Are prefabricated homes the solution to the affordable housing crisis?
Companies like Solution Street are popping up everywhere and are constructing prefabricated homes. The 70m2 two-bedroom apartments are being sold from $519K in a market where the average house price is $860,000. Sounds too good to be true? That’s because it is.
Loans for these homes are hard to get. Most banks won’t lend your clients money on a house until it’s on site because they can’t take security on it. Security is the legal right the bank uses to claim on a property if your client defaults on their payments. So, lending without the security of a home is a risky business for banks. Some banks will lend the money, but only with a 50% loan-to-value ratio - still not great for your clients.
Most people wanting to buy a section and then transport a home onto it need a 20% deposit plus savings to buy the house, move it and get the site ready before they get a loan. Safe to say that’s not feasible for most first home buyers.
Helping your first home buyers
Prefabrications aside, I can help your first home buyer clients. Most first home buyers come to me with a deposit made up of savings, gifts, Kiwisaver etc. They’re trying to hit that 20% mark and falling just short, worried that they can’t afford to buy. I’m working with lenders that can loan on a 10% deposit.
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What market update would be complete without mention of the Official Cash Rate (OCR)? The recent Reserve Bank of New Zealand announcement left the OCR unchanged at 1.75%. Globally, there are positive signs of growth, however there are emerging pressures with commodity and agricultural prices on the rise.
The latest Quarterly Survey of Business Opinion (the New Zealand Institute of Economic Research’s 40+ year long business survey) reported a net 16% of businesses surveyed expect better trading conditions in the near future. According to Tony Alexander, Chief Economist at the Bank of New Zealand, this combined with other positive outlooks means a business capital spending phase beckons.
What does it all mean? Essentially, the idea is that if businesses feel confident and monetary policy is accommodative, they will hire and invest more and the economy will grow. What it all boils down to is that things should remain steady for the near future.