Maori Housing Policy Round-up: Green Party

Next up – the Greens. As a minor political party, the Greens will need to work in coalition with a Labour-led government. Strong on Treaty issues and social justice, the Greens have a set of policies designed to work alongside Labour’s, but with their own unique take. So, do the Greens’ policies stack up for Māori? Te Matapihi provides a perspective.

 

The Greens have released two major housing policies – Home For Life, focusing on developing progressive home ownership models and alternative finance for Community Housing Providers (in conjunction with a large-scale government build programme), and Homes Not Cars, which will see state house building rapidly increase in response to the housing crisis.

 

At this stage, the Greens have not released any Māori-specific housing policy, so we have unpacked the technical details of their two major housing policies, with a view to how they might deliver a better Māori housing outcome.

 

Table 1. Greens’ Housing Policies – Summary

Outcome

Policy

Driver

Type of intervention

Availability

Freeing Housing New Zealand from the requirement to return a dividend, and instead enabling it to invest in building more homes (Homes Not Cars policy)

Supply

Direct provision

A capital gains tax (excluding the family home) to dampen property speculation and make the tax system fairer

Demand

Taxation

Closing loopholes used by property speculators, such as negative gearing and the combined collateral exemption

Demand

Taxation

Restricting residential land sales to citizens and permanent residents only

Demand

Regulation

Fixing planning rules to rein-in sprawl (new dwellings provided within the urban area or limited to new areas within walking distance of high frequency train, tram, or ferry service).[i]

Supply

Regulation

Affordability

Progressive ownership and alternative finance (Homes for Life policy)

Demand

Regulation, subsidies, better information

Student Loan Scheme (First Home Repayment Diversion)

Demand

Regulation, taxation

Quality

A Warrant of Fitness for all rental homes

Demand

Regulation

Updated energy efficiency standards to help reduce power bills and warm up homes, including reinvigorating the home insulation scheme

Demand

Subsidies, regulation

Security

Residential Tenancies (Safe and Secure Rentals) – security of tenure for tenants

Demand

Regulation

 

Home For Life

The Home For Life policy has three components:

1.       Progressive ownership – make 10,000 government-built homes (over ten years) available through rent-to-buy arrangements to households currently unable to access conventional mortgages

2.       Working with community housing providers – making an additional 5,000 government-built homes available to community housing providers for the provision of emergency housing, social rentals, or rent-to-buy arrangement with their own tenants

3.       Innovative housing finance – Partially government guaranteed, low-interest loans to community housing providers, financed through impact investment

Will it work?

1. Progressive Ownership

Like Labour, the Greens are advocating for a bold government building programme. Their progressive ownership programme is designed to work in conjunction with any government build programme (such as Labour’s Kiwibuild).

The policy states that eligibility will be limited to individuals or households that earn less than the median household income in their region. Based on the minimum income required to affordably purchase a house at the prices listed, and the median household income cap, the household income bracket of eligible households for Non-Auckland standalone houses would be $58,700 – $79,768, for Non-Auckland terraced/apartment $49,200 – $79,768, Auckland standalone $79,000 – $87,464, Auckland terraced/apartment $68,650 – $87,464.

Table 2. Household income required to purchase homes through the Greens’ rent-to-buy programme

 

National standalone[ii]

National terraced / apartment

Auckland standalone

Auckland terraced / apartment

Median house price[iii]

$518,000

 

$830,000

 

Lower quartile house price[iv]

$345,000

 

$649,000

 

Median household income[v]

$79,768

 

$87,464

 

 

 

 

 

 

Purchase price

$400,000

$350,000

$550,000

$480,000

Weekly payments

$350

$300

$450

$400

Weekly net income required (take home pay)[vi]

$875

$750

$1,125

$1,000

Annual gross income (before tax)[vii]

$58,700

$49,200

$79,000

$68,650


This policy will benefit the upper two-thirds of the intermediate market outside Auckland, and the middle fifth in Auckland. As currently costed, this programme will not be accessible to households at the lower end of the intermediate market ($37,076 – $68,650 in Auckland, and $37,076 – $49,200 nationwide) however these households could be best-served by CHP-provided progressive ownership schemes, depending on how long-term resourcing for Community Housing Providers was structured.

