Auckland’s first KiwiBuild winners could hardly keep the smiles off their faces. And who could blame them?

Yet there is a flaw at the heart of Housing Minister Phil Twyford’s KiwiBuild policy. At around seven times Auckland’s median household incomes, no one can seriously argue that a house costing $650,000 is affordable. On internationally recognised measures, KiwiBuild houses would need to be sold at a 50% discount to meet the affordability tag.

Consequently, KiwiBuild homes are out of the reach of median income earners across New Zealand. Instead, KiwiBuild is creating state-subsidised winners in a housing lottery for the well-off.

Meanwhile, the high cost of housing continues to hurt low-income Kiwis. It stifles labour mobility, locking workers out of our growing cities. Even worse, high housing costs cause overcrowding and poverty.

Instead of starring as host of the new KiwiBuild game show, Mr Twyford should focus on the real cause of the housing crisis: the lack of affordable land. We will never have affordable houses when there are no affordable sections on which to build them. KiwiBuild barely scratches the surface of this problem.

To lower the price of developable land, we need fundamental reform of New Zealand’s obstructive town planning culture and the incentives that have created it. This requires changes to the way we fund local infrastructure for new housing.

Currently, population growth is an expensive inconvenience for local councils. The extra income tax, GST and company taxes generated by new residents flow straight to central government. Meanwhile, councils are left looking to reluctant ratepayers – or to borrowings – to fund the infrastructure needed to house their new residents. Little wonder our growing cities suffer restrictive planning processes and a shortage of infrastructure-ready land for development.

Countries with stable house prices like Switzerland and Germany show us what needs to change. If central government redistributes a share of the taxation from population growth back to the localities that are growing, local councils have both the means and the incentives to build the infrastructure needed to accommodate their new residents.

Getting the incentives right then creates a virtuous circle within growing regions, increasing the supply of infrastructure-ready land for housing, keeping land prices low. In turn, this attracts more residents and more growth.

The KiwiBuild lottery may be creating smiling winners. But until our politicians address the systemic infrastructure funding flaws, for many ordinary New Zealanders the great Kiwi dream will remain just that.