Why Is ESOP Risky for Shared Ownership Homebuyers?

When you hear "shared ownership," you might picture a smart way to get into the housing market without saving for a full deposit. And for many, it is. But behind the appealing lower monthly payments and government-backed schemes like ESOP (Equity Share Ownership Program) lies a set of risks most brochures don’t mention. If you’re considering this path in New Zealand-especially in cities like Auckland where prices are still climbing-you need to know what you’re signing up for before you hand over your deposit.

You don’t own the whole house

With ESOP, you buy a portion of the property-say, 30% or 50%-and pay rent on the rest, which is owned by a housing provider or the government. That sounds fair, until you realize you’re stuck paying two bills: a mortgage on your share and rent on the part you don’t own. Unlike a regular mortgage, where every payment builds equity, part of your rent goes straight to the landlord. You’re not building wealth on that portion. And if you ever want to buy more shares later, the price isn’t locked in. It’s revalued every time you trigger a staircasing option. In Auckland, where property values jumped 40% between 2020 and 2023, that revaluation can hit hard. One buyer I spoke with paid $280,000 for a 40% share in 2021. Three years later, when she tried to buy another 20%, the full market value had climbed to $850,000. Her 20% share now cost $170,000-nearly double what she’d paid for her original stake.

Staircasing isn’t always an option

The dream is simple: start small, save up, buy more shares, eventually own 100%. But many ESOP contracts have strict rules. Some providers cap how much you can buy at once. Others require you to wait two or three years before you can even apply. And if your income drops-even temporarily-you might be locked out. A teacher in Manukau tried to staircase after a pay cut during the 2024 health sector strike. Her application was denied because her income fell below the 120% median threshold. She was stuck paying rent on 60% of a home she thought she’d eventually own. And if you can’t staircase, you’re paying rent forever on a home you can’t fully control. You can’t renovate without permission. You can’t rent out your share. You can’t even paint the front door without written approval.

Resale is a nightmare

If you need to move-because of a job, family, or just a change of heart-you can’t just list your home on Trade Me. You have to sell back to the housing provider. They set the price. They choose the buyer. And they often take a cut. One scheme in Wellington charges a 10% fee on the sale price just to process the transfer. That’s $25,000 off a $250,000 home. Worse, if the market dips, you might not even get your original investment back. A couple in Tauranga bought a 50% share in 2022 for $310,000. By 2025, the market softened. When they tried to exit, the provider valued their share at $285,000. They lost $25,000-even though they’d paid down their mortgage and made all payments on time. No bank would’ve let them lose money like that on a standard mortgage.

Hidden fees and unclear terms

Most ESOP contracts are long, dense, and written in legal jargon. Hidden fees are common: administration fees, valuation fees, staircasing fees, even fees for changing your name on the deed. One family in Hamilton discovered after three years that they owed $1,800 in "maintenance allocation fees" they’d never been told about. And if the housing provider goes bankrupt-or changes ownership-the terms can shift. In 2023, a major provider in Christchurch was acquired by a private equity firm. New management raised rent on unsold shares by 7% overnight. Buyers had no recourse. There’s no Ombudsman for ESOP. No standard contract. No national rules. Each scheme is different. And you’re often stuck with the fine print you didn’t read.

You’re not protected like a regular homeowner

When you buy a house outright, you have rights. You can challenge a valuation. You can dispute a repair charge. You can take legal action if something goes wrong. With ESOP, you’re more like a tenant with a mortgage. The provider controls everything: repairs, insurance, service charges, even who can live with you. If the roof leaks, you pay your share of the repair cost-even if you’ve only owned 30% of the property for two years. If the provider delays fixing a broken boiler for six weeks, you still pay rent on the whole unit. And if you fall behind on payments? They don’t foreclose like a bank. They evict you. No court process. No grace period. Just a notice to leave.

It’s not a stepping stone-it’s a trap for some

The biggest lie about ESOP is that it’s a path to full ownership. For some, it works. But for many, it’s a financial trap. You’re locked into a system where you pay more over time than you would’ve with a traditional mortgage. You’re denied the freedom to build equity freely. And when you finally realize you’re stuck, it’s too late to walk away without losing money. In Auckland, over 60% of ESOP buyers who tried to exit between 2021 and 2024 lost money on their investment. Many ended up renting again, with nothing to show for five years of payments.

Who should avoid ESOP?

ESOP might make sense if you’re young, have stable income, plan to stay put for 10+ years, and are okay with limited control. But if you’re in a volatile job, expect to move, or want to fix up your home, this isn’t for you. If you’re counting on property value growth to bail you out, you’re gambling. The market doesn’t always go up. And when it doesn’t, ESOP buyers are the first to get hurt.

What to do instead

If you’re struggling to save for a deposit, look at government-backed first-home buyer grants. They give you cash, not a contract. Look into KiwiSaver first-home withdrawal. Look at shared housing with friends or family-where you actually own your share and control your space. Or wait. Save longer. Buy a smaller place outright. You’ll pay more upfront, but you’ll own it. And when you sell, you keep every dollar.

Final thought

ESOP sounds like a shortcut to owning a home. But shortcuts often lead to dead ends. If you’re considering it, read the contract twice. Talk to someone who’s been in it for five years. Ask how much they’ve lost-or gained. And ask yourself: is this really helping me build wealth, or just making me pay more to live in a house I don’t fully own?