Table 3. Household income range and potential number of eligible households for rent-to-buy programme

 

Nationwide

Auckland

Intermediate market income range

$37,076 – $65,050

 

$37,076 – $131,507

Intermediate market no. of households

96,100

85,400

Home for Life rent-to-buy households income range

$49,200 – $65,050 ($79,768 median)[viii]

 

$68,650 – $87,464

Home for Life rent-to-buy no. of potential households

54,450 (56.66% of intermediate market)

17,037 (19.95% of intermediate market)


As previously stated, the affordable house prices in Labour’s Kiwibuild policy will not be accessible to roughly the lower half of the intermediate market. The Greens policy is encouraging, in that it will support a greater proportion of households in the intermediate market to enter home ownership. The big win for this policy, particularly in Auckland, is that it removes the need to save up a large deposit upfront (20% for standalone houses and generally 30% for terraced houses / apartments).

Given the estimated number of eligible households as a percentage of intermediate market households (56.7% Nationwide and 20% in Auckland), is 10% enough?

Labour’s Kiwibuild programme has pledged to build 100,000 new houses per year. Our estimates conservatively place the required number of houses at closer to 200,000 over ten years. With the market currently providing approximately 2,500 per year (800 in Auckland),[ix] or 25,000 over ten years (at the current rate), it’s clear the market will not be able to deliver the additional 100,000 required without significant improvements in productivity and/or government intervention.

We have modelled two scenarios, one that sees 10,000 homes over ten years are allocated for the rent-to-buy programme, or approximate 10% of Labour’s 100,000 Kiwibuild programme, and the second that assumes that Kiwibuild will be expanded to deliver 200,000 houses over 10 years.

Table 4. Households eligible for rent-to-buy programme as a percentage of total new builds

 

100,000 over 10 years

200,000 over 10 years

Total no. of houses built over 10 years

Households eligible for rent-to-buy programme as a percentage of total

Total no. of houses built over 10 years

Households eligible for rent-to-buy programme as a percentage of total

Outside of Auckland

50,000

109%

100,000

55%

Auckland

50,000

35%

100,000

17%


To be accessible to all eligible households in Auckland (the mid-fifth of all intermediate households), the proportion of houses offered under the rent-to-buy programme will need to be increased to around 35% of 50,000 or 20% of 100,000. Outside of Auckland, to be accessible to all eligible households, the proportion of houses offered under the rent-to-buy programme will need to be increased to around 109% of 50,000 or 55% of 100,000. Another approach may be to develop a suite of progressive ownership options which are targeted to suit specific segments of the intermediate market (not solely based on income).

 

The technical details of the proposal put forward by the Greens are unusual. Most rent-to-buy schemes see tenants rent for 5-10 years as they stabilise their living conditions and financial situation. At the end of this period, tenants have the option to partially (shared ownership) or wholly purchase the property, and will often have the option to use a portion of this rent paid to put towards their deposit for a mortgage. The home will generally be priced below market value, and restrictions placed on ownership and sale to ensure the home is retained as affordable housing and available for the next eligible family.

There are two general categories of progressive ownership:

·         Shared Appreciation, which creates affordability and entry to the market for initial buyers and an opportunity to build equity via market appreciation over time

·         Subsidy Retention, which prioritises maintaining affordability for subsequent purchasers and limiting the appreciation gain for the buyer[x]

The Greens progressive ownership scheme falls into the latter category, with all the benefits of equity accruing to the Crown (and none to individual households). Within this model, “Progressive ownership houses will technically be owned by special purpose legal entities, managed by Housing New Zealand. People will be buying fixed value shares in a legal entity, rather than a house itself. This is to avoid the Crown suffering a fiscal loss as the value of the house rises over time but the buyers only pay off the original price.”[xi]

The use of fixed shares, rather than an equity stake in the property, significantly reduces risk for the Crown but does not allow the whānau to build equity as they pay off their mortgage. It is also unclear whether this equity will be transferred to the whānau (along with full ownership) at the end of the thirty-year period. This may be a trap for whānau if for whatever reason they need to exit the scheme early (and are still unable to enter the market), or if they wish to leverage the equity in their home prior to achieving full ownership (for instance, as adult children reach maturity and are looking to purchase their own homes).

