Could shared equity schemes be a way for the new government to forge a new path in state housing? Gareth Vaughan takes a look a such a scheme that was proposed and rejected for Tamaki

By Gareth Vaughan

Listed in the policy programme within the Labour-Greens confidence and supply agreement,  is a call to deliver innovative home ownership models within the State and broader community housing programme.

It goes on to say a rent to own scheme, or similar progressive ownership models, will be developed as part of Labour's Kiwibuild programme. Through Kiwibuild the new government, via partnerships with the private sector, wants to provide 100,000 affordable houses over 10 years for first home buyers with half built in Auckland. The rent to own and progressive ownership model ideas come from the Greens' detailed Home for Life policy paper.

As the new government looks for innovative and progressive ownership models they could do worse than cast their eyes over one that has, perhaps ironically, been rejected by a Crown and Auckland Council owned company. The community-based model in question was put forward by the Manaiakalani Housing Consortium to the Tāmaki Regeneration Company, which is jointly owned by the Government (59%) and Auckland Council (41%). 

The Tamaki Regeneration Company, which received a five-year $200 million government loan in 2015, is overseeing the building of more than 7,500 new homes over 15 years in the Auckland suburbs of Glen Innes, Point England and Panmure in place of 2,500 existing state houses. Currently a large number of residents in these suburbs receive state support, and 57% of all housing is state housing owned by Housing New Zealand Corporation. 

Continuity of housing essential for kids' education

The Manaiakalani group, chaired by Pat Snedden who chairs the Manaiakalani Education Trust and is a former chairman of Housing NZ, proposed a shared equity, or shared ownership, scheme. The proposal calls for the creation of equity for the community where there's no current ownership. The primary purpose is to lower barriers to entry and incentivise self-help.

"Typically this may mean earning equity with your personal labour in formal agreements with us. We will reward with equity points for paying rent always on time and maintaining your home to the agreed standards. This will allow for capital payment contributions that exceed normal rental arrangements to be credited to a tenant's capital account. Our plan will also allow for approved alterations, funded by the house occupant, that will accrue equity that will be accounted for at the end of their tenure," the proposal says.

Snedden says the shared equity scheme proposal came about because the Manaiakalani Education Trust, active in Tamaki schools, realised that for children from low income families to succeed in their education, continuity of housing is essential.

"When we've been able to keep kids at school in the same house and in the same school for three years or more, we've found in the Manaiakalani programme [that] we've been able to accelerate their learning to up to two times the national average. This is powerful for kids who start, when they come into school, with learning ages of three when they're five years old. And to accelerate them year on year at one and half times national average, and get them in the national norm by the time they're at secondary school, therefore continuity is absolutely important. And of course continuity's reflected by security of [housing] tenure," says Snedden. 

The group designed a system that would work financially for all parties and leave the Crown in control of the land, says Snedden, pledging to deliver more than 1,000 homes per year.

"And we were successful in gathering the cohort of people prepared to invest. We had the Pears Foundation from the UK prepared to put $1 billion into New Zealand specific action, we had major construction firms in NZ prepared to come to this. And we said to them very specifically 'you'll have to change your business model to be involved in this process because unless you're prepared to think differently about how we are prepared to service the New Zealand market at the lower end, we won't succeed in this.' So major firms made commitments to us to do that. Unfortunately we weren't successful in the tender process," Snedden says.

'Not pledging $1 billion for fun'

Established by its trustees Mark, Trevor and David Pears, the Pears Foundation says it aims to apply some of the resources of the family's property company, the William Pears Group, to fund organisations and projects "working to deliver progress on key issues affecting the wellbeing of people in the UK and all over the world." It was founded in 1952 and includes a NZ operating company, Antipodean Properties Ltd.

Snedden says the Pears Foundation wasn't pledging $1 billion for fun.

"They're doing that because thy can see there's a way of financially engineering this that could be beneficial to themselves."

A spokeswoman for the Tamaki Regeneration Company wouldn't comment on why the Manaiakalani proposal was rejected. Those still in the running are believed to include the beleaguered Fletcher Building.

"The large scale development procurement process is confidential. The outcome of the process is subject to ministerial approval. The timing of an announcement is likely to be late 2017," the spokeswoman says.

Snedden suggests the proposal may have been rejected because the governance group of the Tamaki Regeneration Company, appointees of Treasury and Auckland Council, were "shy" of the idea that a large proportion of the land would be left in state ownership given the model proposed was "graduated leasehold ownership."

"That was too new for them to think it was credible and therefore they weren't prepared to go down that route," says Snedden.

Nonetheless, he is disappointed.

"Every single school in Tamaki, their boards of trustees, backed by signature, our proposition. This was supposed to be driven by the outcome of [for] the community. The community said 'this is what we want' and they choose to ignore it even though we had all the capability and the financial ability to deliver on the product. That told me there was something else associated with this and it was potentially returns to the Crown around this land," says Snedden.

