Housing

Higher house price caps would have helped only a few hundred first home buyers

Why lifting price caps on housing aid will do precious little for the first home buyers the Government wants to help

“Hens’ teeth” – that's what Joss Lewis calls them. She's talking about homes cheap enough to sneak under the price cap for government assistance for first home buyers, but big enough to not get caught by the banks’ unwillingness to lend on small apartments without big deposits (see Newsroom's recent stories on the topic), and decent enough to be liveable.

Blink and you miss them when they come on the market, says Lewis, head sales person for Auckland apartment builder Ockham Residential. 

Miss out on them more like, particularly if you are a first home buyer.

And that’s unlikely to get much better, despite the Government’s announcement this week of changes to rules around first home grants and loans; changes set to come into effect on April 1 and intended “to assist more New Zealanders to purchase a first home”.

The changes boost the amount of money someone can earn and still be able to apply for Government financial help. It also lifts (in some places at least) the amount of money someone can pay for a new or an existing property before it’s considered too expensive to be eligible for the $10,000 Kāinga Ora First Home Grant scheme or the 5 percent deposit First Home Loan schemes. 

The trouble is, say experts like Joss Lewis, the caps haven’t gone up nearly enough to make a difference. 

The median sale price for a home in Auckland hit $1.1 million in February, according to Real Estate Institute of New Zealand figures, up from $995,000 in January and $885,000.

Auckland’s median prices have gone up $215,000 in 12 months to $1.1 million. Meanwhile, our Crown agency tasked with solving the housing crisis has increased caps on existing properties by $25,000 to $625,000.

In Wellington, median prices were $890,000 in February, compared to $718,000 a year earlier. House prices rose $172,000, while the caps rose $50,000 (from $500,000 to $550,000).

This Venn diagram says it all.

First home buyers are searching for that elusive sweet spot - a home that’s liveable, cheap enough to be eligible for Government’s help, but that isn't a small (read: affordable) apartment, because banks say small apartments are too risky and often won’t lend on them - at least without a 50 percent deposit. 

That intersection of liveable, affordable and bank friendly hardly exists, experts say. At least it hardly exists outside Government-legislated KiwiBuild homes - and hardly anyone’s building those.

Newsroom asked the Real Estate Institute to crunch some numbers from its database. Tell us how many properties were sold in Wellington and Auckland over the last 12 months  that would meet the criteria in our Venn diagram.

Reinz came back with the statistics: Just 113 properties in Wellington City sold between March 1 2020 and February 28 2021 which were above 50 sqm and below $500,000.

Lifting the cap made almost no difference, the figures show. 

“If the cap has been $550,000, then 186 properties would have been eligible - an additional 73 properties.”

And remember median Wellington property prices rose almost 25 percent over the period. So there would be even fewer available homes now.

In the Auckland region the number of possible apartments was bigger - 1795 over 50sqm and under $600,000, the Reinz figures show. Lifting the cap increased that by 414 properties.

However Auckland is a big area, and the Reinz numbers don’t take account less liveable properties, of which Auckland has its fair share, says Scott Dunn, a licensed real estate broker with Auckland apartment specialists City Sales.

“If you are a first home buyer I can show you apartments which meet those criteria, but mostly you aren’t going to like what I’m showing you,” Dunn says. “They might have remedial issues, or they could be leasehold, or there could be known security issues with the building, or problems with noise or rubbish.” 

There are some gems - Dunn reckons he sells one a week, though not necessarily to first home buyers, who often lose out to investors or older buyer with more cash.

And forget getting a car park for that price - not in town. That could add $80,000 to the price.

Catch 22

It’s a crazy catch 22 situation, says James, who contacted Newsroom with his story. He and his partner wanted to use the Kāinga Ora First Home Loan scheme, which offers deposit rates as low as 5 percent, to try and get into the property market. But although they met the Kāinga Ora eligibility criteria, the banks refused to lend.

“After contacting many banks and mortgage brokers, it is apparent the rules are bone fide useless," James says. "The limit on the house price, if you are using a Kāinga Ora First Home Loan, is $600,000 in Auckland. Banks, on a low deposit, will not lend to apartments under 50 square metres - completely nullifying the point of the First Home Loan.

