On The Nation: Lisa Owen interviews Phil Twyford
Headlines:

Housing Minister Phil Twyford says about 16,000 of the 100,000 Kiwibuild houses will be built in the first three years, leaving 84,000 to be built in the seven years after that. He says the average of 10,000 a year will be hit in the third year.

Twyford says the government has begun a review of all housing developments underway or planned in Auckland that have a government stake, so they can be counted as Kiwibuild homes. They will also partner with private companies who have developments underway, to encourage them to provide affordable homes that could also be counted.

Twyford has confirmed first time buyers will be able to enter a ballot to buy a Kiwibuild home.

As Transport Minister, Twyford has asked for all the relevant business cases in order to review Penlink and other road projects in the Auckland Transport Alignment Project.

Twyford says Auckland Council should not sell assets to pay for infrastructure projects. He says the regional fuel tax is a short to medium term measure, and some form of road pricing or network charging will come in in 5-10 years.

Lisa Owen: After years of accusing the National government of causing a housing crisis, the Labour Party now finds itself in charge of getting out of it, and the bulk of that responsibility has fallen on Housing Minister Phil Twyford. He’ll be relying on KiwiBuild, Labour’s plan for 100,00 new affordable houses over the next decade. So how will it work? Well, Phil Twyford joins me now. Good morning.
Phil Twyford: Good morning, Lisa.
As we said, KiwiBuild – 100,000 houses over a decade. But the prime minister has said that it will take a while to ramp up; in the first few years, you’ll probably only do about half of that. So at the back end of this project, you’re going to have a bit of a bottleneck. How are you going to deal with that?
So, you’re quite right. Because of capacity problems in the industry, particularly workforce issues, it is going to take us a little while to ramp up. And our modelling has always been based on the idea that in the first three years, we’ll probably deliver about 16,000 homes, and in the third year, we’ll start to hit the average of 10,000 a year. There are three main ways that we’re going to deliver KiwiBuild. So, the first is that we’re going to say and are already saying to the private sector, to developers and builders, if you’re doing a development and you think that some of the properties in that development – might be a set of townhouses, for example, somewhere – would meet the KiwiBuild affordability criteria and design specs, then come to us. We’ll look at them, and we could buy them off the plan, speeding up your development, taking some of the risk out of it, and ensuring that we get a supply of high-quality affordable homes for first home buyers. Now, the second thing we’re going to do is – and I’ve kicked this off; it’s underway – we’re doing an immediate review of all of the developments that are underway or planned, in Auckland at first, that involve some kind of government stake. It might be Housing New Zealand land. And we’re going to look at how we can ramp up the level of ambition and build more affordable homes, KiwiBuild homes, as well as more state housing. And that’s the second way. And the third way is that we have an ambitious plan to do 10 to 15 large-scale urban development projects around Auckland, particularly around the rail network, that will deliver new infrastructure, the kind of amenities and open spaces that communities need, and a mix of different kinds of affordable housing.
OK. Let’s pick that apart, because that’s a lot there. So when you talk about going to developers and buying off plans, that’s KiwiBuy; that’s not KiwiBuild. Those things are already in the pipeline.
Well, we’ve always said this is the way we’re going to deliver KiwiBuild. We’ve always been really upfront about that. One of the problems at the moment, actually, is that many of the apartment projects that are underway are having real problems with financing. So by the government willing to underwrite or buy units off the plan, that actually takes away some of the risk and uncertainty and will speed up those developments.
What about the risk and uncertainty to taxpayers in underwriting something like that? There is a risk involved.
Well, there is, but we think that the government is well-placed to do this, Lisa. We have a market failure at the affordable end of the market. There’s no shortage of 300m2 waterfront homes, but there’s a dire shortage of the kind of high-quality affordable homes that young families could afford to buy and live in. So we’re going to intervene in the market to fix that market failure by building large numbers of affordable homes. That’s the job of government, to do that.
I’m going to move on to how you’re going to build, in a minute, the specifics of that. But just in terms of underwriting and buying off plans, have you allowed for that in your budget?
Yes, we have.
So is that just the simple $2 billion, the seed fund that you’ve put aside?
That’s correct.
But you know that KiwiBuild is an idea that came into being around 2012, right? And that was the costings done then. Your own finance minister has said, ‘Mm, we’re not sure that there’s enough in the pot there. Construction’s gone up 30% to 50%.’ When are you going to revise that number and actually tell us what it’s going to cost?
So, when we announced it originally, it was $1 billion. So the $2 billion that we’re talking about now is the kick-start for KiwiBuild.
Yes.
That was done a year ago. And prior to the election campaign and, I think, actually, about the time that I spoke to you last on this show, we reran the numbers. The 2 billion will be sufficient to crank up the kind of numbers that we’re talking about.
You’re absolutely confident about that?
Yes.
