The Government plans to guarantee the sale of units in private housing developments that are struggling to secure financing under a new underwrite scheme, Housing Minister Chris Bishop has announced.
Developers generally need to sell a certain number of homes before a bank will greenlight financing for the project. This has become increasingly difficult with interest rates high and the housing market depressed.
Bishop said the Government will commit to buying enough units to help a developer meet the bank’s presale requirement and begin construction. It will only go through with the purchase if the developer was unable to find another buyer in the future.
The scheme looks to be a reheated version of a Labour Government plan which was sketched out in 2020, during the initial covid downturn, but was never actually implemented.
Interest.co.nz’s report at the time described it as a “less prescriptive replica of KiwiBuild” as it used the same underwrite structure but without requiring units be sold to first home buyers.
It would have used public money to buy any unsold units in a development at a price set below the market rate.
Credit conditions improved throughout 2020 and the Government decided there wasn't an urgent need for the $350 million programme. However, the Ministry for Urban Development and Housing told a Parliamentary committee it still saw a role for the scheme.
Under the Coalition’s design, the ministry’s officials will decide which projects get approved based on the level of risk involved and the need for housing in the area.
It has been described as a time-limited scheme but no time limit has been set. It will need to move quickly as developers have already been under pressure for multiple years and interest rates are forecast to fall fast.
Bishop said the lead time for building houses was typically 18 months or more, so it would take “at least that long for the residential development sector to gear back up as market conditions improve”.
“The timing is right for this kind of support, because interest rates are still high and building consent rates low,” he said in a press release. “This also has the benefit of ensuring there are houses ready to go for buyers who enter the market as interest rates drop.”
Chris Penk, the Minister for Building and Construction, said eligible projects must have at least 30 homes and the developer must have a proven track record of delivery.
However, there will be no price cap or eligible buyer restrictions. This means the underwrite could theoretically be used to support the construction of luxury housing, or properties that may be sold to investors.
It is targeted at the five largest cities but will be available everywhere. Penk said the number of homes supported will depend on economic conditions and demand from developers.
Reactions
Malcolm McCracken, an urban planner who has advised the Government on housing policy, said the policy “could be positive, though [it] may have come too late”.
“The last underwrite scheme, Kiwibuild, did not achieve the ambitious scale intended but probably did help more homes be built … and at little cost,” he wrote on Twitter.
Kieran McAnulty, the Labour Party’s housing spokesperson, said the Coalition had created unnecessary uncertainty by scrapping one scheme, only to replace it with another.
“Over the last few months, thousands of construction workers have lost their jobs. Maintaining a Government underwrite throughout this period would have helped some of them keep their jobs,” he said in a statement.
Michael Reddell, an independent economic commentator, said the Government was providing free insurance to big companies without making a robust case for intervention.
He said “capitalise the gains and socialise the losses” used to be an exaggerated insult used by the left, not an explicit policy of the centre-right coalition.
Bishop told reporters there was a risk to taxpayers, as the Government was providing a guarantee, but there would be guardrails to ensure only quality projects get support.
“We need to be upfront and honest about that. We think on balance, the risks can be mitigated to a large extent,” he said.
“Also, it's the right thing to do at this point in the construction cycle … In fact, I've heard this morning that someone's already shown a strong and keen interest, so it's a good thing.”
Interest.co.nz also heard from a property developer that planned to apply for the scheme.
It has a construction project ready to go, with most of the necessary presales, but has struggled to clear the final hurdle. In a case like that, the Government may only need to underwrite one or two units to get a much larger project underway.
Bishop said the scheme wouldn’t be in place forever and Cabinet would make decisions about when to “turn it on and off” depending on demand and construction activity.
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