Boost for residential construction market
In response to ongoing economic challenges, the New Zealand government has announced a new support initiative aimed at the residential construction sector.
Housing Minister Chris Bishop and Building and Construction Minister Chris Penk (pictured above, left to right) introduced the Residential Development Underwrite (RDU) programme, designed to help developers access financing in difficult times, especially when borrowing costs remain high.
Protecting housing supply in tough economic times
The residential development sector is especially vulnerable during economic downturns due to the long lead times required for construction, often spanning 18 months or more.
Bishop noted that in times of expensive borrowing, “underwrites are an effective tool for supporting housing supply.”
This programme helps developers who might otherwise struggle to secure funding, ensuring that housing projects continue despite the economic climate.
Bishop explained that the timing of the underwrite is critical due to high interest rates and declining building consents. By guaranteeing some of the developer's costs, RDU helps ensure that houses will be ready for buyers once the market improves and borrowing becomes cheaper.
How the residential development underwrite works
The RDU programme is targeted at development projects selected by the Ministry of Housing and Urban Development.
To be eligible, projects must include a minimum of 30 houses, and developers must have a proven track record in delivering similar projects. Additionally, they must own or have access to the land, have all necessary consents in place, and show that without an underwrite, the project cannot proceed.
Penk stressed the importance of this initiative during challenging economic conditions, noting, “the new underwrite will provide important support and confidence to the building and construction sector.”
Developers must also provide a market valuation and demonstrate efforts to secure presales and financing to qualify.
Focus on high-population areas
While RDU is available nationwide, the programme will focus on high-demand areas such as Auckland, Wellington, Hamilton, Tauranga, and Christchurch. The goal is to speed up construction in these regions, where housing needs are greatest.
The number of homes supported by the programme will depend on market conditions and developer demand, with a focus on completing projects quickly to recycle funds into further developments.
Broader housing strategy in place
RDU is part of a broader government strategy to address New Zealand’s housing crisis.
Alongside this programme, the government is also advancing its Going for Housing Growth policy, which encourages city expansion and sensible changes to the Residential Tenancies Act.
Bishop said the government was committed to increasing housing supply and providing greater market stability.
The RDU programme’s funding will be redirected from unused allocations from the now-closed Kiwibuild and BuildReady Development Pathway programmes.
Details, including eligibility criteria and a developer webinar briefing, are available on the Ministry of Housing and Urban Development website, with registrations opening on Oct. 7.
What is an underwrite?
An underwrite ensures financial support to developers when they are unable to secure enough presales to access bank loans. This is particularly helpful in larger, high-density developments, like apartment projects, where presales are often required for financing.
If a developer fails to sell properties after an agreed marketing period, the government commits to purchasing unsold homes, providing security to both developers and lenders.
Read the government media release here.
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