KiwiBuild: Twyford must pick winners and losers
How do you build 100,000 homes in 10 years? After Budget 2018, an Auckland academic is still scratching his head (although he offers his own action plan; keep reading).
The previous government got low marks from AUT professor of construction management John Tookey for its efforts to solve the housing crisis.
Prof Tookey maintained it was too focused on land availability when the real issues were capacity constraints, the building industry’s unwillingness to invest in factory housing (lest it get caught out by the boom-bust cycle) and developers’ natural inclination to drip-feed properties on to the market to hold up pricing.
So far, the coalition is also getting a failing grade from the AUT academic.
The centrepiece of the new government’s efforts is KiwiBuild, the $2.2 billion project to build 100,000 homes in a decade on a pace of at least 10,000 homes with three years.
Prof Tookey says he wants KiwiBuild to work but he can’t see how logistical problems will be solved.
He says the rate of construction dropped to 3000 during the global financial crisis in 2008, and the exodus to Australia. It’s taken a full decade to lift capacity to 6800 homes last year.
Pre-budget, the AUT man was unsure how another 10,000 homes a year could be added to that run-rate, in quick time.
Post-budget, he says he’s little the wiser.
“We’re a bit light on the detail on how we’re going to close the gap on construction capacity,” he says.
National and now Labour have promised to lift build rates without addressing the issue of productive capacity, he says.
The extra 10,000 homes a year target “Is a massive step up. It will be a logistical nightmare,” he says.
“What the government will ultimately have to do to close that gap is to start naming some winners and losers and big orders relating to large contracts for building standard-size homes.”
“Again, where is this productive capacity coming from? There is not an infinite capacity to deliver on any order. It’s one of the first things you learn in project management. You have to anticipate finite resources and do resource levelling accordingly. At the moment, it’s just blithely assumed away.”
Enough of the problems. What advice would Prof Tookey give Mr Twyford to make KiwiBuild workable?
“You’re going to have to pick some winners and losers," he says.
By that, he means the coalition needs to place a large order for, say, 2000-3000 homes with a company like Fletcher Living (the residential arm), with a set delivery date.
"You’re actually going to have to give large orders so people can self-invest with a guarantee of revenue over a period of time. That’s going to break the cycle. And, conceptually, it’s a struggle to pick winners and losers because obviously there’s favouritism and all the other issues."
He also sees assisted migration as part of the solution – something that jars against the government's overall push to drive down new arrivals.
“We do need to start thinking about going up and building vertically much more – there’s no question about that," he says.
There's been a lot of scorn that the first major KiwiBuild project – 3000 to 4000 homes to be built on land bought from Unitec — will mean tiny apartments if so many dwellings are to fit on such a snug site. Prof Tookey says some could be as small as 70sq m. But while it's far from the quarter-acre dream, it's probably the future. Or at the least the future if KiwiBuild is to have a shot at its 100,000 target. (There are scant details on how this development will actually proceed; more tomorrow in part two).
Prof Tookey also wants Mr Twyford to pull back from his unrealistic timetable.
“There is just no quick fix," he says. "You’re going to have to recognise this is not going to be something that’s going to be solved before the next election cycle. We are going to have this as an issue for the next five years plus."
Twyford vs Treasury
Mr Twyford gained some post-budget press by saying a figure of $300m KiwiBuild spending in 2019 had been compiled by "the kids in Treasury." The housing minister preferred MBIE's original estimate of $900m.
To add to the hijinks, Finance Minister Grant Robertson said – on the same day – "The Treasury has a pretty good record with forecasting when you look at it over the years."
Were the "kids" right to suggest KiwiBuild will in fact proceed at a slower pace than first estimated?
“It’s very hard to confirm a budget when, to be brutally honest, Mr Twyford has not at this time really specified what KiwiBuild means," Prof Tookey says.
"Is it a standard type of house? Is it a group of standard houses? And we’ve even been presented over the last few days by the notion that there’s no salary or wealth cap involved with who can have a KiwiBuild home. There’s a lack of clarity.”
Buying homes form private developers.
Mr Twyford has also come under fire for sending MBIE reps out to buy homes, off the plans, from developers.
The minister says the practice kickstarts stalled projects.
National housing spokeswoman Judith Collins calls it a "fraud" to count developments already in progress as part of KiwiBuild.
Prof Tookey says it will help move things along.
“There is a tendency toward constipation, or lag, of investment. And this was the fundamental floor of the previous government where it thought land or the provision of additional land was everything necessary. You need to be driven by an output parameter, which is a contract completion date," he says.
“I have no problem with it [MBIE] buying homes off plans per se but let’s not kid ourselves, this is pre-planned housing, it’s already there. It’s just increasing the speed of build-out of certain pre-identified development zones.
"Again, that’s fine. But let’s not kid ourselves it’s additional housing.”
Prefab components have been called part of the solution by various commentators, including Prof Tookey but the AUT man also cautions against overplaying their impact. And he's still not sure how to get around the fear of the boom-bust cycle that has inhibited serious investment (even though the prefab factor will help, Fletcher – easily the country's largest builder — is still looking at a relatively modest 250 to 1000 extra homes a year, when Mr Twyford's goal is 10 times that).
“It adds to capacity and that’s fine but is it a silver bullet? Does it solve everything? No it doesn’t. It’s just part of a wider collage of issues," Prof Tookey says.
"People forget that Fletcher has actually gone down this road before; it has owned these types of panelisation businesses before."
He also sees tricky issues over whether Fletcher will make its prefab panel available to competitors, and if so whether they will use it as an opportunity to make some coin.
He notes Mike Greer Homes, which sold its Christchurch prefab plant last month, is moving away from prebuilt panels, or at least scaling down capacity.
Others will just never put capital into it, he says.
"Group builders like GJ Gardiner are a compendium of small builders who trade under the same franchise name. They don’t have a strategic asset base to draw on to invest in themselves.”
And then there is that intractable problem of risking capital in a cyclical market.
“I was having a conversation just the other week with NZ Trade & Enterprise and it was looking at trying to encourage investment in construction of new prefabrication facilities here in New Zealand and that’s fine," Prof Tookey says.
"But again, the basic premise is flawed. You’re attracting investment capital, you tell them that they’re going to have to deliver so much and in effect you’re setting up companies to fail in the long-term because they have to cover the cost of their initial investment, then they have to build at a rate that dries up their own market; they build themselves out of a job and you end up with empty factories.”
Can't we just build faster?
Pre-fabricated panels aside, could we just squeeze more productivity from the existing construction workforce.
"The reality is that if you build more rapidly, then you have a tendency – particularly with semi-skilled people – for buildings with defects. It screams Leaky Buildings 2.0," Prof Tookey says.
NBR is interviewing Mr Twyford later today. Watch out for his responses tomorrow morning.
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