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The Ts and Cs of the Government's $187 million shared equity scheme for aspiring homeowners

Property
The Ts and Cs of the Government's $187 million shared equity scheme for aspiring homeowners
Megan Woods

The Government is finally following through on its commitment to roll out its own shared equity scheme to help aspiring homeowners.

Kāinga Ora is offering to chip in up to $200,000, or 25%, of the purchase price of a home - whichever is lower.

The idea is that the homeowner then buys out Kāinga Ora over several years. The homeowner will be charged an annual fee if they take longer than 15 years to do so. The fee is currently $2,250 (plus GST) and can be hiked.

The applicant will need to get approval from a participating bank (BNZ and Westpac) to get a mortgage. They’ll need a deposit of at least 5%.

The Government has allocated $187 million to the ‘First Home Partner’ scheme over three years, indicating it expects modest uptake.

Buyers need to meet a set criterion to be eligible for the scheme. There are also a number of strings attached.

The buyer needs to have a total household income (pre-tax) of less than $130,000.

They either need to be a first-home buyer or be someone who doesn’t currently own a home and doesn’t have realisable assets worth more than 20% of the house price caps for homes in the area they are buying in.

The home they buy has to be a new build. Although, Kāinga Ora said the Ministry of Housing and Urban Development would consider allowing buyers to purchase existing homes on a “case-by-case basis” where requiring a new build effectively prevents the household from buying a home in that region for more than a year.

The homeowner can’t rent out the house, but can get flatmates or boarders.

For as long as Kāinga Ora owns a share of the home, the homeowner needs to get Kāinga Ora’s approval before selling.

Proceeds from a sale will be distributed in proportion to each party’s share.

The homeowner also needs to commit to living in the home for at least three years. If their circumstances change and they need to move before then, they’d have to talk to Kāinga Ora. It will assess situations on a “case-by-case basis”.

Homeowners must also get Kāinga Ora’s approval before doing renovations or any building work on the home.

And they must allow Kāinga Ora to enter and inspect the home for the purpose of any property maintenance and repair.

Housing Minister Megan Woods in mid-2020 said Kāinga Ora would roll out its own shared equity scheme in “early-2021”. Funding was first allocated to support “progressive homeownership” at the KiwiBuild reset in September 2019.

Some of this funding has already been used to provide community organisations with loans to upscale their shared equity products.

Woods said this support has helped 53 families into their own homes.

A further 113 homes have been contracted, and the Government has agreed to lend Habitat for Humanity and the Queenstown Lakes Community Housing Trust more money to provide another 50 homes.

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28 Comments

It's great news for this wave of FHB's. However, it will add to the demand side of the equation and that will fuel rises for their successors. This news released at the same time as news that DTI ratios have been suspended, and it's Spring. What could possibly go wrong?

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Which wave of FHB's? In the lower quartile, this will just be added to the minimum price (as it has happened in other countries where 'free money' was handed out by the govt). Also, couples with a combined income of <$130k won't be buying in Auckland.

This is a handout for developers.

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It's also a transfer from Auckland FHBs priced out of borrowing on those income levels to people living in other parts of the country who can buy under that cap with lower incomes.

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Sigh.  Another Universal Pricing Signal.  Why sell a house under $800k even if in the region a new build house and plot is less than that???

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... once again this government has demonstrated that they haven't got a clue what they're doing , that they aren't learning from their mistakes , and they aren't consulting with industry experts ... those who do know ... 

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This is nothing but taxpayer funded fuel for the housing market,  one of the stupidest schemes I have ever seen and that's saying quite a bit given the policies of the last few years .

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See my comment below - I don't think it's much fuel for the fire.

Feel free to challenge my position, and why you don't agree.

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This is nothing but taxpayer funded fuel for the housing market, 

I would think that the price one is prepared to pay for a property would be determined in part by the cost of servicing the loan. If this "handout" has to be repaid over 15 years, this will add to that cost, so would probably not influence the price of the property.

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When will they realise that the bird flew the coop some time ago.

Visited Te Awamutu last week (nice place) and was amazed to see new builds going for over $1.2m and house and land packages in the Frontier Road Estate starting from $850k.

Has any poli got the solution,tell us now and a statue is possible.

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Visited Te Awamutu last week (nice place) and was amazed to see new builds going for over $1.2m and house and land packages in the Frontier Road Estate starting from $850k.

Maybe they believe that with all the money printing, at some stage, incomes are going to be increasing at 30% pa while house prices remain relatively flat. Who knows what they think.  

