Wellington Mayor targets rental supply boost with council-backed lease policy designed to enable private building owners to source financing for quake strengthening & refurbishment

Wellington Mayor targets rental supply boost with council-backed lease policy designed to enable private building owners to source financing for quake strengthening & refurbishment

Wellington’s Mayor is taking a two-birds-one-stone approach to increasing the supply of rental accommodation in the city and helping building owners access financing required for earthquake strengthening.

Justin Lester announced Wednesday a policy to help private office space be refurbished into social and private rental accommodation with City Council and community housing provider backing of long-term lease agreements with private building owners.

Addressing a Community Housing Association conference, Lester began by saying the Wellington City Council was one of the largest landlords in the country, with 2,400 units housing 4,500 tenants. Another minimum 750 units are set to be added in coming years, he said.

He noted an announcement earlier this year of a $5,000 rates rebate for new supply of housing and that Council was restructuring its consents division so as to have a “one-stop-shop”. A new urban development authority would help secure more supply and focus on large scale house building in the city.

But Lester said the current regulatory environment meant it wasn’t easy for the Council to be providing such a level of housing stock. “The current regulatory settings actually encourage us to sell down our social housing stock – to get out of it.”

That wasn’t something Council wanted to do. A housing taskforce had recommended a new role for Council, not just to provide social housing but doing so for affordable homes and the private rental accommodation sector.

“We want to focus on actually entering the private rental accommodation market,” Lester said.

He raised how Victoria University had actively worked with private building owners to tackle a shortfall in university accommodation by agreeing long-term leases, enabling a level of pre-commitment and certainty to building owners so they could refurbish buildings.

“I want to do the same thing for Wellington, on a citywide basis,” Lester said. Council would work with private building owners to offer 15 to 20-year lease pre-commitments, enabling building owners to secure bank funding for refurbishment and quake strengthening from banks currently not willing to lend for redevelopment work due to uncertainty of whether a building would be tenanted.

“We can be there as a cornerstone tenant to enable a bank to provide funding for earthquake strengthening in those buildings that sit beneath, for example, 67% [of building code] in the city and are struggling to find tenants.

Lester told the community housing sector that it was an important partner, as the Council currently did not have access to income-related rents. He said partnership with the community housing providers would help Council provide the commitment around long-term leases.

While the proposal was relatively straightforward, Lester acknowledged it meant Council would be taking on a degree of risk. But the benefits to Wellington should outweigh them, including allowing access to funds for strengthening work and that the policy would encourage more people to live centrally, taking pressure off the city to grow out.

“I want to see hundreds, if not thousands more houses being built in this city over the next ten years. I want us as a local government entity to remain higher, and I want central government to aim higher as well,” he said.

A request for proposals will be issued later in the year. Below is a WCC Q&A on the policy:

What’s the approach?

Council will be seeking requests for proposals from community housing providers and the private sector for partnerships to develop affordable rental and social apartments in the inner city. We will also consider the role that City Housing could play.

Where there are market failings for repurposing of existing buildings into warm, safe, dry apartments, Council will look to provide long-term incentives to make it cost and risk effective, this could include options such as special consenting processes or long-term leases.

The rentals will be targeted towards the affordable end of the market and each apartment complex will include social housing.

Several providers have already used this model for hotels or student accommodation, and we want to repurpose it for affordable and social rentals.

How does it work?

Council will negotiate a market rate with the building owners with fixed inflation-based rental increases so that rentals remain affordable.

It means the building owners are guaranteed long-term tenants of high quality and with an ability to pay. In exchange this will help provide the affordable and social housing the city needs.

To help the conversions happen quicker, Council would provide case managers and a one-stop shop for the consenting process.

For the social housing component, we will work with community housing providers, who can access income related rents. Different developments might include different mixes of social and affordable housing.

Just like with the 750 homes project we announced earlier in the year, this is about building more social housing in mixed developments – so people can feel at home as part of strong communities.

We’ll be looking to develop 1 and 2 bedroom units in buildings above 67% of the National Building Standard for seismic performance.

Why do we need it?

This is an innovative housing solution for a city that is relatively constrained in our ability to grow out – we need to grow up as-well and that means greater intensification in the inner city. Affordable apartments are a great way to do this.

It’s significantly cheaper and faster to repurpose an existing building than it is to find the land and build entirely new apartments.

This adds to the vibrancy of our central city and makes urban living available to more people.

It also helps address another issue in Wellington – the relatively low quality of much of our private rental stock. We’ll be the only Council in the country proactively adding warm, dry, affordable rentals for people in the private market, as well as further increasing the supply of social housing.

This initiative sits alongside the action we’ve already taken on housing – 750 new affordable and social housing units, a $5000 rates rebate for people building their first home, one-stop shop for council consents to speed up the process.

How much does it cost?

Costs will be dependent on the number of housing units we can get developed under the initiative, but it is expected that the housing provided will be cost neutral for ratepayers in the long-term, as building owners would be expected to pay for the fit out and tenants would cover the rent costs.

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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I have part of a commercial property I would like to convert to residential because I can not get a tenant. I have been told no ground floor retail space is permitted to be converted. Also I will need to pay a huge development levy despite the proposed number of people occupying the converted residential space being less than were in the building when used as commercial. Hurry up and change the rules please.

Yeah this is pretty standard council stuff.

They say they want to help. But in reality, what happens is this:

"If you tick boxes a,b and c, and pay us fees $x, $y and $z, you MAY be able to do it, otherwise, NO."