“These are loans guaranteed by the government, surely the Government can do more to provide for first home buyers.”

Gemma (not her real name) had a similar issue in July last year when she and her partner tried to buy a KiwiBuild home in Wellington’s Sunset West building, now almost complete. 

“We were approved for eligibility of these beautiful KiwiBuild apartments, and the developers set aside an apartment for us. 

“But when we got to the mortgage advisor stage we were told straight up that no bank would lend on the 42sqm apartment, regardless of our eligibility for KiwiBuild /first home grant/first home loan.” 

Gemma says they eventually had to forgo the apartment.

“Apparently very few of the first home buyers (these are KiwiBuild homes) were able to have enough money for a deposit (apparently some lucky people were stretching it at 15 percent, but not sure if this was confirmed). 

“I'm not sure if the Minister was made aware of this issue, but it was incredibly frustrating and actually extremely disheartening for my partner and I. We often look at the apartment building, and think of our KiwiBuild apartment that could have been.” 

More needs to be done

Scott Dunn says he’d like to see the price cap raised more. Reinz acting chief executive Wendy Alexander agrees. 

“They have not lifted the cap enough, so it isn’t going to make a significant difference. It’s opened a door a chink and there will be more people able to take advantage of that. But there’s a long way to go to create an environment where first home buyers have options, and there are an awful lot of first home buyers - many more than can be accommodated with the existing increase.”

Currently, only 13 percent of properties sold across New Zealand fall under the Kainga Ora thresholds, Alexander says. And the situation is even worse in places like Porirua, Lower Hutt and Tauranga, where only 2 percent of recent sales fell below the price cap.

“We were surprised some areas’ price caps will remain unchanged [in the latest announcement], including Queenstown-Lakes, Waimakariri District, Selwyn District, Christchurch City and ‘the rest of New Zealand’,” she says. 

“Currently, only 12 percent of properties sold in the Queenstown-Lakes District fall below the $650,000 threshold and only 11 percent fall below the $550,000 threshold in Selwyn District.

“This may need some urgent reviewing before the April 1 changeover in order to bring those districts more in line with other parts of the country.

Still for Dunn, better than lifting the Kāinga Ora caps, would be banks being prepared to lend on smaller apartments.

“That would free up more homes for first home buyers and put them at less risk, because their mortgages would be smaller.”

Not more risky

Dunn says small apartments as a category aren’t more risky than other places for first home buyers, and they needn’t be poky. He lived in a 35sqm Auckland apartment with his partner for three years, when he first came back from overseas. It was fine for a young couple - and not as small as you might think.

“We are city people. It was a bit small to have people round for dinner but we lived above a whole load of restaurants...”

“Insane demand”

Joss Lewis says people are crying out for affordable apartments - there is a big shortage.

Ockham’s latest apartment complex, Manaaki in the Auckland suburb of Onehunga, went on sale last week. The 210 apartment contains 87 KiwiBuild places and some studio and one-bedroom “open market” apartments which cost less than the present price cap. Once the cap goes up, the two-bed flats will be under the cap too.

All the apartments are over 45sqm, so banks should potentially be prepared to consider lending to prospective buyers.

Lewis says her week has been crazy with people desperate to view apartments as soon as marketing started, despite the fact the Manaaki apartments won’t be finished for more than two years - the second quarter of 2023. People are queueing up to buy off the plans.

How many end up getting help from Kāinga Ora remains to be seen, however.

Mortgage brokers Wayne and Karen Henry say trying to get clients accepted for the low deposit loans has been very tough because of the additional information the Government agency wants to see.

“The criteria is very difficult," Wayne Henry says, "and there’s a hell of a lot more work involved".

The couple have had only one client accepted through the scheme since it started, although others have tried. 

“Getting that approval required a lot of Karen’s skill, time, engagement, and energy to get it across the line. 

“We wanted to beat the system. We wanted to be able to ring the client and say ‘We beat the system and here is your approval’.”