True legacy of Labour’s key election promise isn’t pretty

Dr Matthew Birchall
The Australian
19 January, 2023

Updated Jan 19, 2023

Jacinda Ardern swept to office in 2017 on the back of public anger over New Zealand’s long-simmering housing crisis.

Rightly or wrongly, there was a perception that the previous National government had failed to address the problem. Spiralling house prices and widespread homelessness were failing to be addressed. Reports of children sleeping in cars were everywhere.

It was time for change, and Ardern’s star shone brightly as the face of transformational government.

Unfortunately, it has not worked out that way. New Zealand’s housing crisis has only deepened since Ardern took charge.

The median multiple for a house in central Auckland is over ten, which means that housing in New Zealand’s largest city is among the most expensive in the world. According to Demographia, this puts Auckland just below Sydney and a little ahead of Melbourne when it comes to housing affordability. New Zealand as a whole is less affordable than Australia, which in turn is one of the least affordable countries in the OECD.

The consequences have been profound.

Take Rotorua, a small city in the North Island. Best known for its geothermal wonders, Rotorua is now a case-study for what happens when housing policy goes awry. The Rotorua Daily Post recently reported that 15 motels in the city were paid over a $1m each for emergency housing over the past two years. The result? A city quickly turning into a self-declared “ghost town,” blighted by violence and social dysfunction.

All of which brings us to KiwiBuild, the Arden government’s much-touted solution to New Zealand’s housing crisis. Like much about this government, KiwiBuild was nothing if not ambitious: the policy aspired to build or deliver 100,000 homes by 2028.

Yet, as of May 2022, it had delivered a mere 1,300 homes, with a further 1,200 under development. This was not exactly what the former Minister of Housing Phil Twyford had in mind when he launched the scheme in 2018. The so-called “reset” in 2019 did nothing to change the overall direction of travel.

So much for transformation.

To be fair, Labour at least recognised that something had to be done. And they have made progress on a number of fronts.

The National Policy Statement on Urban Development sets out the parameters for housing intensification and directs councils to get rid of overly restrictive planning requirements, while the Enabling Housing Supply amendment to the Resource Management Act enables developers to build up to three stories in urban areas without resource consent.

Recent moves at Kainga Ora (the government’s Homes and Communities agency) to get new building materials approved have likewise been a step in the right direction, as has the Infrastructure Funding and Financing Act which allows Special Purpose Vehicles to fund housing and urban development.

Yet none of this atones for the tragedy of KiwiBuild.

New Zealand’s housing crisis is a supply-side problem that requires supply-side solutions. But nothing about KiwiBuild seemed to recognise that blunt fact. As Informetrics noted as long ago as 2017, the new dwellings delivered by KiwiBuild would simply substitute what the private sector would have delivered anyway. Subsequent experience has borne this out.

What is more, the scheme does not provide social housing for those at the bottom of the socio-economic ladder. Nor does it much help struggling first-home buyers, as my colleague Bryce Wilkinson argues in a 2019 research note. The current income cap for couples, for example, is $200,000, a figure which reflects the higher construction cost of KiwiBuild units. It is a scheme for the relatively well-off.

A smarter approach would have been to loosen zoning restrictions so that developers could build more dwellings. The New Zealand Initiative has long argued that council-level constraints on new building have poured fuel on the fire of an already overheated housing market.

Developers need the freedom to build both up and out, otherwise prices will rise as population increases. Advocates of pro-density housing have made it hard to build on the outskirts of town, while NIMBY’s have put roadblocks in the way of townhouses and apartments in well-heeled leafy suburbs. This is Auckland in a nutshell.

Better incentives would also help.

Councils bear the brunt of urban growth as they have to stump up for new infrastructure, but they don’t get an adequate share of the benefits. The increased tax revenue instead flows to central government. If councils were able to enjoy, say, the GST on new dwelling construction, then that would provide a financial incentive to encourage greater development.

And yet KiwiBuild has never been serious about supply-side reform. It is a solution for the wrong problem.

Jacinda Ardern vowed in 2017 to fix New Zealand’s housing crisis. But the abject failure of KiwiBuild points to the difference between campaign promises and delivery.

Rotorua is the real housing legacy of the Sixth Labour Government. And it’s not a pretty sight.

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