The Nation Housing Debate
Patrick Gower hosts a housing debate between National’s Nick Smith and Labour's Phil Twyford.
Patrick It's the great Kiwi dream, but is owning the roof over your head now just a pipe dream for many Kiwis? Homeownership is at the lowest level in half a century. National's answer is to double subsidies to first-home buyers and let them raid their KiwiSaver account. Labour wants to build 100,000 homes in 10 years. So is either a recipe for success? I'm joined now by National's housing spokesperson, Nick Smith, and Labour’s Phil Twyford.
Nick Smith: Good morning.
Good morning, guys. If I could start with you, Nick Smith, and National's policy this week –the bar set at $550,000 for a home in Auckland. Is that what we've come to? Is $550,000 the price of an affordable home?
Smith: No, that's the maximum that someone's going to be able to get their extra KiwiSaver grant.
Okay, so what in your view, then—? What in your view is the price of an affordable home?
Smith: Well, it depends. It depends on the person, you know, in terms of are they a two-income household, how many people are in the house? If you look at what we're building in Weymouth at that new project—
Okay, if you—
Smith: ...we've got houses there going for about $460,000, and I think that's within reach.
So what's an affordable home in Auckland? What's the price?
Smith: Well, we've got $460,000 through that project that the Government's got up and running in that first special housing area.
Phil Twyford, what's the price of an affordable home in Auckland?
Phil Twyford: Well, I think an affordable home would be in the range that we are talking about delivering through our KiwiBuild programme, and that's between about $360,000 and $480,000. So that's the kind of bracket that we should be looking at. Paddy, we have a housing crisis. Average house prices in Auckland have gone up $75,000 in the last year. It now takes 50 years to pay off the average mortgage. People are mortgaged to their eyeballs, and now with interest rates heading north of 8%, they're getting absolutely whacked around the ears. And the best that this government can do is throw hundred-dollar bills on the bonfire of the Auckland housing market—
Smith: Here's the hypocrisy.
Twyford: ...for a policy that has been panned by all the analysts and all the critics because it will actually make houses less affordable. That's the policy they just announced this week.
Smith: Let's firstly deal with the hypocrisy. In 2006, house prices went up by 28% in a single year. They doubled over Labour's period in government, and they said, 'Oh, that's not a crisis.' They go up by 12% in the last year— or 8%— 12% in Auckland, 8% nationally, and suddenly it's a crisis. Second, what's the solution? It's land supply. It's dealing with building materials costs. It's providing extra support for first-home buyers. It's dealing with those very expensive charges from council. And we have passed more legislation in the last year on housing than in 25 years, and it's making a massive difference.
Let's talk now about one of your solutions, which is the HomeStart grants. I want to take your own example, if we can talk about your own example? A couple in Auckland earning 50 K a year, both of them. They've been in KiwiSaver for five years. They withdraw 35,000 from KiwiSaver and get 20,000 bucks for a new grant for a new home out in Hobsonville or whatever.
That gives them 55 K. You get the Welcome Home Loan — 10% deposit. Okay, you following? You get a house worth $550,000.
Smith: But you don't have to go to 550.
But, no, let's take one with 550, because that's what they're going for. That's your policy. That's your policy.
Smith: No, that's the maximum. We're saying the person—
Smith: Because every person's circumstances are different, Paddy.
We're working with 550.
Smith: That's at the top end. That's the extreme.
Under that scenario, at 6.5% interest, they're spending 47% of their take-home pay on the mortgage repayments.
Smith: You know when I got my first home?
And they're paying 835—
Smith: When I got my first home, I was spending 70% of my income on my interest repayments.
So is that a good target —70%?
Smith: No, it's not. I'm saying homeownership's always been tough. It's always been a stretch, but what the Government is doing will make it easier. You know the most important part of those numbers? The interest rate. When we came to government, interest rates were 11%. I'll tell you this, Paddy, every Labour government, third, fourth, fifth, interest rates have gone up. Every National government, they come down.
Twyford: As the economy grows under Labour, Nick. The economy grows under Labour.
Smith: So interest rates have consistently been higher under every Labour government because they spend too much — interest rates.
The most important number here is $835 a week, almost half of the take-home pay for a young couple. What you're doing is you're putting people into homes that they can't afford the repayments for. The OECD says it should only be 30% of a take-home income.
Smith: And that is why the other part of the policy is about building new houses that are in a more affordable range by freeing up land supply and doing those other important reforms. You know, Paddy, we have doubled the rate of new builds, so we had the building consent figures out yesterday, we have got—
And we'll come to that.
Smith: They're great figures. 2200 houses being built.
We'll come to that. But let's stay on the HomeStart policy.
