Social housing providers will be able to borrow from big banks at discounted rates with a Crown guarantee to repay 80% of a loan in the case of default

The Government will guarantee 80% repayment of bank loans made to community housing providers as a way to reduce borrowing costs for social housing builders. 

After the 2023 election, the Coalition stopped expanding state housing through Kāinga Ora and shifted to subsidising rents in homes built by community housing providers (CHPs). Tenants pay 25% of their income, with the Crown covering the balance up to market rent.

It felt CHPs could better assess local needs and deliver housing cheaply, but an added benefit was that it took the risks and costs of construction away from the Government. 

The downside was that CHPs faced higher borrowing costs than Kāinga Ora, which was able to borrow directly from the Crown balance sheet at very low interest rates. 

A new scheme announced by Finance Minister Nicola Willis and Housing Minister Chris Bishop attempts to solve this problem by guaranteeing bank loans made to CHPs. This reduces the credit risk and allows banks to offer finance at lower rates.

Bishop said the past two government budgets had allocated funding for over 2000 new social homes in the community housing provider sector — which is made up of not-for-profit entities run by churches, iwi, and other charities.

“Our ambition for the social housing system is for a level playing field between community housing providers and Kāinga Ora. The underlying ownership of a house—whether public or private—should be irrelevant. What matters is the provision of warm, dry homes to those who need them, along with social support if required,” he said.

“While Kainga Ora's borrowing is done through the Crown, community housing providers currently access debt from the private market at higher rates and this has been identified by them as a real inhibitor to their growth.”

The Government has already established a Community Housing Funding Agency which has an A+ credit rating and has issued $200 million of social bonds it can on-lend to CHPs.

But since it's a Crown-owned entity the debt still sits on the consolidated balance sheet and the government ultimately controls the flow of funding to CHPs.

The new loan guarantee scheme lets providers borrow directly from the big five banks at lower rates, with the Crown guaranteeing up to 80% of the debt. This reduces the risk for banks and makes it cheaper for them to lend.

Bishop said it would support up to $900 million of new lending and refinancing of up to half of CHPs existing loans. Each provider can access up to $80 million in scheme loans. 

“The loan guarantee and the Government’s support for the Community Housing Funding Agency are short-term measures providing critical support while other changes are made to improve the system in the longer term, including simplifying the funding system,” he said. 

The scheme will take new loans until June 2027, each with a maximum term of five years, meaning some could still be active until mid-2032.

Kieran Ryan, general manager of property finance at BNZ, said the bank was pleased to participate in the scheme and had $125 million available to lend.

“The vital work that Community Housing Providers do by supporting vulnerable New Zealanders into homes, has often been challenged by the cost of accessing the funding needed to progress developments,” Ryan said.

“The government’s scheme changes that equation, reducing risk for lenders, and enabling financing to CHPs that better reflects long-term, stable revenue from their government contracts."