David Hargreaves tries to make sense out of the Government's plans to shift more social housing into the hands of community providers

By David Hargreaves

Wading through the information currently available on the Government's proposed social housing reform programme is a surprisingly unrewarding experience.

In terms of information so far we've received quite a lot of fluff and very little meat.

At the heart of the programme and amid all the politically-correct talk about "a strong housing system that creates a pipeline to independence for tenants and supports them when they are at their most vulnerable" is the plan to sell between 1000 and 2000 state houses this year and possibly 8000 within three years.

The plan may obviously have a big impact on those either in or planning to be in social housing - but the much broader issue is the impact it might have on the overall housing market.

While there's a fair amount of printed material on the table about the plan, what we've seen so far probably raises more questions than it answers. And I do have big concerns that as this process continues we may remain short on vital details.

Prime Minister John Key gave some broad brush statements of intention in a speech at the back end of January, followed up on the same day with a joint announcement from Key and Social Housing Minister Paula Bennett and another statement from Bennett and Deputy Prime Minister Bill English.

Then there was some information on social housing numbers and a question and answer paper.  Additionally there's also a series of Cabinet papers, with this one in my view, providing the best summary, while there's also this "engagement presentation" outlining some of the proposed steps. And finally we have this timetable from the Government:

February-March: public engagement on social housing transactions

Late March-early April: selection of specific transactions

April: Information release about Ministry of Social Development’s social housing purchasing intentions

April-May: regional consultation on specific transactions – "this is where we talk to you about your rights and interests"

July: market sounding – testing regional interest

September: Expressions of interest

Late 2015-mid 2016: request for proposals→preferred bidders identified

November 2015: Cabinet review of progress and next steps announced

The Government's been at pains to deny that this is an "an asset sale", having told us that the asset sales programme would officially end with the 49% sale and sharemarket listing last year of power company Genesis Energy. But of course that's what it is - a sale by the Crown of a large quantity of state assets.

Multi-million dollar question

The multi-million dollar question is how much the Government might, on our behalf, expect to collect for the sale. If you stagger your way through all the material so far produced by the government machine you will find nothing so vulgar as suggested dollars and cents estimates.

What we do know is that, very roughly, Housing New Zealand currently owns around 65,000 houses (about half of which are in Auckland), with a value put on the portfolio of $18.7 billion, which is quite a lot of money. Below shows where the houses are at the moment and where the perceived need in the next 10 years is.

If you apply some very basic logic that says 2000 houses is a shade over 3% of the portfolio and that therefore a sale could get around 3% of that $18.7 billion, then you would be talking about in the region of $575 million being tipped into the Government coffers.

Where will they be sold?

But that's a reasonably arbitrary approach. It would depend on where the houses are to be sold. To this point the Government's been pretty coy. It's clear that the plan is to sharply reduce the number of state houses in some regional areas - but given that this is reasonably politically-loaded stuff, we are not being told where at the moment, to the point of having all reference to regions wiped out of the Cabinet papers that have been released.

However, it won't be all about the regions, because the official word is that the Government will "also sell some properties in areas of high demand". They don't say "Auckland", but they clearly mean Auckland.

My ears immediately pricked up at the PM's suggestion of proceeds being used for housing and "other capital projects".  In his January speech he said, specifically, this: "Initially, we will free up capital from these sales, which we’ll use for housing and other capital projects needed across government."

Where's the money going?

The question is: If we currently have a shortage of housing in Auckland that's as bad as the likes of the Reserve Bank are telling us, and that the RBNZ's concerned, and that the Government's apparently concerned, why aren't ALL of the proceeds from the state housing sales going back into initiatives to ensure that the perceived supply shortages, particularly in Auckland, are resolved?

The Government on the one hand is apparently trying to give us the idea that everything it is doing is about improving housing, and it's definitely not about making money - yet it will, it seems happily syphon money from housing off into other investments. Strange to say the least. Let's hope it changes its mind on that one.

But it is difficult, I think, for the Government to say this is all about "social housing reform" and not about just good old asset sales and reaping cash returns when it is planning to redistribute at least part of the booty for general Crown expenditure.

Who buys?

The other problem in trying to work out how much the Government might get for sale of these assets is that we are not sure about the potential buyers' ability to pay. And this is where it gets real interesting in my view.

At the moment there are apparently 38 registered community housing providers - this includes such organisations as the Salvation Army and local iwi.

Here's John Key again on the sale of houses: "We’re very conscious that the sale of properties has to work for taxpayers. We’re looking to get a fair and reasonable price for these properties, bearing in mind they’re being sold as ongoing social houses with high-need tenants.

