Govt more than doubles its housing agency's debt ceiling to $7 billion

Property

Government gives Kāinga Ora - Homes and Communities the green light to more than double its debt to $7 billion; Housing NZ to issue $2.5 billion of bonds this year

17th Jan 20, 12:09pm by Jenée Tibshraeny

The Government has given the Crown entity tasked with building houses the thumbs up to more than double its debt.

Kāinga Ora - Homes and Communities’ debt ceiling under its “Borrowing Protocol” was increased from $3.05 billion to $7.10b on January 1.

According to an announcement made (but not publicised) on Thursday, Finance Minister Grant Robertson and Housing Minister Megan Woods approved the change on December 19.

This means the agency responsible for the likes of KiwiBuild and the country’s state houses will have a substantial amount more headroom for future debt issuance.

Kāinga Ora’s subsidiary, Housing New Zealand Limited, plans to issue around $2.5b of “Wellbeing Bonds” in the 2020 calendar year.

Put in context, the value of the entity’s bonds on issue as at December 31 was $2.3b. Meanwhile Treasury expects gross New Zealand Government Bond issuance will total $10b in the year to June 30, 2020.

Because Kāinga Ora is a Crown entity, the debt it issues (IE the Wellbeing Bonds) won't be accounted for in the government's financial statements as "core Crown debt".

So, additional borrowing for much of the country’s housing needs won’t affect Robertson’s self-imposed Budget Responsibility Rules, which include a commitment to reducing this measure of debt as a portion of gross domestic product.

Kāinga Ora’s acting chief executive, Greg Groufsky, said the agency’s higher debt limit gives it room to “build more houses in addition to current targets if needed for the future”.

He said the Government expects more households will need the Income Related Rent Subsidy, so Kāinga Ora is building homes to support this demand.

“The funding will also support the progress of large urban development programmes underway in Auckland (Northcote, Mangere, Mt Roskill and Oranga) which will deliver up to 22,000 new homes over the next 10 to 15 years, and provide capital for new land development activities to increase housing supply,” Groufsky said.

“The funding will also finance the extensive programmes which are upgrading and renewing older state homes…

“The 1,461 new state homes built in 2018/19 was the largest in nearly 20 years.”

Here’s more information from Kāinga Ora on its 2020 bond issuance plan:

Issuance is expected across the curve, with the exception of the June 2023 maturity.

All Wellbeing Bond maturities, excluding June 2023, are forecast to increase to a maximum $2.0 billion per tranche over time, subject to the total size of the Borrowing Protocol limit. We consider the $2.0 billion limit balances maximising liquidity in individual issues with an acceptable level of refinancing risk, given current and expected gaps between maturities.

We expect to launch a longer-dated Wellbeing Bond in the next few months, subject to market conditions, extending the curve beyond the existing October 2028 maturity. Increasing the average maturity of the debt portfolio is an important goal for Kāinga Ora, given the nature of our asset base, and we remain open to reverse enquiry for longer-dated issues (15 years and beyond).

Syndication will continue to be the preferred approach for debt issuance as we develop the portfolio and build liquidity in individual maturities. Tenders may play a role in primary issuance over time, particularly for more liquid maturities, and we will update the market on our planned approach in due course.

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45 Comments

by brisket | 17th Jan 20, 12:40pm 1579218042

Good news. The selling-off of state housing and introduction of market rents has been the biggest driver of poverty in NZ for the last 20 years. A massive investment in state housing will have even more massive pay-off in health, education, crime etc.

by Foyle | 17th Jan 20, 12:48pm 1579218505

Why not borrow through the Govt bonds instead? It costs less. Answer: it makes govt books look worse, so screw the taxpayer, lets waste more of their money on interest!

by Pragmatist | 17th Jan 20, 3:43pm 1579229007

And you'd be bitching about the govt debt if they put it on the govt books because its a Labour led coalition. *shrug*

by mfd | 17th Jan 20, 3:51pm 1579229493

Debt is debt, whether the Government takes it out themselves or through a subsidiary. I'd be crazy to borrow money long term through a credit card rather than through my mortgage, the Government is similarly crazy to choose more expensive debt here (admittedly not at such a large interest rate disparity as my example). I voted Green, but happy to criticise this regardless of who is currently running the Government. See also: overly generous public/private initiatives.

