The $1 billion plan to speed up construction of thousands of NSW homes

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Construction on thousands of NSW homes that have development approval yet remain unbuilt could begin within months as the state government’s $1 billion plan to guarantee finance to make residential projects more feasible is due to start taking applications from developers.

Treasurer Daniel Mookhey used the state budget in June to reveal Labor would create the revolving fund to allow developers to borrow to construct mostly mid-rise housing developments with the certainty the government would buy any unsold homes up to the value of $50 million per project.

The government hopes the scheme will reduce risk in the residential construction sector.

From Monday, eligible developers with approval for low- to medium-density developments and some initial pre-sales can submit an expression of interest to have the government act as guarantor on up to 50 per cent of dwellings in each project. If approved, the developer must start building within six months.

Planning Minister Paul Scully said the pre-sales financing guarantee (PFG) was “a game-changer”.

“This will bring forward the construction of homes, offer greater certainty for our building industry and reduce the level of risk in the financing sector,” he said.

Scully said there were 13,000 dwellings approved but not started in NSW, which was “a bad outcome for our housing delivery, our economy and our communities”.

“We want good quality homes from reputable builders, and we want them soon.”

Meeting presale targets to secure construction finance has become a critical hurdle for developers, who can typically get lending approval for a project once they hit about 80 per cent of pre-sales.

The government’s decision to underwrite private developments reduces the number of pre-sales a developer needs before a bank is prepared to make a loan available for them to start construction.

The government hopes the plan will accelerate construction of residential projects enabled under its transport-oriented development scheme and low- to mid-rise housing reforms as it faces an uphill climb to meet its National Housing Accord target to deliver 377,000 homes by mid-2029.

It expects to underwrite about 5000 dwellings, enabling delivery of 15,000 homes over five years.

Developers who submit an expression of interest will be assessed to determine whether they are eligible for the scheme. Applications will open in October, and suitable developers who are among the first to apply are expected to have their project financing approved by the end of the year.

The scheme will enable mid-tier developers to apply for $5 million to $50 million in financing per approved housing development. Eligible dwellings will be valued at up to $2 million each.

Property and Development NSW, with input from the NSW Building Commission, will assess those developers and projects for their “capacity, credibility and capability” before agreeing to act as guarantor on up to 50 per cent of homes in each project.

If the developers do not pre-sell the homes, they can call on the guarantee, and the government will purchase the completed dwellings at a discounted rate before selling them on the private market to buy or rent or using them for social or affordable housing. If the developer secures the pre-sales, the guarantee is extinguished and the funds will go back into the $1 billion fund for another project.

The time between approval and commencement of new apartments has increased by 39 per cent, from 5.6 months to 7.8 months, in the past five years, Australian Bureau of Statistics figures show.

Opposition Leader Mark Speakman previously criticised the scheme as a “very modest proposal” given “we’re talking about pre-sales of 5000 new homes – that’s 1000 homes a year over five years”.

“It’s a drop in the ocean compared with the 377,000 [dwellings] target NSW has,” he said.

Mookhey on Sunday said the government being guarantor on thousands of homes would give lenders and buyers more confidence. “This is about turning approvals into actual homes, supporting jobs, boosting housing supply and strengthening the state’s economy at the same time.”

He previously said NSW Treasury modelling showed the state’s property market would need to slump by 15 per cent before the state would lose money on the scheme.

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