- Hon Chris Bishop
- Hon Chris Penk
The Government has announced a new support programme for the residential construction market while the economy recovers, Housing Minister Chris Bishop and Building and Construction Minister Chris Penk say.
"We know the residential development sector is vulnerable to economic downturns. The lead time for building houses is typically 18 months or more, so it takes at least that long for the residential development sector to gear back up as market conditions improve," Minister Bishop says.
"In times of expensive borrowing, underwrites are an effective tool for supporting housing supply. This is because underwrites increase developers' access to finance where they otherwise wouldn't have been able to get it, and therefore wouldn't have been able to deliver the houses.
"The timing is right for this kind of support, because interest rates are still high and building consent rates low. The new Residential Development Underwrite (RDU) will help support residential construction activity in the near-term by enabling credible developers to access finance that they otherwise wouldn't have gotten. This also has the benefit of ensuring there are houses ready to go for buyers who enter the market as interest rates drop.
"The Residential Development Underwrite programme will be for development projects selected by Ministry of Housing and Urban Development officials."
"While the mood on the ground has started to shift with some encouraging signs of renewed optimism, the new underwrite will provide important support and confidence to the building and construction sector during a tough economic period," Mr Penk says.
"For a development to be approved for the underwrite, it must have a minimum of 30 houses. The developer must have a proven track record of successfully building and selling houses of a similar size and scale, have ownership or use of the land (or an option to do so), and have all the required resource consents for residential housing.
"In addition to providing a recent market valuation from a registered valuer, the developer must also be able to provide satisfactory evidence that underwrites are needed for the development to proceed within 6-12 months - for example, evidence that reasonable attempts have been made to market the development, that finance approval is conditional on pre-sales, and that the required workforce is available. There will be no price caps or eligible buyer restrictions.
"The number of houses supported by the Residential Development Underwrite programme will depend on wider economic conditions, demand from developers, and the speed at which houses are built and sold - the faster projects are completed the more capacity will be recycled back in capacity for further underwrites.
"The underwrite is targeted to high population areas including Auckland, Hamilton, Tauranga, Wellington, and Christchurch, but will be available everywhere."
"This is just one small part of the Government's bold work programme to address the housing crisis. We're also making strong progress on our Going for Housing Growth policy which will boost housing supply by enabling cities to grow up and out, as well as making sensible changes to the Residential Tenancies Act," Mr Bishop says.
Over the next few weeks, the Ministry of Housing and Urban Development will be talking with residential developers, as well as banks and lenders, to ensure that only projects that meet the eligibility and criteria apply. Registrations open on 10am Monday 7 October.
Funding for the RDU will be redirected from unused funding from the Kiwibuild and BuildReady Development Pathway programmes. Both of these programmes are now closed to new applications.
Information on the RDU, including criteria and the time and date for a residential developer webinar briefing, is available on the Ministry of Housing and Urban Development website.
What is an underwrite?
Developers often need to secure pre-sales on a proportion of houses in a development before they can access bank finance. This is particularly true for larger, medium to high-density developments such as apartments. Due to the housing market downturn and high interest rates, some developers are not able to achieve these presales from the market. An underwrite provides this presales assurance to banks and funders, which allows them to lend finance to the developer for construction.
An underwrite is a commitment (subject to the terms of the underwrite being complied with) from the Crown to purchase a home if the developer is unable to sell it to market, after an agreed sales and marketing period.