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Wonder if Te Awamutu is now a dormitory suburb of Hamilton? Perhaps the prices you've mentioned are a lot less than Hamilton. Only hassle is the commute. Can't be too many jobs in Te Awamutu.

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Can't be too many jobs in Te Awamutu.

Remote working perhaps. Game developers for ex. I'm not going to spend $1 mio for a pad in Te Awamutu or The Tron for that matter. Numbers don't add up. 

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I'm not quite as enamored on this as I was on first glance. I mean I still think it definitely has some benefits to help lower-middle income households into home ownership, and it's better than nothing.   

But let's look at it a bit more closely.

Assuming 2 bedroom new builds selling in Auckland at 850K:

- Let's say a household has 42.5K (5%) and the government tops up to a 200K deposit: that leaves a 650K mortgage. Assuming a 30 year mortgage, and a 3.5% mortgage rate (what they will probably be within 4-5 months time), that is $673 per week. Realistically, this is only serviceable for those households with an income of 120-130K, so only a fairly small proportion of households 'technically' eligible (ie those earning up to 130K) will be able to use it, at least in Auckland (maybe it will work a bit better in regional cities)

- It doesn't do anything for households earning more than 130K, and there will be plenty of FHB households that earn 130-180K: in fact it is probably these households that are the most typical FHB households in Auckland these days

I don't quite agree that it's going to have an unintended consequence of pushing prices up - at least by not more than a minor extent. The reason for this is because of the uptake likely being only fairly minor, for the reasons I set out above.

Also, for some people the shared equity thing will be a put off.

So, as I say it's something, and it's better than nothing, but it's not going to make a very significant difference.    

 

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Agree - this policy is actually really restrictive- hence the uptake will be low.

1. Needs to be a new build unless there are none in the area. so anybody in the major centres ie Auckland, Wellington, Tauranga, Christchurch, Queenstown will need to buy new - this group is already seeing prices go through the roof thanks to the new tax exemptions for new builds for investors. so prices are likely to rise in this segment anyway

2. you do need to be earning close to 130K to buy a house above $800K- which is only a small section of the FHB market and to be honest most FHB's at the moment are pushing salaries of $150-160K - both earning roughly 80K a year each - so they will just have to save their deposit like everyone else .

3. the restrictions on how you use the property plus the sharing of any capital gain (based on the equity share) will put a number of buyers off using the scheme.

 

Like Kiwi build i'd be shocked if more than 1000 buyers in total took it up over the next 3-5 years. Given 90 000 homes change hands per annum in NZ - this is hardly the policy that is going to set the housing market on fire.

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Ambulance at the bottom of the cliff. At the top of the cliff is a sign "Sorry we let the house prices go up 30%, please walk this way if you want help"

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" Apologies that Robbo's " tilt " backfired ... but we have a new plan ... this one' a doozy ... " 

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Kainga Ora houses will be high density, built on the cheap, and with no gardens.  They'll be filled with people from the bottom rungs of society wont they?  I think you're going to have trouble finding anyone who wants to own one.

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People from the bottom rungs of society who own their home are probably far prouder of their property than those from middle and top rungs.

My daughter has bought her first home (a 20 year old apartment) and she glows with pleasure as she searches for a modest piece of furniture or a new pot plant. 

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I'm not saying it's a bad thing.  Having some house proud people dispersed in the mix might be a good idea. 

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FFS,,,,what next, get these clowns out of govenment

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A wonderful scheme that will help literally dozens of the half a million Kiwi families currently locked out of the market into homes.

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Exactly - a very slim proportion of the FHB that this will appeal to or work for

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Is government helping FHB or screwing them.....point to pnder.

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Screwing them .

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Pretty obviously screwing them.

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What a joke. Quick tell me if there is any territorial authority that will facilitate a new build in under 12 months. 

Doesn’t have realisable assets worth more than 20% of the house price caps for homes in the area they are buying in but they’ll need a deposit of at least 5% of the purchase price which using the figures quoted would be not less than $40,000. 

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The fact they've only allocated $187m shows that they know it won't get much uptake.

Because it's stupid. They'll struggle to find anyone who meets all of those criteria. The mind boggles trying to imagine the process they went through to create this policy.

I'd like a journalist to have a go at finding someone, somewhere, who could benefit from this. See how long it takes.

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Who wants to buy a house, and then still have an agency come and inspect it regually. That is one reason why you buy not rent. The banks don't do this, even though they lend even more money.

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