Māori Housing Policy Round-up: New Zealand First

Next up – NZ First. Vocal in rallying against ‘race based’ policies, NZ First have positioned themselves as Kingmakers and could form coalition with either National or Labour. So, how will NZ First influence the next government to address housing issues and improve Māori housing outcomes? Te Matapihi provides a perspective.

 

The New Zealand First Housing policy advocates for increased government intervention in the housing market, focusing on opportunities for working households to enter the market, and ensuring access to quality and affordable rental accommodation for those who cannot. Additionally, the Māori Affairs policy also includes several housing-related policies pertaining to Māori land, including the development of new finance options, addressing rating issues, and trades training.

 

NZ First also reiterate the need for the development of a government-led housing strategy to address housing availability and affordability (for purchase on the open market and rentals), land development and redevelopment for housing, alternative finance and subsidies for home buyers, insurance cover and earthquakes / disaster cover, and sustainable housing objectives; including energy efficiency, housing quality, integration of housing with sustainable transport systems, and use of New Zealand expertise in prefabricated housing.[1]

 

Table 1. NZ First’s Housing Policies – Summary

Outcome

Policy

Driver

Type of intervention

Availability

Establish a new state agency to acquire land where Special Housing Areas have been designated under the Housing Accords and Special Housing Areas Act 2013, for sustainable residential development

Supply

Regulation

 

Encourage greater use of New Zealand expertise in prefabricated houses

Supply

Better information, regulation

 

Ensure that New Zealand’s housing stock is restricted to New Zealanders

Demand

Regulation

 

Provide low cost government funding to local authorities for new elderly persons housing and public rental housing projects

Supply

Subsidies

 

Establish an explicit programme of work aimed at addressing the entrenched problems associated with the rating of multiply owned Maori land

Supply

Regulation

 

Ensure that Māori and non-Māori alike have access to apprenticeships and skills development

Supply

Subsidies, better information

 

Low deposit and low interest finance to encourage Maori to build houses on collectively owned land in areas of high housing need (e.g. Northland, East Coast, Eastern Bay of Plenty)

Supply

Regulation, subsidies

 

Sell residential sections under long term agreements for sale and purchase (up to 25 years) to first home buyers. Direct lending with interest at 2% p.a. for at least 5 years, then rising to lowest market rates. Purchasers would build their own homes using normal bank financing.

Supply

Regulation, subsidies

Affordability

Encourage smaller and more affordable houses on smaller sections

Supply

Regulation

Quality

Require better building quality and sustainable housing objectives – including leak proofing, insulation and earthquake and landslip resistance.

Demand

Regulation

 

Encourage private investment in upgrading rental housing through the taxation system

Demand

Taxation

Security

All homes to be compulsorily insured including full earthquake, landslide, flooding and other disaster cover and a minimum of full indemnity insurance

Demand

Regulation

 

We’ll be limiting our discussion to three policies, which we think have the potential to make a difference for Māori (and which have not been covered in our analysis of other parties’ policies). These are:

1.       Long term sale and purchase agreements on residential sections for new builds

2.       Low deposit and low interest finance for housing on collectively-owned Māori land

3.       Review of rating of collectively-owned Maori land

For each of the selected policies, Te Matapihi have asked ourselves – will it work? And will it make a difference for Māori?

Long term sale and purchase agreements on residential sections for new builds

This policy aims to address housing affordability by selling residential sections under long term agreements for sale and purchase (up to 25 years) to first home buyers, on a cost recovery basis, so that first home buyers will have access to sections which are affordable, reducing the overall initial capital cost of a new home by about one-third. Interest rates are set at 2% p.a. for at least 5 years, then rise to lowest market rates. Purchasers would build their own homes using normal bank financing, with the title to the section transferred to them and the amount owing for the section secured by a second ranking statutory land charge.

Will it work?