"We’re not selling them as private homes or rentals. So we might not get the book value of the properties. But that’s only because, under accounting rules, the value of houses in the Government’s books is based on a theoretical sale in the open market. And that’s not what we’re doing." The bold type is mine.

And here's Paula Bennett and Bill English: "Engagement and consultation will begin soon, including with community housing providers and iwi with a view to selling between 1000 and 2000 Housing New Zealand properties over the coming year for use as social housing run by approved community housing providers.

"These providers may buy properties on their own, or they may go into partnership with other organisations lending them money, contributing equity or providing other services. Properties sold as social houses will have to stay in social housing unless the Government agrees otherwise. In addition, a requirement of any sale will be that existing tenants continue to be housed for the duration of their need."

This fascinating asset-go-round chart has been produced to demonstrate how all this might work.

So what will happen?

Well, it all looks as clear as mud so far. Some of these community providers have already made public utterances to the effect that they won't be able to afford buying houses at commercial rates. So, the obvious question is, will the Government assist them into buying these assets and crucially, will it provide ongoing assistance?

There's already in my view the spectre that we will see one or more of these community providers go belly up - and then what? Who picks up the pieces?

There's the obvious potential consequence of people being made homeless, but there's also potential consequences for the housing market as a whole. We could, as the Labour Party's already suggested, see properties on-sold to speculators if the community providers become financially distressed.

The Government's conceded there are "major risks" to its reforms that will need to be managed "carefully". This includes ensuring that the community providers are financially sustainable as they expand their coverage.

As stated in the released Cabinet papers: "...If one of them [community providers] were to become financially distressed, this could present risks to ongoing tenancies and financial risks to the Crown." For "Crown" read "taxpayer".

Of course, as the Government suggests, what we may see happen is that the providers go into partnership with other entities - but those other entities would need to see financial returns in order to be attracted to get involved.

Joint ventures

The Government's promising that existing tenants of properties sold have to continue being housed - but note that the obligation doesn't mean they have to be housed on the existing site. So, you could see a, for example, Fletcher Building, getting alongside a community provider to buy then redevelop a site (noting that a fair few state houses are on very big sections with room for much more than one house), with the tenants being rehoused elsewhere.

But it does sound a bit messy and you wonder how such arrangements would work out in practice. Will the Government retain any control on what happens to land after a sale is completed?

My big concern is that we would see some fairly sizable sections and perhaps whole areas in Auckland find their way into the hands of land-bankers who would then sit on the land  - without developing it - and wait for it to go up in value.

Such behaviour would of course aggravate Auckland's perceived, already-severe, shortage of housing and would run counter to what the Government's trying to achieve in Auckland.

Key questions

The key questions that come out of all this, for me, so far are:

  • How will the Government be able to guarantee a good price for the houses (and return for the taxpayer), given that the proposal is to sell them to community providers that may or may not be financially equipped to buy them?
  • How will the funds gathered from the house sales be used, and how much of this will be dedicated back to resolving housing shortages?
  • How will the Government ensure the ongoing viability of the community providers in a way that doesn't end up costing us a lot of money?
  • How will the Government ensure that these properties sold don't end up in the hands of land-bankers who only further crimp the supply of houses, particularly in Auckland?

It is still fairly early days yet.

But I'm not encouraged thus far by the lack of truly helpful information on how this is all going to pan out.

What I would certainly want to see from this process is prompt redevelopment of many of the sections sold and delivery of more new houses, preferably affordable ones.

I don't so far see evidence that this will what we get.

Too early to judge yet, but I'm not hopeful. I shall be following developments and the Government's public utterances with interest.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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29 Comments

If the government could supply cheap housing to those living in poverty in Auckland, not only would it improve the quality of life for the poorest in NZ, but they would also save a substantial amount from their current accomodation allowance scheme.  At the moment they are subsidising landlords to the dertriment of taxpayers and the poor.  I am eagerly awaiting some leadership from govt in this area.

Have you ever driven/walked past typical HNZ houses? 
The interesting thing is the number of sky satellite dishes and fuel thirsty and newish looking cars (Ford falcons, Mercs etc) on some drives, better than I can afford.  So really how to stop the abuse of the system also needs some consideration. ie Some ppl need to be moved out so the real needy can move in.
 

