If there was any excitement brewing at being able to enter a lottery to buy an affordable Kiwibuild house, it was certainly short-lived, as further details revealed that the "lottery of birth" has probably already scuttled most people's chances. Disappointment is setting in as more people realise that the scheme is really only going to benefit the rich. This is because the houses are priced so high that few will be able to afford to even enter the final ballot for them. What's more, many are asking why the income caps have been pitched so high that the scheme seems destined to be dominated by rich buyers who are after a good investment.
Complaints about the new "income cap"
With the official launch yesterday of the Kiwibuild lottery scheme, Housing Minister Phil Twyford announced the criteria for those who want to enter the ballot to be the lucky recipients of houses that will be "sold at cost". The criteria now includes a cap on income so that buyers wouldn't include millionaires, as critics had started to allege.
The income cap – $180,000 annual income for a couple and $120,000 for singles – was widely derided as being far too high, as it would continue to allow the wealthy to monopolise the scheme. Newshub's Jenna Lynch was highly critical: "in effect there is no real income cap. Only the top eight per cent won't be able to buy these homes. It's a free for all. This is not going to help those on low or middle incomes - they'll be locked out by relatively high wage earners" – see her column: Kiwibuild a free for all.
Lynch also criticises the lack of asset-testing for Kiwibuild homebuyers: "Further there'll be no asset checks for those buying a first home meaning so long as your income is below the caps, you could have millions locked away in assets other than housing and still be eligible to get the keys to a Kiwibuild house".
According to Stuff journalist Henry Cooke, the "sky-high income cap", together with any lack of "weighting for need or income like there is for state houses", means the rich will benefit the most: "Needy families who could really use the help will be out in the cold hard private rental market while a couple of doctors making $80k each will happily move into a nice new home" – see: Why the Government is letting the rich buy KiwiBuild homes.
But Cooke reports that there is some logic behind this "socialism for the rich" approach. First, Twyford argues that there will be a trickle-down effect whereby the rich buying the Kiwibuild houses will eventually benefit the poor through other houses becoming cheaper (or just not getting more expensive).
Second, there's the need, electorally, for Labour to keep the rich happy, with the idea that Kiwibuild is also for them: "Setting the income cap so high also invites quite a lot of middle-class buy-in. A whole lot of well-off people who assumed they would never get Government help to buy a home would have woken up on Wednesday morning to a pleasant surprise. Just like Superannuation and free education before it, making a policy universal (or close to it) buys you a lot of voters who have an interest in never seeing a policy die."
Third, there's a likelihood that the Government will actually need rich people to be buying the houses, given that they will be unaffordable to most others. Cooke says, "One of the worst possible outcomes for Twyford is that he does build these houses and then they sit empty."
This is an argument examined in detail today by Newsroom's Thomas Coughlan, who delves into the official demographic statistics, and MBIE documents, to work out who might be actually able to afford the Kiwibuild houses. He appears to conclude that the Kiwibuild houses are simply going to be too expensive for most buyers, and that's why the income cap has to be so high – so as not to exclude those most likely to buy the houses. But even then, there could be a problem selling the houses, as most high-income people already own property – see: Twyford's 'middle-class aspirational' plan.
Excluding the poor and average income New Zealanders
There's a line being run by the Government that the lottery-element of Kiwibuild is a great equaliser – because poor applicants have just as much chance of having their name picked as rich applicants. Twyford has said "Everyone has an equal shot in the ballot so people who are on a low income, or a high income, as long as they fit the criteria ... then they can have a crack at doing this" – see Jane Patterson's Ballot will keep Kiwibuild equal, Twyford says.
On this, Alex Braae of The Spinoff says "It's a classic case of equality triumphing over equity – the IT professional flatting in Grey Lynn and earning $100,000 a year has the same chance of getting a house as the solo mum working two jobs to keep the rent payments coming through" – see: Can you buy a Kiwibuild house?.
It is certainly reminiscent of Anatole France's famous aphorism about "legal egalitarianism" that "in its majestic equality, the law forbids rich and poor alike to sleep under bridges, beg in the streets, and steal loaves of bread". The point being that any low or average income earner is free in theory to apply for the lottery but, in practice, most won't be able to. As Brad Flahive reports, "In order to enter the ballot you also need proof that a bank is willing to loan you the money needed" – see: KiwiBuild: How to get yourself in the running for the Government's new homes.
