Government should underwrite bank lending to developers to speed up house building, property financier urges

The Government should consider underwriting the banks to do more lending to property developers if it wants to resolve the housing shortage faster, a property financier says.

That might seem like an unusual thing for Scott Massey, a director of non-bank commercial property lender Omega Capital, to say.

But Massey, who has been in the property industry for 30 years said if the country wanted to solve the housing crisis it needs to produce more buildable land quickly and a far larger number of houses.

Last week the Government announced a $3.8 billion housing package which included allowing Kāinga Ora, the Crown housing agency, to borrow a further $2b to buy land for housing.

“That $2b would be far better spent encouraging in some way developers to build houses but get them done quickly.

“That would go a long way – and one way to do it is in the form of an underwrite to the bank lenders so that they reduce the banks’ risk – that is what the banks are looking for and get the house building market moving quickly.”

He said allowing Kainga Ora to borrow $2b meant it would take at least five years to have a benefit and probably 10.

“It is a government agency and you can see how fast they move.”

While property developers have long complained about how hard it is to get finance from the banks, Massey said it had got worse in the last year.

“There is no question about that.”

He said general uncertainty around construction was driving the banks away from lending to property developers.

“I don’t think it is Covid, I think it is general uncertainty around construction and construction risk and whilst in general terms they will lend once buildings are built, whether they are residential or commercial buildings, they are risk-averse when it comes to construction.”

Massey said it could see how much the banks were turning away as his company’s enquiry levels had gone up 25 per cent to what they were in the previous year and it was doing more “bank quality” lending which it would not have had the opportunity to do in the past.

“If we looked at it in the last two years our enquiry levels have probably gone up around 50 per cent. So it is quite pronounced, the lack of funding from banks.”

Massey said non-bank lenders could only do so much compared to the major banks.

“The private lending resource in New Zealand for property developers is minuscule compared to the funding resource of the main trading banks.

“It is just not enough. We do all we can and to be fair we are enjoying a tremendous time in the market at the moment because of the type of loans that are coming to us and the volume flows that are coming to us.”

Massey believed the clampdown on investors – which will see the bright-line test extended from five to 10 years for existing properties and the ability to write off mortgage interest removed over the next year four years would do little to dampen demand for new builds.

“New Zealanders will always invest in houses, whether it is their own or an investment.”

He said the Government’s proposed exemption of the interest deductibility write-off for new builds for investors would likely exacerbate the situation for first-home buyers because investors would now be competing for the same housing product as first-home buyers.

“I think this policy has probably pitted investors against first-home buyers in that $600k to $800k price bracket of new houses.”

“It is an unintended consequence but I am certain what I am saying is fact.”

He said a week after the announcement it had not seen a downturn in demand from developers

“And, because huge demand is there from first home buyers and investors in that affordable price ranges, I don’t anticipate any downturn whatsoever.”

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