If the government keeps building KiwiBuild homes without monitoring demand, it could crash property prices, says Andrew King, executive officer of the New Zealand Property Investors’ Federation.

“Initially, KiwiBuild could be a good thing, because we need more properties. But then, once it’s done its job, building might carry on and become a negative thing – that’s the concern.”

Migration could fall

King says the housing shortage has been fuelled by high migration figures. What if there’s a mass exodus from New Zealand, or people stop arriving, he asks.

Annual net migration was down 8,800 (to 63,300) in the year to August, compared with the previous year, Statistics New Zealand says. This is the lowest August year since 2015.

“If we carry on building, and migration levels fall back to normal, that will definitely have a negative effect on property prices,” King says.

“You’re basically increasing supply when demand isn’t there, or it’s falling. It needs to be constantly monitored.

“The estimate of the number of houses we need is not an exact science. We definitely need more properties, but how many we need and whether we will continue to need them is really hard to determine.”

Price gap

Simon Bryant, senior panel manager for online property valuation experts Valocity, agrees KiwiBuild is “likely” to have an effect on price in areas where there’s a large gap between the KiwiBuild sale price and the median sale price.

This could happen in Auckland, where the cap for KiwiBuild homes is NZ$650,000, he says. The Auckland median sale price is NZ$840,000, so new homes coming on the market at a lesser price may affect the price of existing stock.

But Kiwibank’s chief economist Jarrod Kerr says KiwiBuild will help combat the huge undersupply of houses nationwide.

“Looking at the current price of a house, will it go up or down on the back of KiwiBuild? I don’t think we’ll see enough supply in order for it to go down,” he says.

House prices might not rise as much once the homes are on the market. “But I would argue that across the whole of Auckland, we are so short of quality dwellings and rental properties that we’re adding to a pool that’s undersupplied.

“So yes, one street might be affected negatively, but I think across the whole market we are actually trying to start solving a problem,” Kerr says.

“Whatever growth in house prices we have over the next decade or two will be less because of the supply that is going to come on board. And I think it’s a good story.”

Quality is a concern

Bindi Norwell, chief executive of the Real Estate Institute of New Zealand, says she supports KiwiBuild as there is a significant shortage of properties to keep up with the level of demand, however quality and red tape are her two concerns with the scheme.

She wants a focus on consistent building standards across all KiwiBuild homes. Removing existing red tape will help make the programme more efficient.

KiwiBuild might have an effect on investors, she says, but other factors affect them more. These include legislative changes, such as the Healthy Homes insulation bill, interest rate changes, and loan-to-value restrictions.

“I think it’s going to take a number of years before the programme starts to have any significant impact on the market.”

Targets not expected to change

Housing and Urban Development Minister Phil Twyford says, even with softening immigration numbers, “I don’t expect to be revisiting the KiwiBuild targets”.

Twyford says the country faces a “dire” housing crisis, with estimates saying there’s a shortage of 71,000 homes, with 45,000 of those in Auckland.

“By building modest starter homes, and the other measures the government has taken to stop speculators, we expect house prices to stabilise and not increase as fast as they did over the last decade.

“Although modest, KiwiBuild homes will match the communities in which they are built,” he says.

What is KiwiBuild?

KiwiBuild is a government-run programme that aims to help address New Zealand’s housing shortage, and increase home ownership rates. KiwiBuild aims to deliver 100,000 affordable homes for first-home buyers over the next 10 years, with around 50,000 of these in the Auckland area.

kiwibuild.govt.nz

First published 28 February 2019

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