Personal debt makes rent-to-own housing out of reach for even the highest income earners – Habitat for Humanity

By Lauren Crimp of RNZ

Rising personal debt is preventing people from accessing even the most affordable way to own a home, according to a rent-to-own housing provider.

Habitat for Humanity’s plans required no deposit and offered interest rates half those of commercial banks. They were designed for people who couldn’t afford to buy because they were on low income or didn’t have enough cash for a deposit.

The charity has helped more than 500 whānau into their own homes over the past 30 years.

But fewer people met the criteria to accept them because personal debt levels were skyrocketing, said the CEO of its northern branch, Conrad LaPointe.

“(In) the people applying for our homes, we are seeing record levels of debt, (which) is restricting people’s ability to access the programs, to the point where… more than 80 percent of our applicants…have personal debts of more than $50,000.”

The problem has been growing and affects not only people with modest incomes, but also working families with higher incomes, he said.

“We are…seeing more people applying, but fewer people actually being eligible, even though their household income is up to $150,000.

“It is not a small amount of money for a household income, but it is above average. But it is within those parameters of affordability where we still find people with an enormous amount of debt.”

The problem was not so much that potential buyers had debt, but that it was unmanageable and, as such, it would be irresponsible for Habitat to accept them into a rent-to-own program, he said.

“It is in neither party’s interest to fail on this journey. It is a 10-year journey that families take with us and we want them to become homeowners on the other side.”

But the problem is difficult to solve.

Money Sweet Spot, a debt consolidation agency that helps people reduce their loans, is only 15 months old, but has already seen a rapid decline in the number of applicants they could support.

Previously, 35 to 45 percent of applications were approved, but that number dropped to 9 percent last month, said co-founder and CEO Sasha Lockley.

“It’s really disturbing.

“High levels of debt are a barrier to entry to better housing, first-home ownership and a better financial situation for families.”

An increasing number of applicants were taking desperate measures to get ahead, he said.

“People feel that gambling gives them hope for a better financial situation, which is heartbreaking.”

Lockley said changes to the Consumer Finance and Credit Contracts Act would make matters worse by making it easier to access personal loans and credit cards that people could not afford.

More Support Needed for Rent-to-Own Programs

One whānau that Habitat for Humanity has been able to help is Andrew Malele, his wife Hanna and their four children.

They moved into their Manurewa home in 2015 and in 2020 became the proud owners.

“If someone told me, back in 2015, that I would pay my own mortgage, I would laugh at them because at the time we just didn’t see how we could do it.”

The Maleles “lived off the smell of oily rags,” but Habitat helped them manage their finances and eventually become homeowners, he said.

“To be honest, it was a mindset change, because you’re already in that mindset that you’re not going to own your own house.

“Habitat came along and said, ‘Well, it’s possible, you just need to do A, B and C, and you can certainly make it work.'”

They couldn’t have owned a home without the rent-to-own model and Habitat’s help, she said.

“It was a confrontational process, but a great process because we learned and we are learning.”

Another rent-to-own housing provider, the NZ Housing Foundation, said there was an opportunity to help tens of thousands more families.

Chief executive Dominic Foote said while they were not having to turn people away due to rising debt levels, demand was growing and it did not have the cash to expand, despite being backed by the Government and philanthropists.

In 15 years, the charity had helped 600 families acquire a home, allowing them to put down roots in a community, keep children in school and have stable employment, he said.

Foote wanted to see more government investment in rent-to-own models, because it made homeownership possible for the growing number of families struggling with debt.

“I think any government has a duty of care to its people, and I think part of that duty of care is to allow people to become independent of government subsidies or support.”

The Government’s $400 million Progressive Homeownership fund offers providers an interest-free loan.

When asked about the future of the fund and whether it could be expanded, Housing Minister Chris Bishop told RNZ the Government wants as many New Zealanders as possible to see a path to home ownership.

“We are taking a close look at existing government housing programs, including progressive homeownership.”

How rent-to-own works

In the Habitat for Humanity program, the charity buys the houses with the help of the government, which gives it an interest-free loan on part of the purchase.

The current price of a two-bedroom house in its new development in Mangere East, for example, is $735,000.

The homes were not cheaper than market rate, but the program makes them more affordable for low-income whānau.

First, no deposit was required. Instead, when a whānau moved there, their weekly payments to Habitat went towards building capital.

Within 10 years they could get a mortgage from a bank, because the loan amount would have been reduced due to the principal. Plus, they get all the day dot capital gains.

-RNZ