Rent-to-buy schemes could be on the cards; what are they?
Tuesday, 3 September 2019
Rent-to-buy schemes could provide a boost to a faltering KiwiBuild which is getting a 'reset'.
A revamped KiwiBuild will be unveiled by Housing Minster Megan Woods, and with Finance Minister Grant Robertson already having said the Government had tried to be as creative as possible, some new options are expected.
Rent-to-own and shared ownership schemes are models that have been used overseas and in New Zealand to help people who can't stretch their income to save for a deposit to buy a house.
The idea is to help people on to the housing ladder with different forms of assistance.
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In the case of rent-to-buy, or rent-to-own as its sometimes called, leasing agreements give the tenant the right to buy at the end of a pre-set rental period.
In some schemes a portion of the rent goes towards building equity in the property.
Rent is set below market rates in order to help build up savings. Using KiwiSaver to bolster existing equity, people end up with enough for a deposit.
Shared ownership, common in the United Kingdom, is another type of scheme that helps people buy a share of their home, usually between 25 per cent and 75 per cent, and pay rent on the rest. The schemes are usually available to first-time buyers with incomes under a certain threshold.
Over time, people incrementally buy more of the equity, sometimes called 'staircasing'.
The Housing Foundation runs both rent-to-own and shared ownership schemes and currently has around 60 families in the rent-to-own programme, and another 60 that have graduated to shared or full ownership.
Foundation operations general manager Dominic Foote said it did not just provide a financial product. It worked with people to pay down debt, save and 'buckle down' to achieve the goal of home ownership, which was usually achieved in five years under the shared ownership scheme.
The foundation's rent-to-own model did not put a portion of rent towards equity.
Instead, at the end of five years, it is assumed house prices will have gone up and 25 per cent of the increased value is used towards the deposit, along with KiwiSaver funds, homestart grants and their income.
'They either buy it outright or begin to share in their home,' Foote said.
There was more demand for the rent-to-own product than shared ownership, he said. Around 8000 people were registered for the scheme.
Foote said it could dollar match the Government in any scheme that was announced and thought the Government would probably announce something that looked similar to its rent-to-buy scheme.
Once equity has been repaid, the foundation recycles it.
JLL head of research and consultancy, Paul Winstanley who has been calling for the Government to support build-to-rent schemes in New Zealand, said shared ownership was a practical policy from a government perspective.
'I do genuinely think it's part of the solution that we need in New Zealand.'
In the UK where he worked extensively, the chance to buy chunks of equity could not be unreasonably withheld and was an automatic right, Winstanley said.
'There is a growing appetite for institutional investors to buy these types of products. Even though it's set up and managed by housing associations, it's owned by investors who get the benefit of the income stream, which is very secure because it's on owned properties,' he said.
What the Government has in mind was not yet clear, but Sense Partners principal economist, Kirdan Lees said many sellers in the private market would not want to enter a rent-to-buy agreement when they could make money up front from a property.
Housing supply was also important for rent-to-buy or shared ownership schemes to work, he said.
'It's good to have another tool but if we can't make enough houses or make the market flexible enough, it could just end up driving prices up,' Lees said.
Salvation Army social policy director Major Campbell Roberts said people who made use of community housing associations usually became motivated to achieve their goals.
'Once people move into a house and see the possibility of owning a house they do make some remarkable decisions in terms of their own lifestyle and planning.'
Roberts said schemes like the foundation's were vital because they weren't just financial packages.
'Someone is working with them to ensure they're not getting into trouble with the payments. You're saying 'we are here to stand along side you and make that transition'.'