All right. So, when you talk about developers who might have KiwiBuild-priced houses, are you going to put a quota on people who go into a private-public partnership with you? You know, if you build on this piece of land and you’re in this deal with the government, how many of those houses are going to have to be affordable?
This first option I’m talking about, where we might buy off the plan, there’s no compulsion because we’re talking about private developers coming forward.
That’s already underway.
But if we’re talking about developments where the government has a stake, then absolutely.
And what will that be?
One of my big criticisms of the last government was that they were building hardly any affordable homes; they were selling off two-thirds of the state housing land into private ownership and not delivering any affordable homes in the process. So my concern and what I’ve told officials is that I expect, if we’re doing a big development in a place like Northcote or Mt Roskill or Tamaki or anywhere else, then I would expect 30% to 40% of the new homes in that development would be KiwiBuild affordable homes, and I also want to see more state housing built and market homes as well.
OK. So, in terms of affordable housing, if you’re going into a public-private partnership deal and they’re building on Crown land, will your partners have to pay market prices for that Crown land?
Yes. Yeah, we’re not intending to subsidise. There’s no hidden subsidy in the land. But let me say this, Lisa – some critics of the idea of the government building affordable housing argue that by choosing to build affordable housing and foregoing the potential profits that could be made by building what the market could bear, that that’s an effective subsidy. We don’t buy that. We are in this game to build affordable housing for young Kiwi families, and we make no apologies for that.
So, one of the things that went wrong, arguably, with special housing areas, which was, again, a combined development with private developers, involving the council and government assistance, was that they’ve taken too long to build these houses. Are you going to put a caveat on it – so you’ve got to build around 30% of your houses to be affordable if you’re on this bit of Crown land – and are you going to tell them that they have to build it within a certain timeframe?
Well, the special housing areas of the past government were a total washout. Lisa, they built less than 100 affordable homes in Auckland over three years.
And land banking was one of the problems.
Yes, it was.
So what are you going to do to make sure that anyone you’re in a partnership with is not land banking?
So, if private developers are part of a master-planned urban development, like in Northcote or Roskill or Tamaki, then they’re locked into deals that they will have to supply housing. Land banking is simply not an option in those circumstances, just as it hasn’t been in–
So, how do you stop it, though? If they’re dragging their heels, that is, in essence, land banking because they’re slowly rolling out houses while the price of the land goes up and the price of the construction goes up. How do you stop it?
So, Hobsonville’s the best model here – where you’ve got a public agency like Hobsonville Land Company that’s coordinating it, setting very high urban design standards, and parcelling up a block of apartments or a row of terraces for a developer to come and supply. You deal with it through the contracting process. Land banking is simply not an option, and we won’t allow it to be.
So, when you talked about – when we started this conversation – building in new areas, are you talking about outside the Metropolitan Urban Limit?
My view is that, given the shortfall of housing in Auckland and the population growth projections, this city is going to have to grow up and out. So I said the other day I was very interested in work that had been done by Infrastructure New Zealand on a large new development in the south of Auckland there, Pukekohe. But there are massive opportunities for us–
So, are you going to ditch it, the Metropolitan Urban Limit? We’re going to spread out in Auckland, absolutely.
Let me just finish what I was saying, Lisa. So we want to build most of the development we can in the city, around the transport network. We want to do density well and build great urban communities for people to live, work and play. As far as I’m concerned, it’s got to be up and out. On the question of the Metropolitan Urban Limit, we’re going to build affordable houses. We’re going to tax speculators. We’re going to do all of those things, right? But if we want a lasting solution to this problem, we have to make reforms that will allow the market to deliver better outcomes on its own, and the two really big things that we have to fix there are the broken system for financing infrastructure that stops the city from growing, and the highly restrictive planning rules like the urban growth boundary. But you can’t get rid of the urban growth boundary without fixing the infrastructure financing issue. So this is going to be a major priority.
Yes, because once you build outside those urban limits, the price of getting infrastructure to a house goes up to about $130,000 versus several thousand.
That’s right.
Okay. Quickly, before we move on to talking more about infrastructure – KiwiBuild. You’ve said $600,000 for a free-standing terraced house in Auckland. Do you stand by that figure?
Yes, I do.
And what work have you done over how much that price is going to increase over the 10 years of the scheme?
It will do, and we’ve done some projections on that, and we’ll have to–
And what do they tell you?
Well, 10 years is a long time, and it’s very hard to predict what will happen to the housing market over those 10 years. But I hope, Lisa, by squeezing–
Can you give me a figure?
