$2m for shared home ownership initiative

  • Chris Carter

The government is to give $2 million to part fund a pilot shared home ownership initiative for key workers in and around Queenstown, Housing Minister Chris Carter announced today.

“The shared ownership initiative being trialled by the Queenstown Lakes Community Housing Trust is similar to the type of shared equity scheme the government is considering piloting nationally next year,” Mr Carter said.

“By providing a suspensory loan of $2 million to the Trust, the government is able to help Queenstown tackle its difficulties with housing key workers, and also explore how successfully a shared ownership programme works in one of New Zealand’s highest priced housing markets.”

The Queenstown scheme will involve Housing New Zealand Corporation and the local Trust assisting eligible households to buy first homes by taking a share in the house at no cost to the household. The share will typically be about 30 per cent of the purchase price of the house, but could vary between 20 and 40 per cent depending on the property and the individual household.

The home buyer will obtain a regular mortgage for the remaining proportion of the purchase price of their home. The Trust will then operate as direct co-owner of the property, and will be legally registered as a tenant-in-common. If the property is later sold, the Trust will take its and the Corporation’s share in the capital gain of the property. Profits will be channelled back into more affordable housing in the district.

The total pool of money available for the pilot will be $4 million, half from the Corporation’s Housing Innovation Fund and half from the Trust. It is expected the scheme will get underway within the next three months, and up to 35 households could be assisted in to new or existing homes.

“This scheme is designed to help committed residents who are fully employed in the district in to homeownership. Our aim is to provide affordable, entry level home ownership. The program will benefit those who want pride of ownership but have not been able to buy because of the high cost of housing in the area,” said Queenstown Lakes Community Housing Trust chairman David Cole.

“Only home buyers with an annual household income up to $80,000 will be able to use the scheme, and the criteria will prevent the purchase of homes much over $500,000 in value, which is roughly equivalent to the median house price in the district.

“We are very excited about this scheme and its potential to positively influence Queenstown’s community. On behalf of the Trust, I would like to thank Housing New Zealand and the government for their assistance with the program, and the financial contribution announced today,” Mr Cole said.

Mr Carter said that shared ownership was a new concept for New Zealand’s housing market.

“It is important that we proceed carefully in testing the demand for this concept, the impact it might have on the market, and financial and legal implications that flow from it. This pilot will help do so. I congratulate the Queenstown Lakes Community Trust on being at the very cutting edge of affordable housing provision in New Zealand.”

Questions and Answers from the Queenstown Lakes Community Housing Trust

Does the owner have to meet any interest payments to the Trust for their share in the property?

No. The Trust will take a passive equity interest in the property of up to 40% so that the owner only needs to finance 60% of the purchase price with their deposit and borrowings.

Will an owner have to sign an agreement with both the Trust and Housing New Zealand?

No. The owner will have a normal mortgage document with their lender and will also be required to sign a Tenants in Common agreement with the Trust. There will be no documentation between the owner and Housing New Zealand.

What is a Tenants in Common Agreement?

It is the legal document that recognises that the Trust and the owner both have a shared interest in the property.

Is an owner allowed to make enhancements to the property?

Yes, with the prior approval of the Trust. Enhancements will be at the owner’s expense and will not change the equity share.

Can an owner buyout the Trust’s interest in the property?

Yes. An owner can staircase their % ownership and buy out the Trust’s interest in increments of 5% based on valuation at the time. If an owner wishes to increase their share over 85% they will be required to purchase the whole of the balance based on valuation at the time.

Will the programme simply drive prices up further?

We don’t think it will. The programme is very focused on assisting specific households that meet strict eligibility criteria and the Trust can be expected to have a hand in the property selection. It is not just a piece of financial engineering.

What if the market goes down?

The focus of the program is to provide security of tenure for homeowners and the ability to build equity over time. The owner is not exposed to fluctuations in the market price – until they sell. Proceeds of sale are then shared based on the equity split.

Can an owner sell to anybody else at any time?

Yes, but the Trust always has the first right of refusal to purchase at the market assessed price.

Will the program be expanded in the future?

This is a pilot and we are optimistic that its success will lead to a wider
roll out of the program.

Will there be a ballot to decide who will participate among qualifying households?

No. The Trust is developing a series of filters based around the eligibility
criteria, length of time in the district, length of time with employer, etc to assess the final rankings.

How does a prospective first time homeowner register their interest in the program?

The Trust will be publishing full details on its proposed website
from September 1st and will be making further announcements through the local
media to alert potential homeowners prior to that time.