Smith: So we've gotta build more houses, and we've gotta get houses that are more affordable so that those families that are picking up that HomeStart grant can get in at a reasonable level.
Twyford: Treasury advised against this policy because it failed in Australia.
Smith: No, they didn't.
Twyford: It made matters worse, and it drove house prices up.
Treasury said that it forced young couples to default.
Smith: What they did in Australia—
Nick Smith, take this — if you're on this, you're paying $835 a week. One of the couples gets sick; one gets pregnant; one loses a job. How do they keep up with those things without defaulting? Because that's what your own advice that you initially took actually told you, that people would default on this.
Smith: No, because here's the key part — the extra deposit support is only for new houses. Now, I'd accept your point, Paddy, that if you were just simply throwing new grants for existing houses, the risk is it just feeds the house price bubble, but we've deliberately targeted this new money to new houses and to lower-income houses because that's what we need to solve this problem.
Twyford: Paddy, let me say this — they put up $218m. They think that 90,000 people are going to benefit from that.
Smith: Double that. No, that's wrong.
Twyford: That's an average of $2500 per person benefiting. That's not gonna make a blind bit of difference to stimulating the new home builds that are so desperately needed. This is a panicked policy three weeks out from an election. They are panicking.
Smith: The numbers are rubbish. This is the biggest block of support that government has given to first-home buyers.
Twyford: And it will make matters worse.
Smith: You know the state advances loans?
It's petrol on a fire.
Smith: No, it's not, because the money is going to new builds.
But you've got no guarantees on that.
Twyford: The only person who supported this policy is one builder.
You're hoping it goes to new builds.
Smith: You say there's no guarantee. The 20 grand grant is only for new homes. That's a guarantee.
Yeah, but what if people don't take up the 20 grand and they take up the 10 grand grant and they fuel what's already there? There's no controls, Nick Smith.
Smith: Well, if that's all you were doing, your criticism would be fair, but of course it's not. You know, those 63 special housing areas, the changes that we've made in getting those developments.
Twyford: And how many houses have they delivered, Nick?
Smith: Well, let's come to that.
No, we'll come to that later. First I want a quick-fire question from the two of you. Nick Smith, how much did your first house cost?
Smith: My first house was an ex-state house in Christchurch. I think it was 27 grand, and I was paying 21% interest.
And you were paying 70% of your income, you told us earlier.
Smith: Yeah, I was. It was a real struggle. I remember it backwards. And, look, let's be honest. Home ownership has always been a struggle, but, by goodness, it's important to get people on that first rung.
Twyford: It's much worse now, and it's got worse under your government.
Phil Twyford, how much was your first house?
Twyford: $125,000 in 1989. And my sons' generation, if they choose to live in Auckland, they will never have that opportunity under the policy settings of Nick's government. My son's generation — if they choose to live in Auckland, they will never have that opportunity under the policy settings of Nick's government.
Smith: Just touch on something there. Here's the crunch.
Twyford: They will never have that opportunity, because the Kiwi dream of home-ownership is dead under National because they stand on the side of speculators.
Smith: No, that's simply untrue.
Twyford: That's true.
Smith: It's just rhetoric. Now, let's just come to the independent measures. Massey University—
No, what we'll turn to now is KiwiBuild. We'll talk about their policy.
Smith: Housing affordability is 20% to 30% better than when we became government, and they are the facts.
We'll turn now to KiwiBuild — 100,000 homes in 10 years.
Smith: It's a pipe dream.
100,000 homes in 10 years.
Smith: It's a joke. It's like jelly; it keeps changing all the time. You know, when they first announced it, they said, '100,000 homes, $300,000 each.' Then they changed it to $360,000.
Twyford: Let me tell you — we say we're going to build 10,000—
Smith: And then I see David Cunliffe—
Twyford: Nick, it's my turn to explain my policy.
No, I'll ask this question for you, Phil Twyford — when will the first home be built? When will the first family move in? Tell the voters. When will the first family move in if Labour gets into power?
Twyford: We are going to build 18,000 homes in the first four years.
Smith: Answer the question.
So when's the first family going into a KiwiBuild home? Please just tell the voters.
Twyford: We will have the first homes open in the first year that we're in government.
So one year?
Twyford: In the first year, we're planning to build 800 homes. That's gonna be cranked up over the next three years. In the fourth year, we'll be cranking out 10,000 homes a year.
Smith: You know what's amazing here?
Twyford: But, Paddy, the thing to remember here is that by increasing the build rate by 10,000 a year, we will only be taking the rate of construction up to what it was in 2004.
So how many houses are you building in that first year?
And how many in the second year?
Twyford: And we crank it up over the three years to 18,000 over the four years.
How many in the second year? How many are you gonna build in the second year?