We assume this risk-adverse approach has been developed in response to wildly escalating house prices – and subsequent capital gains – in Auckland (and some other markets, such as Queenstown). The subsidy retention model works best in areas where houses prices are rising faster than incomes (such as Auckland). A variant on this model, which allows households to build some equity, would be preferable. A shared appreciation model (such as shared equity with a government-supported ‘silent’ second mortgage) might be more appropriate outside of Auckland, enabling households to accrue a stake in the equity of the house.

2. Working with community housing providers

Unlike Labour, the Greens have specifically articulated a role for Community Housing Providers. Their policy makes an additional 5,000 homes available for community housing providers to purchase using progressive ownership. Community Housing Providers are required to contribute 30-50% of the purchase price through savings or private sector finance. The remaining 50-70% is essentially funded through a non-interest loan administered by Housing New Zealand Corporation (with rises in line with inflation).

This is basically a shared equity product for new houses, with the fund co-owning houses with Community Housing Providers somewhere between 50/50 and 70/30. The major difference between the rent-to-buy programme offered to individual households, and this programme offered to Community Housing Providers, is that the Community Housing Provider and the fund are both exposed to capital gains and losses.

Several questions are raised by this approach – is 5,000 enough? Why chose a shared equity approach over a direct capital subsidy (which community housing providers have consistently told us is necessary for projects to be financially viable[xii])? And how does the proposed policy compare with current government policy, which enables Community Housing Providers to capitalise on the Income Related Rent Subsidy (over 25-year contracts), with payment made upfront for capital builds?

Community Housing Aotearoa’s ‘Our Place’ plan sets a goal of 1,000 homes per year over the next 10 years for social housing, with half of these delivered by Community Housing Providers.[xiii] This suggests the 5,000 may be an appropriate number, in addition to new builds financed by Community Housing Providers through alternative financing mechanisms (which could house tenants at the lower end of the intermediate market through progressive ownership arrangements).

Community Housing Aotearoa have publicly stated that the Income Related Rent Subsidy (even when capitalised upfront) is not sufficient to increase supply (based on project viability assessments completed by members), and that a permanent capital fund for community housing will always be required.[xiv] Although the proposed approach appears to be an improvement on current government policy, a direct government capital grant, rather than a no-interest loan (or a combination of the two), will likely be required for financing to stack up for providers. Further modelling would be required to test this assumption.

3. Innovative housing finance

Most investments can be categorised as debt or equity investments. A debt investment is essentially lending money – it is lower risk, offers a fixed rate of return and is not directly related to the performance of the borrower. An equity investment equates to purchasing a stake in an asset, and profit is related to the performance of the asset. In relation to housing, these include government bonds (debt) and mutual funds (equity). Bond are generally considered low-risk, but are sensitive to interest rate changes.

Community Housing Aotearoa and Auckland Council began exploring a housing bonds trial in 2015. The pilot was to enable wholesale investors to invest in social and affordable housing, and was to be backed by a partial guarantee by Auckland Council of up to $6 million over three years. Anecdotally, a drop-in reserve bank interest rates in 2015-16 made housing bonds unattractive to community housing providers, who could secure an equivalent or better interest rate through standard bank lending.

The community housing bonds proposed by the Greens is a debt investment programme, similar to the trial undertaken by Community Housing Aotearoa. A government-managed equity fund may be a more attractive option for investors and Community Housing Providers, and could be linked to the taxation system. An example of this model internationally is the Low-Income Housing Tax Credit programme in the United States.

Will it make a difference for Māori?

