NZ Government Housing Agency ‘Not Financially Viable,’ Report Finds

Former New Zealand Prime Minister Bill English on September 13, 2017 in Auckland, New Zealand. English was accused of having connections to Chinese spies. Phil Walter/Getty Images

Kāinga Ora, the New Zealand government agency responsible for managing 70,000 tenancies and adding to the pool of government housing, is financially and socially unsustainable according to a damning report released today.

Headed by former Prime Minister Sir Bill English, the independent review looked into its financial situation, procurement, and asset management. The other panel members were investment advisor Simon Allen and strategy advisor Ceinwen McNeil.

It found that its easy access to government credit meant Kāinga Ora borrowed heavily without giving sufficient consideration to the fiscal discipline that carrying huge debts would require.

Housing Minister Chris Bishop said this had occurred to an extent that the agency was now “not financially viable without significant savings as well as funding and financing changes.”

“Over the past six years, even while billions of dollars were poured into it by the previous government, Kāinga Ora left thousands of social houses sitting vacant, tenants were left to rack up enormous rent arrears, and threatening, abusive tenants were permitted to continue living in Kāinga Ora homes despite the terror they inflicted on their neighbours,” he said.

“Despite all this, the waiting list for a social house quadrupled.”

Could Have Cost $4,000 a Head

The report found that operating deficits were forecast to grow from $520 million in 2022/23 to over $700 million in 2026/27, due primarily to interest on its debt-financed capital investment programme.

“Kāinga Ora’s forecast cash requirement from the Crown is $21.4 billion over the next four years. This is equivalent to every New Zealander paying about $4,000 for this activity,” Mr. Bishop said.

Kāinga Ora undertook a programme of record public housing construction under the previous Labour government, financed by allowing it to borrow under its own name as well as through capital injections from the Crown.

“Advice released last year suggests that if Kāinga Ora continues on its current trajectory, their debt will reach $28.9 billion by 2033,” he revealed.

The department spends $2.5 billion a year and has assets of $45 billion.

“We have significant concerns about [its] governance,” Mr. Bishop told today’s post-Cabinet press conference.

He said the entire eight-member board would be “refreshed” as the report found there “has not been a clear separation between the board’s governance role and operational management, and that they saw evidence that the board has been acting more as an advisory function rather than governing.”

There was, for instance, no statement of financial position in the May 2023 board budget pack.

Cabinet has already appointed former Spark chief executive Simon Moutter as the agency’s new chairman.

Agency Assumed Billions Would Flow From Government

“[Kāinga Ora’s] budget assumed that new lending of several billion dollars from the government would be approved, the build pipeline included a line entitled ‘Zero Net Growth’ describing disposals of an indeterminate kind of over 3,000 homes per year, and did not provide a budget scenario where Kāinga Ora is limited to the funding agreed by the government,” Mr. Bishop said.

Four of the report’s seven recommendations were accepted at Cabinet today: to align “contractual arrangements across Kāinga Ora and Community Housing Providers”; to refresh the board; to issue a “simplified direction” to the agency; and to “set an expectation that the Kāinga Ora board will develop a credible and detailed plan to improve financial performance with the goal of eliminating losses.”

“Kāinga Ora is not the solution to New Zealand’s housing crisis,” Mr. Bishop added.

The review had also found that “the wider social housing system is not delivering the results New Zealand needs, and is lacking in transparency and accountability, coupled with a poor understanding of tenant outcomes,” he said.

“The other changes proposed by the review, including moving to a model where the government becomes an active purchaser that takes a social investment approach to cost-effectively improving housing outcomes, will be considered in the coming months,” Mr. Bishop said.

He has ruled out a large-scale sale of state houses as a solution to the agency’s debt situation.

Labour Denies There’s a Crisis

Kāinga Ora had intended to sell off 10,000 homes in order to balance its books, the government says—a claim denied by Labour.

The government announced the review in December last year. It was signalled in the Coalition’s 100-day plan as being the first step in the “Kāinga Ora clean-up.”

Labour asserts that the agency was sustainable, provided it continued to receive adequate funding and access to the income-related rent subsidy, which subsidises the rents of public housing tenants.

Its housing spokesperson Kieran McAnulty called the press conference “pretty disappointing” and said it featured “a lot of excuses and a lot of distractions.”

“It’s like they’ve only just realised it costs money to build houses.”

He said Labour had built up Kāinga Ora and delivered about 14,000 public homes through the agency and community housing providers.

It’s likely that a longer-term revamp of public housing by the Coalition will be based on the social investment model which has long been promoted by Sir Bill and has been heralded by the woman who is now his successor as finance minister, Nicola Willis.