Twyford: It's about 4000 in the second year.
So 800 in the first year, 4000 in the second year. How many in the third year?
Twyford: It's about 8000 in the third year.
And then how many in the fourth year?
Twyford: We're up over 10,000 in the fourth year.
Smith: See, here's the joke.
Twyford: The thing to realise is that we are only returning—
Smith: They've been saying 10,000 houses a year, but now we know we're gonna get 800 in the first year, Paddy.
Twyford: We are only returning the rate of construction to what the market is at the top of the cycle. All we're doing is returning the market to the top of the cycle, and we're gonna keep it there for 10 years. We've done this before in New Zealand. If we increased the rate by 10,000 a year, we'll take it to the same rate that it was in the mid '70s under Norman Kirk. We've done it before, and we can do it again. And, Paddy, the thing is that we are gonna grow a bigger, more productive and more innovative and competitive construction industry.
Smith: By the government all doing it.
Twyford: No, by tendering at scale.
So, just explain to us, because you told me this week that a $485,000 house, like what we've been looking at out in Hobsonville. I've been out with both of you this week. That's gonna be $360,000 under Labour, a two-bedroom terrace. So where are you saying $120,000 on the land and the building supplies?
Twyford: Sure. Let me run you through it.
It is! It is!
Twyford: I would prefer it if Nick Smith didn't answer the question about Labour's policy, because I'm gonna tell you exactly why, Paddy.
Smith: It's a joke. It's like jelly.
Twyford: The first way is that by being involved in the land development process, we can forego the developer's margin. Developers typically make about a 20% margin on the land costs, all right? So that's the first thing. The second thing is that BrandZ, a private-sector industry group, estimated we could knock $32,000 through off-site manufacturing off the cost of a new home.
Smith: But we're doing that.
Twyford: No, you're not.
Smith: Yes, we are. Homes at Weymouth, off-site manufacturing.
Twyford: The third way that we're gonna save money is by bulk-buying. We pay 30% more than the Australians for most building materials, all right?
Smith: That's why we got rid of the tarrifs.
Twyford: That didn't make a blind bit of difference. But we can knock 25% to 30% off the cost of building materials, which are about half the cost of a new build. Add to that the fact that the Crown can borrow money more cheaply than any of us can. We've got cheaper cost of capital through the Crown doing the borrowing. And the fifth way that we can save is that by tendering this work out at 10,000 units a year to construction companies that can scale up to more sophisticated methods of production—
Like prefabs. You're talking like prefabs, aren't you?
Twyford: We're talking about off-site manufacturing. We can drive down the margins.
Smith: Do we really want the state to buy all the houses?
Because we rang the prefab companies, and there's no one there, Phil. There's no one that can do this.
Twyford: Look, if you look at Mike Greer and Spanbild in Christchurch, if you look at eHOME out in West Auckland.
Are they ready to build 100,000 homes?
Twyford: They are ready to scale up, and, Paddy, that's why I'm saying this is a 10-year building programme, and over the first three to four years, we are going to train thousands of apprentices for builders, carpenters, plumbers. You put a cap on the polytechs after the global financial crisis.
OK, now, I want to move on to another topic, but here's another quick-fire question, and we'll start with you, Phil Twyford — what is the average age right now of a first-home buyer in New Zealand?
Twyford: People are waiting till their mid-30s...
Smith: About 37.
Twyford: ...before they buy.
Twyford: People cannot afford—
How much do you think?
Twyford: Oh, mid-30s. I don't know. 35, 36?
Yeah, 34. It's 34. Minister, you have gone up a bit there.
Smith: Oh, I think—
You think it's 37. That's shocking.
Smith: The figures I know is that if you look at the time in home ownership that's occurred since the mid '80s, the biggest group—
You guessed 37. In your mind, it's edging up to 40 when you get your first home, and you're the housing minister.
Twyford: It now takes 50 years to pay off the average mortage in Auckland. People are going to be in the rest home before they've paid off their house.
We're going to have to come back in a moment.
Smith: HomeStart helps those people.
We'll be back in a moment, Nick Smith, to talk about foreign ownership and rental rates. Welcome back. If you're just joining us, we are debating housing with National's Nick Smith and labour's Phil Twyford. Now. I want to start with another quick-fire question, and I'll start with you, Nick Smith. Have you ever paid cash to a tradesman? Have you ever done a cashie?
Smith: Not that I can recall.
You've never paid cash to a tradesman, done a cash job?
Smith: Not that I can recall.
You can't remember?
Smith: Well, you know, I did a major upgrade of both houses. In fact, I did my own ex-state house, which I did up.
Phil Twyford, have you ever done a cashie?
