Late last year the Labour government with support from the Green Party announced a rent-to-own home scheme as part of a number of options to get people into their first home.
It is projected to help 10,000 Kiwis enter the housing market in a decade. 10,000 houses would be made available over 10 years, and buyers would make weekly payments of no more than 30 per cent of their income. Costings pointed to a price tag of $300 a week over 29 years, with the weekly payment rising in line with inflation.
“Part of each payment will be rent to cover the Crown’s costs. The rest will purchase equity shares in the home. Over time, with each regular payment, ownership of the home will transfer from the government to the people who live in it,” the policy said.
The “Home for Life” programme, as it was billed, was claimed to save people $100 per week on mortgage payments. Metiria Turei, former Green Party co-leader, pointed to overseas examples and ones in small pockets of New Zealand including Queenstown and Rotorua, when making the case for rent-to-own.
“Home for Life” was also intended to be one prong in a multifaceted approach to solving the housing crisis, working alongside such measures as a government house-building programme, essentially KiwiBuild, which Labour carried into the election and is now implementing.
But what about private rent-to-buy arrangements?
Rent-to-own schemes also exist in the private market. In the private sector they work by having two parties enter a transaction, with the prospective buyer signing a conditional sale and purchase contract and a licence to occupy, making a down-payment, then moving in as a tenant. After a period (e.g. 2-3 years) of paying a higher than normal rent, a portion of which forms a deposit, the would-be buyer obtains a mortgage, pays the original agreed price and becomes the owner of the property. Any capital gains, or losses, remain with the buyer.
Nearly a decade ago, real estate rent-to-own schemes began to find a market, with the onset of the late-2000s economic recession and housing market woes. Billed by Stuff.co.nz as a new fad in Britain and Australia at the time, the publication noted they were popping up in real estate columns in newspapers.
The article reported wise advice by regulators and consumer advocacy representatives saying potential buyers and sellers should run the figures and seek independent legal and financial counsel before signing on the dotted line, which is the wise course to take.
Some obvious pros to using rent-to-own include the relatively small amount of money required to secure a home, the purchase price being pre-negotiated below future market price, and living in your own home before you buy it. Some cons may include complications in the transaction and potential issues with the property. Indeed, the Stuff.co.nz article quotes a Commerce Commission spokesperson who said that while there were no investigations into rent-to-own schemes then, they were pursuing several “pay by instalment” schemes, which bore some similarities.
Rent-to-own schemes in general are among a suite of innovative and fresh housing options, and many people frustrated with the state of the traditional housing market may look to turn to these types of arrangements. Offering a fresh and alternative approach to something is always commendable, but as a consumer, ensure you know the full picture.