Can't say I have for years, when I'm in town it's usually just for groceries.  Most people have a nicer car then me, but thats more to do with my personal choice then relative affordability.  You could go and buy a brand new car today with zero dollars down and 1% interest if you wanted to.  If we could get the price of rent down to a point where everyone could afford sky and a decent car, I would be fine with that.  It depends on how you structure your social safety net, some countries do it with transfer payments, others do it by creating projects that keep the cost of living down, such as cheap housing, no GST on food and power etc.  We can afford to do both here, but we chose not to, for idealogical reasons.  We used to do both, hence we still have an existing stock of state housing to sell, and had some power companies to privatise.

and you have to repay the debt of course and the payments are substantial.  On top of taht new cars might get 1% but the second hand cars will be 15% or more HP.
My point on housing NZ is such ppl who are getting WINZ payments shouldnt be able to afford such things, they already pay very little for rent.
The social aspect of also conflicts with the ecological/green aspect. More ppl using ever more resources on a finite planet isnt going to work for ever.  Also for better or for worse the cost of an item seems to be proven as the most effective way to limit its use.
So while I have dis-quiet about the level of in-equality in NZ I am also concerned that by making our society more progressive we store up more long term problems that the current crop of pollies will not address.

I do understand your point, and my thinking is that social housing has lifted the standard of living for those lucky enough to get it, once that has happened do you then kick them out?
 
As to a realistic discussion of limits to growth, it's just beyond what most people are capable of.  A farmer may understand that he can't keep increasing the amount of cows on his land every year, but once you try and broaden the boudaries you have stepped beyond most peoples comfort zone, and you get the usual response.  We are well past the point where meaningful action is achievable with minimal disruption.  So meaningful action is going to be nearly as disruptive as the end result of innaction.  Given the hobsons choice between the two I am not surprised at the choices we are making.  The only way forward is to keep the party going until we actually run out of booze, and the place is such a mess that even if we wanted too, nobody would be in the mood for a party.  That is the choice we made, and I have made choices with that eventual outcome in mind.  Living in the country, getting on with the neighbours, and having an income source that is valuable locally.

Depends on the amount of social housing and the REAL need.  For me as a general rule as long as you are a WINZ dependant then yes you should get lower cost accomodation.  However once out of that 'trap" and into decent permanent employment then you should, yes relinquish that property for the other needy.  So yes "kick them out"
"Living in the country, getting on with the neighbours, and having an income source that is valuable locally."
I dont necessarily agree that there is a difference now between doing nothing and not.  Doing now would be somewhat planned (even if late) and yes hard and difficult, doing nothing points to the potential for a mad maxx world I for one would rather avoid.  In such a world a, mad maxx one, your otherwise sound choices may not play out to well.

Yet another aspect of the social security net that offers perverse incentives. Rebuild the system from the ground up with universal basic income and watch those incentives disappear...

Watch with disgust as the Social Housing "Charities"  try to talk down the price of purchase.  But really they are excited at the prospect of a new long term business with captive users. Watch the self interested marketing kick in.
The charitable industries are a shocking scene in New Zealand and long overdue for being sorted.  It's a big mistake to deliver them more fodder for their empire building.
The government effort and money would be better spent in getting home ownership rates back up.  90% would be good.

Social housing coorporations are pretty much the most profitable property investments you can get, all at zero risk too.  This has as much to with the reasons why people think Remuera is better then Otara, as it does anything else.  Low demand for that particular asset class, though some canny investors will realise that not all gold glitters.  This is going to be a gift for them, and I'm not just saying that because that is how National operates.

Watch with disgust as the Social Housing "Charities"  try to talk down the price of purchase.  But really they are excited at the prospect of a new long term business with captive users. Watch the self interested marketing kick in.
The charitable industries are a shocking scene in New Zealand and long overdue for being sorted.  It's a big mistake to deliver them more fodder for their empire building.
The government effort and money would be better spent in getting home ownership rates back up.  90% would be good.

Rubbish, the charities do essential work amongst the poor who cant afford market rents and never their own home.

You have swallowed their marketing hook line and sinker Steven. Get up close, or even better inside, and you will observe differently.

DH, one route to other-than-gubmint housing providers is of course Treaty settlements, paid partly via transferring title to x houses in y region for agreed value z.
 
When the scale of settlements-in-progress is looked at, there is much scope, particularly in the provinces. 
 
From ots.govt.nz: - bolding is mine.
"3. Financial and Commercial Redress

This is made up of an overall quantum or value in dollar terms agreed between the Crown and the claimant group in settlement of their historical claims against the Crown.

The quantum is taken by the claimant group in the form of cash or Crown-owned property or some combination of the two. For example, from of a total quantum of $10 million, a claimant group may receive $5 million in cash and the remainder in Crown-owned property. 

The combination of cash and property is a matter for the claimant group to decide, but also depends on the extent of suitable Crown property holdings in the area relevant to the claimant group.

The claimant group also may receive as part of the financial and commercial redress package a Right of First Refusal (RFR) to purchase certain Crown-owned property within a specified geographic area. This RFR usually lasts for a specific time-period."

With $575m being close to half the total settlements to date (25 years) that's not likely to amount to much anytime soon.

