KiwiBuild will be more expensive, but housing experts say that’s actually good
First-home buyers may have to pay up to $280,000 more for a KiwiBuild house, but bankers and economists say that’s actually a good thing.
Housing Minister Megan Woods announced an increase to the KiwiBuild price caps, with houses built as part of the scheme increasing from $50,000 to $280,000 each, depending on size and location.
The higher price caps ranged from $550,000 to $860,000 – up from $500,000 to $650,000.
While that means people who do win a KiwiBuild ballot will now have to pay more for their first home, housing economists and bankers have welcomed Wood’s decision.
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They say the previous caps were so low, they thought the Government was phasing out KiwiBuild altogether – as developers couldn’t afford to build houses at those prices.
James Kellow, a director of property financier NZMS, said the new price caps were an “exciting” moment for property developers and meant KiwiBuild would benefit more first home buyers.
Hours after the announcement, Kellow and NZMS announced $600 million worth of loans would be made available for developers to start KiwiBuild projects over the next few months.
Kellow estimated that could see 1000 homes built as part of the scheme, from the NZMS financing alone. He said overall, the Government’s increase of the price caps should see thousands of homes built for first home buyers in the year ahead.
“Every other bank should be able to match us, at least,” Kellow said.
“That’s at least four or five thousand homes.”
KiwiBuild was the Government’s flagship programme to build more homes for first home buyers, when Labour was first elected back in 2017.
Former housing minister Phil Twyford made the promise of 100,000 homes in 10 years – but modest interest from developers has meant just 1380 houses have been built so far with a further 1223 under construction.
Core Logic chief economist Kelvin Davidson said KiwiBuild’s impact on the housing market so far had been severely limited, with relatively few developments. He said the private property sector had seen record developments, 51,015 dwellings receiving consents in the year to May 2022.
Given the hot property market, there was little interest in KiwiBuild, Davidson said.
But he said this week’s news arrived at the right time, with the construction sector set to decline due to higher costs and interest rates.
“People are being turned off new builds with the cost of them and financing getting harder. There are challenges there. If the wider sector is slowing, the Government stepping in to do more is a sensible thing. It may just be fortuitous timing,” he said.
Both Davidson and Kellow noted that the new price caps were below the median property price, suggesting that KiwiBuild would continue to offer houses relatively cheaper than what the open market was providing.
In Auckland, for instance, the average house price was $1.16 million at the end of June. A three-bedroom KiwiBuild in Auckland would sell for $860,000 under the new pricing.
The cheapest houses would be studio flats or one-bedroom houses across the country, at $550,000, with the most expensive being three-bedroom houses in Wellington and Auckland.
The KiwiBuild scheme was targetted at first home buyers on incomes below $120,000.
Davidson acknowledged, with rising interest rates, it could prove more difficult for people on median and lower wages to service a mortgage.
However, he said the previous price cap for KiwiBuild had meant very few were being built at all – so while it was more expensive to buy a house as part of this Government programme, at least more people would be able to buy one.
The KiwiBuild programme relied on developers partnering with the Government to build houses for residential sale. Kāinga Ora would underwrite a portion of the houses being build, so developers could access financing. The Government itself is not building the houses.
In a statement, Woods said the more expensive price caps would ensure rising construction costs were met.
The biggest price increase was seen in Tauranga. The previous price cap for a three-bedroom home in Tauranga was $500,000, that would increase to $780,000.