This policy stipulates that land designated under Special Housing Area legislation will be purchased by a newly established government agency (It is unclear whether existing Crown landholdings would be included under this arrangement), then subdivided, with individual sections to be made available to first home buyers under long-term sale and purchase agreements. It is also unclear whether this extends to new Special Housing Areas and urban regeneration projects (under any future urban development authorities legislation), although this seems likely.

Under a long-term sale and purchase agreement, settlement (transfer of title) is postponed for a specific period. This occurs for a variety of reasons, and generally this would also prohibit the purchaser from developing the land for housing prior to settlement. Under this proposal, the title to the section would be transferred to the purchaser on sign, with the amount owing secured by a statutory land charge. Basically, this means the land cannot legally be sold without government consent i.e. until the loan for the land is repaid and the chargeholder grants consent for the charge to be removed. Under this proposal, statutory land charges would likely be created under Section 14M Home Ownership Savings Act 1974 and administered by Housing New Zealand Corporation.

The homeowner essentially ends up with two mortgages – one held by the government (for the land), and one held by the bank (for the house). The government has access to lower interest rates, making government loans more attractive than the market rate loans. Some of the issues associated with direct lending, such as changes in government, can be mitigated by limiting the low 2% interest rate to the first five years, then rising to lowest market rates. If a subsequent change of government changes the policy and exits direct lending, at least the loans will be on par with market rates, and the impact on homeowners should be minimal in the event of the loans being onsold.

The long-term sale and purchase agreement for the land runs for roughly the duration of the mortgage for house construction. By the end of the 25 years, the homebuyer should own both the section and the house outright.

Using the Auckland lower quartile price of $650,000 as an example, we have assumed that the cost of land will make up roughly half of the cost of building a new house (financed by direct lending from government), with the house build financed through a conventional bank mortgage. We have assumed a 6% interest rate for the variable loan, and 5% for the variable loan component of the split mortgage. We’ve also assumed the government loan for land is no-deposit.

Figure 1. Scenario one (Auckland): Mortgage repayments on split loan – land

land-mortgage.PNG

Figure 2. Scenario one (Auckland): Mortgage repayment on standard loan – house build

house-mortgage.PNG

Figure 3. Scenario one (Auckland): Mortgage repayment on standard loan – land and house

variable-only.PNG

Table 1. Scenario one (Auckland): Mortgage repayments using a split rate loan for land vs variable rate only

 

Loan 1 – land (split)

Loan 2 – house (variable)

Variable loan only

Weekly repayments

$318

$386

$773

Deposit (20%)

$0

$65,000

$130,000

Principal

$325,000

$260,000

$520,000

Interest

$188,517

$242,139

$484,279

Total

$513,517

$567,139

$1,134,279


If borrowers elect to take up a no-deposit split loan for land, this represents a saving of $53,623, however the real advantage of this arrangement is the reduction in upfront capital required. This essentially reduces the deposit to 10% of the purchase price, making home ownership more accessible to families who have the income to service a mortgage but would struggle to save for a full 20% deposit.   

The second scenario we have modelled is the national lower quartile house price of $352,500. We have again assumed that land costs make up approximately 50% of the new build price.

Table 2. Scenario two (National): Mortgage repayments using a split rate loan for land vs variable rate only

 

Loan 1 – land (split)

Loan 2 – house (variable)

Variable loan only

Weekly repayments

$172

$209

$419

Deposit (20%)

$0

$35,250

$70,500

Principal

$176,250

$141,000

$282,000

Interest

$102,263

$131,314

$262,628

Total

$278,486

$307,564

$615,128


If borrowers elect to take up a no-deposit loan for land, this represents a saving of $29,078, and as with the above example, a smaller deposit upfront.

Given the relatively modest interest rate savings, the real benefit of this policy is in the reduction of deposit requirements to roughly 10%. There is already provision for 10% deposit loans for new home buyers (through the welcome home loan), however the major difference is that the Welcome Home loan has income cap eligibility requirements, and the ability to be used for both purchasing existing houses and new builds (and so doesn’t necessarily contribute to new supply). NZ First’s proposal does not appear to have an income cap requirement, and can be applied to new builds only.

