Home ownership: Labour Government’s $400m Progressive Home Ownership scheme under pressure over targets and priorities

The Minister of Finance was warned late last year that the Government’s $400 million Progressive Home Ownership scheme was “off track” and expected to miss its target of providing 1500 to 4000 homes by June 2024. Officials now project that they’ll meet the low-end of the target: 1500 homes. But there’s a hitch.

The scheme, which allows households to share the cost of home ownership with the Government and buy with a lower deposit, is aimed at helping three priority groups: Māori, Pacific people and families with children. So far, its figures for Māori are very low.

Launched in July 2020, the scheme had housed just 509 households* to the end of May (an overall total of 824 homes were contracted). Just 8.6 per cent (44 households) were Māori. Pacifika accounted for 7.6 per cent (39 households). The total number of households across the two groups is likely lower than the sum total because of multi-racial identities.

Māori make up 17 per cent of the overall population, while other Pacific peoples make up 8 per cent. Both have rates of home ownership that are well below the general population.

Scheme eligibility is also targeted through a general annual income cap per household of $130,000 and the focus is on Auckland, Tauranga, Queenstown and Wellington where house-price-to-income multiples are prohibitively high for many first-time buyers.

The scheme’s Māori-specific “pathway” (known as Te Au Taketake) had not housed anyone as of the end of May, although it has 55 houses “which have been approved for funding”, according to the Ministry for Housing and Urban Development (MHUD).

Te Matapihi, the peak Māori housing body, is concerned that the government’s push to meet the programme’s minimum volume target is coming at the expense of Māori.

Jen Deben, manager of rental housing and home ownership, said that, although the programme had originally generated considerable optimism it “isn’t working well for Māori and it’s in danger of failing them again” something she said happened through Kiwibuild.

The Progressive Home Ownership scheme was funded with $400m repurposed from Kiwibuild after its reset.

Figures last year showed that fewer than 5 per cent of homes built through the Government’s signature housing scheme of 2018 and 2019 were bought by Māori. Kiwibuild remains notable for grossly underperforming its targets. The Progressive Home Ownership scheme was funded with $400m repurposed from Kiwibuild after its reset and was part of Labour’s pivot to focus on social housing. The money is loaned at zero interest to third-party providers, and its primary ongoing cost to the Crown is in the form of concessionary interest, currently recorded at $107m.

Deben said her group is currently preparing a discussion paper for release next month, “in time for the election cycle”, to outline improvements it hopes the Government will make to the scheme. She said she didn’t want to pre-empt the paper but that “the fund’s current numbers indicate that things are not going well”. She said that “inflexibility” in the scheme has been a considerable problem for Māori providers, especially related to Māori land in multiple ownership.

While nine Māori providers have been approved to offer the fund, Deben said that only one of those providers has an “approved delivery plan” with MHUD.

In contrast, a second “pathway”, run by the government’s housing agency Kāinga Ora, is expanding quickly, and though it had a late start, it launched in October 2021, it now accounts for three-quarters of households housed.

However, its reach to race-based priority groups is limited. A third of the households it helped do not fall into priority groups, the remainder are families with children. Māori constitute 4 to 5 per cent of the total, as do Pacifika.

Kāinga Ora’s work is considered “light touch” compared to the other “pathways” as households find suitable homes themselves, largely without help like budgeting and debt management. Kāinga Ora takes an equity stake in the homes and the remainder is covered by a lower-than-conventional deposit and an ordinary mortgage arrangement with a bank.

Deben said she believed the scheme should be prioritising Māori results across all three pathways, including Kāinga Ora.

Housing Minister Megan Woods, however, said this was an unrealistic expectation and that the scheme was never intended to work that way.

She said Māori and Pacifika numbers “were always going to be lower through the Kāinga Ora route” in large measure because success was limited by individual circumstances and commercial banks’ willingness to lend, and that debt history and credit scores were often an impediment. She said that was something the government could better ameliorate through the fund’s other two “pathways”. A third prong is run by community housing providers like Habitat for Humanity, and like the dedicated Māori route, it is aimed at households that need extra financial help to achieve homeownership.

Housing Minister Megan Woods says rapid house price inflation (not yet matched by a commensurate decline) has meant a higher level of subsidised investment has been required. Photo / Hagen Hopkins, Getty Images

Woods said she expects the proportion of homes for Māori will rise as the dedicated Māori pathway begins to deliver.

She emphasised that the scheme needs time to work, especially given that it was conceived in 2019, before Covid-19 and the hugely inflating effect that the economic response to the pandemic had on house prices. In addition, while it’s been up and running for three years, its first phase was a smaller-scale pilot.

She said one reason the fund is expected to reach only the lower end of its target is that, given rapid house price inflation (not yet matched by a commensurate decline), a higher level of subsidised investment has been required in homes than originally anticipated.

Alongside priority groups and regions, the houses must also be new builds, though they can be bought from plans or upon recent completion. Woods said that in light of declining house prices and falling demand she’s considering loosening the scheme to include existing homes.

So far, scheme administration costs are running a steep $22,200 per household housed. But Jonathan Fraser, general manager - housing and service delivery at MHUD said that the administration figure also includes establishment costs which should be viewed as a cost of the total number of homes that are completed by the fund, once the current fund allocation expires next June.

Fraser declined the Herald’s request to separate establishment costs from administration. He said they have not been separately classified to date.

Grants to housing providers to provide financial capability help to households is not included, and totals an additional $1.17m.

Julie Scott, chief executive of Queenstown Lakes Community Housing Trust described the scheme as a “game changer” for the roughly 50 families her organisation has helped to date.

The trust offers mainly leasehold properties. Households pay a very modest rental rate for the land (owned by the trust), and households own the home. Houses can only be sold back to the Trust, which can happen at any time at an inflation-adjusted price. Scott said the carrying cost of a three-bedroom home, in the region of $800 per week, compares very favourably with the soaring price of decent rental stock in the area.

Alan Thorp, chief executive for Habitat for Humanity New Zealand, said that his not-for-profit organisation is also happy with the scheme.

He said MHUD officials have been keen to increase scale but this is limited by factors including banks’ requirements for security. He said Habitat uses its balance sheet for security on homes, which are often offered to households through rent-to-buy arrangements.

• The figure for Kāinga Ora used throughout the story is a total of 409 households housed, and unlike the figures for the other two “pathways” (Maori-specific and community providers) it includes 100 households which had not yet been housed as of the end of May; however, these households had signed sale and purchase agreements. Their homes had not yet settled.