I'd say it is all assett sales with no easily discernible likely benefit in sight

Agree, no social gains, the benefit is pretty obvious though, $s in the Govn coffers today.
 

My suspicion is that John Key's sale of State housing will be like NZ's deployment of troops to Iraq. Hugely controversial with great principles at stake. But ultimately due to the small size of the projects they will have little meaningful significance.....

I agree we should be nuking ISIS to show them we are serious, and a similar OTT approach to housing.  Thats how you get results, you gotta be prepared to do whatever it takes.  Whats the point in wasting everyones time and money with the half-cooked plans.

Skudiv I wasn't advocating going WW3 on ISIS. In fact the really brave thing John Key could have done would be to tell Obama 'thanks for the game of golf but I will not be helping you in the Middle East because history tells me it will be a never ending disaster'.
 
The point I was making was John Key has a history of choosing half-arse solutions that do not fix the problem they were intended to fix. I believe this is because he courts popularity so he cannot implement effective solutions that challenge the vested interests of some groups in society. Even if the outcome would be fairer and more efficient.

Key can go against popular opinion when he wants to (asset sales).  I'd rather see all these conflicts settled at the table, either redraw some maps, or as we did in NZ with the Maori Party create new electorates and guarantee the minorities a voice.  But if we want to pretend they don't have legitimate grievances, then we need to assure them that if they oppose us they will be anihilated, which is how WWII was won.  FIrebombing Dresden, Tokyo and Nukes on Hiroshima and Nagasaki.  Since then we have won nothing because we are not prepared to do whatever it takes.  I'm not advocating it either, just pointing out the difference between winning and losing these kind of wars.

Asset sales was another half-arsed policy initiative wth John Key going to back to failed 90s policies because he lacks a vision for the future.

The problem is Brendon, so many criticise the decision but avoid saying what they would have done in a similar position of authority. So of interest, what would you have done in key's position, yes not played golf, but what else, anything ? 

Grant playing golf was fine, being friendly with old friends is fine. But that shouldn't mean we have to get involved in adventures where there is no plan on how that adventure will help resolve issues.
 
My thinking is that leaders in society need to address the issues that are causing the malaise of apathy and lack of hope that I believe is the fundamental reason for such problems as the outbreak of global deflation. I outlined the general idea in my 'Loss of Hope' article.
 
In traditional countries like Germany, Italy and Japan they need leaders like Helen Clark who addressed issues around acceptance of mothers in the workforce. Woman shouldn't be forced into deciding between working and motherhood because too many will choose working and the demograhic conseqences will be devastating for the countries in question.
 
People should not be held economic hostage by a flawed political system such as the EU and Euro blocks that does not provide the correct fiscal and monetary instruments to administer the areas in question.
 
People should not expect the next generation to be willing victims to a unsustainable housing ponzi.
 
Picketty type of global inequlaity is not inevitable, issues can be addressed, problems can be solved.
 
Societies are always going to require progressive reformers to avoid stasis and then decline. Status quo conservatism is not the answer. That is John Keys challenge and the challenge for the leaders that follow him.

Sorry Brendon I was referring to your other posting and asking the much more simple question about what you would do about ISIS if you were in John Keys posiiton since you dont agree with what he has done. I have no idea and probably like most suspect we're in for years of  a diificult war with possibly no end game but Im not sure the world has much of a choice.
So thats my question and the choices seem to be simple; what hes done, do nothing, or do something but something different 

Why should we do anything about ISiS Grant A? Its a classic case of blowback thats erupted in the face of the United States yet again. They were suckered into the war against Assad by the despotic regimes of Saudi Arabia, Quatar, and Bahrain who have their own designs on the region.
Saudi Arabia is actually worse than ISIS. My suspicion confirmed by an article in NewsWeek.
http://www.newsweek.com/2014/10/24/when-it-comes-beheadings-isis-has-not...
Its sickening to see world leaders kowtow to the will of this regime of petty despots,  perverts and butchers. What hold do they have with our powerbrokers that we still pay to guarantee their security after a Century of rule? Whoever is in power over there will still sell oil and buy weapons from the West.

Because we need the oil.
end of story.

So I take it that's the Neville Chamberlain approach, "the only thing necessary for the triumphs of evil is for good men to do nothing" approach - ISIS will get tired and go away and who cares if they kill other people, not us approach - fortunately there are more good men and women in NZ than the other types who question doing something but have zero realistic solutions to offer instead.

Agree

I think this website will provide some more information and the FAQ's tab gives a quick overview.....Anyone that is looking at registering is going to have a huge amount of paperwork to contend with......
 
http://www.shu.govt.nz/chra-home/