No. But by squeezing much better deals out of the supply chain when we’re tendering 10,000 homes a year, and when the government has more control over the land costs by coordinating these big developments, we will be able to drive down costs.
I want to crack into the infrastructure, but are you going to get people to go into a ballot for a KiwiBuild house? How is it going to work?
Yes, in the early days, we will, because there’s so much pent up, unmet demand. But, Lisa, let me say this – the first KiwiBuild house will be important, but actually the most important one will be the last KiwiBuild house, because at that point, we’ll know that every Kiwi family has had a shot at affordable housing. And then we’ll know that our job is done.
Okay. Your other big problem is transport and infrastructure in Auckland. We know that Phil Goff is about– $26 billion projects coming up, and he’s about $6 billion or $7 billion short of the money. You’re renegotiating the Auckland Transport Alignment plan. What’s out? What are you ditching? You’ve ditched the East West Link. What else is going to get jettisoned?
So, you’re right. For the first 10 years of Auckland’s transport plan, there is a $6 billion hole. Now, that’s not a fictional hole that’s been made up for electioneering purposes. That’s an actual $6 billion fiscal hole. And the first thing we’re going to do is Auckland Council has requested that we legislate for a regional fuel tax. That will deliver about $1.5 billion over 10 years, we hope. That’s a significant chunk. That’s Aucklanders–
That still leaves you with $4.5 billion.
It does. That’s Aucklanders chipping in over and above what they pay normally, as every other person in New Zealand does, to fund this budget.
So you can get rid of some of the things on your to-do list. What about Penlink? Are you going to keep that or get rid of it?
I’ve already asked for all of the business case information on Penlink, and we’re going to look at it, along with the other projects. You mentioned East West Link. We’re not saying we’re not going to do anything – that’s a vital freight corridor – but we just don’t believe that the government’s $2 billion project stacked up. And I’ve asked for the business case information for that.
Okay. So Penlink is under review as well? Whangaparaoa Rd is under review?
We’re going to look at it. We’re going to look at it.
Okay. I want to go through a list, and we’re running out of time, so it would be great if you could give me direct answers to this. So, in terms of raising revenue, do you think the council should be selling assets?
I don’t believe they should. I think the council should look at all of the available options. But I want us to be smart about how we raise revenue, and one of the ways that we can do it is – when you build new transport infrastructure like a light rail or even a motorway, it generates massive increase in the value of the property around that infrastructure. I want us to look at ways that you can capture some of that value and recycle it back into the public for good.
So targeted rates on sections or developments that are alongside your rail development?
I want us to explore the idea of setting up an urban development authority alongside the light rail lines so that we can get the best redevelopment outcomes for those communities-
But that is targeted rates, is what you’re talking about.
Yes, that is one of the ways that you do it.
Okay. What about congestion charging? Because the other government was looking at this, and, in fact, a report was due out around now. Are you going to pursue congestion charging?
I think the report is about to land on my desk, and I’m awaiting it eagerly. Our view is that the regional fuel tax is a short to medium-term interim measure. Some kind of road pricing or network charging will come in in the medium to long term. I think probably between five to 10 years. There are powerful arguments–
So you’re not thinking of bringing that forward?
I’m going to read the report and get the best advice we can before we make that decision. It may generate some revenue. But the most important thing about road pricing is that it allows you to do demand management and smooth out some of the peaks, the congestion peaks in the system, allowing you to get much better value out of the transport system.
Okay. Infrastructure bonds – you’ve stated before that Labour is keen on this. So that’s where you borrow money, it’s paid back over decades so the cost is shared around the generations. Where do you see that working and have you accounted for that? Because I looked at your budget, and in the small print it said- your budget doesn’t take into account infrastructure bonds.
No, we haven’t, because much more work needs to be done. So the problem we’ve got at the moment with–
So how can you go ahead with them, then?
We’re going to do the work now as a matter of priority. The past government did some work around setting up a special purpose vehicle so that you could borrow money, the debt would sit on the balance cheque of an independent entity, the special purpose vehicle, and it would be serviced by a targeted rate on the properties in a new development. So we’re going to take that and develop it even further. Because the critical thing we need to do–
If you haven’t accounted for it in this budget, then how far off is the likelihood of infrastructure bonds under a Labour government?
I can’t give you a time on that now, Lisa, but it is a huge priority. What we need to do is move from a system where the government writes a cheque every six months or 12 months for infrastructure to a system where there is a pipeline of infrastructure finance available for infrastructure that meets the quality standards and is serviced by a targeted rate on those developments. Without that pipeline of ready finance, we’re never going to fix this problem of urban growth.
All right. We need to leave it there. Thanks for joining me this morning, Phil Twyford.

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