Wellington City Council's social housing arm at risk of insolvency

WCC's City Housing is in a precarious financial position. Photo / Mark Mitchell

Wellington City Council wants Central Government to foot the bill for rent subsidies and free up money for its cash-strapped social housing arm.

One councillor has warned that if City Housing's financial issues aren't addressed soon, it risks becoming insolvent.

Councillors are today considering whether to put 20 social housing properties on the open market to pay for a development within its portfolio on Nairn St.

Insurance and construction costs have weighed heavily on City Housing, leaving it in a financially unsustainable position.

Along with selling off assets, the council has also considered rent pricing changes, which would generate more money to stay afloat.

The situation has brought back into play the political football that is the Government's Income Related Rent Subsidy (IRRS) scheme.

The subsidy means low-income tenants will pay no more than 25 per cent of their income on rent, with the Government paying the difference between that and market prices.

But it's only available for new tenants going into Kāinga Ora or Community Housing Provider social housing.

That leaves the council to pay for any tenant subsidies in its 2000 units, which is currently an almost blanket 30 per cent discount that does not take account of household income.

Economic portfolio leader councillor Diane Calvert said it was unfair.

"Ratepayers pay 15 per cent GST, which goes into Government coffers.

"Government pays a subsidy to its own providers and I can't see any difference why we as a council shouldn't be able to tap into that subsidy."

Wellington City councillor Diane Calvert. Photo / Mark Mitchell

Calvert said the subsidy, although not a silver bullet, would also free up much-needed money for City Housing.

"If we don't deal with this now, and we've been kicking the can down the road for the last few years at least, our City Housing is going to end up insolvent.

"What that will mean is we will have less housing available in the social space and that's not what any of us want to see."

Wellington City Council has already spent the $220 million it received from the Government in 2008 as part of a now 30-year deal to upgrade its social housing stock.

Only half of the portfolio has been upgraded, with the council struggling to come up with the cash to pay for its share of the agreement.

Ratepayer money cannot currently be used for City Housing, which relies on ringfenced rental income.

Greens co-leader and Housing spokeswoman Marama Davidson said the party's Homes for All Plan included a commitment to review the IRRS with a view to enabling local councils to access it.

"Excluding councils from IRRS has been unfair to those councils that are trying to do the right thing by providing affordable homes for their communities, like in Wellington", she said.

Greens co-leader Marama Davidson. Photo / Mark Mitchell

National's Social Housing spokesman Simon O'Connor said successive governments have resisted the move because councils as public entities could draw rates and choose how much they spend on social housing.

"With a social contribution via council funds, to then also dip into Government funding via the income related rent subsidy is seen as unfair.

"National is happy to look at the wider issues and the application of the IRRS and Accommodation Supplement when we get into Government."

Labour Party Housing spokesman Kris Faafoi said the decision to exclude councils from directly receiving the IRRS was made by the previous National government.

He said when Labour has considered boosting housing funding, the party has focused on increasing public housing supply, including increased supply from CPHs.

"That is why, as part of Budget 2020, the Government committed funding for 8,000 additional public and transitional houses, which will take the total we will deliver by 2024 to 18,350."

Councils can gain access to the Government subsidy if they partner with a registered CHP.

Wellington City Council has done this before in 2016 when it handed responsibility to the Salvation Army for up to 20 new tenancies.

National Social Housing spokesman Simon O'Connor. Photo / Steven McNicholl

But Calvert said the council has made a commitment to provide for social housing itself.

"We're answerable to the city's residents on that, when we transfer it over to another body, they don't have the same accountability."

The council has recently consulted on rent settings.

It proposed basing council subsidies off incomes, meaning some tenants would receive a 40 per cent discount, but some would end up paying more.

This plan would generate up to $1.5 million in rental income for City Housing, helping to ensure the future of the service.

Mayor Andy Foster said early this year that current rental income was insufficient to keep council housing services sustainable.

"Changing how we charge rent will help to make sure we can continue to provide a good standard of social housing and support to our tenants for the foreseeable future."

Mayor Andy Foster says current rental income was insufficient to keep council housing services sustainable. Photo / Mark Mitchell

But Social Housing portfolio leader councillor Fleur Fitzsimons confirmed that on Tuesday night the council announced to all City Housing tenants there would be no increase to rents this calendar year.

She said it was a result of the Government's Covid-19 rent increase freeze and several outstanding issues around affordability and the financial sustainability of City Housing.

Fitzsimons said the council needed to take more time to get the balance right.

She said both Local Government New Zealand and the council have made their position very clear on IRRS.

"It's the fair thing to do, it's the right thing to do", she said.