Improving housing stock in New Zealand

In the Fiscal Budget 2020 the Government talked about improving housing in New Zealand. It allocated $5 billion to Kainga Ora so that it could build 8,000 new social houses.

Is it just me or is $5 billion a lot for 8,000 social houses? Social housing should not cost more than say $400,000 per unit. Granted that some will need to be larger houses for larger families, unless this is including Resource Consent costs, land purchasing costs, then I would have expected that maybe 12,000 houses would be more realistic for that amount of money. All that said though, it is a welcome investment.

A couple of weeks ago an article in The Press talked about some of the ways that the Government could get people back to work. One of them was one I really liked, which would be substantially beneficial to New Zealand’s social housing, which was spending hundreds of millions of dollars on a large scale refurbishment of the existing stock, in addition to building new houses. There were numerous social and economic benefits attached:

  • Hundreds of tradespeople who might be struggling for work would be immediately needed
  • Work could start very quickly and could free up potentially thousands of houses otherwise underused in a short time, providing market relief

Another issue that was noted is the land banking that some large companies have done around established premises. In anticipating future growth in their businesses they have purchased land around them, which is fine if something actually gets built, but it also locks up that land to anyone who may build nearby and find a greater, potentially more immediate need for the land. Given that Palmerston North is a growing city and like many places in New Zealand has a dearth of affordable housing, this may be a potential stumbling block, and I wonder if potential time limits need to be put on land that has been secured for development, but which nothing immediate is planned for.

One reason that housing is often too expensive for New Zealanders is that developers have tended to go for bigger housing because the financial return is greater, whereas most of the market is for more modest housing. So instead of 2-3 bedroom dwellings that most New Zealanders would be looking for, developers tend to promote 4-5 bedroom units. They also have things that add value such as large windows, house facing a particular direction, decks and big garages.

I am not sure how one gets this to change, since the market is clearly focussing on something that many developers are not. However I would suggest that the volume of housing sales of smaller houses that can be afforded by people would make up for the relative lack of large house sales.

There are ways that other costs could be lowered. For example houses using prefabricated parts such as walls, roofs and so forth can be relatively quickly assembled on site. This helps to lower the labour costs because tradespeople are not on site as long.