Twyford hopes Kiwibuild will drive down construction costs

Article – BusinessDesk

Twyford hopes Kiwibuild will drive down construction costs

By Sophie Boot

June 28 (BusinessDesk) – Housing and urban development minister Phil Twyford says construction companies and developers are on board with Kiwibuild, despite his hope that the government will be able to keep driving down prices for those houses.

At a media briefing today, Twyford said the government wants to trim building costs for Kiwibuild with productivity improvements such as prefabrication.

Construction companies “want to expand the industry, they want to build more, and they know there’s a significant unmet demand,” Twyford said. “The idea is more volume and more certainty. The construction industry is so volatile, it goes up and down in such an extreme way that firms are very reluctant to build internal capability and take on more staff because they know the cycle is going to come and they’re going to have to lay people off.”

The cap on what Kiwibuild houses can cost is between $500,000 and $650,000 in Auckland and Queenstown, depending on the number of bedrooms, and $500,000 for the rest of the country. Twyford said he’s focused on that as a limit, not a target, with plans to sell the first 30 Kiwibuild three-bedroom homes in Papakura for about $579,000.

Private developers still make their normal margins on Kiwibuild houses and the government builds in an administrative margin of about 1 percent, Twyford said, so will sell them “basically at cost”. Kiwibuild means developments which have been stalled due to lack of available credit can be brought to market with a guaranteed proportion of affordable homes, he said.

Stephen Barclay, head of the KiwiBuild unit, said the government can help reduce developers’ margins, which are typically related to the risk of the project, because it can cut the risk developers incur from land ownership and the cost of holding that land for a large period of time.

“We can assist with that because we have a reasonably large balance sheet,” Barclay said. “They can still make their margin in percentage terms because we’ve reduced risk for them, but we can overall reduce the cost of the development and get the houses at those price points. We’re finding that through the buy-off-the-plans process that’s very attractive to developers.”

Twyford anticipates demand will outstrip supply for the housing and houses will be allocated by ballot. The conditions for qualifying for that ballot have not yet been announced, as they’re yet to get Cabinet approval, but Twyford said similar conditions would apply as for withdrawing Kiwisaver funds to buy a house, which is possible for people buying their first home or for “second chance” buyers who have previously owned a home but no longer have that home or sufficient assets to buy another.

Preference might also be given to would-be buyers who already live in the area where Kiwibuild houses are developed, to prevent gentrification, Twyford said.


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