The Nation: Leonie Freeman and Alan Johnson

Lisa Owen: This week, the government admitted it’s had to tinker with its KiwiBuild policy to make it work. A three-bedroom home in Auckland will now cost $50,000 more than Labour promised during the election campaign. And the houses might end up going to people who aren’t first-home buyers. I’m joined now by housing strategist Leonie Freeman and Salvation Army social policy analyst Alan Johnson. Good morning to you both. Leonie, if I can start with you. That price jump from $600,000 to $650,000 — how significant is that shift?
Leonie Freeman: I think it is quite significant, but I think what they’re trying to do is to perhaps set a framework which will encourage more houses to come into the pool, because the document they released is about an invitation to participate. And what they’re trying to get is development projects that are already underway that have perhaps got stalled because the developers can’t get funding or presales requirements.
Right, so you think the upping of the price is to make it attractive to developers?
Freeman: Yes, just to try and get some more into that pool. And I think it’s also reflective of, perhaps, that more realism about the costs and what it takes to actually build houses and get them to the market.
Do you think it was unrealistic — that $600,000 price tag for a freestanding Auckland house?
Freeman: Well, I think, perhaps, that what we’ve seen is we’re still continuing to see increases in construction costs. We’ve got a shortage of people in the industry to build it, so there’s continuing pressure on housing. But one of the key barriers at the moment has been developers getting projects to a certain point, but they can’t secure funding or get the presales. So the government’s trying to reduce the risk to get things moving.
All right. Alan, the ministry advice has been that a household in Auckland would need to bring in around $114,000 a year to buy a one-bed KiwiBuild around the price of $500,000. So who actually is this going to help KiwiBuild?
Alan Johnson: Look, it’s clear it’s going to go to the middle class, and probably to the young middle class, rather than the people we see every day and, certainly, people better off than them — the working poor and even people who’ve got good, modest income jobs. A household income of that size would require two full-time incomes at an average wage. Well, most people are below that, so there’s a problem.
Do you think that KiwiBuild is quite elitist, then? It’s for a higher market?
Johnson: Look, I think the government’s unrealistic in its view that it can do this with very little subsidy. If we go back 30 years and 40 years to the massive home-building programmes that we had previously, there were subsidies in the families to support them to buy the house. Realistically, if we want to get modest income Kiwi families into home ownership, we’re probably going to have to go back to that sort of approach.
Well, Leonie, the government says it’s considering, now, alternative purchases — that’s what it said in this document this week. So if there’s not enough first-home buyers able to buy, they will look at other options. Is the scheme not even achieving what it set out to do, then?
Freeman: Well, I think what you have to think about is look at the housing continuum. You need policies to solve homelessness, you need policies around social housing and to provide more affordable housing. So KiwiBuild is targeted at that affordable housing space. The challenge is going to be not only in getting the supply to the market of affordable housing, but making sure we’ve got the demand for them. So if you’ve got situations where people can’t afford to buy at $650,000 affordable, then we’ve got to be a lot smarter about how do we get them in there? Can we look at rent-to-buy schemes or shared equity? There’s schemes already in place. The New Zealand Housing Foundation, for example, does a great programme where you go in with 50 per cent equity and then, over time, you can buy it out. So we’ve got to look at ways to get people on the housing ladder, should they choose.
Alan’s nodding his head. So, a part of the coalition agreement is that Labour and the Greens — between the Greens and Labour — is that they have to investigate shared equity. Is that something that you want to see on the table for KiwiBuild?
Johnson: Oh, definitely. And it’s working already in a very limited way. I think probably it needs some sort of change to make it easier to work, but it possibly can well become a model in the future, where there is a sharing of equity and easier entry at that first-home buyer market.
Freeman: And I think we don’t have to necessarily reinvent the wheel, because there are so many organisations around the country already doing this in a good way. And instead of just having to recreate everything from scratch, let’s be smart and say, ‘How can we scale some of what’s already happening up to support this initiative?’
As you mentioned, the government has called for people to express their interest in being a developer for KiwiBuild, and the government will underwrite the projects to ensure that they go ahead so that they’ve got guaranteed financing. What’s the reaction been from the industry? Are they keen to get on this wagon?
Freeman: So, the thinking behind it is right. So, it’s a good idea. There is really mixed reaction from the industry that I’ve had to date. So there will be some that will give this a go, but there’s actually a lot of scepticism in the development and building community, because this is another procurement process, and many of the developers have been through this before. So, a few years ago, for example, MB came out with thousands of houses to build under the Crown surplus land scheme. So lots of people in the industry spent a huge amount of time, effort and money and went through the procurement process for supposed ‘all these thousands of houses’. I think there was one project that came out of it. So people get really burnt. There was another one by another public sector entity a couple of years ago saying, ‘Come with us with all your innovative ideas’ — very little happened with that. So I think a lot may sit back and wait to see what happens.
