Bishop justified the move by saying it was essential to bring forward housing supply, noting that developers needed a certain number of pre-sales to access private finance.
“In times of expensive borrowing, underwrites are an effective tool for supporting housing supply. This is because underwrites increase developers’ access to finance where they otherwise wouldn’t have been able to get it, and therefore wouldn’t have been able to deliver the houses.”
He also said that, given the lead time for building houses was 18 months or more, it could take some time for the residential development sector to return to life as conditions improve.
“The new Residential Development Underwrite (RDU) will help support residential construction activity in the near term by enabling credible developers to access finance that they otherwise wouldn’t have gotten. This also has the benefit of ensuring there are houses ready to go for buyers who enter the market as interest rates drop,” Bishop said.
The programme will be funded from two existing funds that have since been closed to applications.
“There will be an initial $121.5 million available from the remainder of the BuildReady Development funds. Additional unspent funds from KiwiBuild will be added to this, but we won’t confirm the exact amount until we’ve worked through a technical process on the risk on outstanding KiwiBuild underwrites. We know the market needs help right now which is why we’ve opened up the programme in the meantime,” Bishop said.
“It’s also important to note that the total amount available is not a target to spend up to - we want to get the balance right between spending the smallest amount of taxpayer dollars possible for the shortest amount of time possible, while maintaining momentum on residential construction,” he said.
Penk said the underwrite would be targeted to high-population areas including Auckland, Hamilton, Tauranga, Wellington and Christchurch but would be available everywhere. The Ministry of Housing and Urban Development would select projects based on certain criteria, including a minimum of 30 houses in a development. There will be no price caps or eligible buyer restrictions.
McAnulty said the Government had “created unnecessary uncertainty in the construction sector by scrapping the Government underwrite only to introduce a Government underwrite”.
“Over the last few months, thousands of construction workers have lost their jobs. Maintaining a government underwrite through this period would have helped some of them keep their job.”
Then-Housing Minister Phil Twyford introduced a form of underwrite as part of the original KiwiBuild in 2018. Developers would build and sell KiwiBuild homes at an agreed price in return for those homes being underwritten by the Government. An aide-memoire from the time argues the case for the policy on similar grounds to Bishop and Penk.
“To reduce development and sales risks, projects are often staged. Banks will typically require that significant pre-sales be secured before allowing funding to be drawn down for each stage, particularly for medium and higher-density developments.
“The pipeline uncertainty flowing from this ‘stop-start’ approach contributes to increased costs and reduced productivity,” the paper said.
It noted that, during the Global Financial Crisis, the number of dwellings consented and built crashed and took years to recover, despite New Zealand’s soaring population growth, and contributed to the housing crisis.
The former Government later broadened the underwrite, taking it beyond KiwiBuild developments.
Thomas Coughlan is Deputy Political Editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the press gallery since 2018.