Will it make a difference for Māori?

This appears to be a useful mechanism to reduce the cost of entry into the housing market. Due to the high cost of housing overall, this policy will make less of a difference for Māori (and Pasifika) than for other more affluent demographic groups. It will certainly assist some Māori to enter the housing market when previously they have been prohibited from doing so.

A potential issue is the ability of government as the direct lender to maintain the lower market price for loans through years 6-26. The risks associated with direct lending are discussed further in our analysis of the Greens’ housing policy. Overall – this policy won’t do much on its own, but could be effective as part of a broader government-led programme to increase housing supply, particularly if a portion of sections were ring-fenced for sale to Māori (potentially as part of iwi-led regeneration projects).

Low deposit and low interest finance for housing on collectively-owned Māori land

This policy will reinforce targeted provisions for areas of high housing need such as Northland, East Coast, and the Eastern Bay of Plenty (areas also targeted through the original Special Housing Action Zones policy). The policy proposes that measures be put in place to support Māori to build new houses on collectively owned land in these areas, including low deposit and low interest mortgage finance.

Will it work?

We already have in place a low/no deposit mortgage finance programme – Kāinga Whenua – although certainly more could be done to increase uptake. Part of the problem is that many of these whānau living in severe housing deprivation are on very low incomes, often living in substandard owned dwellings on whenua Māori. They may appear on the Work and Income New Zealand register but not the social housing register, making it difficult to get a clear picture of need at a regional level, with centrally developed policies often based on incomplete data. For those whānau, even without a deposit they may be unable to service as a mortgage, due to very low incomes and bad credit and/or substantial debt.

The essential repairs programme (administered by the Māori Housing Network) is doing well but funds are limited. Additionally, many of the homes are impossible or unviable to repair, and there are often barriers to ensuring a home is maintained, such as use of low quality materials, lack of home ownership knowledge, and insufficient resources to undertake planned and reactive maintenance. There is also a little-publicised Kāinga Whenua repairs loan product.

Prioritising areas of high deprivation (as determined by the deprivation index or other agreed measure) in the administration of limited funds makes a lot of sense, as does focusing our most resource intensive programmes on our most vulnerable whānau. However, the policy proposed by New Zealand First is essentially already in operation through the programmes administered by the Māori Housing Network.

Will it make a difference for Māori?

A strong emphasis on regional solutions to regional issues bodes well for Māori, as does a focus on prioritising the areas of highest need. NZ First could extend on this policy by supporting expansion of the current essential repairs programme, increasing the Māori Housing Fund (capital grants for new builds), and reform of the Kāinga Whenua loan product.

Review of rating of collectively-owned Maori land

Part 5 of the Auditor-General’s 2011 report on government planning and support for housing on Māori land examined the role of local authorities in the development of Māori housing. The report found that local authorities can do more to explain the planning costs associated with building on multiply-owned Māori land, including the exemptions and remission policies that apply to them, to reduce barriers created by confusion about the costs.

Six years on and rating of Māori land is an ongoing issue. There are high levels of rates arrears on many Māori land blocks, and owners may be reluctant to build on Māori land due to concerns that local authorities will charge individual households for rates owed on the whole block. There are also issues associated with how valuations are estimated for rating purposes, that fail to take into account the inalienability of Māori land (for a comprehensive account of rating laws and policies as they apply to Māori land, check out this report).

This policy seeks to establish an explicit programme of work aimed at addressing the entrenched problems associated with the rating of multiply owned Maori land, bringing together representatives of central government, local government and Māori. Although the policy explicitly seeks to address rating issues, it would make sense to also look at development contributions and resource consent fees as other local government issues relating to the development of Māori land.

Will it work?

Section 102 of the Local Government Act 2002 requires local authorities to have a policy on remission and postponement of rates on Māori freehold land, and Section 108 sets out the requirements for that policy. Councils are therefore free to set their own approaches to rating Māori land. The Far North District Council (which is approximately 25% Māori land), for example, has elected to forgive all rates remissions on Māori land and abolish development contributions.