The Home For Life Policy notes: “We are committed to working with different community housing providers and iwi to accommodate their individual situations. Māori are disproportionately affected by the housing crisis, and we will work with iwi to turn this around.”[xv] Despite this strong commitment, there are no Māori-specific components to this policy. Without specific provision for Māori (as a quota and/or alternative culturally-based approach) at either a household or community housing provider level, it’s difficult to comment on effectiveness, except to reiterate that a combination of general and targeted policies should be developed to ensure Māori are best-served, not just as a significant portion of our society’s most vulnerable, but as equal partners under Te Tiriti o Waitangi.

Direct lending and benefit capitalisation under previous governments have demonstrably worked to get low-income whānau into home ownership. The question is, how will the Crown guarantee the principal of the mortgages (or the continuity of the entity), given that a typical mortgage lifecycle spans eight election cycles? If we cast our minds back to the mid-nineties, mortgages via Housing New Zealand were sold to second tier lenders, with an increase in interest rates from 3-5% to 12-15%. These changes were often made without a clear understanding of – or consent from – these whānau. Our people were caught out due to insufficient communication from Housing New Zealand, and insufficient financial literacy within the whānau to understand the changes. Some care will therefore need to be taken to ensure any direct lending or rent-to-buy scheme is sufficiently detailed to be futureproofed for the duration of the mortgage (or programme).

Based on our analysis and insight, the funding approach for community housing put forward in this policy may not work for Māori providers, particularly for projects on Māori freehold land. According to Te Puni Kōkiri estimates (modelled using the Māori Housing Network’s internal project viability assessment tool), a 50-90% government subsidy is generally required to make developments financially viable. The ability to finance the co-contribution may be influenced by several factors, including title of land (General land, unlike Māori freehold land, can be used as security), ability to leverage other assets (such as through capitalised leases or use of other assets as security), and credit worthiness and cash reserves of the whānau and/or trustees. As Māori land trust or Community Housing Provider builds their organisational capacity, asset base and revenue (through rents) over time, less government subsidy will be required for new subsequent builds.

An equity investment fund for Māori housing could be a good way to fund increased development and meet co-contribution requirements – this could be a ring-fenced portion of a general fund, or could be separate programme (potentially underwritten by Te Tumu Paeroa). Structured appropriately, it could also be an attractive commercial investment option for iwi and other investors.

Homes Not Cars

Like Labour’s State Houses: People over Profit policy, the Homes Not Cars Policy articulates a direct provision role for government in response to housing crisis, seeking to reform Housing New Zealand to increase building and address rising homelessness.

The Policy will:

1.       Temporarily remove the burden on Housing New Zealand to return a dividend and tax to the Crown ($207 million combined), and redirect those funds into urgently building state houses

2.       Allow Housing New Zealand to build approximately 450 state houses for those in the most need (in one year – at a cost of $207 million)

3.       Increase the number of Housing New Zealand rental homes for families (by stopping government divestment of 2,000+ state houses per year)

4.       Create new jobs in the building sector (1,400 new jobs estimated)

Will it work?

Based on our previous calculations, Housing New Zealand will need to build new homes at a rate of 2,292 per year over 3 years, 1,625 per year over 5 years, and 1,233 per year over 10 years. Projections are based on current demand – which may decrease if housing supply increases across all tenure types (social rental, market rental, market ownership).

Table 5. Cost of building new State housing by funding source

New builds

Total $$ required per year

Funded through dividend / tax return

Government funding required (for direct provision) or alternative funding raised (through CHP delivery)

2,292 p.a. over 3 years (6,876 total)

$1,054,320,000

$207M (year one)

$847.32M

$214.45M (year two)

$839.87M

$222.17M (year three)

$832.15M

1,625 p.a. over 5 years (8,125 total)

$747.5 M

$207M (year one)

$540.5M

$212.18M (year two)

$535.33M

1,233 p.a. over 10 years (12,330 total)

$567.18 M

$207M (year one)

$360.18M

$210.933M (year two)

$356.25M


Using the dividend and tax currently paid by Housing New Zealand is a good start, delivering 450 homes per year, however this would need to be long term to make a real difference (the policy is for one year, with the option to extend). In which case, the $207 million would cover a little over a third of new State house required per year over 10 years, around a quarter over 5 years, and 20% over 3 years. This would require an additional $360.18 M per year over 10 years, $540.5 M per year over 5 years, or $847.32 M per year over 3 years to be budgeted for the direct provision of State housing.

