The Labour Government's record on housing and the challenges for the incoming government
A centrepiece of Better things are possible has been discussing housing policy and outcomes. As we begin 2024 and truly kick off with the new National-led government, I wanted to reflect on the achievements and failures of the 6th Labour Government on housing to present the current state ahead of some expected changes by the new government.
Labour’s failures in housing are well documented — most notably the over-promised KiwiBuild policy to deliver 100,000 affordable homes over 10 years. As of October 2023 (latest available data), KiwiBuild had completed 2003 new homes with another 1098 under construction. This policy, in essence, underwrote units in the affordable bracket, to encourage developers to design smaller and simpler units that would be more affordable. The intention was to shift the focus away from what might be most profitable for the developer, larger, typically standalone, and more expensive houses, in return providing greater certainty through the underwriting of units. The programme suffered from a significant overestimation of the number of units this could deliver, alongside an already booming housing market and residential development sector where the certainty of an underwriting of units, didn’t offer a significant advantage.
How about the wins?
The National Policy Statement on Urban Development (NPS-UD) will be a key legacy of the Labour government. Whilst a few Tier One councils have dragged their heels on delivering plan changes to implement the NPS-UD, many have delivered and are now seeing consents reflecting this change. The NPS-UD is a fantastic, if not perfect, policy that is now being held up as world-leading (at least in the Western World) and being replicated elsewhere. The removal of parking minimums is fantastic for reducing land and construction costs per unit in new-build housing, as can be seen in areas like Lower Hutt. In a similar vein, the bipartisan passing of the Medium Density Residential Standards (MDRS) could be positive for enabling new housing supply, however, the incoming government has committed to allowing councils to opt-out (more on this below). Some have critiqued Labour’s lack of support alongside National counterparts when the policy came under scrutiny.
Evaluating the record of Kāinga Ora as the government urban development agency is somewhat trickier. The Labour government established Kāinga Ora in 2019, merging Housing New Zealand (HNZ), the state housing owner and manager, and Homes Land and Communities (HLC), which was responsible for the development of Hobsonville Point into one of our leading examples of a medium density neighbourhood.
This has seen an expanded mandate beyond simply building state housing into delivering urban regeneration, where entire neighbourhoods have infrastructure upgraded, alongside improved public spaces, to support intensification. These Large Scale Projects aim to deliver a third, third, third, mix of state housing, market and affordable housing. In most neighbourhoods this results in a three to fivefold increase in the number of homes, though some have far higher density planned. Some of the first neighbourhoods are now nearing completion and are undoubtedly delivering better overall infrastructure, housing and design outcomes when compared to market-led urban redevelopment. At what cost and who is paying for that is less clear though.
The new Housing Delivery System (HDS) developed by Kāinga Ora has been touted as a success, speeding up approval and delivery times, which is expected to help drive down delivery costs further over time. The HDS will continue to be used with the construction programme funded through until June 2025. It will be interesting to see how far costs fall during that time. Kāinga Ora has also pursued greater innovation in building techniques with off-site manufacturing and more modular construction. Residential construction in New Zealand is often critiqued as being very much bespoke. In an interview with Bernard Hickey, Simplicity Living Managing Director Shane Brealey explains how standardising construction methods has helped save between 20-30% per unit. However, most new housing in New Zealand is built by smaller firms with bespoke designs. I believe between these two programmes, Kāinga Ora has had a positive effect in this space. It has also supported a real shift in the types of development we are seeing, particularly here in Auckland.
Key decisions for the new government
Key priorities for the new government that have been indicated, include tax and regulation changes to support Build to Rent housing and enabling more mixed-use development. However, how the government will respond to other issues is less clear. Below are some of the key decisions to come for the new government.
Deciding the future of Kāinga Ora and in turn, social housing. National have previously indicated they will support the funding committed to the agency until mid-2025 to construct new public housing and continue the large-scale projects. The new Housing Minister Christopher Bishop has launched a review with a broad scope, detailed below. Particular concern appears to be the increasing debt of the agency and understanding the value for money of new homes being constructed.
The scope of the review will at a minimum include:
Financial viability of Kāinga Ora
The efficacy of Kāinga Ora’s funding arrangements with the Crown
Property management and overhead costs compared to its revenues
Cost of renewal of the portfolio over the long term compared to its revenues
Appropriateness of its portfolio valuation methodology for financial reporting and decision-making purposes.
Asset procurement and management
Housing procurement strategies and delivery by place, typology and amenity
Procurement costs (including overheads) and quality
Value for money of its development programmes including land acquisition and building
The effectiveness of its relationships with its key suppliers, developers, Councils, Community Housing providers and others
Engagement with communities and tenants to reflect their housing preferences
Asset management performance.
Tenancy management
Consider the performance of Kāinga Ora as a tenancy manager, including consistency with a goal of delivering better outcomes for tenants.
Kāinga Ora remit
Consider whether the remit of Kāinga Ora, including in legislation, regulation, Government policies, letters of expectation, statements of performance expectations and Ministerial directions, is conducive to good performance of its core functions.
Institutional arrangements to incentivise better performance.
Consider institutional arrangements for Kainga Ora functions, including operating scope, organisational form and structure, governance, and subsidy and funding arrangements with the Crown, that will encourage better performance and reduce fiscal impacts on debt and OBEGAL.
I will be interested to see the outcome of this review. Particularly how the lessons and gains of the new HDS and the housing innovation programme can be kept, even in the assumed scenario of reduced funding for new social housing. It does seem like Kāinga Ora might be hitting a new stride in delivery after the past few years of establishment and of course disruption from the pandemic. Previous National-led governments have preferred to focus on supporting Community Housing Providers (CHPs) to develop and manage social housing, instead of Housing New Zealand/Kāinga Ora. However, the ability of CHPs to scale to meet demand is less certain.
Kāinga Ora has gained significant experience over the past few years in the challenges of urban regeneration. Cities across the country face the combined challenges of ageing infrastructure in need of replacement alongside high population growth. Urban regeneration can not just renew the infrastructure but increase the capacity to support well-planned intensification to support growth. While larger councils are somewhat better equipped for this challenge, many are not and the experience Kāinga Ora has from the urban regeneration projects should be taken forward. The cost of urban regeneration, who pays for it, and how and when will be key questions to be answered.
As I have covered previously, while not perfect, the MDRS was mostly positive. However, the coalition agreement commits the new government to providing an opt-out for councils. Eleanor and Marko at Yes in Our Backyards have discussed previously how the MDRS could be kept while allowing increased flexibility. In making any changes, the incoming government also needs to find a way for the remaining local council plan changes, to implement the NPS-UD, to be completed within the current timeframes.
Summary
Labour’s record in housing is mixed but there are positives like the NPS-UD which will continue to deliver for years to come. The incoming National-led government has many key decisions to make across enabling supply, urban regeneration, and social housing. Infrastructure to support new housing is critical to outcomes on the ground. Changes in this will be another one to watch through this term of government.