So you have to register interest for this first wave by the 1st of June, which is not that far away, and the first lot of houses need to be complete by 2019. So does that suggest that these are houses that have pretty much already got their consents for planning? So is the government hijacking houses for KiwiBuild that would have already gone ahead anyway?
Freeman: Possibly they’re trying to get some that might have happened anyway, but I think where they’re trying to target is there are projects that have been put on hold because they can’t get funding. So they might be trying to target them. But there’s a whole lot of things — it’s got to be consented, it’s got to fit in with that price bracket, and it’s got to fit in with a whole lot of other criteria. Because it says that, for example, the developers and the builders have to be prepared that all their ideas — intellectual capital — in whatever they put forward is going to be shared with the entire industry. And I think, again, in the community housing, the not-for-profit sector, they’re really open to doing that. In the commercial sector, they don’t.
Right. Alan, the government has pledged to build 1000 social houses per year until demand is met. And it’s committed to trying to build 2000. Is that enough?
Johnson: Look, we think 2000 is the minimum — that’s what we require to stop things getting worse.
So just to hold our own?
Johnson: Yeah, just to hold our own, particularly with an aging population of people who don’t own a house when they reach retirement. There’s going to be massive demand from that group of people as well. That won’t address the backlog that we’ve got. We haven’t really added any social housing stock over the last five years. What we’ve seen in the numbers is a sort of rejigging of the way houses are funded, but we haven’t actually seen a significant increase in numbers. So, that 2000 is, for us, a minimum.
Name your number.
Johnson: Look, I think 2000 is a realistic number too, because if you come up with a ballpark of 5000, that just becomes unrealistic, and everyone gives it away. 2000’s realistic — I think it’s fundable, I think it’s doable in terms of building those houses, and we’ll stick with that.
So, two billion on KiwiBuild — is that money well spent? Or should a portion of that be going into more social houses?
Johnson: Either the government or Housing New Zealand needs to stump up with some serious cash to build these houses.
Social houses?
Johnson: Yeah, social houses— state houses. The previous government tried to do it with a mixture of approaches that never really produced the goods. There is some serious money that needs to be borrowed or found from tax revenues to fund this. And we think in the order of one billion dollars a year. And that we really have to start—
For how many years?
Johnson: Well, we think for the next 10 years.
10 years? A billion a year for 10 years?
Johnson: And we think that we really need to start with the money, rather than the promises, because without the money, it won’t happen.
Leonie?
Freeman: I was just going to say, too, I think what we also need to look at is a bigger picture of this and say, ‘What is the problem we’re trying to solve here?’ And there’s a number of issues. So we come back to the housing continuum — homelessness, social housing and affordable housing. So we’ve got to get much better coordinated on this. We don’t just put all the energy into one of that housing continuum and make sure we get the outcome that we want, because I get concerned that sometimes it’s just getting down into one initiative, without saying, ‘Actually, there’s a whole range of these things.’ We’ve got to pull a lot of levers. And it comes back, again, that we’ve got to have much better quality data to say, ‘Where are we up to, and how are we going, and what are the milestones, and are we on track?’
Johnson: Yeah, I’d disagree with that. I think we need to build state houses. I think the need is so bad now that—
Do you think the government’s got its focus wrong focusing on these so-called ‘affordable houses’?
Johnson: No, no, I think the balance is right, but if we start to say, ‘Well, let’s give attention to the whole spectrum’ when you’ve got people living in cars and sheds and garages and on the streets, my view is, and the Salvation Army’s view is, look after those people first. And then there’ll be a trickle up thing, rather than the trickle down that we’ve just seen.
Well, when you talk about those people, the government has already announced it’s putting $37 million into creating 1500 extra housing places to help the homeless, and they want to get those places by the end of winter. Is that enough to avoid a repeat of the winter that we had last year?
Johnson: Things are getting better. There are more transitional housing places available. The growth and demand seem to be tapering off, although as people move into these transitional places, they’re not moving out, and there’s more people wanting to come in, but I think, for example, we’re seeing housing in Auckland reaching a level that’s probably consistent with the population growth. I think people are leaving Auckland as well, so there’s some pressure going off Auckland. I’m not certain it’s really impacting on the people at the bottom of the market who are struggling to find rent, but the reality is that there’s a sense that the pressure’s gone off. It won’t necessarily be better than last winter, but it won’t be worse. But it’s unrealistic to think you can find 1500 more places by the end of winter. It’s just not going to happen. There’s just not the capacity to do that.
All right. Thank you both for joining me this morning.

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