Kevin Atkinson: New ways of financing are needed to boost house building

We need to change the financial model of volume house building. Photo / Getty Images

Opinion

If central government and councils would take a bigger role in providing infrastructure for new housing developments, New Zealand residential builders could construct a lot more affordable homes.

This would help meet the Government's KiwiBuild programme of building 100,000 high quality, affordable homes over 10 years, with 50 per cent of them in Auckland.

To make this happen, we need to change the financial model of volume house building. We need to let builders get on and do their job, and not be underwriters of land development.

My company is building 300 to 400 houses a year. We could easily double that within our existing resources if there was infrastructure funding assistance from councils for new affordable housing developments.

As it stands, the system works like this: If a developer wants to get building quickly, they are expected to pay for infrastructure (roads, pipes, and power cables) up-front. That means borrowing a lot of money, and the banks will usually insist upon pre-sales on the development to lower the risk of lending.

So the developer runs around the large building companies and sells as many lots as possible, pushing the infrastructure financial risk on to the builders.

Most residential builders in New Zealand, due to the small market, don't have large amounts of cash sitting around to enable them to buy up large swathes of new developments.

They also can't afford to put all their eggs in one basket. It would be crippling if one building company owned hundreds of sections in a development that stalled or was not commercially successful. We have seen too many home building companies fail in the past decade, leaving home owners in the lurch, to not take a commercially prudent approach to development.

So they buy 10 lots here, five there, depending on what deals they can get. The result is that in a city such as Auckland, builders and subcontractors are running all over town to different jobs, and they're wasting an hour every time they do it.

To get real efficiency and to be able to build affordable houses, building companies need to be building 50 to 100 houses or more in one development.

This productivity problem is forced upon builders, and we need creative solutions to address it.

We also need different types of infrastructure and new means of funding them. Councils need to consider creative, modern alternatives that reduce costs.

We are already hearing of infrastructure investment bonds and there are numerous examples of efficient stand alone wastewater systems overseas that could help cut across our preoccupation with pumping waste long distances to centralised plants.

Building companies have already seen the benefits of government bodies freeing up land and easing restrictions.

Developers are responding to the market's need for affordable housing. A few years ago the trend was to build mostly high-value homes in new subdivisions: big houses, big sections and strict covenants. Now we're seeing plans for more high density developments and smaller houses targeting the affordable housing market.

If we can attack the infrastructure problem, we can make the most of the increased supply of land and speedy building consents. If you take out that problem, it goes a long way to addressing the big issue in New Zealand: availability of capital and increasing the supply of affordable housing.

Take that risk away, and let builders build.

• Kevin Atkinson is chief executive of Generation Homes.