Equity sharing offers new hope
The Government is working on a plan for aspiring homeowners who can service a mortgage but can’t get a market foothold.
If you don’t earn enough for a KiwiBuild house and don’t qualify for a state house, what do you do? For low- to medium-income earners, their only hope of home ownership might be shared equity.
That’s a scheme where a big player – the Government, a council or a charity – takes on a share of the mortgage, and the aspiring homeowner raises the rest. They then share the capital gain that comes when the homeowner sells.
Housing Minister Phil Twyford is working on just such a plan, although the details could take months to sort out.
Shared equity is rare but not unknown in New Zealand. The Government ran a short-lived pilot scheme in 2008; more recently, First Home Buyers Club has a scheme that provides 25 per cent of the purchase price.
A $6 million joint Government and Christchurch City Council shared equity scheme is also due to launch next month.
But one of the most established schemes is through the New Zealand Housing Foundation, a charity with backing from philanthropists such as the Tindall Foundation. In the past decade, it has built 700 houses and enabled 300 households to buy them through plans like shared equity.
One of those people is Enzo Giordani, who bought a threebedroom house on a small section in Glen Eden, Auckland.
Giordani had to put up a small amount to show commitment, while the foundation put up about a fifth of the equity, and ‘‘we were able to purchase the rest’’, he said.
‘‘In three or four years’ time, when we came to sell it, the value had increased. They took out their percentage when we sold and we got the rest and used it to buy our new house,’’ Giordani said.
‘‘It gave us our foot into the market, because, in that time, housing was going up in value so fast you couldn’t keep up. In the 12 months it took you to save a deposit, prices had doubled.’’
He’d like to see others get the same benefit. ‘‘It really is a lottery and there’s a lot of deserving people out there.’’
In Christchurch, councillor Vicki Buck hopes the joint council Government scheme can be officially announced in December. This scheme won’t build houses but Buck says the city still has a number of existing affordable houses.
‘‘The house will be yours – you will pay no interest [on the injected equity]. And then when you go to sell the house and make a massive capital gain – or not, it’s Christchurch – if the fund owns
20 per cent of the house, they get
20 per cent of the profit.
‘‘It’s just like the bank of mum and dad, but a bit more generous.’’
The old Labour Government’s pilot scheme in 2008 worked by providing a loan of 5 per cent to
30 per cent of the value, depending on the region.
It required applicants to have a 5 per cent deposit and be within a certain income band. They also had to be someone who could to service a mortgage but could not afford a full mortgage on a lowerquartile house.
The scheme was only available in Auckland, Wellington, Nelson, Christchurch and Queenstown, where affordability was already becoming a problem.
Overseas, shared equity is more common and it can take various forms.
Methods for helping people get into a home include ‘‘rent to buy’’, which lets people build a deposit while renting from an owner.
There are also REITS, listed real estate investment trusts with deep pockets that build and own long-term rentals or offer shared equity. So far in New Zealand, the only listed property companies are found in commercial property.
Steve Evans, the head of Fletcher Building’s housebuilding arm, Fletcher Residential, is from the United Kingdom where there is more assistance for buyers.
Fletcher Building has had discussions with the Government and others about different methods of housing ownership, but the company is keeping mum about its plans.
However, Evans says the time is ripe for ideas such as shared equity.
‘‘We’re in a position where the Government has declared a KiwiBuild price range which is not affordable for a lot of people, and therefore you’ve got to have a product that allows people to enter into a form of long-term security of housing,’’ he said.
‘‘That doesn’t exist by just giving them an open-market housing choice.
‘‘One of the issues we’ve always had, particularly in more conservative governments, is: Is it the role of the Government to play in that space or is it up to commercial enterprises to?
‘‘The difficult part in the commercial space is that the expectations on returns for any of those rent-to-buy, long-term rental, shared equity-type solutions – in the New Zealand environment, it’s very hard to make the metrics work.
‘‘In the UK, for instance, there’s only certain locations where it works because it’s about the price points you’re trying to achieve, with the income levels that support it, and therefore yield.’’
‘‘It’s just like the bank of mum and dad, but a bit more generous.’’ Christchurch City councillor Vicki Buck, above