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New housing rules to stimulate development may be hindered by tight finance restrictions

Government moves to intensify building development and stimulate housing has given a green light to build more houses, but developers already have the brakes on because of tight lending restrictions by banks, say mortgage brokers.

The General Manager of Hamilton based Omega Capital, a non-bank specialising in sourcing property finance, Noni Martin, says sweeping changes introduced by Government in the last couple of weeks, designed to stimulate housing development, may not have the desired result because of tight lending restrictions imposed on property developers. 

The changes allow people to build up to three homes of three storeys on most sites, without any need for resource consent, from August 2022. Currently, district plans typically only allow for one home of up to two storeys.

“They are moving one lever to open up the development opportunity and activity in the housing market, but they have already put the brakes on with the Reserve Bank tightening credit so there is a real shortage of funding for these developments to happen,” says Martin.

Waikato based Omega Capital is one of the largest companies in the commercial mortgage broking industry. The business has grown by 25 percent in the last 12 months, as access to finance for property developers has tightened following changes to lending rules at the retail banks.

“We have already supported a lot of terraced housing and higher density developments where developers have come to us because the banks have said no to financing the projects. Changing the regulations around housing density isn’t going to change the lending restrictions,” says Martin.

The changes mean every council in a “tier 1” city – Auckland, Hamilton, Tauranga, Wellington, and Christchurch – will be required to allow medium-density housing on all residential land without the resource consent process.

The move opens the door for development on land where people may not previously have considered doing a development, says Martin.

“It definitely opens the door for a whole lot of new developers or people who previously might not have considered developing property, but the issue is still going to be where do they get finance from? If you don’t have a long-standing relationship with a bank as a developer, in many cases, they will not even talk to you,” says Martin.

She expected it may mean more business for companies like Omega, but added projects that were borderline in the current mainstream banking environment would become unprofitable in Omega’s market where the overall funding costs were higher.

“We have already seen a huge growth in non-bank lending in the current environment where lending by retail banks has tightened. It’s opened the floodgates to a lot of lending from our industry, particularly in property development,” says Martin.

Martin was a partner in BNZ’s Property Finance division, managing a $650 million plus portfolio encompassing several prolific development groups, before she joined Omega in June last year.

Omega Capital Corporation facilitates property loans between $400,000 and $20 million and assists many borrowers unable to secure bank loans.  The company sources funds from trading banks and finance companies and has a private lending facility willing to debt or equity-fund projects. 

Noni Martin; Omega Capital