The Manaiakalani proposal calls for tenancies of between 10 and 15 years. This would keep families in one place through their children's schooling, and allow tenants to progressively build equity in their home. In terms of the impact such security of tenure could have on a child's education, Snedden suggests it would "almost certainly" guarantee them literacy and numeracy sufficient to be a constructive working person in that community. "That is huge," he says.

Pictured below, Glen Innes houses.

'It enables people to get into housing with a lot lower deposit'

Arthur Grimes, professor of wellbeing and public policy at Victoria University and a senior fellow at public policy research institute Motu, looked at shared ownership concepts as long ago as 2006 in a report for the Centre for Housing Research, Aotearoa New Zealand. Grimes believes such proposals can be scaled up to work in a range of regions in Auckland and elsewhere in New Zealand.

But, cautions Grimes, it depends on who owns the land.

"One way it is done is it becomes a leasehold operation. The risk for leasehold is if it's privately owned land they can ramp up the land rent, [and] then basically people can get priced out of their homes," says Grimes.

"[But] if it's Crown owned land and they have some form of covenant that says they won't ramp up the land rent by anymore than X% a year or something faster than CPI or whatever, then it's an entirely sensible approach. It enables people to get into housing with a lot lower deposit [than] otherwise [possible], less risk because they're not actually bearing the risk on the value of the land."

"It's a way of trying to be a bit creative and get people into longer term housing, especially in a situation where we have tenancy laws that are such short-term. We don't have long-term tenancies [in NZ]," adds Grimes.

He notes that for those "paranoid about privatisations" leasehold shared equity schemes see the Crown retain ownership of the land.

In terms of risk from house prices falling, Grimes acknowledges this is a big one for low income people.

"It's one of the reasons why I favour a leasehold model, where you're renting to buy the structure not the land. Almost all the volatility is in the land and so it takes away the risk that your land price is going to fall."

"Land prices in Auckland are so high now, ridiculously high, that there is a big risk that they could fall. But the structure [house itself] is unlikely to fall substantially in price. So I think it takes away that risk that people at the bottom end can't afford to take. So they wouldn't get the upside in land, but at least they escape the downside," Grimes says.

'There are any number of things we can do as a society using the Crown as the pivot'

Snedden highlights potential for multi-generational impact from shared equity schemes. He notes the Manaiakalani proposal includes environmental friendly features around water, sees an opportunity to use solar power, and targets building a community with less need for cars.

"What you're trying to do is scratch an itch right at the moment. But in fact the thing is very deep, and the deep bit we're facing here is the exclusion of very significant parts of our civil society from any capital base that historically they may well have had some aspiration to be part of," says Snedden.

"Now when we start to turn this around you're not going to see it in three years of government. But if you can lock in a process which has the ability to sustain itself over time, you can fundamentally shift the apparatus for this to happen."

"There are any number of things we can do as a society using the Crown as the pivot, as the landholder, to make those kind of engineering opportunities possible to get people capital in their life. Because if there's one thing we understand really clearly [it] is people feel more economically secure [when homeowners] so a lot of things improve in social circumstances," Snedden adds. 

He talks of a rental context where the state owns the house to begin with but says 'we're encouraging you to be a co-investor with us and here's the way you can do it and this will start you off.'

Ultimately the tenant could leave the house taking, say, 15% of its capital value with them.

Pictured below, Tamaki.

Treasury's wellbeing framework 'conspicuous by its absence when it comes to policy designs'

Meanwhile Grimes notes Treasury has had a wellbeing and living standards framework for several years.

"And yet when you look at it, time and time again, Treasury or their boards that they appoint, just ignore it. It's as if it's completely irrelevant. They just go back to where the numbers are," says Grimes. 

"The Treasury's wellbeing framework is there and it's conspicuous by its absence when it comes down to policy designs. And yet these sorts of issues they should be prioritising - helping use housing to better leverage better living standards for New Zealand, better wellbeing outcomes for New Zealanders, that would be what they say they want to do but they don't [do it]."

Grimes adds that the return to the Crown shouldn't just be thought of as the financial return on the housing aspect of the project. Rather it should be thought of as the overall return. This includes social outcomes, reduced crime, reduced social assistance necessities, etc.

"They're all part of the return of a scheme such as this."

The Government also has the option of issuing infrastructure bonds to help fund shared equity schemes, Grimes adds, with or without a guarantee.

"When you think about it the Government is guaranteeing the social assistance programme at the moment so this is transferring part of that guarantee to a different form of more innovative social assistance , if you like. So there's definitely the chance there for innovation on the financing side."

Time for another look?

As we reported in 2015, there was already frustration emerging then over the slow progress of the Tamaki regeneration project. Now with the Labour-NZ First-Greens Government newly ensconced in office, and Minister of Housing and Urban Development Phil Twyford keen to tackle the housing crisis he berated the previous government over, there's a choice to be made.

Push ahead with a likely conventional building project chosen by the Tamaki Regeneration Company to get a quick "win" on the board. Or take another look at a more innovative, community friendly shared equity scheme.

NOTE, most of the direct quotes in this article came from an off camera interview rather than from the video.

*This article was first published in our email for paying subscribers early on Wednesday morning. See here for more details and how to subscribe.