Since 1 October 2013, banks favour borrowers with a minimum 20% deposit because 90% of a bank's new loans must be at least that level. You may be able to buy a house with a 5% or 10% deposit, but it will be more difficult as banks are forced to ration those deals.
House prices continue surging and housing un-affordability remains a hot topic. Attempting to put the brakes on the housing market, the Reserve Bank brought in new mortgage lending restrictions for all banks.
Since 1 October 2013, banks favour borrowers with a minimum 20% deposit because 90% of a bank’s new loans must be at least that level. You may be able to buy a house with a 5% or 10% deposit, but it will be more difficult as banks are forced to ration those deals.
For a $500,000 house the deposit difference is huge. At 5%, first home buyers need to save $25,000 compared to $100,000 for a 20% deposit. For homeowners who want to use equity for a renovation, the new lending restrictions may curb how much you can borrow even after taking into account the higher post-renovation house value.
With lower amounts available to borrow, the focus is on reducing building costs to keep houses within reach of the average purchaser. There are many factors contributing to the cost of housing, as shown in the chart below from the Ministry of Business, Innovation and Employment (MBIE).
It’s a great snapshot of the complexities that make up house prices and the contribution housing makes to the economy. Unfortunately only a few costs are within the control of the end consumer. Fortunately, however, the government is keen to ensure the industry grows without bottle necks and constraints in the ‘building and construction’ supply chain input.
A recent MBIE Issues Paper ponders why it costs so much to build a house in New Zealand. Their analysis shows that the materials in a house in Australia cost 76% of a similar typical house in New Zealand – even after taking into account the currency exchange rate.
The paper focuses on improving competition in the materials and services market and on the overall productivity of the residential construction sector. For example, are there a wide enough choice of products and enough independent distributors to keep prices reasonable?
Further issues include that many specialist services are required to construct a house so the nature of supply is fragmented and hard to manage. Also, the industry is dominated by small firms that build one house at a time resulting in low economies of scale and little time for up-skilling or education on new methods and products.
The paper also identified productivity as lower than in other countries plus performance issues such as budget or timing overruns, poor design or layout and defective or lower-quality work. These all add to the cost of new and renovated houses and increase the lifetime cost due to repairs or refit.
It all sounds very gloomy. Will changes happen? Highly likely. Recent initiatives on regulatory inputs indicate a mood for action. Already in 2008, the Building Act added twelve new exemptions from requiring consent aiming to save builders and owners time and money and to allow councils to focus on more complex and higher risk consent applications.
The Building Amendment Act 2012 streamlines further by categorising building consents into four types: standard, low-risk, simple residential, and commercial. A ‘simple residential’ consent requires council action within five working days compared to 20 and ‘low-risk’ doesn’t need inspections. The Resource Management Amendment Act 2013 aims to improve the resource consent regime.
Most recently the Auckland Housing Accord, an agreement between Auckland Council and government which grants powers for special approvals for new housing developments, will investigate options for financing core infrastructure and explore innovations such as an online building consent process – sounds encouraging!
Through this multi-pronged effort we may yet succeed in achieving significant cost savings and efficiencies across all facets of the housing industry, benefitting builders, consumers and the economy.
This column by Deborah Carlyon featured on page 24 of Issue 009 of New Zealand Renovate Magazine. New Zealand's first and only magazine solely dedicated to home renovations.
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*All information is believed to be true at time of publishing and is subject to change.
Deborah is a Certified Financial Planner (CFPCM), a member of the Institute of Financial Advisers (IFA) and an Authorised Financial Adviser (AFA). She is a principal of independent advisory company Stuart + Carlyon. This column does not provide personalised advice. Deborah’s Disclosure Statement is available on request and free of charge by emailing firstname.lastname@example.org.
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