Kāinga Ora housing in Parnell. Photo / Michael Craig
ANALYSIS
The Government is shifting its focus to Kāinga Ora, the agency charged with building and managing New Zealand’s state housing stock.
Housing Minister Chris Bishop has accused the agency of being poorly run to the point it was fiscally unsustainable. He appointed former Prime Minister Bill English to review its finances. That review is running slightly late but is meant to be before ministers shortly.
In the meantime, the current Government has lashed at the previous Government for planning to sell more than 10,000 state houses. The attack is a damaging one, given Labour governments tend to pride themselves on building and retaining the stock of public housing. Selling 10,000 homes would be severe - it would be about 15 per cent of the 67,000 homes owned by Kāinga Ora.
The Herald looked into the claim, and found that under Labour, Kāinga Ora did indeed forecast selling many of the houses that it owned, but that Treasury found this assumption to be unreasonable. Further digging into Kāinga Ora’s plans suggest they were not necessarily something National would disagree with as the sales increased the stock of both public and private housing, an idea National was very keen on in opposition.
The claim first popped up in Prime Minister Christopher Luxon’s State of the Nation speech in which he said the new Government had “uncovered a big financial mess at Kāinga Ora”.
Luxon said Treasury had warned that Kāinga Ora’s financial forecasts “relied on the sale of 10,200 homes in the coming years just to balance its books, even while Kāinga Ora’s debt is set to rise to $29 billion”.
The Herald filed an Official Information Act request for the advice behind the claim.
The Government would not release the document containing the advice in full, but it did release two paragraphs of the Treasury advice on which the claim was based.
The briefing appears to be about the agency’s borrowing, which is significant. For a time, Kāinga Ora was allowed to issue its own debt, unlike other parts of the Government which are forced to go via their Minister and Parliament to Treasury. In Opposition, National grew concerned about the level of that borrowing.
“Kainga Ora’s borrowing is driven by investment in the public housing portfolio, which Kāinga Ora’s forecast assumes will be offset by $6 billion in revenue from the sale of 10,200 public homes over the forecast period.
“These sales partially offset the new public houses built, such that Kāinga Ora forecast no change in the size of the public housing portfolio between 2025/26 and 2027/28 (additional are equal to demolitions and sales),” Treasury said.
In other words, yes, Kāinga Ora was forecasting the sale of those houses. However, a fact neglected in both Luxon’s speech and Bishop’s Facebook post, is that the organisation was planning to build new homes to replace them so the net number of houses would not change.
Treasury included another line, saying it “does not consider this to be a reasonable assumption and have identified other assumptions that undermine the efficacy of the forecast modelling; the viability of their forecasting warrants further investigation”.
The Herald asked Treasury to clarify what was unreasonable about this assumption. Treasury said that a rate of about 3000 home sales a year was unreasonable given previous annual sales rates for state houses were “around 100″ and Treasury was “not aware of specific plans to enable such a change”.
That is a fairly searing rebuke of Kāinga Ora’s financial competence from Treasury. This is an organisation that, according to a recent Select Committee hearing on its annual review has $43b in assets and debt of $12b. The fact that Treasury considered the number so unreasonable also invites questions as to whether it was appropriate for the figure to be used as an attack line in a speech.
Staggeringly, Kāinga Ora told the Herald that it was not aware of Treasury’s remarks about its assumptions.
Gareth Stiven, Kāinga Ora general manager strategy, finance and policy, told the Herald they had “have never directly received advice from Treasury that they felt these assumptions were unreasonable, and we have not received a copy of the report from which that comment is drawn”.
Stiven said the sales assumption was based on Kāinga Ora’s 2022 Asset Management Strategy (AMS) which dealt with the fact that it has about 45,000 homes that are near the end of their economic lives and need renewal over the next 10-20 years.
This strategy responds to the problem presented by those 45,000 ageing homes. Kāinga Ora can either extensively renovate them to bring the houses up to scratch, or it can sell some and replace them with other homes. Stiven said that this approach meant New Zealand as a whole would add an extra home to the national stock of housing. This is because while Kāinga Ora was only replacing one home with another, and therefore not increasing the overall number of state houses, the fact that Kainga Ora was selling one of its houses to build another meant that New Zealand as a whole would be left with two houses when before there was one.
Stiven said that as per that 2022 review, Kāinga Ora anticipated renewing about 10,000 homes via a retrofit, and about 15,000 through redevelopment. A full 20,000 were to be replaced with new homes.
“From a financial perspective, replacement means that instead of paying say $300k per home to renovate it, we pay say $700k to build a new one, and as long as we can sell the old one for more than $400k we are in a better financial position, and New Zealand has one more home,” Stiven said.
“The sales were to enable Kāinga Ora to deliver on our renewal strategy, while not decreasing the size of the portfolio. The proceeds from any sales would be reinvested in homes that meet the needs of our customers,” he said.
When presented with the 10,200 sale figure in February, Labour said it had never seen that number, nor had it agreed to a sell-off of that magnitude when in government. It said the problem related to the current Government not agreeing to fund additional housing places through the Income Related Rent Subsidy when the current funding ends in June 2025, according to The Post.
Treasury backs up the first part of this, noting that it hadn’t seen any plans to allow that level of asset disposal, but Kāinga Ora, as an independent agency, has a great deal of latitude to deliver the level of housing places it is asked to deliver however it sees best, including by selling some houses to build others.
The bigger challenge for Kāinga Ora is in 2025, when the programme to increase public housing places ends.
The number of public housing places is effectively capped by the funding for Income Related Rent Subsidy. This is the operational funding that supports a public housing tenant, either a tenant in a Kāinga Ora home, or a home owned by someone else. After funding for new places runs out in 2025, Kāinga Ora will switch its focus to renovating and replenishing existing stock, rather than building new places. If the Government wants to continue adding more public housing places, it will need to increase that funding.
Kāinga Ora chief executive Andrew McKenzie told MPs in March the organisation had budget to grow the portfolio to 2024/25.
“There isn’t budget beyond that to grow our portfolio, so what we’ve been looking at is as we renew our homes, what are the choices we might make - a renovation? Or use the land more intensively and get three for one [three state houses where a single house once stood] and then we’ll have two older homes elsewhere in that suburb that we might choose to sell - the gross side of the portfolio is going to stay the same,” he said.
Thomas Coughlan is Deputy Political Editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the press gallery since 2018.
Expectations tempered around return to surplus in 2027/28.