Twyford: I don't think that I have, Paddy. I don't ever recall having done that.
You don't recall having done a cashie either?
Okay, that's good. We'll move on now. All right. We'll move on now to the ban on foreign owners. Now, Nick Smith, this is one of the big issues, and I want to start with you, Phil Twyford. Give us one piece of hard evidence that there is a problem with foreign ownership in the Aucklad housing market.
Twyford: We've basically priced our kids out of the Auckland housing market. And one of the factors—
No. Hard evidence. I asked for hard evidence.
Twyford: is foreign buyersm and they are a small—
Just admit you've got—
Twyford: but significant factorin driving up house prices in Auckland, and there is no reason—
The question was for hard evidence. Just, what is the one piece of hard evidence that there is really a problem?
Twyford: This government refuses to even collect the evidence because they don't want to know. Everyone in Auckland knows that offshore speculators are driving up house prices.
I want to stop you there. Everyone in Auckland is basing it on anecdotal evidence. They're basing it on what they see in sales, aren't they?
Twyford: Yeah, and we've deliberately asked the government to collect the data. They could do it very easily by asking the solicitor at the point of purchase to certify if someone is a citizen or a resident, but the government refuses to do that.
The three of us know that, looking across an auction room, you can't tell whether someone is a citizen or a resident or not.
Twyford: That's correct. And most of the foreign buyers are Chinese. Most of the foreign buyers are from other countries. I agree with that, Patrick, but there's no reason why Kiwi first-time buyers—
Who mentioned Chinese?
Twyford: should be outbid. Well, that's been a large part of the public debate. There is no reason why Kiwi first-home buyers should be outbid at auction by a cashed-up speculator on the other side of the world who simply wants to trade on cpital gain for New Zealand houses. There is no upside.
Twyford: But this government is on the side of speculators. Foreign and domestic.
Smith: He's making Winston Peters look multi-cultural, for godness' sake. You know, this is Labour blaming the oldest trick in the book—
Twyford: No. It's not.
Smith: Doesn't care whether it's unemployment or crime, and now housing. 'It's all those foreigners' fault, Paddy.'
Twyford: That's rubbish.
Smith: And it's rubbish.
Well, why not disprove him with facts?
Smith: We've got facts.
Twyford: No. You don't.
Go out there and get a register.
Smith: Let me tell you the facts that we've got.
Twyford: You won't collect the data.
Smith: Let me deal with Phil's point.
What about the facts?
Smith: The facts that we have from IRD is that 2.— Let me finish. let me finish.
But Treasury has already told you that that information is dicey, so they are not facts.
Smith: Let me finish. IRD says that 2.5% of homes in NZ are paying rent to an overseas person.
Yes. We know this.
Smith: And they project that 40% of that—
And in the same advice—
Smith: And most of those are New Zealand residents and citizens who have moved overseas and own a home in New Zealand.
In the same advice you're basing it on, they also say this information is not completely credible and getting a register would be a good idea.
Smith: No. They do not.
In the same piece of advice.
Twyford: The advice that I've had in my ministry is—
Smith: Can I tell you why Phil's wrong?
No. I'll tell you— Yes, please.
Smith: So, if you record who owns the home at the point of sale, that doesn't answer the question, because often what will happen is an overseas person buys a house. They then migrate to New Zealand, because you have to then monitor, after they've purchased the house, whether they get residency or citizenship.
Twyford: No. It tells you the rate.
Smith: Otherwise your numbers are rubbish.
Twyford: No. That's not true.
Smith: What we know from the IRD data is that is has not changed in five years. It's non-event.
Twyford: The IRD data is ropey. It doesn't tell us that.
Smith: It's a sideshow. It's about not tackling the real issues that will make a difference for Kiwis wanting to buy their own home.
Quick question cos we're out of time. Te forgotten rent is a big part of the housing market. Name one thing that, if you get back into government, you will do for renters, Nick Smith.
Smith: Firstly, carry on insulating those homes to make them healthier for families. We've done 300,000. We're gonna do a lot more.
Twyford: Only 15% of them are rentals.
What would Labour do for renters?
Twyford: We're going to guarantee that all rental properties are warm and dry through our Healthy Homes Guarantee.
So same thing.
Twyford: No. He's not doing anything for the rental market.
Smith: You bet we are.
Twyford: All those subsidies have been gobbled up by owner occupiers.
Smith: That's not true.
Twyford: We are going to set minimum standards for heating and insulation so that all rental properties are warm and dry. Kids growing up in those rental properties, including the 250,000 kids below the poverty line, will at least have a warm, dry home.
Smith: We've done more than any other government in that space.
That is a good place to leave it. thank you very much for coming in, you two.
Smith: Thanks, Paddy.