Breaking! Government announces bold plan to rescue the market: new housing development finance scheme set to launch! Will developers find it easier to secure finance?

Residential construction is gradually slowing amid economic uncertainty and falling house prices. Today (4 October), the New Zealand Government announced a new scheme to underwrite private residential construction and help developers overcome financing difficulties. This is a new, time-limited initiative aimed at helping the residential construction industry overcome the effects of the recession.

 

New housing development finance scheme set to launch

 

Current market uncertainty and a lack of finance have already caused many developers to go bankrupt or cancel new projects. This October, Auckland developer Ockham put a 165-apartment development on hold after presales fell to their lowest level in a decade.

 

Developers generally need to presell some homes to secure finance, but this has become increasingly difficult amid high interest rates and a recession. The scheme therefore aims to reduce development risk, making it easier for developers to obtain funding to get projects under way.

 

Housing Minister Chris Bishop said: “When borrowing costs are high, underwriting is an effective tool to help increase housing supply. It makes it easier for developers to secure finance and, in turn, accelerate housing construction.”

 

Housing Minister Chris Bishop. Source: The Post

 

The underwriting scheme will prioritise highly populated areas such as Auckland, Hamilton, Tauranga, Wellington and Christchurch, but developers nationwide can apply.

 

The scheme's official launch date is 7 October, with developers able to submit applications from 10 am that day. Initial applicants will receive feedback on their projects within a few weeks, while successful developers may receive confirmation of underwriting within two to three months.

 

Housing ministry officials, rather than ministers, will decide which projects are approved. There are no price caps or buyer eligibility restrictions, and all types of housing are covered: standalone houses, townhouses and apartments.

 

The underwriting scheme applies only to developments involving more than 30 homes. Developers must have a successful track record with projects of a similar scale and have secured the relevant land use rights and all necessary resource consents.

 

Building and Construction Minister Chris Penk said: “Developers must have a proven track record of successfully building and selling homes at a similar scale, have the right to own or use the land, or an option to do so, and hold all required residential resource consents.”

 

Building and Construction Minister Chris Penk. Source: The Post

 

Other eligibility requirements include a recent market valuation and evidence that underwriting is necessary for the development to proceed. Projects must start within six to twelve months, have already been marketed, rely on presales to secure finance, and have sufficient labour available.

 

The scheme is a temporary measure. Chris Penk said the Government understood its potential fiscal risks and had designed it for the current period of high interest rates and recession.

 

The Ministry of Housing and Urban Development plans to engage with developers, banks and lenders to ensure only eligible projects apply. Funding reallocated from KiwiBuild and BuildReady will cover any costs arising from the underwriting, although the Government hopes it will not need to draw on these funds.

 

Chris Penk said: “The number of homes supported by this residential development underwriting scheme will depend on the broader economic environment and how quickly projects are built and sold. The faster projects are completed, the sooner funds can be recovered and used to support further developments.

 

 

 

Application process and eligibility criteria

 

The Government has published an application process guide on the Ministry of Housing and Urban Development's official website. Online applications will open on that page at 10 am on 7 October.

Click the link to visit the official webpage: www.hud.govt.nz/our-work/residential-development-underwrite