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The KiwiBuild Fiasco: How KiwiBuild fell down, and whether anything can be saved from the wreckage – #4 – In which we see just how full of pride and hubris ‘Phil the Builder’ was

22/07/2019

Henry Cooke at Stuff – How KiwiBuild fell down, and whether anything can be saved from the wreckage– A detailed look at the fiasco from a journalist.

This is an excellent article, it allows readers to draw their own conclusions and nothing wrong with that.

This and other posts will explore the article and it’s ramifications

This is the fourth in a series – the first is here, and the second is here, the third is here

A good approach was adopted in the article in the way the article was structured in chronological order.

So having been appointed, the newly minted Minister Phil Twyford arrived at a critical meeting

BUILDING ‘TWO HAMILTONS’: OCTOBER 2017 – FEBRUARY 2018

Twyford arrived at the October 27 meeting with a lot already planned out.

We know this because he detailed his plans in an NZ Herald article the day before. Following conversations with several developers who were “absolutely bursting to be a part of this work”, Twyford had a rough plan for three main streams of housing delivery: large developments on state house and Crown land, like the former government was already enacting; huge new suburbs down public transport corridors; and new houses from developments already under way bought “off the plans”.

I question whether anything was really planned, or more probably what in fact Twyford had were some rough concepts. Twyford’s plans seem to have been nothing more than ideas generated from conversations. That does not sound much like properly thought out policy to me.

The “buying-off-the-plans” plan seems to have been welcomed by officials, and is detailed as an option in the first batch of advice Twyford received in the days following the meeting, obtained by Stuff under the Official Information Act. This policy lets the Government “de-risk” developments by either buying a portion of homes being built outright, or promising to buy them if they don’t sell with an “underwrite”, both of which are suggested as “straight-forward” options by the officials in the document. This would solve a problem where developers sat on good land that they couldn’t afford to develop into larger medium-density developments, as banks wouldn’t lend without as much as half of the units “pre-sold”.

Yet  the reality has been that many of these homes have not been sold. Indeed, some have suggested that some of the dwellings purchased by KiwiBuild were properties which the developer had been unable to sell previously.

Furthermore, there are clear indications that Twyford and his officials confused initial expressions of interest with  the size of the potential market.

In addition Twyford has never seemed to address the issues raised by Prof John Tookey which I discussed here 

Tookey pointed out:

Without a robust plan to drive capacity development the policies are unachievable. Transformative industry growth is unlikely without a concerted focus on capacity growth.

At present that explicit sequence of capacity-building initiatives is absent.

I have seen little to suggest that this matter has been comprehensively addressed. Bear in mind Prof Tookey wrote his piece in December 2017.

Furthermore, it is questionable whether buying off plan actually adds to the overall housing stock, Rutherford noted

It was this one aspect of the delivery that would become the most problematic for Twyford in the months ahead, but it was also the only method likely to get serious numbers of houses on the ground fast – a later briefing suggested it would deliver 800 of the 1000 homes promised for the first year.

Really was that really the only option, Was the addition of 800 houses not just moving them from private development to KiwiBuild. How the hell does that add to the housing stock. It does not.

Then we heard from Twyford on another major imitative, an initiative I support.

One of the other options, the setting up of an “Affordable Housing Authority” to build brand new suburbs by cutting across planning laws, remains unfinished to this day, despite early hopes the work could be done within

Then a major mistake,especially from a political viewpoint.

In order to work with speed before the aforementioned Affordable Housing Authority was set up, Twyford asked for a KiwiBuild Unit to be formed within the Ministry of Business, Innovation and Employment (MBIE), which looked after housing at the time. That unit should be given the power to start procuring houses for the scheme, while policy boffins got to work establishing the eligibility criteria for who should be able to buy into it. Later this unit could be folded into the wider authority.

This seems a technical detail, but several people involved with the policy say it was a big mistake making the unit a subservient section of MBIE, instead of its own independent body with its own board. By leaving it within a ministry, Twyford took on political accountability for all of its operations. This shaped the confines of what it was able to do, and meant Twyford had to defend every single action, instead of being able to point to an independent board or chief executive responsible for running the policy well. It would also cause later conniptions as the unit was moved into the new Ministry of Housing and Urban Development.

Though given his and Labour’s close identification with the policy I wonder if Twyford would have been able to do that. Furthermore, Twyford at that time seemed to relish the role of “Phil the Builder’ donning a high vis vest and a hard hat at any and every opportunity.