Most local authorities charge a development contribution towards the cost of a perceived increase in demand on existing, and the provision of new, infrastructure. Development contributions can be a controversial issue as most Māori land is in rural areas that are poorly serviced by infrastructure. The Kāinga Whenua Infrastructure Grant (a capital fund administered by central government) is frequently used to fund the costs of infrastructure to Māori land. Where central government is paying for the infrastructure, the collection of a development contribution by local government could be perceived as ‘double dipping’ i.e. charging for infrastructure they haven’t actually paid for.

The issue of resource consent fees can largely be addressed by creating or amending papakāinga and Māori purpose provisions in district plans that allow for papakāinga and Māori land development as a permitted activity, and by providing a specific fund for resource consent fees for activities that fall outside of this permitted status. District plan provisions are highly variable in terms of the level of support and flexibility, and costs associated with obtaining consents vary. Of the 73 operative plans nationwide, 59% have a specific activity status for papakāinga, 15% have provisions for marae/residential activities only, 8% have policy but no specific rules, and 18% have no provisions.

Councils could consider initiating a coordinated approach to active facilitation of development on Māori land (particularly those Councils that have specific plan provisions). The approach taken by Auckland Council, for example, sets aside $10 million over ten years to help fund development contributions, feasibility study reports / expertise, and consenting fees for papakāinga developments on Māori land. Other possibilities include a financial contribution which is charged upon the completion of the development (rather than being an up-front cost), and is then used to provide seed finance funding for future papakāinga developments.

A more consistent approach to rating, development contributions and resource consent fees could possibly be achieved through amendments to the Local Government Act 2002 and/or enactment of the Te Ture Whenua Māori Bill. Another approach would be to initiate a reform process across district and City Councils at a regional level (in Taitokerau for example, this would include Northland Regional Council, Far North District Council, Whangarei District Council, and Kaipara District Council).

Will it make a difference for Māori?

The Te Ture Whenua Māori Bill is now approaching its third reading. The Māori land enablers workstream (as part of the development of the Bill and the proposed Māori land service) is ongoing, and is intended to address a range of long-standing constraints on the utilisation and development of Māori land, such as rating, valuation, landlocked land, paper roads, and public works. The latest version of the Bill includes several provisions relating to rating Māori land, including:

·         Non-rating of some papakāinga housing – the bill will provide for two dwellings on a marae to not be rated. These changes will also allow councils to make additional housing associated with a marae non-rateable.

·         The rates rebate scheme – the bill will allow separately owned housing on multiply-owned Māori land to be eligible for rates rebates.

·         Rating Māori land (uniform rates) – two or more land blocks used jointly will be able to be treated as a single block for rating. Currently Māori land cannot take advantage of single unit rating to the same extent as other land.

·         Non-rating of Māori land – rates relief for land specifically reserved or covenanted for historical, cultural and scenic reasons.

The Bill has been put on hold until after a new government is formed, with Labour promising to repeal the Bill if elected (although recent comments by Waiariki candidate Tamati Coffey indicate a potential softening of that position).  NZ First leader Winston Peters has publicly criticised aspects of the Bill, but has not taken a hard stance. The most logical and expedient way to give effect to NZ First’s policy post-election would be through enactment of the Te Ture Whenua Māori Bill. The proposed comprehensive review of rating would likely be a task led by the Māori land service.

Māori land owners have consistently told us this is an ongoing issue. Will the policy to review rating of Māori land make a difference? Yes – but this depends on the political will to implement, and the efficacy of the approach chosen by the new government.

This is the fifth article in Te Matapihi’s Māori housing election year series. Our penultimate article will look at National's 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.



[1] For a good overview of the use prefabrication to increase building sector productivity, check out John Tookey’s recent article https://thespinoff.co.nz/society/26-08-2017/house-construction-in-new-zealand-is-a-disaster-but-it-can-be-fixed/