Affordable shared home ownership options like shared equity and leasehold could help tens of thousands more New Zealanders into their own homes, but work is needed to help the sector scale up, according to new research released by Westpac NZ.
Affordable shared equity and leasehold arrangements involve a third party - usually a community housing provider (CHP) - contributing equity or land towards a customer's first home purchase, reducing the size of deposit needed and making loan repayments more affordable.
Released today, the Westpac NZ Shared Home Ownership Report finds home ownership has fallen from 75% in the early 1990s to less than 60% today and is on track to fall below 50% by 2048.
The report, authored by Deloitte, estimates that 152,000 lower-and-middle-income Kiwi households who are currently renting could be eligible for affordable shared equity and leasehold home ownership pathways. However, the report finds most aren't aware of these options, and CHPs face barriers to scaling up their capacity to provide more homes.
If immediate barriers were removed, an estimated 10,000 extra shared home ownership houses could be built within three years.
Westpac NZ CEO Catherine McGrath says the bank is committed to supporting more New Zealanders into their first homes through the full range of options available.
"The number of shared equity and leasehold houses being offered by community housing providers is currently small, but the positive impact for families is large. This report shows that if key barriers are removed, these affordable options could help thousands more people get on the housing ladder.
"We already support community housing providers up and down New Zealand, but this report shows there are many areas that we, and the banking sector more widely, can improve, such as access to lending, consistent credit settings, and simplifying the process for the providers and home buyers.
"We've taken those insights on board and will also be sharing them with other banks, community housing providers and partners in Government.
"As part of this work, Westpac is committing to a $1 billion lending target over the next three years to support the sector help more people into homes, and to support the people buying those homes.
"Home ownership brings with it a range of financial and social benefits. These include greater stability, stronger communities, a rent-free retirement and the opportunity to build intergenerational wealth.
"These benefits are being eroded as home ownership becomes less attainable, and we hear from many would-be first home buyers who feel overwhelmed by the challenges.
"Many things are being done right across the housing system to try and reverse the decline in home ownership - particularly Government moves around supply - but many of these will take time. In the meantime, we need to use all the tools we have to try and help the growing group of New Zealanders locked out of home ownership.
"For generations most of us have had a singular view of home ownership where we own 100% of a house and land. This report shows there are other more affordable routes that offer most of the same benefits, and that in most cases will provide superior long-term outcomes to renting.
"The report found shared equity and affordable leasehold options could play an increasing role, but many things will need to be tweaked for these options to be scaled up."
The report makes four key recommendations to scale up the shared home ownership sector and support more first home purchases:
- Mindset: Encouraging more aspiring homeowners struggling to get into their own home to consider innovative ways of owning a home such as shared ownership. All players in the shared home ownership system can assist this by promoting awareness.
- Funding and risk settings: All stakeholders should work together to establish more reasonably priced funding streams to help the sector expand. This would likely involve a mix of funding from government, philanthropy, impact investment, finance from banks and new capital market instruments. The banking sector and regulators could also review risk settings for community housing development loans to more reliably reduce cost.
- Certainty: The Government could provide greater stability for the sector through a long-term national affordable housing strategy and greater certainty of long-term funding for shared ownership housing. It could also provide clearer guidance and rules for local authorities to make it easier for community housing development and management.
- Simplicity and standardisation: As much as possible, participants in the sector should simplify and standardise structures and documentation, whether that's for financing a housing development, seeking government funding, or for seeking a mortgage.
Westpac is already working hard to support CHPs to get more first home buyers on to the ladder and has financed around 550 shared equity or leasehold purchases since the start of 2022.
In addition to existing initiatives to help CHPs scale up shared home ownership options, today the bank is announcing:
- A $1bn affordable housing lending target over the next three years to support a variety of social and affordable housing options, including shared equity and leasehold projects, through lending to scheme providers and home loans to homebuyers.
- Further integrating key information about shared home ownership pathways into our financial capability programmes and materials.
- A commitment to partnering with CHPs to share standardised shared equity and leasehold funding structures and legal agreements - already used successfully with several organisations - reducing complexity and the time taken to complete deals.
- A commitment to continuing to partner with Iwi Māori organisations to fund, build and provide homes on whenua Māori.
- While the bank already treats lending to CHPs as lower risk than commercial development loans, we are exploring how we can further optimise and standardise credit risk settings and work with the banking industry and government on potentially developing an agreed set of standards for the treatment of social infrastructure.
Ms McGrath says Westpac offers the widest range of home ownership pathways for first home buyers, including a range of low-deposit finance options.
"In April we launched our First Home Sooner programme, aimed at connecting first home buyers with our nationwide network of home loan experts who can help explore their options and make a plan to achieve their housing goals.
"In the last 12 months we've supported nearly 6,000 first home purchases, many of them through low-deposit options such as Kāinga Ora's First Home Loan programme, new builds with as little as 10% deposit required, or Westpac's Family Springboard offering that allows customers to use equity in the family home towards their deposit.
"While housing affordability is an ongoing challenge, we're working hard to give people the tools they need to work towards buying their own home and the hope and confidence they can get there.
"We know there's more we can do to address declining home ownership rates, which is why we've made these commitments today. We look forward to working collaboratively where possible with other funders, housing providers and policy makers to help get more people into their own homes."
