Remember the heady days last year when the Labour Party, in the election campaign, promised affordable houses for young couples who are mercilessly excluded from the property market by those mean, ugly, nasty Tories? That they would build 10,000 affordable homes a year? And that, somehow, issues like a lack of available land, issues with the Resource Management Act, the consenting process and a chronic shortage of builders would suddenly all be solved with a wave of Jacinda’s wand? All the houses we would ever need would be built, and we would all live happily ever after, snug in the knowledge that rainbows and unicorns would save us all.

Well, the rainbows and unicorns came crashing down to earth on Wednesday, with the government revealing its Kiwibuild plan.?Stuff?reports: Quote:

Couples earning up to $180,000 a year will be allowed to buy affordable KiwiBuild homes – as long as they live in them for at least three years.

The Government is unveiling on Wednesday who will be eligible to buy one of the 100,000 affordable KiwiBuild homes it is hoping to build over the next 10 years.

Documents released to?Stuff?show the criteria will include an income test – but one that will still allow 92 per cent of first home buyers to get into the scheme.

The income cap is $120,000 for a sole buyer or $180,000 for a couple. End quote.

A couple with an income of $180,000 a year can already afford to buy a house. They would have no trouble servicing a mortgage whatsoever. These are not the people that Kiwibuild was supposed to be helping. It was supposed to be helping those on low to average incomes locked out of the housing market. Quote:

Both citizens and New Zealand permanent residents will be eligible.

First-home buyers will not be subject to a financial asset test – they will simply need to be buying a first home.

Those who purchase a home will need to live in it for at least three years without selling it, but will be able to rent out spare rooms to flatmates.

For the first years of the scheme, the homes will be balloted, meaning every eligible buyer who enters will have an equal chance of buying a home. End quote.

Balloted? Is this Kiwibuild or Lotto? This is the biggest financial decision of your life, and it depends on your name being pulled out of a hat???Quote:

Twyford said there were plenty of people earning close to the limit struggling to buy homes in high-cost areas.

“We know that New Zealanders at and below these incomes are struggling to buy a home, especially in high demand areas such as Auckland and Queenstown,” Twyford said.

Documentation released by Twyford’s office shows that households in the $80,000-$180,000 range have experienced the largest decline in home ownership?over the past decade – and that nearly half of all families with children fall into that category.

Three-bedroom homes in Auckland and Queenstown will cost $650,000 or less, with two-bedroom homes costing $600,000 or less and one-bedroom homes costing $500,000 or less.

All KiwiBuild homes outside of Auckland or Queenstown will cost $500,000 or less. End quote.

I have so many questions and observations on this, I could probably write a book. However, let us start with the obvious ones.

A 3 bedroom house in Auckland for $650,000 is an absolute bargain. Assuming they take the cookie cutter approach to these houses, (all the same designs, everywhere) it will minimise building consents and application costs, but land values must vary enormously. So, in Wellington, will the Kiwibuild houses be in Haitaitai or Naenae? Because the land values will be very different, but the prices will be the same? One would be a steal, and the other would probably be overpriced. It is a very relevant point.

A quick look on a bank website shows that a couple with an income of $180,000 will need a deposit of $130,000 to buy a $650,000 home. That is the problem, and although the bank’s do have a limited ability to accept applications with lower deposits, this is the reason why so many first time buyers cannot get into a house. It is a bank criterion, designed to save the banking system from a significant fall in house prices by creating a reasonable buffer between prices paid and amounts borrowed. There is no guarantee that the banks will make Kiwibuild houses a special case with a low deposit, as the restrictions on resale make them higher risk from a borrowing perspective. So, for the couple on $180,000 who can service a mortgage but who don’t have a large deposit, nothing may change.

A couple on a lower income (say $100,000) with a deposit of $50,000 will only be able to buy a property for $250,000, but will be able to spend $500,000 if the bank allows them to buy with a 10% deposit. A couple on less than this will struggle. Wasn’t it low income families that Kiwibuild was going to help?

Where is the land coming from to build all these houses? There is no indication that they will force councils to free up land for building, and until that happens, we are no further forward. Even if this does happen, it will take years to develop new subdivisions, put in the infrastructure and have the land ready for building. This was a major stumbling block for the last government, where the Auckland Council wanted the government to fund the infrastructure for new housing developments, even though it was to be the Council collecting the rates. Again, nothing has changed.

Buyers have to be prepared to stay for at least 3 years, although there are provisions for this to be waived in special circumstances. To me, one of two things will happen. The houses will be of such poor construction, or in such undesirable areas, that they will become #Kiwislums. Or in 3 years time, a large number of purchasers in sought-after areas will sell and make a large capital gain. You cannot stop people from?selling their homes, and as Labour’s proposed capital gains tax will specifically exclude the family home, there is nothing they can do about this. It won’t happen everywhere, of course, but it will happen in high demand areas, such as Auckland and Queenstown.

What is stopping me buying a house in my kids’ name, getting them to live in it for 3 years while they are at Auckland University and then selling it on for a huge profit once they have finished?

Are you seriously telling me that I can buy a house now (?) in Auckland for $650,000 and will also be able to buy a property in Auckland in 10 years time for the same price? You are kidding, right?

The general feeling that I get is that the government has just had a large dose of reality when it comes to Kiwibuild but they promised they would do it, and now they have to front up. Over 6000 people have registered interest already, but that does not mean they will all want to buy. They will want to buy a house for $650,000 in Mission Bay all right, but not in Manukau. They will wait and see what is on offer before they throw their names in the hat. I’ll bet that the take up is much lower than that. There probably won’t be a need for a ballot after all.

Be prepared for the targets to be grossly under achieved. I applaud the government for wanting to solve the housing crisis but I do not applaud them for ignoring reality and chasing rainbows. Well, reality has now hit them in the face. Watch out, this will not end well.