do that. Possible though? No lattes?

60 MPa
9 - 07 - 18

The saving thing is hampered by how high the rents are out there

People renting these days are paying a lot more as a proportion of their income
To save that deposit you’d have to go without a whole lot and live as frugally as possible – no wonder so many people are just saying screw it

321 a week is a lot harder if you only take home 800 and your rent is 200 which will mostly get you a shitty bedsit if TardMe is to be believed – not much of a life for 3 years

10 - 07 - 18

Yes, 60, totally agree – I think that the Gov will be relying on people cashing in their Kiwisaver after 5 years of saving, as that will get you a couple of grand higher for the deposit, at the very least. It is indeed pretty grim for low-waged, single people. Not quite so bad in my mind if you are a low-waged couple, or a low-waged couple with children – Government floodgates open wide with funds. But if you’re single, you’re generally screwed.