By Bernard Hickey
Prime Minister John Key is expected to focus in his State of the Nation address on Wednesday on the Government's plans to sell state houses and encourage voluntary groups to expand the amount of social housing available to those near the poverty line.
"The Prime Minister's State of the Nation speech will focus on improving the availability and management of social housing," a spokesman confirmed.
The Government has over the last two years been pushing to open up the provision of social housing to community housing groups, including introducing Income Related Rent (IRR) subsidies so that community groups can be paid by the Government to house people unable to afford market rents. Previously, only Housing New Zealand has been able to access Government funds for social housing. Also, the assessment of people for state housing was shifted from Housing New Zealand to the Ministry of Social Development.
The Government is also planning to sell a portion of state houses and land to these community housing groups and Iwi in the hope they'll be able to use these subsidies to fund the expansion of affordable housing, rather than the Government use its own balance sheet. The Government has yet to say how many houses it would sell, or to clarify who would be able to bid for them and exactly what subsidies would be available.
Key and Finance Minister Bill English have both focused on housing affordability and child poverty since the election result in September. Social housing is at the nexus of those two issues and the social housing 'Super Group' of English, Housing and Environment Minister Nick Smith and Social Housing Minister Paula Bennett have been working away quietly on social housing reforms after an initial burst of publicity immediately after the election.
Key said in November state house sales to non-profit social housing providers would be discounted and that the overall number of houses available for social housing would be increased.
The non-profit social housing sector and Iwi have called for more detail on the number and locations of houses and/or land to be sold, any discounts and whether private sector landlords and developers will also be able to bid in any sales process. Bankers, private equity fund managers, developers and construction groups are also eyeing the process for opportunities to fund and supply any significant new house building programmes.
The Government has been cagey about the number of houses likely to be sold and exactly how the sales process would be managed. An Independent Transactions Unit within Treasury has been working on valuations and the process, but little detail has emerged.
On November 3, Key denied that 20,000 state homes would be sold but acknowledged the sales number would be in the thousands. English and Smith have previously talked about up to 20% or 13,600 of Housing NZ's 68,000 houses, which are worth NZ$18.6 billion in total.
What to look for
The big questions many are hoping will be answered in the speech include:
The number and location of houses and land to be sold.
Whether private landlords and developers will be allowed to bid.
Whether and how Iwi would get preference in bidding for land under Treaty of Waitangi first right of refusal provisions.
How much the discounts for Iwi and non-profit social housing groups might be, and therefore how much any write-down to the Crown's balance sheet might be,
How many more social housing units the Government expects to be delivered by the reforms, given it has said it wants its new Income Related Rent (IRR) 'voucher' system to be used by non-profit social housing providers to back investment in new housing.
How much of the sale proceeds are expected to be 'recycled' into the provision of social housing either directly through Housing NZ or via capital grants or subsidies to non-profit groups.
Whether private landlords will be able to bid for the Income Related Rent subsidies that are currently only available to Housing NZ and voluntary groups.
Whether there will be any 'lock-up' provisions preventing voluntary groups, Iwi or private sector landlords from flicking ex-State Houses on into the general private rental market soon after the sell-down, as happened in Britain after similar council house sales.
"What we'll endeavour to do is make sure the overall stock of either houses provided to those most in need from either social housing providers or Housing New Zealand is greater than the current number today. The mix might change a bit, but the overall numbers will rise," Key said in November.
He spoke then about the Government having a choice between building 1,000 houses at a capital cost of NZ$500 million, or offering 1,000 Income Related Rent subsidies for 'third sector' social housing providers at a cost of NZ$12 million per year.
"You go and do the maths. It's a lot quicker for the Government to get social housing providers in there. They manage that stock better," he said.
He was also very critical of Housing NZ's past management of state houses under Labour.
"We were one of the worst landlords you could ever imagine. With the greatest respect to Annette (King), these people let them (state houses) turn into some pretty slummy conditions in certain parts. It's time we had a bit more professionalism into what is a very big asset for the Government and a place of great need for those families," he said in November.
Labour for its part has been attacking the Government's plans as an ideologically-driven attempt to move the Government out of owning social housing and into a voucher-driven approach that subsidises landlords and risks the homes being flicked on into the private rental market at a profit. It also questions whether any or many new social housing units will actually be built, given the relatively small size of the voluntary sector and questions about its funding and access to capital.
"If you move to that voucher model, it's basically the accommodation supplement on steroids and you're essentially competing then with private buyers, private landlords and the one third of New Zealanders who already rent," Phil Twyford said before the speech.
Twyford said Labour agreed it's a "no-brainer" to have a more vibrant voluntary sector providing social housing "but this is not primarily what this is about."
"You could help them grow and you don't have to do what the Government is doing, which is the wholesale sell-off of the state housing stock," he said.
"In spite of their efforts to try to sell this to the public as simply getting Salvation Army in on the job of providing more social housing and secondly modernising state housing stock, those things are masking a plan that's driven by Bill English and based on an ideological view that it's a poor use of capital for the Government to be owning houses for the purposes of public housing, and to get out of owning houses and shift housing onto a subsidy model or a voucher model."
Community Housing hope
Community Housing Aotearoa Director Scott Figenshow said he hoped for more clarity from the Government about the settings to encourage community housing groups to expand social housing.
The income related rents on offer had yet to provide the certainty to make it easy for community housing organisations (CHOs) to get loans from banks to build new developments.
