Kiwibuild good for big business and bad for small businesses

September 4th, 2014 at 11:00 am by David Farrar

writes in the Manawatu Standard:

There is a persistent assumption that big business suffers under Centre-Left governments and prospers under Centre-Right governments. …

But this is an overly simplistic analysis. Consider Labour’s “” policy, under which it promises to build 100,000 cheap houses in the next 10 years.

Hehir continues:

Last week, spokesman Phil Twyford claimed that in some instances they would sell for as much as $125,000 less than current market prices.

This is to be achieved through the state leveraging its buying power and the contracted building firms agreeing to take a smaller profit per unit in the hope of making it up through sheer volume.

Without commenting on the overall viability of the proposal, it is certainly ambitious.

For its targets to be achieved, the programme would need to have an average of 10,000 new houses built every year. That works out to more than 27 new houses being completed every single day.

The question is: Which businesses will be in a position to undertake work on such a grand scale? It is not likely to be your typical small, medium or even large regional operators. At best, some of these people might pick up employment or subcontracting work.

However, the number of companies that could take on the scale of work required to make such a venture profitable is actually small. The most prominent firm normally mentioned here is Fletcher Building – the largest company listed on the New Zealand sharemarket. In fact, Labour met with the multibillion-dollar company to discuss the policy when it was first launched last year.

So how is that for corporate welfare and crony capitalism!

Once you grant that government intercession often privileges big businesses, it is easy enough to find other examples of the principle in action – often to the detriment of smaller competitors.

For example, something that has been suggested is that only those businesses that can pay their employees the “living wage” of $18.40 should be eligible to tender for public sector contracts.

Naturally, big businesses are much more likely to be able to absorb a 30 per cent increase in labour costs than start-ups or smaller competitors.

Were such a rule put in place, it would be much harder for those smaller players to compete in that key segment of the economy.

So small businesses go under.

Where the cumulative expense of new restrictions and mandates might slow down big business, they can be fatal to smaller firms.

Is this a problem? The answer probably depends on what your interests in the matter are.

First Union secretary Robert Reid was criticised last year when he said small businesses that could not operate under the conditions his union demanded should go out of business. In the context of his job, however, those comments were not totally unreasonable.

Unions advance the interests of their members – few of whom work in small businesses. Any benefit big corporations get from union proposals is incidental to the union’s purpose.

The union’s purpose is to get their preferred parties into power, so they get policies that help boost union coffers.

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38 Responses to “Kiwibuild good for big business and bad for small businesses”

  1. burt (7,424 comments) says:

    You’re kidding me – a state monopoly that has unintended consequences – Who’d have think it.

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  2. Harriet (5,200 comments) says:

    “…..Consider Labour’s “Kiwibuild” policy, under which it promises to build 100,000 cheap houses in the next 10 years….”

    Bullshit.

    Everything else they’ve ever built has been bloody expensive.

    Arn’t they going to employ their union members? :cool:

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  3. Harriet (5,200 comments) says:

    “…..Once you grant that government intercession often privileges big businesses, it is easy enough to find other examples of the principle in action – often to the detriment of smaller competitors….”

    Like public schools being funded more than private schools.

    Liam is being a true leftist fuckwit — applies his crap to the private sector while ignoring the same problem in the public sector.

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  4. Milk Me (157 comments) says:

    It will be hard for Labour to do anything once they get back in control with a $85,000,000,000. debt to service, and what have we got to show for the $85,000,000,000. Not much eh?

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  5. anticorruptionnz (215 comments) says:

    There is a very good reason behind this. The small companies are not on the NZX it is about creating share profits for a few therefore the businesses which gain the contracts are all part of a defined small group

    I explain this in the presentation which was filmed last week https://www.youtube.com/watch?v=mbCtBAi9Q9o

    Grace Haden Independent candidate for Epsom anticorruption.co.nz

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  6. SteveRemmington (16 comments) says:

    I believe Cunliffe also met and discussed Kiwibuild with Christchurch firms Stonewood Homes and Mike Greer Homes. Currently building around 500 each a year in Canterbury.

    The question is how many complaints with either Masterbuilders or the courts are both these parties sitting on at the moment?

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  7. chickadee (22 comments) says:

    If it helps me into my first home, go for it. I listened to Mr Twyford admit that Labour’s policy would see just 600 homes built in 2015 and under 10,000 each year until 2020. I think he was making it up as he went along.
    Anyhow the baby boomers with all the property will start passing away in numbers by 2025. I wonder what house prices will be then.