Flahive produces calculations for various income scenarios of people who might be able to afford a Kiwibuild house, and shows that they will need to pay about 45 per cent of their weekly income on the mortgage repayments. And once you add other housing ownership costs on top of that (insurance, maintenance, etc), in reality it would be very difficult for many to obtain bank approval to enter the ballot.
On the issue of who banks will lend to, Henry Cooke reports that banks will only lend to those who already have large deposits: "Jenny Campbell from The Mortgage Supply said many banks wouldn't be keen to lend out 90 per cent of the value of one of the homes because of the stringent rules around on-selling" – see: KiwiBuild houses won't sell with 10 per cent deposits, says broker.
Kiwibuild's three-year non-sale rule
It's this rule that prevents the buyer from being able to sell the house within three years of purchase that is the main problem for the banks according to Henry Cooke: "The idea is essentially that if a buyer defaults, anything that restricts banks from selling or renting out the property makes the mortgage riskier." He reports Campbell from The Mortgage Supply company as criticising the Government for not consulting the lending industry over the issue. But Twyford says that he hasn't been told of any such concerns by banks.
The "three-year rule" exists to prevent investors simply buying the Kiwibuild houses at cost and then on-selling them quickly at market rates and making a large capital gain. But many critics suggest that three-years is far too short, and rich purchasers will be enabled to easily make money out of Kiwibuild. For example, Alex Braae comments: "That might not sound like very long at all, but think about it this way – it's more than 1,000 whole days. After that, sweet as, flip away."
Jenna Lynch also points out that the three-years is much shorter than Labour's capital gains housing rule: "three years isn't even the benchmark for how long genuine homebuyers should hold onto a home. It's two years less than the government's bright line test – the pseudo-capital gains tax introduced to curb property speculation. Smart young investors will see this policy for what it is – an opportunity for them to get their foot on the property ladder, exploit a government system and put them one step ahead of their peers."
In Jane Patterson's report Phil Twyford explains why he's chosen three years: "we didn't want to put in place anything too onerous or too heavy handed". And Twyford told the media yesterday that the chosen time-period is a "Goldilocks" one: "it's not too hot and it's not too cold – three years is just about right in terms of an obligation to live in the house".
Can Kiwibuild be made more progressive?
At the moment, it seems that the way Kiwibuild is configured, poor and middle-income earners will be locked out from the chance of being homeowners. In fact, the scheme might even worsen inequality in New Zealand. Researcher Jessica Berentson-Shaw says: "giving only some people the opportunity to own a home may embed inequalities that have been in place for decades in New Zealand" – see: KiwiBuild risks embedding wealth and housing inequalities. She argues that "our homes have become a money-making scheme for the wealthy", and that Kiwibuild won't do anything to change that.
Twyford has responded to such criticisms by asserting that Kiwibuild was never meant to be anything other than what it is. He told the NBR: "KiwiBuild is not a welfare policy – it's a middle-class homeownership policy… It's been designed to restore the dream of affordable homeownership to people who traditionally up until the last decade or so have quite rightly expected that they would have a decent chance to own their own home" – see Dane Ambler's 'Kiwibuild is not a welfare policy': Twyford defends eligibility criteria (paywalled).
However, this article also quotes Real Estate Institute chief executive Bindi Norwell making a plea for Kiwibuild to be more equitable: "One modification that we would like to see, however, is a percentage of the properties to be allocated to low-income earners… This would ensure those who really need it the most, for example, a single parent working two part-time jobs to support a family, will have a higher chance of having his or her name pulled out of the ballot than a single person earning $120,000".
Others are calling for the income cap to be lowered, and for the non-sale period to be increased significantly. For example, Tauranga mayor Greg Brownless has proposed that buyers should have to live in the Kiwibuilds for ten years, because that would get rid of "any chance of people doing it just to profit" – see Scott Yeoman's Tauranga's mayor and builder query KiwiBuild eligibility criteria.
In addition, "He said the purpose of KiwiBuild should be to help people with combined incomes of 'way less than $100,000' and with single incomes of around $50,000 to $60,000 or less."
Even the National Party appears to be proposing a more progressive alternative to Kiwibuild. Housing spokesperson, Amy Adams says that National's "First Home Buyers policy" would have an income cap of only $130,000 for couples, and $80,000 for an individual, and buyers would have to live in the houses longer before selling them – see Jason Walls' The Opposition's Finance Spokeswoman has slammed the combined income limit of would-be KiwiBuild homeowners.
Finally, for a more radical view on how Kiwibuild could be transformed into a programme that benefits low and middle-income New Zealanders – see Shamubeel Eaqub's just-published column KiwiBuild a win for higher-income households.