What is Mookhey’s $1 billion housing guarantee, and how will it work?

The state government has turned its attention to the private sector to boost housing supply, after two budgets focused on delivering affordable homes for essential workers and social housing.

Treasurer Daniel Mookhey used his third budget to reveal the government would create a $1 billion fund to guarantee up to $50 million in financing for approved housing developments to make the projects more feasible and speed up the delivery of an estimated 15,000 new homes over five years.

Delivering more housing has been a key promise of the Minns government.Credit: Michael Howard

Mookhey conceded the scheme was no “silver bullet”, but rejected the Opposition’s criticism that the new homes represented a “drop in the ocean”, as he emphasised NSW would need to “build, build, build” its way out of the long-simmering housing supply crisis.

But he said the government’s decision to become guarantor on thousands of residential developments would target one of the biggest roadblocks for developers who want to start building low- and medium-density projects: difficulty in securing enough pre-sales to get finance from lenders.

The government hopes the plan will accelerate the 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.

How it will work

The “pre-sales financing guarantee” will enable mid-tier developers with approval for low- to medium-density residential projects and initial pre-sales to apply for $5 million to $50 million in financing. Property and Development NSW will assess those developers and projects for their “credibility, capability and capacity” before agreeing to act as guarantor on up to 50 per cent of dwellings in each project. If approved, developers must start building within six months.

Developers can typically only get lending approval for a project once they hit about 80 per cent of pre-sales. The government’s decision to underwrite projects reduces the number of pre-sales a developer needs before a bank is prepared to make a loan available for them to start construction.

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.

Previously, developers who could not secure financing from a bank would either not be able to start construction, or would turn to secondary lenders with significantly higher borrowing rates.

NSW Treasurer Daniel Mookhey said the government’s decision to underwrite developments would accelerate the construction of low- and medium-density developments.Credit: Dominic Lorrimer

Mookhey 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 its finance guarantee scheme. He expected the government would guarantee about 5000 dwellings, enabling the construction of 15,000 homes.

He also signalled the fund – which is an Australian first – could be extended or scaled up.

The scheme is expected to start taking applications from developers from October.

What they said

Treasurer Daniel Mookhey: “This is a canny use of the state’s balance sheet which has been carefully calibrated to bring online 15,000 homes. [These are] the most challenging projects to deliver under current market conditions; also, the projects we need to get started to tackle the housing affordability crisis.”

NSW Opposition Leader Mark Speakman: “It’s a very, very modest proposal. Even on the government’s own figures, we’re talking about pre-sales of 5000 new homes. That’s 1000 a year over five years. It’s a drop in the ocean compared with the 377,000 [dwellings] target NSW has.”

Property Council NSW executive director Katie Stevenson: “Developers have been telling us – finance is the barrier stopping good projects with planning approval from moving forward. This guarantee removes a key obstacle and opens the door for viable projects to proceed. It’s a smart policy that responds directly to industry needs.”

Committee for Sydney policy manager Estelle Grech: “We hope to see the $1 billion guarantee scheme focused on stimulating more housing diversity in the market – funding projects that include affordable housing, and more family-friendly apartments that are known to be popular, in-demand products, but more difficult to sell off the plan.”

Urban Taskforce chief executive Tom Forrest: “This is a smart way to leverage government funds, and a clear signal that the NSW government appreciates the importance of working with the private sector as the key actors capable of solving the housing supply crisis. Having this facility available will increase the confidence of financiers and reduce the borrowing costs for developers.”

Urban Development Institute of Australia (NSW) chief executive Stuart Ayres: “The pre-sale finance guarantee will see many apartment projects get under way faster. However, much more needs to be done to bring on more homes across all housing types. With apartment feasibility undermining the government’s infill policy agenda, new investment is needed in enabling infrastructure to unlock land ready to supply more homes.”

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