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  8. tom hunter (5,134 comments) says:

    It will be hard for Labour to do anything once they get back in control with a $85,000,000,000. debt to service, …

    What rubbish. Obama took over an $11 trillion debt and it never even slowed him down, which is why it will be anywhere between 20 and 22 trillion by the time he leaves office.

    And nobody on his side of the fence will ask what it bought, any more than they will here after six years of Labour-Green government.

    Just add it to my account, good sir. :)

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  9. RRM (10,099 comments) says:

    If I remember correctly, there were about 35,000 new house builds started per year at the peak, pre-GFC?

    So if Kiwibuild were to do 10,000 per year it would not be unheard of, but it would be a BIG player in the industry!

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  10. queenstfarmer (782 comments) says:

    Labour’s policy relies on construction firms agreeing to build houses far cheaper than current rates.

    Yet at the same time, their policy (with the Greens) is to massively ramp up the minimum wage, remove youth rates, abolish 90-day trial periods, increase union power, enable employees to bring more grievances, and abolish casual employment – which will surely have the effect of increasing building costs.

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  11. Lance (2,712 comments) says:

    @Milk Me
    I have asked this before but no reply…

    The was a GFC (maybe you didn’t notice) so National decided to borrow a huge amount of money to maintian social services but with a plan to get back into the black later on.
    The political right have heavily criticized National for this, they want social services cut as well so we can stop hemorrhaging money sooner.

    So with a comment like yours you seem to think the same thing, National is WICKED for borrowing and should have instead cut social services.
    So Milk ME
    Are you far Left OR far right?

    It’s not that easy to tell.

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  12. tom hunter (5,134 comments) says:

    Lance

    He’s trolling for downtick kicks.

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  13. labrator (1,851 comments) says:

    I’ve often heard the motto stated before that if you’re a big enough business you should always vote Left. The Left always promise spending money and giving more people more money. These people are often the ones who know how to spend their money worst, which ultimately goes to big businesses. The Left in NZ are traditionally very good at driving inflation with their policies. This is fantastic if you own land or assets leveraged against debt. They inflate your debt away. Take a look at the Green’s policies, they’re perfect if you own land!

    Basically the Left punish the middle ground whilst pretending they’re punishing the rich. Like the GFC in the UK and USA. If you’d predicted bad times ahead, had paid down debt and potentially put away some money you were effectively punished very harshly. Your savings were inflated away if not confiscated as in some European countries. If you were leveraged to the hilt, had thought of no consequences (and didn’t completely fold) your were bailed out and your debt was inflated away with QE. What lesson was learnt there?

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  14. Psycho Milt (2,423 comments) says:

    Yes, how awful it is that large-scale undertakings can only be taken on by large-scale business. Fortunately, Labour’s rubbish policy for getting large numbers of new houses built can be disregarded in favour of National’s policy of, er, pretending there isn’t a problem…

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  15. dime (10,212 comments) says:

    “It will be hard for Labour to do anything once they get back in control with a $85,000,000,000. debt to service, and what have we got to show for the $85,000,000,000. Not much eh?”

    good point doofus!

    we should slash and burn govt services. lets start with all those “angels” on the bene.

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  16. Mother of ten (7 comments) says:

    Harriet, think you’ll find Liam Hehir is not left wing

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  17. Slipster (197 comments) says:

    It is amusing how Labour & general Left supporters decry corporations and monopolies and … ardently support the biggest monopoly of them all – the State in business!

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  18. Mother of ten (7 comments) says:

    I think Liam is highlighting the hypocrisy of the left

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  19. Hugh Pavletich (425 comments) says:

    NEW ZEALAND LABOUR’S KIWIBUILD … BUREAUCRATIC BUILDERS (VERY) LIMITED

    This brilliant video CHONY CHRONICLES: I WANT TO BE A CRONY best sums up Labour’s KiwiBuild nonsense …

    https://www.youtube.com/watch?v=2aO9tA5DWJM

    Can you imagine Labours bureaucrats running a housing development / construction entity across the country, pumping out 10,000 units a year / 200 a week … at the right prices … at the right time …. in the right places …. to suit market conditions ?