Additionally, the rate of return will increase as stock increases, which will mean the budgeted amount will decrease. We have calculated this at a rate of 3.6% per year over 3 years, 2.5% per year over 5 years, and 1.9% per year over 10 years. Another factor would be emergency housing spend. It would be important to coordinate Housing New Zealand and Ministry of Social Development operational policy to ensure a coordinated approach to new State Housing builds and Emergency Housing spending (i.e. the latter could decrease as the former increases, providing additional funds for new builds).

Our modelling works on the assumption that Housing New Zealand will have exclusive responsibility for housing everyone on the social housing register, however a split between direct provision and closed market provision is possible. Given the Green specifically articulate a role for Community Housing Providers, whether this can work or not largely depends on commitment to increasing budgets for the direct provision of State housing by a Labour-led government, and the success of the funding models proposed in the Homes for Life policy for social housing provision by Community Housing Providers.

Will it make a difference for Māori?

Yes. With Māori making up close to half of all state housing tenants,[xvi] this policy will make a difference for Māori if it is part of a comprehensive plan to significantly increase the direct provision of State housing, and provide greater financial support and certainty for Community Housing providers.

This is the third article in Te Matapihi’s Māori housing election year series. Each of the subsequent articles will tackle a political parties housing policy, under the sub-headings of availability, affordability, quality and security, with a focus on what these all mean for Māori. The series will conclude with a ‘scorecard’ comparison of what works, what doesn’t, and what’s likely to make a difference for Māori.



[i] https://blog.greens.org.nz/2016/08/12/the-good-the-bad-and-the-ugly-hearing-panel-recommendations-on-the-auckland-unitary-plan/

[ii] Due to data limitations, National median house prices, lower quartile prices and household incomes (rather than National excluding Auckland) have been used

[iii] REINZ. (2017). REINZ Residential Statistics Report for July 2017. Retrieved from https://www.reinz.co.nz. Median house prices reflect all property types, and are not differentiated by house typology (standalone vs terraced/apartment).

[iv] interest.co.nz. (2017). July 2017 Home Loan Affordability Report. Retrieved from http://www.interest.co.nz/property/home-loan-affordability

[v] Stats NZ. (2016). Income tables: Household income by region, household type, and source of household income. Retrieved from http://m.stats.govt.nz/tools_and_services/nzdotstat/tables-by-subject/income-tables.aspx. Calculated based on median income from all sources collected.

[vi] Assumes weekly payment is no more than 40% of net household income

[vii] Assumes no student loan and kiwisaver at 3%

[viii] Ideally, the income cap outside Auckland would be determined by the upper limit of the intermediate market, rather than median income.

[ix] Stats NZ. (2017). Building Consent Issued: June 2017. Retrieved from http://m.stats.govt.nz/browse_for_stats/industry_sectors/Construction/BuildingConsentsIssued_HOTPJun17.aspx

[x] Sherriff, J., and Lubell, J. (2009). What’s in a Name? Clarifying the Different Forms and Policy Objectives of “Shared Equity” and “Shared Appreciation” Homeownership Programs. Retrieved from http://cltnetwork.org/wp-content/uploads/2014/01/2009-Whats-in-a-Name.pdf.

[xi] The Green Party of Aotearoa New Zealand. (2017). Home For Life: Green Party Policy Paper. Retrieved from https://www.greens.org.nz/home-for-life

[xii] Community Housing Aotearoa. (2016). Make adequate funding available for affordable housing [Press release]. Retrieved from http://www.scoop.co.nz/stories/PO1607/S00311/make-adequate-funding-available-for-affordable-housing.htm

[xiii] Community Housing Aotearoa. (2017). Our Place: All New Zealanders well-housed. Retrieved from http://www.communityhousing.org.nz/our-place/our-place

[xiv] CHA, Our Place

[xv] Green Party. Home For Life.

[xvi] Ministry of Social Development. (2017). Housing Register June 2017. Retrieved from http://housing.msd.govt.nz/information-for-housing-providers/register/housing-register.html