The New Zealand housing market is grappling with several significant challenges. Affordability is a primary concern, as house prices greatly outstrip average incomes, making home ownership difficult, especially for first-time buyers.
An imbalance between supply and demand exists, with not enough homes being built to meet demand due to slow construction, zoning restrictions, and a lack of available land, particularly in high-demand areas like Auckland.
High construction costs, driven by expensive materials and labour shortages, further inflate the price of new homes.
Interest rates also play a role, affecting mortgage affordability; higher rates make borrowing more costly.
Regulatory and policy issues, including tax structures and local zoning, do not encourage the development of new housing.
The rental market is under strain, with increased demand leading to higher rents and a shortage of quality rental options, contributing to issues like homelessness or overcrowding.
Speculation and investment in properties for capital gains rather than for living purposes inflate prices, pushing potential first-time buyers out of the market.
Population growth and migration have intensified demand for housing, pushing up both house prices and rents.
This scenario exacerbates economic inequality by widening the wealth gap between those who own property and those who do not.
Finally, the lack of adequate infrastructure and poor urban planning have not kept pace with housing needs, limiting where and how new homes can be constructed.
Balanced Income and Equity Approach to Homeownership
Objective:
To facilitate homeownership by balancing income-based lending with existing home equity, while providing government-backed support for those without equity. This policy aims to make home buying more accessible for first-time buyers and offer a second chance to individuals who have faced financial ruin, thereby promoting housing affordability and economic stability.
Key Components:
The policy will incorporate income-based lending ratios where lenders assess mortgage applications based on the applicant's income. A Debt-to-Income (DTI) ratio will ensure that monthly mortgage payments do not exceed 40% of gross monthly income, promoting sustainable homeownership. Additionally, a Loan-to-Income (LTI) ratio will cap the total loan amount at no more than 5 times the annual income, with adjustments for regional cost of living.
Existing equity from previous property sales or inheritance will be considered in loan assessments, potentially allowing for more favourable lending terms or larger loan amounts for those with equity.
Policy for First-Time Home Buyers and Second Chance Homeowners
For first-time home buyers lacking sufficient equity for a deposit, the government will guarantee the amount necessary to cover the minimum equity requirements for securing a mortgage. No money is exchanged; instead, the government provides a signature on the loan agreement, effectively becoming a co-signer for the required deposit amount. This guarantee is not repaid with money but is instead removed once the homeowner's equity in the property grows sufficiently to meet the minimum equity threshold. This adjustment happens either when the property's value increases or when the homeowner's financial circumstances improve to cover the equity requirements. While the homeowner resides in the property, no interest on this guarantee is charged. Eligibility for this guarantee includes being a New Zealand citizen, either born in New Zealand or having held citizenship for at least 15 years, meeting income thresholds, property price caps based on regional values, and the property must be the buyer's primary residence.
A second chance system will be available at the discretion of the housing minister for individuals who have previously owned a home but faced financial ruin. Criteria for eligibility include proof of financial recovery, participation in financial education or counseling, a cooling-off period after financial distress, and must be a New Zealand citizen, either born in New Zealand or having held citizenship for at least 15 years. These individuals can access the deposit guarantee with additional oversight to ensure financial prudence. Here too, no money is exchanged; the government's role is purely to co-sign until the homeowner's equity growth meets the minimum equity requirements.
Lenders will be required to report on the performance of loans under this policy to prevent excessive risk or market distortion. The policy will undergo bi-annual reviews to adjust income ratios, equity considerations, and guarantee terms based on economic conditions, housing market trends, and policy effectiveness.
Risk management includes establishing a fund or insurance mechanism to cover potential losses from deposit guarantees, possibly funded by a small fee at the time of guarantee or through general taxation. Regular market monitoring will ensure the policy doesn't contribute to housing bubbles or price escalation.
Public education initiatives will accompany this policy, focusing on financial management, policy implications, and maintaining homeownership.
Conclusion:
This policy seeks to democratize homeownership by leveraging income as a stable basis for lending while recognizing the value of existing equity. Through this dynamic, signature and equity-based guarantee system, it removes a significant barrier to entry for first-time buyers and offers a second chance to those who have previously faced financial hardship. The approach ensures more sustainable homeownership by balancing risk with opportunity, fostering economic and social stability, without the direct exchange of funds for the guarantee itself. The citizenship requirement aims to prioritize long-term residents or those born in New Zealand in this housing initiative.