    Do read closely this mornings The Press on the current status of the bureaucratic Christchurch rebuild … CHRISTCHURCH REBUILD JUST 10% COMPLETE … and weep …

    http://www.stuff.co.nz/business/industries/10457378/Christchurch-rebuild-just-10pc-complete

    … and too … The Press today … EQC BATTLE FELT LIKE THE ‘TWILIGHT ZONE’ …

    http://www.stuff.co.nz/the-press/news/christchurch-earthquake-2011/10457263/EQC-battle-felt-like-the-twilight-zone

    Has Labour apologized yet for the unnecessary 2002 – 2008 housing inflation (for then Finance Minister Cullens bubble government tax revenue ambitions) … check CHRISTCHURCH CITY COUNCIL QUICK FACTS GRAPH …

    http://resources.ccc.govt.nz/files/HouseSalePrice-Median-docs.pdf

    Hugh Pavletich
    http://www.performanceurbanplanning.org/ & http://info.scoop.co.nz/Hugh_Pavletich

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  20. Harriet (5,200 comments) says:

    “…..we should slash and burn govt services…..”

    Sexual healthcare should be pay as you go like dentistry is. Most costly sex related problems will then subside. Healthcare taxes can then be spent elsewhere.

    CGT should be on the family home – but only if you get divorced. The prisons are chock-a-block full of young males who have spent very little time with their natural fathers. They take up most of the courts and police time also.

    Women make fucken useless fathers. The ministry of women’s affairs should be closed down. Or actually represent women – instead of wannabe males.

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  21. RRM (10,099 comments) says:

    queenstfarmer (759 comments) says:
    September 4th, 2014 at 11:58 am

    Labour’s policy relies on construction firms agreeing to build houses far cheaper than current rates.

    I disagree.
    Construction firms doing new build work are mainly supplying great big iced cakes, because they have customers asking for cakes.
    Kiwibuild would be asking builders to supply a basket of muffins, rather than a cake.

    This doesn’t require builders to drop their rates, it just requires them to put away their cake tin and get out their muffin tray instead.

    [The less flippant version:]

    Group housing companies working on new builds in new build areas like Aotea (Porirua) or Dannemora (E. Auckland) build what they can sell to people who are in the market for something a bit better than the existing housing stock, and are ready to pay between $400k and $800k (depending on location) for a new build with 200+ square metres, 4 bedrooms, 2 bathrooms, double internal access garage, underfloor heating, double glazing, double wall oven, “Italian” taps, walls pre-wired for your sound system, etc etc etc. And a big pole retaining wall across the back of the section enabling a bit of earthworks, to give a totally flat and level scorched earth style building platform to get started on.

    Presumably Kiwibuild would be building great long rows of identical, no-frills 70sq.m terrace houses, with 2 bedrooms and a shower upstairs, a minimal lounge and kitchen / dining downstairs, laundry in a cupboard by the stairs, maybe Juliet balconies on the bedrooms, double stud Gib fire walls between one unit and the next, generic fitout, minimal land, parking on the street.

    If three of these contain about the same amount of wood as one 200 sq.m McMansion, and three of these fit on the same amount of land as one McMansion, and three of these can be built in about the same time as one McMansion… why wouldn’t one of them be able to be sold for a lot less?

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  22. Henry64 (83 comments) says:

    100,000 homes over 10 years seems to have gone by the wayside. Duncan Garner asked for figures after the first debate, when Cunliffe could only give prices ranges, not quantities of houses built, and was told 18,000 houses in the first 4 years. 10,000 in Christchurch and 8000 in Auckland.

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  23. georgebolwing (1,011 comments) says:

    Sir James Fletcher made his family’s fortune by negotiating a fixed price for building state houses with the first Labour Government and then proceeded to make a killing by building them for much less. I suspect that the Government thought it was getting a good deal because it compared the price negotiated with what it would cost to build a stand-alone house and didn’t factor-in the ability of Fletcher to benefit from economies of scale. Those economies would have been particularly present where large estates of the same type of house where being constructed at the same time.

    Unless Kiwibuild is going to be turning large flat sections of farm land on urban fringes into large suburbs of near identical houses, I can’t see where the economies of scale are going to come from.

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  24. georgebolwing (1,011 comments) says:

    @RRM

    I agree with your description of the sorts of houses that Kiwibuild will need to build to achieve Labour’s price target.

    My question is who would want to own such a house and what will these suburbs look like in 10 years?

