Monday, 11 July 2016

Labour’s affordable housing plan is seriously unaffordable


There's a simple question that explodes Labour's just-made announcement to build 100,000 houses -- a staged build, they say, with the later stages built on the back of profits made the sale of early stages.

There's a simple question, and that question is this: If it were all that easy, then why isn’t everyone already doing it? 

It’s not like there isn’t plenty of money around to borrow: banks are lending money into existence for mortgages at an ever-increasing rate (two-thirds of all new money borrowed into existence, at an eight percent increase in quantity year on year; just one reason for this bubble.)

And land keeps getting “released” by council, making it available (in theory) for anyone to build on who can afford to buy it.

So what could a Labour Government do that a whole welter of speculative builders aren’t able to?  Because if there were profit in building and selling homes at $500,000, including land, then we and those speculative builders and land bankers would already all be doing it, wouldn’t we?

But we aren’t, because we can’t.  The affordable end of the market for speculative builders, the people who built this city and most major western cities, is dead. They can’t make a profit on a home at that price – not with the cost of land + building (see below) + external works and external services + borrowing costs + council costs + delays + …..

So the Labour Party promises $2 billion for this plan – $2 billion for 100,000 houses, plus theft. That’s just $20,000 for every house, or $200,000 for each one if they build just 10,000 in the first tranche to get the money to pay for the next.

But if there’s no profit in that first tranche, then there’s no next tranche, is there?

And if there’s no next tranche, then there’s no real plan, is there.

And there is no plan that’s worth a damn, is there, because if there were any profit in building affordable houses, then everybody would be out there doing it.

And they’re not doing it because with their ever-increasing gold-plated rules and regulations and Resource Management Act, successive governments have made building affordable homes just too damned expensive – and not one of the damned parties who’s done all of that what’s to do anything at all to arrest that, i.e., to fix the market to make the model for affordable spec profitable again.

Instead we just get more bullshit announcements like this one – an unaffordable way to attempt to make housing affordable.

NB: Think it’s cheap to build a house? Andrew Little does. The big home-builders know otherwise. Here below the average cost in 2015 for a home from NZ’s top ten group-home builders, not including the price of land + external works and external services + borrowing costs + council costs + delays + drapes and coverings and on and on and on. And if you think you can get hold of reasonable land inside Auckland for anything less than $250,000 … you’re dreaming. Let alone on the scale he’s dreaming about. So do Andrew’s sums for him, and see how much profit they would have to pay for their second tranche…



  • “Do you see the problem already? Even excluding the rocketing price of land – about which Labour pledges to do precisely nothing -- the Labour Party’s maths requires thousands for homes to be built for well under $300,000, or  as Labour’s housing spokesman Phil Twyford concedes, the Labour Party's Kiwibuild policy ‘will quickly run out of money.’
        “Yet the very room full of actual experts in which Twyford made that concession – at a conference on affordable housing filled with people talking honestly rather than talking their book -- had already established that homes by the thousand, or even by the dozen, could not be built for well under $300,000 or anything like that, leaving the Labour Party's Kiwibuild policy as little more than a wet rag to wave around on the election trail that will quickly run out of money if they ever get a chance to try it.”
    Labour’s Kiwibuild policy "will quickly run out of money" – NOT PC, 2014
  • HCrisis“Housing crises? They’ve been with us for decades – and the answers to them are no secret. It’s not that the solutions that are in short supply, it’s the political will.
        “I have in front of me a book that’s been on my shelf for more than thirty years…
        “Every answer to this present housing crisis in there, and has been known for decades. You can see just from the chapter headings that that because the causes of virtually every housing crisis are political, the solutions to every housing crisis are the same…”
    A housing crisis, four decades on – NOT PC
  • “So a theft of property rights now to ‘fix’ a crisis almost wholly caused by their previous and ongoing theft of property rights! What could be more ingenious!!
    Nick Smith’s government land-grab - NOT PC
  • The key to making Auckland liveable is to make it affordable—a fairly complicated and heavily politicised subject, so let’s try to make it simple: we won’t have an affordable Auckland until the model for ‘spec’ building  is viable once again.
        “Spec building being ‘speculative’ building—a builder buying land, building a house and ‘speculating’ he can sell it to a buyer for a reasonable profit. This is how the vast majority of NZ’s cities have been built, by small builders hoping to make a modest profit.
        “But in recent years this model has broken… The problem is that even while housing prices have rocketed, both land and building costs have skyrocketed.”
    Fix spec building to make Auckland affordable again – NOT PC, 2013


  1. Ask any builder how much the latest lot of Health and Safety requirements adds to the cost of a new build.This Government has done nothing to help housing affordability with its addition of yet more red tape. Everyday I am meeting more older Tradies who have had enough and are getting out of the game.

    1. That's exactly right: knowledgeable older builders are getting out, and the know-nothing rule-followers are taking over. (Not yet exclusively, thank goodness!)

  2. The figures in that table not only exclude land, but no doubt a whole lot of other costs such as design consultants, council fees, service connection fees, landscaping, drapes (all typically exclusive to a building contract) - and in cases like Mike Greer (whose figures look far too low) I suspect other major components the owner is organising directly such as siteworks (driveways, etc).

    1. Oh, for sure. Maybe I wasn't clear enough about that in the post -- have (made it a little clearer now). Ta.

  3. Easy:

    1: Land gets expropriated under eminent domain (or whatever NZ calls their version of "Your land or your freedom") Cost of land $0.

    2: Housebuilders will simply be told: either do it for $200k or lose not only the contract but your licence. Shoddy material and workmanship abound, but the leaks won't be evident for 10 years at least, and no prime minister serves that long.

    3: Of course the government will not need to pay itself for the right to build, so no consenting costs or GST.

    You can sell those for $500k and turn a neat $100k loss (yeah, sorry about that, turns out we needed more policy advisors and consultants. But on the upside, those costs are now sunk so we will REALLY make a profit on the second tranche of taxpayer funded houses, meaning the third tranche is next to free)

  4. Its quite ludicrous that NZ has plenty of land,plenty of building materials and both are at compa ratively highly inflated prices on an international scale.Addressing the reasons for demand and measures to deal with them are obvious,but political expediency over rides it.

  5. The Labour announcement is a lie in itself. How can they say they'll make a profit from the first tranche when they're dead set against selling state assets/state housing?



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