by Pragmatist | 17th Jan 20, 4:45pm 1579232722

My point was the Foyle would be bitching either way. Certain posters would bitch about anything team red does, but if team blue did the exact same thing they'd justify it internally. And vice versa. Its tiresome.

by Yankiwi | 17th Jan 20, 10:09pm 1579252170

Fiscal responsibility is a desirable concept, regardless of team affiliation. Fiscal irresponsibility should be called out, named, and shamed. And particularly if it is done for partisan reasons. That it is being done by the team that you are supporting should not be a reason for an ad hominem attack on a person that is pointing out the fiscal irresponsibility.

Moving fiscal spending off the ledger is shifting the costs to the future. Just because it doesn't show up on the books this year doesn't mean that the funds do not need to repaid. Whether it is energy, population growth, govt spending or ..., I'm tired of the various .govs continuing to kick the can down the road with the expectation that the bill will be given to an unnamed succeeding government.

What happened to the government of transformation? This is the same playbook that we have seen for several decades now. Sweep stuff under the rug, use short-term accounting and ignore the real long-term costs.

by Pragmatist | 18th Jan 20, 12:33am 1579260810

"That it is being done by the team that you are supporting should not be a reason for an ad hominem attack on a person that is pointing out the fiscal irresponsibility."

Yeah, you're off by miles, I'm not a Labour supporter.

by Due Diligence | 17th Jan 20, 12:53pm 1579218814

Future slums. The social housing that is.

by Fritz | 17th Jan 20, 12:56pm 1579219006

Would you rather they just live in cars and motels.

by Nzdan | 17th Jan 20, 1:00pm 1579219250

Emergency housing at $2000 per week per family.

http://iforce.co.nz/i/buel1ziw.2sa.png

by Pragmatist | 17th Jan 20, 4:31pm 1579231867

No, he'd rather the taxpayer give them lots of accommodation supplement to pass on him while they live in his low grade investment properties.

by Due Diligence | 17th Jan 20, 5:35pm 1579235757

Low grade? I’ll have you know that every individual investment house I own is worth more than the house I live in. And all comply with both upcoming and past healthy homes requirements. I’d rather the government remove barriers to private sector house building, reverse the war on landlords, stop supporting unwarranted welfare dependence, and stop creating uncertainty with the threat of new taxes.

by Due Diligence | 17th Jan 20, 5:43pm 1579236198

They’re only worth more because you live under a bridge, ya troll.

by Pragmatist | 17th Jan 20, 8:02pm 1579244555

Bad news, the 'war on landlords' was something landlords bought on themselves by failing to get people to work to acceptable minimum standards, and now the pendulum is swinging the other way, regulation that will probably end up going too far.

by Due Diligence | 17th Jan 20, 9:29pm 1579249752

The healthy home standards don't upset me too much. That said, in a properly functioning free market, competition between landlords would raise standards. But we don't have a properly functioning free market. Rents will increase of course, but at least tenants will get improvements in return. The likes of tax ringfencing and proposed tenancy termination changes will do nothing but make it more difficult and expensive for tenants.

by Roger Witherspoon | 17th Jan 20, 12:58pm 1579219090

Yes, but then the gov can sell them into the private sector. If they were cheap enuff (as if) then enterprising people could do them up. Sell them to existing tenants and they become upright property owning citizens overnight. Their whole thought process changes. 'Tis a curious thing.

by JimboJones | 17th Jan 20, 1:32pm 1579221135

For each old state house they have been building 1 new state, 1 new private and 1 new kiwibuild (on average). So they have actually been diluting the existing 'slums'. Whether that will continue going forward is unknown.

by Pragmatist | 17th Jan 20, 1:48pm 1579222081

No, that's what they have said is going to happen, but what has actually happened so far is for every state house they've knocked down, they've replaced them with about 3x as many new state (HNZ/Kianga Ora) houses. They haven't built a single kiwibuild or private house yet in the Mount Roskill South development down the road from you Jim. Maybe they will build some later, but given the flop that kiwibuild is, I have my doubts.

