Phil Twyford doesn’t seem like an ideological politician, so I’m a little bit surprised when he tells me he believes himself to be one.
In his housing portfolio, Twyford is planning one of the largest market interventions in New Zealand history. His KiwiBuild programme will be responsible for anything between a third and a quarter of all houses built in New Zealand, when fully ramped up.
But in his transport portfolio, Twyford is planning a suite of PPPs and making extensive use of Special Purpose Vehicles to fund infrastructure without borrowing directly from the Government’s balance sheet. Twyford believes that at their best, the SPVs will allow the market to determine the best places for roading investment.
The disjunction between a minister who on the one hand trusts the market to play a role in determining where houses get built, while also affecting a massive state-backed intervention in that market is not lost on Twyford. In fact, it comes back to ideology.
“For me ideology is not a bad word,” he tells me in our end of year catch-up.
“Ideology is about having a view of the world that is informed by A — a particular analysis of how the world works and B — how you want it to be.”
And Twyford’s ideology?
“In many ways I’m a social democrat,” he says.
“I believe in a state that is willing to intervene to make markets work for ordinary people.”
But interventions are only useful if they work — and at their worst they can create as many problems as they solve and this is the question the hangs over Twyford’s head.
As one of the Governments’ most high-profile ministers, Twyford has a massive target on his back and regularly draws flak, not just from Judith Collins, but from most of the National front bench as well.
This is in many ways self inflicted. Unlike many of his colleagues, he has not set himself nebulous goals or targets, nor has he commissioned a raft of working groups to create policy. His most famous target is fairly simple: 100,0000 KiwiBuild homes by 2028.
While that level of accountability makes him an asset in a government that can be light on hard policy, it also makes him a liability when those targets fail to be met. At the time of writing, it appears Twyford will miss his first KiwiBuild target by quite a wide margin with just 33 built and 77 under construction. Even if more are announced next year — and they almost certainly will be — it still looks as though he will fall well short of the 1000 Twyford has targeted by June 2019.
Teething problems
KiwiBuild is responsible for one of Twyford’s lowlights of 2018.
He describes them as “teething problems”. Not only is the project falling short of expectations when it comes to building homes, but its head, Stephen Barclay has been locked in a mysterious employment dispute, causing him to be absent from work.
Not just that, but the unveiling of the first KiwiBuild homes in October was overshadowed by the accusation that one of the buyers, a soon-to-be doctor, should probably have been able to afford a home on the private market.
The Government should have been able to weather such criticism — and it had a communications strategy ready. KiwiBuild is not a subsidy — the homes are sold at cost. The high cost of KiwiBuild homes is a reflection of high land and construction costs overall.
But the explanation didn’t stick, and the policy became tarnished with accusations that it was middle class welfare.
The problems have been disappointing.
“You’re kind of willing this policy to bear fruit and come to life and it’s not…,” Twyford says, before breaking off.
“…progress in that hasn’t come as easy as we would have liked and in a sense that’s just kind of redoubled our commitment to make it work and and that is a work in progress”.
He believes the teething issues have come from the state of the residential construction sector, which is dominated by small firms, with low productivity, who are incentivised to build expensive rather than affordable homes.
Even during the current construction boom, just 5 percent of new homes were priced in the bottom quartile of houses. Twyford wants the policy to incentivise development at the bottom end of the price scale.
“A couple of generations ago 30 or 40 percent of the new homes built were in the bottom quartile and were affordable for first home buyers. It’s now 5 percent. That for me is one of the most telling statistics about the problems we’ve got,” he says.
“What we’re trying to do with KiwiBuild is turn that around and incentivise the industry to change its business model,” he says.
“You’ve got very high land prices and a local industry that is at or above capacity and high build costs you’ve got a very small margin to operate in so building houses that are affordable is very difficult,” he says.
KiwiBuild is designed to address this by de-risking development at the lower end of house prices through its underwriting of private developments. The houses are branded as KiwiBuild, but built privately.
But there are other things holding the policy back. Land is still too expensive and a lack of workforce has put massive constraints on construction. Neither of these problems will be easily resolved and Twyford concedes this makes it incredibly difficult to build houses for less than KiwiBuild’s price caps.
And even if everything goes to plan, Twyford still thinks it’s unlikely New Zealand can return to the rates of construction seen under Norman Kirk in the 1970s, when we saw over 40,000 homes built annually — 10,000 more than today.
“In Auckland right now we are celebrating the fact that we’re building more than we ever have since the GFC,” he said.
“[But] we’re still building in Auckland half the number of homes per head of population than we did in the 1970s.”
So can he ramp up construction to the 1970s levels? — probably not.
“That would be a generational task that might happen in the second decade of the Ardern Government,” he laughs.
$350,000 mortgages – but not until election year
Twyford has said the first year in office has been about redressing housing supply. But the policy’s shortcomings have also revealed a lack of demand. Ballots for some KiwiBuild homes have been extended owing to a lack of interested buyers.
The Government wants to address this through schemes like shared equity programmes that make mortgages more accessible, by allowing interested people to split their mortgage with other parties.
Twyford says he would like to link up shared equity schemes with KiwiBuild, making the policy more accessible. He suggests a mortgage of $350,000 versus $500,000 now would stimulate demand.
Is $350,000 the commitment?
“That’s just a guess – but that’s the idea,” he says, but it’s not coming in the next budget, so New Zealanders will have to wait until 2020 — election year — to see the policy fleshed out and funded.
He’s also looking at stimulating the construction of build-to-rent projects, which could cater to the increasing numbers of New Zealanders who choose to rent.
The chilli and the garlic
Twyford’s other portfolio has been somewhat less controversial. Although the imposition of fuel excise and the Auckland regional fuel tax has been unpopular, the decision to roll out the Government Policy Statement on transport which was heavily focused on safety was well timed, after a period of steadily rising road tolls.
And transport is at the centre of one of the coalition Government’s more unlikely ministerial combinations. His two associate ministers are the Green Party’s Julie Anne Genter and New Zealand First’s Shane Jones.
“I think of them as the chilli and the garlic,” Twyford says.
Which one is which?
“I don’t know whether I should say that,” he laughs.
“Can you imagine what it’s like to have Shane and Julie-Ann as the two associate ministers? They’re both incredibly talented individuals and larger than life personalities and they both make a huge contribution.
“Shane is one of my biggest allies on many of the things that I’ve done in the last year and yet we’re very different people from different backgrounds.”
And Genter?
“I’d say she’s one of my closest colleagues. She’s like a co-minister really so she’s… she’s like a subject matter expert. The two of us worked together on the GPS.”
Build, build, build
Twyford ends the year damaged, but not broken. In transport he inherited a regulatory system so thoroughly broken that at least 20,000 WoFs have now been called into question as being potentially unsafe and the crisis in housing is one of the greatest in New Zealand’s history.
That gives him an immense amount of political capital to play with. Yes, the KiwiBuild numbers are disappointing — but for now, he can point towards the mess he inherited.
But next year is where the rubber hits the road. As one KiwiBuild target becomes another, his ability to blame the mess he inherited weakens and he becomes part of the problem, rather than the solution.
If Twyford wants to ring in 2020 as housing minister, he’ll want to spend most of the next 12 months in hi-vis ribbon cutting.
