Government announces underwrite scheme

To help strengthen the residential development sector, the Government has announced a Residential Development Underwrite (RDU) scheme to increase developers’ access to finance

To combat the twin threats of high interest rates and low building consents, the RDU will help support residential construction activity in the near-term and will ensure a supply of new homes to market when interest rates drop and buyers re-enter the market. 

“In times of expensive borrowing, underwrites are an effective tool for supporting housing supply,” said Housing Minister Chris Bishop. 

“This is because underwrites increase developers’ access to finance, where they otherwise wouldn’t have been able to get it and therefore wouldn’t have been able to deliver the houses.” 

Increased confidence 

Building and Construction minister Chris Penk added that the RDU is designed to ‘prime the pump’ during tricky economic conditions. 

“While the mood on the ground has started to shift with some encouraging signs of renewed optimism, the new underwrite will provide important support and confidence to the building and construction sector during a tough economic period.” 

However, the RDU won’t be available to all builders. Only companies delivering developments at scale can apply. New entries into the market won’t be able to take advantage of the scheme either, added Penk. 

“For a development to be approved for the underwrite, it must have a minimum of 30 houses. The developer must have a proven track record of successfully building and selling houses of a similar size and scale, have ownership or use of the land (or an option to do so), and have all the required resource consents for residential housing. 

“In addition to providing a recent market valuation from a registered valuer, the developer must also be able to provide satisfactory evidence that underwrites are needed for the development to proceed within 6-12 months – for example, evidence that reasonable attempts have been made to market the development, that finance approval is conditional on pre-sales, and that the required workforce is available. There will be no price caps or eligible buyer restrictions.” 

Re-hash of old ideas? 

This isn’t the first time a government has underwritten the construction industry. The previous Labour Government introduced an underwrite as part of KiwiBuild in 2018 and the RDU will use unallocated funds from KiwiBuild and BuildReady Development. 

Labour’s housing spokesperson Kieran McAnulty said thousands of builders could have been kept in the workforce had National not scrapped KiwiBuild and BuildReady Development. 

“Over the past few months, thousands of construction workers have lost their jobs. Maintaining a government underwrite through this period would have helped some of them keep their job.”