BLSH is right, they are going to be the slums of the future. They haven't got there yet, but the carparking situation and a few other things are the early warning signals, give it another 2-3 years and the signs will be there.

by Fritz | 17th Jan 20, 2:10pm 1579223402

And look at Tamaki, the 1/3 approach is nice in theory but fails in reality.
How many people want to pay 900K for a 3 bedroom townhouse in a state housing heartland????

by brisket | 17th Jan 20, 3:21pm 1579227688

900k is too much.
At 700k they'd fly off the shelves.

by Pragmatist | 17th Jan 20, 3:37pm 1579228650

Debatable until you can see what you get. The kiwibuild stuff at Mclennan/Papakura is cheaper than that.. and not in a state housing slum
3 bed new townhouse for $615k..https://www.barfoot.co.nz/property/residential/papakura-district/takani…

by brisket | 17th Jan 20, 3:52pm 1579229527

I think the more central location will lead to gentrification in the long run, vs. Papakura.

by Pragmatist | 18th Jan 20, 9:26am 1579292789

In the long run, yes, but I figure a minimum of 20years before HNZ is going to start selling off newly built houses. Until then they are going to remain state houses with state housing tenants.

by Fritz | 17th Jan 20, 3:53pm 1579229621

That's pretty good. If I was starting out I would consider that.

by Fritz | 17th Jan 20, 3:51pm 1579229517

They are quite nice designs but the location is a big stigma

by PocketAces | 17th Jan 20, 6:08pm 1579237695

Ponsonby was once a very run down, poor area

by JimboJones | 17th Jan 20, 2:19pm 1579223998

Yes that is my concern that they have been lying about the private houses. Luckily we would get to vote them out in that scenario.

by Pragmatist | 17th Jan 20, 2:58pm 1579226284

Lol, Talk about closing the gate after the horse has bolted.

by JimboJones | 17th Jan 20, 3:01pm 1579226495

They can always be privatised again...

by Pragmatist | 17th Jan 20, 3:38pm 1579228735

To be purchased by investors who will rent them out to the sort of people that are forced to live in that sort of area, subsidised by taxpayer handouts. Yeah, not an improvement.

by JimboJones | 17th Jan 20, 8:26pm 1579245961

Well if that sort of area lives up to the promise: hobsonville point type houses with upgraded streets and parks with a 15 min light rail ride to the city- then I think they will be pretty popular.

by JimboJones | 17th Jan 20, 2:24pm 1579224244

The development website still says the following:

TYPES OF HOMES
Roughly a third of the 10,000 new homes in the development will be sold on the open market. A further third will be sold as KiwiBuild or other more affordable options; and the final third will be retained by Kāinga Ora and rented to their state home tenants.

I'm guessing they build the state houses first so they can relocate the tenants.

Construction of 68 Stage 1 state
homes have been completed and
tenants are now settled in to their new
warm, dry homes. A further 58 state
homes are to be delivered by mid2020.
We have begun construction of 60
state homes as part of Stage 2. These
are expected to be complete mid 2020.
Construction of the first market and
affordable homes is due to start in
the first half of 2020, and homes for
purchase off the plans will be available
early 2020.
Stage 3 house removals have begun,
with approximately 15 houses to
be relocated. Planning and site
investigations are underway for Stage
4 and construction is due to begin at
the end of next year.

by dollar_bill | 17th Jan 20, 2:21pm 1579224092

Like ponsonby pt chev westmere orakei and meadowbank....

by Fritz | 17th Jan 20, 12:56pm 1579218966

Too late

by Ocelot | 21st Jan 20, 11:54am 1579560889

So why bother?

