Welfare For the Wealthy

Derision For Disappointed Hopes

We find ourselves scratching heads over the antics of the NZ Minister of Housing, Phil Tweeford.  He is a bright cheery chap, but we get the impression that he is way out of his depth.  He appears to be a living, breathing example of the Peter Principle--that is, "People in bureaucratic organisations tend to rise to their level of incompetence",  or "members of a hierarchy are promoted until they reach the level at which they are no longer competent".  

Phil has announced a grand initiative to build lots and lots of homes so that people can buy their own house.  He has grandly named his policy, "KiwiBuild".

Commentator Mike Hoskings took one look at it and pronounced it to be a failure even before the first sod is turned.

So the surprise around the affordable house eligibility rules out yesterday was the $180,000 salary cap for couples.  We all quite rightly agreed the ceiling amount was a lot of money, which exposes two simple truths.

One, Housing Minister Phil Twyford has finally worked out, or been told, that you actually need quite a lot of money to buy a house.  What Phil wanted to do in the election campaign is have you believe he was the saviour of housing, that he was going to build thousands upon thousands of cheap homes that regular everyday Kiwis (Labour supporters, Kiwi battlers) could buy and move into.   All very Michael Joseph Savage, except this isn't 1935.

What he has discovered is that, and we had these numbers yesterday, you actually need well in excess of $100,000 a year income to buy a three-bedroom so-called affordable home.  And if Phil had put these homes out to the market he was intending to put them out to, no-one would be buying them because they don't have the money.

Which brings us to point two.


If you and your partner are earning $180,000 you should, if you have wanted to, already own a house. Because at $180,000 a year a house - even in Auckland - is still eminently affordable.  So really, if you're talking three-bed homes, you are only selling them to first home buyers and first home buyers who earn between $120,000 and $180,000 a year.   Not exactly a large pool I wouldn't have thought.

But Phil has been pitching KiwiBuild as something completely different to what it actually is. He hasn't shifted the market, he hasn't made housing available to anyone who couldn't realistically already afford a house. And he hasn't actually built a house yet.

He's very Elon Musk like that - a lot of noise, a lot of promises, no actual houses.  [NZ Herald]

Another feature of Tweeford's plan is requiring people to register in order to be eligible to buy a KiwiBuild home.  Actually, you have to sit and wait until your name is randomly drawn from the list, which is now running into thousands long.  If your name is drawn, you get the right to buy.  Well, not quite.

If your name gets drawn out of a ballot it does not mean you will end up with a house.  Folk will have to buy the house--and in order to do that they will need to raise finance from banks, which will apply their normal tests for servicing ability, adequate deposit and so forth.  Most of them will be turned down by the banks.  So what we will likely see is a great deal of resentment from folk whose expectations have been raised (e.g. chosen in a ballot for a KiwiBuild home) only to find that they are no closer to buying a house.  This will mean lower demand for KiwiBuild houses, and most of them being sold off to the high income folk (as per Hosking's point).  The rest of the folk will be exposed to derision for disappointed hopes, as Jane Austen would say.

But it gets worse.  The Left hate profits.  Phil is going, therefore, to build KiwiBuild houses and sell them without the profit built into the price.  Since they are going to be sold with the profit component removed from the house, the houses will necessarily be cheaper than what the private sector would bring to market.

Make sense?  However, all the building firms will still want to make a profitable return on their investment (labour, tools, equipment, etc.) so the houses will not likely be built on the cheap.  Our expectation is that the Kiwibuild controlled price will not be far from the present open market price.  Profit will have been built into it in other ways.  If the construction firms cannot get an approximately equal return, they just won't bother building KiwiBuild houses--they will stick to houses where they can secure the market return and make a profit on their time and skilled labour.  If they are prevented from pricing for a profit, the Government will struggle to find professional, quality building firms willing to build Kiwibuild houses.

Doubtless Phil, when confronted with these "minor details" waves them away with a waft of his hand.  Being a card-carrying Leftie he believes in its fundamental tenets, one of which is, Money solves all problems.  Throw enough money and problems go away.   He has the money.  How could KiwiBuild fail or not work!  We bet he has never contemplated the possibility.