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  25. labrator (1,851 comments) says:

    History repeats:

    Sir James Fletcher snr, perhaps fearing the Fletcher Construction Co Ltd would be nationalised, took up the invitation of the new Labour Government in 1935 to prepare a scheme to build state rental houses. This was opposed by his brothers as too risky, and they were initially right. The houses proved much more expensive to build than first thought. This was because of the high building and design standards insisted on by the enthusiastic parliamentary undersecretary to the minister of finance, John A. Lee, who had no experience of building.

    Source

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  26. Harriet (5,200 comments) says:

    “….My question is who would want to own such a house and what will these suburbs look like in 10 years?…”

    Much like the villages around Carterton RRM. :cool:

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  27. lastmanstanding (1,310 comments) says:

    Which is why some of us are piling into FBU when ever they dip under nine bucks. Win Win. Under a Nat government with Cch and Ak FBU will grow and under a Labour lead government house building program they will grow faster and higher.

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  28. lastmanstanding (1,310 comments) says:

    Oh BTW don’t forget those who sniff and moan about capitalist pigs that if you are one of the over two million in Kiwisaver unless you are in a cash only fund or an offshore only fund you too will be a shareholder in FBU and a serious portion of your funds will be in FBU as one of the leading stocks on NZX.

    So don’t forget and think before you diss and rubbish yourself.

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  29. SlightlyLeft (4 comments) says:

    Just to clarify. I know Liam. He is certainly not Left Wing.

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  30. queenstfarmer (782 comments) says:

    @RRM: but that’s not what Labour’s saying. They are saying they will get the builders to accept a reduced margin (those evil for-profit enterprises ruin everything!) At the same time as announcing policies that will drive up their costs.

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  31. RRM (10,099 comments) says:

    Harriet – there’s no state / terrace housing out here, just the fields and big skies. :cool:

    I was going to say it would probably look a lot like the Somali enclave of Wellington City Council housing behind Webb Street…

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  32. chris (647 comments) says:

    Wouldn’t it be funny if Labour got in and tried to implement this policy and the construction companies told them to eff off because they weren’t prepared to do it for smaller margins.

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  33. Psycho Milt (2,423 comments) says:

    Can you imagine Labours bureaucrats running a housing development / construction entity across the country

    Er, yes, I can – because it used to be commonplace not that long ago. Whatever the good arguments against this policy might be, “Labour’s bureaucrats could never achieve a large-scale building programme” isn’t one of them.

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  34. SPC (5,664 comments) says:

    The industry is confident that building the homes will not be a problem.

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  35. chris (647 comments) says:

    The industry is confident that building the homes will not be a problem.

    So why isn’t it being done now then? This is a genuine question.

    I can only think it’s because there’s no land for houses where people actually want to live. If this is the case, then how do Labour solve that particular issue?

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  36. SPC (5,664 comments) says:

    chris, the industry is building 20,000 houses a year now, but has built 30,000 a year in the past.

    The industry is notoriously up and down, driven by market sentiment.

    If the market price falls (high mortgage rates 2007-2008) then less homes are built. Once the market recovers homes get built -but one funder of the developers, finance companies have gone into receivership.

    Thus the need for government to step into the market and drive increased supply.

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  37. OneTrack (3,348 comments) says:

    If there was a real demand for houses like this they would already be being built.

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  38. UpandComer (537 comments) says:

    @Psycho Milt

    Correct, Labour never could achieve a large scale building plan. When it was constructing and/or managing 69,000 state houses from 1999-2008 with complete control and no interference from evil bankers, developers, landlords ‘private sector’ people, worth $15billion, one third of them were described by Housing Corp as being in the wrong place, and/or in the wrong size, and/or not fit for purpose (i.e. so rotten, squalid, uninsulated and unventilated they couldn’t meet a ‘modest’ standard of living). Labour’s disgraceful incompetent and neglectful mismanagement meant $5billion was wasted, and the most vulnerable NZer’s suffered. It took 4 years to insulate the houses in the govt estate Labour missed. Labour has less then zero credibility on housing. The Auditor General pointed out that for a $15.1 billion asset, Labour had no means of ascertaining condition, so there was no way to plan or pay for maintenance. It was a seminal failure of epic proportions. But now you say they can build 100,000 houses, at the rate of 270 a week or whatever it is, when CHCH has most of the building industry tied up… You jokers are comedy. National’s policies on housing are going to work, your’s left thousands of NZ’s most vulnerable people shivering, getting sick and getting depressed in houses that were too small or too big, in illogical places, and rotting.

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