ASB: Tailored lending criteria supporting building of new homes.
Leading bank ASB is taking a more flexible approach to its lending criteria to help improve supply of affordable and social housing around the country.
ASB has established a $500 million Accelerated Housing Fund tailored to reduce financing hurdles experienced by residential developers and social and Māori housing investors.
Rebecca James, ASB executive general manager for business banking, says: “We have not been building enough warm, dry, safe homes to keep up with the population growth.”
The challenges over the last three or four years have been Covid-19, supply chain shortages and inflation. “We’ve seen an increasing cost of building and rising interest rates that have made it really challenging for developers and investors in this space,” James says.
“We believe we can make a real difference so we have addressed our criteria to make it easier for developers to access capital for social and affordable housing.”
Through the Accelerated Housing Fund, ASB has set a target of supporting the delivery of up to 1000 new homes over the next two years. As a result, about 4000 New Zealanders would be living in new, warm and sustainable homes.
Under the fund’s criteria, the maximum loan to development cost ratio has been increased from 70 per cent to 80 per cent. The threshold for pre-sales has also been reduced. Now, a development needs to have 70 per cent qualifying pre-sales to cover the loan, rather than 100 per cent. The standard lending criteria has been relaxed to allow experienced and well-capitalised developers to start projects earlier.
James says: “We have focused on developers who can really demonstrate that housing is going to be significantly more affordable for areas in which they are building or has a strong social need, and we have reduced the amount of equity they need to put in.
“There was quite a high benchmark for pre-sales, particularly when thinking about apartments and, again, to really solve this issue, we have reduced that threshold.”
The fund will lend to larger-scale projects where the build and sales prices are lower than average. It will also provide social housing investment opportunities to borrowers who have engaged with the Crown, local councils, not-for-profit organisations, and iwi or community housing providers.
James says in support of the Reserve Bank’s work around improving Māori access to capital, a portion of the fund has been targeted towards Māori housing development and investment.
ASB is also looking at how it can support housing initiatives with different ownership structures such as build-to-rent and rent-to-own.
At present, it’s estimated the country has a shortage of 80,000 homes and there are more than 25,000 New Zealanders on the social housing waitlist, with a growing need for affordable housing for older, retired people. New Zealand Institute of Economic Research (NZIER) has calculated that the housing shortages began to accumulate as early as 2001, when there were some 23,688 applicants on the Ministry of Social Development housing register.
NZIER said in its report Assessing housing shortages in New Zealand that the shortfall has eased as population growth slowed since the onset of the Covid pandemic. In Auckland the population fell 0.6 per cent in 2021 and a further 0.5 per cent last year.
The housing shortage, however, was most acute in Auckland, reflecting the historically strong population growth over time, NZIER said. Also, the construction of new homes tends to take longer to complete after dwelling consents are issued – generally about two years to complete a residential project and a Code Compliance Certificate is issued.
The NZIER report said, unlike other regions, Canterbury has built its way up to a housing surplus over the last decade. Since 2012, the region has consented more than 500 new dwellings for every 1000 additional people to the population. The financing support from central government and changes to the local authority’s planning laws during the post-earthquake rebuild also helped accelerate the construction of new homes, NZIER said.
James says it’s important to remember housing provides not only stability and security but “it’s a place we call home and right now housing supply is a huge challenge up and down the country.
“In high-density urban areas, we are looking predominantly at apartments. But in other areas, the single dwelling is required and there is a real mix in the way we need to address this challenge.”
James says there has been a high level of enquiry since the launch of the fund. “One reason is that this is not the first time ASB has lent into this (housing supply) challenge. We previously lent $220m into affordable and social housing, so we are increasing that commitment for the next two years.
“The great news in all of this is developers will be able to get (eligible) residential projects off the ground easier and earlier.”
ASB is determined that the country build a greater supply of healthy and sustainable homes in line with the NZ Green Building Council Homestar 6 rating.
For more on the ASB Accelerated Housing Fund visit asb.co.nz/commercial-corporate-banking
ASB terms and lending criteria apply.