Weak dude.

by Brendon | 17th Jan 20, 10:20pm 1579252859

I don't think this is what readers think it is. This will not build more state houses. The funding for that comes from income related rents and payments from tenants. This in my opinion and I may be wrong is creating a bigger fund for Kainga Ora to be a developer (Urban Development Authority is the correct lingo). It will be able to build more and bigger masterplanned sites. But eventually the debt will be paid off by the sale of land/houses.

by JimboJones | 17th Jan 20, 1:34pm 1579221246

Yes which is exactly what we need (but not sure why it took 2.5 years)

by Brendon | 17th Jan 20, 2:00pm 1579222848

Yes. I also don't understand why the Kainga Ora legislation was so late. This all should have happened in 2018 not 2020...

by Fritz | 17th Jan 20, 2:12pm 1579223543

yes, far too late.
They needed to be massively uplifting their house building by now, not just getting legislation toward completion.
Getting legislation through doesn't win elections - on the ground results does.

by Dumb itch | 17th Jan 20, 3:14pm 1579227295

Wellbeing bonds haha what a laugh!
Election posturing has already started then, yawn...

by The_4th_estate | 17th Jan 20, 5:09pm 1579234159

Well done, this is precisely the long term strategy what we in the construction sector were calling for from JOHN KEYS National Govt in the wake of the sector being wiped out by the GFC...what did he do...nothing...instead he pulled some young ladies pony tail in a cafe and let Nick Smith sell of huge tranches of statehouses that ought to have been kept in public ownership and renewed which would have given a huge headstart on addressing the housing shortage and seen far fewer people living in hotels at huge expense to the taxpayer. The struggling construction sector would have stayed afloat with plenty of work and the ensuing apprenticeship opportunities would have ensured a steady stream of qualified staff...but no, nothing happened and all the top notch tradies went to Aussie and have stayed there, although Nick Smiths friends did well out of all that cheap land...

by Nzdan | 17th Jan 20, 6:31pm 1579239082

It's much easier to use the benefit of hindsight to point the finger at the solo mum of 4 who instead of being able to live in a 3 bedroom state house at a cost of maybe $300 - $400 a week to the tax payer, instead she needs to reside in emergency housing at a cost of $2000 per week to the tax payer. Could be a property owned by one of Nick Smith's mates you never know.

by Averageman | 17th Jan 20, 6:40pm 1579239643

Yep. Guaranteed work, apprenticeships, and affordable housing. What a cocktail of future success. Just add in a bypass to the materjals monopoly and it's a gang (I mean bank/speculator profits) buster.

by mills | 20th Jan 20, 10:57am 1579471076

Lots of cynicism amongst responses. The essence of the article was a significant increase in government spending plans for private citizens housing needs/expectations. All shades of politicians seem to be focussed on the short term obvious need to achieve more and better housing for all. Labour/Greens maintain a warm,dry, comfortable house is a basic "right", & find that the "responsibilty" for same fits neatly within their political philosophy, i.e. a charge on taxpayers in general, with a gradual shift toward greater state ownership of land in general.
National on the other hand, just seems to agree but holds that they would do the job more effectively.
But there has been remarkably little debate about the long term shape of NZ society, with particular reference to home ownership.
With possible rose tinted hindsight, it serms to me that we have gradually moved from high levels of home ownership...(in my experience in communities & streets of considerable socio economic diversity), to the current situation of economic separation, accompanied by (in my opinion) hugely excessive expectations of size and equipment, combined with an increasing loss of confidence amongst ordinary people in ever being able to purchase a home. Little wonder that those at the bottom just wait dumbly for the 'gummit' to provide!
I think we are in a dire situation. On one side slick salespeople with iddles of cheap credit enticing utterly unreal expectation, & on the other governments promising nirvana on the basis that "someone else" will foot the bill.
As NZ gradually slides down the ranks of international financial strength, we surely need a better debate about the realities of probable standard of living...including putting a shelter over our heads ?

by waymad | 21st Jan 20, 12:06pm 1579561609

Well, one straw in the wind is the Nelson holiday park offering a double-wide static for $185k.....there's yer 'new shelter over our heads' right there....