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Housing Minister Chris Carter will take a proposal to Cabinet in the next fortnight to alter the Welcome Home loan scheme, just a year after it was introduced.
The initiative allows young home buyers to borrow $150,000 with the Government acting as guarantor in lieu of a deposit. Up to $280,000 can be borrowed with a 5 per cent deposit.
The scheme was announced by Labour in last year's Budget to help 5000 first-home buyers a year realise the Kiwi dream of home ownership. It said 58,000 families would be eligible for the scheme.
But Mr Carter said it was "disappointing" that only 1700 families had used it to buy houses. Modest income families were still being squeezed and he blamed skyrocketing property values ¨C especially in Auckland, Wellington and other metropolitan areas ¨C for the poor response.
"We didn't anticipate there would be quite that rise in values. It's in Auckland particularly that we want first-home buyers to access the market through this scheme and at the moment it's not really possible."
Mr Carter's Cabinet paper would suggest "adjusting the levels" of the scheme, which he confirmed meant raising the amount prospective homeowners could access.
Welcome Home loans are available to people who can afford mortgage repayments but have little or no deposit and would not normally qualify for a home loan.
For one or two borrowers, household income cannot exceed $85,000. Three or more borrowers can team up if household income is less than $120,000.
Evidence that the soaring house prices are putting the dream of home ownership out of reach for many New Zealanders came in an ACNielsen survey commissioned by Wizard Home Loans released at the weekend.
It showed home ownership had fallen 12 per cent in the year to March 2006, from 50 per cent of the population aged 15 and over to 44 per cent.
The Government's own estimates, based on census data from 1991 to 2001 and subsequent household labour force surveys, puts the figure at 65 per cent but still shows a declining trend.
Whichever figures are used, New Zealand ranks below Australia, the United States, Britain and Canada.
Mr Carter said the Government was committed to pushing New Zealand ownership rates back up.
Another proposal the Cabinet would consider was a shared equity scheme, where the Government or private sector stumps up all or some of a deposit that is repaid when the house increases in value or is sold.
As this was only viable in a growing market, it would be best suited to boom areas such as Auckland and other metropolitan cities, Mr Carter said.
He is also sounding out local authorities about placing covenants on new housing developments to ensure some are set aside for affordable housing.
This is common in Australia, where property developers are rewarded by having more land rezoned for a development or their applications fast-tracked.
The Green Party yesterday warned New Zealand was becoming "a holiday home for billionaires" and urged the Government to move swiftly to make housing more affordable. One of the party's MPs, Sue Bradford, suggested a capital gains tax on all but the family home, but neither Labour nor National are prepared to take this on.
One Australian lending institution has begun offering "lifetime" mortgages as an alternative for struggling young home buyers, with banks testing consumer reactions to 40 and 50-year terms. The initial payments are lower, but overall interest payments much higher.
The idea received a muted response here. Mr Carter said that was a decision for commercial banks and formed no part of Government plans.
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