We see this defence of the approach taken from current KiwiBuild management

“Hindsight is a wonderful thing,” new head of delivery for KiwiBuild Helen O’Sullivan told Stuff.

“If you had a blank sheet of paper now, you would almost certainly set up Kāinga Ora [the still-not-established Affordable Housing Authority] as the first step. But that is a pretty significant undertaking. It’s the middle pathway that had to be walked given the circumstances. Was it ideal? Probably not. Is the world ever ideal? No.”

To me this proves a couple of things:

  • no substantive planning was done whilst Labour were in opposition, which is unconscionable
  • when appointed Twyford plunged in in a gung ho manner without any forethought, highlighting his inexperience and hubris

The advice Twyford got back showed confidence from the MBIE officials in the ability of the Government to deliver the plan, but did note some risks and constraints with the mammoth task.

Let’s look at those risks and constraints, especially as a more prudent and experienced Minister might have taken more note of the risks and constraints.

“To provide some sense of scale,” the officials noted, “100,000 homes is equivalent to building two cities the size of Hamilton.”

Did no-one wonder at how this was to be achieved. Surely, this should have been a warning bell?  Not to ‘Phil the Builder’ it would seem.

The land required in Auckland “significantly exceeded” available Crown-owned land in urban centres; 17,000 construction workers were required to build even 5000 Auckland dwellings a year. The changes to the industry that Government involvement could bring, including an increase in new workers and an increase in prefabrication, would take time to bed in.

So land was in short supply. Did that deter Twyford? Did he wonder how the problem would be overcome?

Plus, if more workers were required and if they were not available in Auckland then more risk and constraint was introduced. Did that deter Twyford, seemingly not.

Treaty settlement obligations meant most of the Crown-owned land in Auckland was subject to a right-of-first-refusal agreement with local iwi. And there was serious questions about whether the demand was there: a 2015 analysis had found that only about 25,000 current renters in Auckland would be able to afford a $500,000 house, and it was unclear if those renters would want to buy the kinds of houses that $500,000 could buy you.

These constraints led to a set of hefty risks, and the officials specifically asked Twyford for a conversation about his risk-appetite and “the relative priority of delivering houses at pace and scale versus achieving the target price points and/or avoiding the need for subsidy”.

Why were these risks not mitigated. I am left with the impression that Twyford was blinded by ideology, overweening hubris and stupidity such that he ignored risks and advice. Again ‘Phil the Builder’ knew best

Rutherford notes:

Every constraint mentioned has since become an issue for KiwiBuild.

to some extent, it would seem that Twyford, by his public statements has gone someway to corroborating my supposition

Three days after receiving this advice on November 1, Twyford appeared on The Nation and confirmed several key details, including the plan to get 16,000 homes completed in the first three years – 1000 more than promised in opposition.

See what I mean about hubris

In December, after securing funding in the “mini-Budget”, Twyford took the first KiwiBuild paper to Cabinet, setting out the establishment of the KiwiBuild unit and promising more detail in early 2018. In it, Twyford notes that “in the short term”, while the “efficency measures” that come from massive Government involvement build momentum, some “trade-offs” will need to be made.

“For example, we may need to take on a higher proportion of development risk (eg underwriting developments or acting as a guaranteed buyer) and/or support initial developments through offering financial incentives to developers (eg reduced cost of holding land), in the expectation that we will be able to realise efficiencies at a later date when we are operating at scale and have a full suite of legislative tools at our disposal.”

Did no one raise any concerns over these statements. The paper cited would seem to be full of generalisations and long on aspiration and hope and short on detail and fact.
I suspect that the lack of any real experience in the Cabinet, plus ideology and the flush of ecitement at ‘doing something’ meant this rubbish just got nodded through.

Twyford headed off for the Christmas break on a high, telling media he hoped to be turning the key of the first KiwiBuild house in the middle of the following year.

This of course led to the infamous street party

By February he received a draft Cabinet paper on how the Buying Off The Plans will work. This paper confirms the necessity of this stream for getting anything close to 16,000 houses in the first three years, and includes the fact that the price cap on Auckland and Queenstown homes will have to be raised from $600,000 to $650,000 – despite the earlier advice saying there weren’t enough Auckland renters rich enough to buy a $500,000 property.

So the scene was set for the subsequent nightmare  as constarints and risks begin to emerge. ‘Phil the Builder’ was now to enter his and our nightmare

 

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