"They’ve been saying that the income related rent is what should incentivise new supply. What we’ve been saying back to them is we need long term contracting for a market rent in order for that to happen," Figenshow said, adding however he did not expect detail on that from Key in the speech.
"The contract that CHOs get are only for the duration of the current household placement. So if you’re trying to go to a bank to borrow to build a new housing unit and you don’t get an income related rent for that unit then the best that social and affordable tenants can pay is something like 75% of market rent, so your ability to borrow is substantially reduced," he said.
"If you knew you were going to be able to charge a market rent and do that for the next 10-15-20 years, then you have both certainty that you could serve your target population, and if for some reason that unit wasn’t suitable or usable by a new tenant in need, then you could rent it at market rent and the ability to service any loan would be the same either way."
Figenshow said the current valuations of homes in Auckland made it difficult for any investor to justify paying many, many multiples of rent, let alone community housing groups unable to charge market rents or be certain of the length of tenancy.
Auckland prices too high to justify given rents
Median house prices in metropolitan Auckland are currently around 32 times annual rent, Interest.co.nz's rent ratio measure shows. An OECD report last year showed New Zealand had the least affordable housing in the OECD relative to rents.
"That simply doesn’t work in Auckland where capital values exceed multiples of market rent," he said.
“There’s a lot of settings that Government hasn’t gotten firm and of a long term nature if you wanted any type of industry to grow."
One particular issue concerning CHOs is the tax status of such groups. A Charities Commission ruling had stripped community housing groups of charity status because some were encouraging tenants to buy their homes. The tougher approach was confirmed by the High Court and backed by the IRD. The law was changed in May 2014 to allow such groups to be tax exempt, but the regulations needed to bring the Act into force have not been ratified through regulations to be agreed by Cabinet.
"We can see the Government moving in the right directions, but we don't see things getting finished," Figenshow said.
PM's office responds
A spokeswoman for the Prime Minister provided the following Question and Answers response to the points raised above after the PM's State of the Nation address:
1. The number and location of houses and land to be sold.
We’re looking to sell between 1,000 and 2,000 houses in the initial round of transfers. If that goes well we might initiate more sales this parliamentary term, but that has yet to be decided. In addition, some redevelopments could involve existing properties being transferred out of Housing NZ ownership into a special urban development vehicle. Note also that Housing NZ sells, and buys, houses regularly as part of its usual operations.
The Government’s commitment is that in 2017, Housing NZ will provide at least 60,000 properties – this covers the above sorts of transactions but is not a hard and fast target.
2. Whether private landlords and developers will be allowed to bid.
Where houses are sold as part of the social housing reforms, tenancy management must be provided by a registered community housing provider. They may choose to go into partnership with other organisations who lend them money, contribute equity, or provide other services. So we could see a bid from a consortium as well as from housing providers on their own.
3. Whether and how Iwi would get preference in bidding for land under Treaty of Waitangi first right of refusal provisions.
Some iwi, Māori and hapū have interests in Housing NZ land and property. These interests might range from having a right of first refusal over Housing NZ property through to customary interests in this property.
The Crown is committed to ensuring that these interests are identified and managed appropriately. We will do this in part through national engagement and regional consultation to ensure that parties have plenty of time to understand what is proposed, to engage with the Crown and to ensure that their rights and interests are registered with the Crown.
4 How much the discounts for Iwi and non-profit social housing groups might be, and therefore how much any write-down to the Crown's balance sheet might be.
We’re looking to get a fair price for the properties given that they are being sold as ongoing social houses and will have many conditions attached to their sale. The value of the properties as social housing may be lower than their book value, which (as required by accounting standards) is based on a sale in the open market to anyone who wants to buy it and for any use they want to put it to.
5. How many more social housing units the Government expects to be delivered by the reforms, given it has said it wants its new Income Related Rent (IRR) 'voucher' system to be used by non-profit social housing providers to back investment in new housing.
Around 3,000 more social housing places will be created by 2017/18. Note that while most of the current community housing providers are non-profit organisations, that is not a requirement.
The IRRS isn’t a “voucher” as that term is usually used, because the tenant does not have the discretion to use the IRRS subsidy as she or he pleases.
6. How much of the sale proceeds are expected to be 'recycled' into the provision of social housing either directly through Housing NZ or via capital grants or subsidies to non-profit groups.
We will ensure that Housing NZ has enough capital to buy and redevelop properties and ensure we can pay more income related rent subsidies in the future. Including increases in rents, as well the extra 3,000 places, the cost of the IRRS will grow from $718 million this financial year to $880 million in 2017/18.
The accounting of these transactions will be set out in the government’s economic and fiscal updates. While the Crown releases capital by selling properties, it also loses an income stream, as more IRRSs will be paid to community housing providers rather than to Housing NZ.
7. Whether private landlords will be able to bid for the Income Related Rent subsidies that are currently only available to Housing NZ and voluntary groups.
No, they can’t – and there is no proposal to change this. Under the changes we introduced last year, only approved community housing providers, and Housing NZ, can receive income related rent subsidies and this is not going to change.
8. Whether there will be any 'lock-up' provisions preventing voluntary groups, Iwi or private sector landlords from flicking ex-State Houses on into the general private rental market soon after the sell-down, as happened in Britain after similar council house sales.
Yes. Properties sold as social housing will have to stay as social housing unless the government agrees otherwise. These sorts of sales are not comparable to the sale of council houses in Britain.
Housing NZ also regularly sells surplus properties in the open market as part of its business-as-usual operations – these don’t have conditions attached to them.
(Updated with photo and PM's Office's Q&A in response to the list above )