Review: Social housing system financially unsustainable

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The country’s social housing system isn’t financially sustainable or delivering the homes people need, an independent review has found.

Former prime minister Sir Bill English was commissioned to look into Kainga Ora’s financial situation, procurement and asset management last year.

His report, released earlier this week, found the agency wasn’t financially viable, had limited attention to value for money, and little transparency around internal revenue and costs.

Seven recommendations were made, four of which the coalition government is moving to implement immediately. The review focused on the financial sustainability of Kainga Ora within the context of an underperforming social housing system in New Zealand.

The ensuing report found the system is not delivering the best results for tenants relative to its funding. Kainga Ora has scaled up in recent years, but it has resulted in a high-cost structure and poor financial discipline. Its financial performance has deteriorated, and its ability to maintain and renew its assets is at risk.

The review found that the remit of Kainga Ora is broad and has increased since its establishment — often with large new funding streams attached, as with the Kainga Ora Land Programme and Large-Scale Projects. This expansion has not been accompanied by the necessary focus on value for money.

Kainga Ora – Homes and Communities is a large Crown entity, with annual expenditure of $2.5 billion and total assets of $45 billion. It has been reporting operating deficits before tax over the past four years. The total level of debt is forecast to grow significantly in coming years to reach a level of $23 billion by 2028.

What was the purpose of the review?

The purpose of the review into Kainga Ora was to identify ways to improve its performance and value for money, as well as to manage the impacts of the organisation on debt and OBEGAL (Operating Balance Before Gains and Losses).

The review aimed to provide assurance over the approach and delivery of significant investment programmes by Kainga Ora, and to ensure that it was financially viable and sustainable.

It also sought to assess the effectiveness of Kainga Ora’s funding arrangements, asset procurement and management, tenancy management, and institutional arrangements.

Ultimately, the objective was to enhance the organisation’s performance and financial sustainability within the context of the social housing system in New Zealand.

What actions has the Government taken in response to the recommendation?

The Government has taken the following actions in response to the recommendations:

Recommendation 1:

The Government will consider consolidating government funding for housing outcomes under the Minister of Housing, supported by the Ministry of Housing and Urban Development (HUD), to administer the funding on behalf of the Crown.

Recommendation 2:

The Minister of Housing will direct the HUD to become an active purchaser that takes a social investment approach to cost-effectively improving housing outcomes.

Recommendation 3:

Government policy and investment will build on advancements made in place-based and specialised approaches to increase local decision-making regarding the management and ownership of housing.

Recommendation 4:

To increase choice, diversity, and innovation, the Government will enable more providers to participate in the provision of social housing by the purchaser contracting with Kainga Ora in a similar manner as with Community Housing Providers (CHPs).

The funding model will be adjusted to incentivise delivery where needed, and be responsive to the different needs of tenants.

Alternative delivery models based on local decision-making and specific tenant needs will be implemented, with pathways for communities to manage Kainga Ora housing stock.

Recommendation 5:

To ensure that Kainga Ora has the leadership and mandate to effectively implement the recommendations of the review, Ministers will refresh the Kainga Ora board with a focus on the skills to implement the recommendations of the review.

Simplified government expectations and direction will be issued to Kainga Ora.

Recommendation 6:

The Minister of Housing will request a plan from the board to develop a credible and detailed plan by November 2024 to improve financial performance, with the goal of eliminating losses as quickly as possible.

This recommendation has been accepted immediately, with the delegation to the board for individual investment decisions being reduced from $50 million to $35 million.

Recommendation 7:

The Government has accepted a recommended time frame for key milestones, including strengthening Kainga Ora governance, making necessary changes to Kainga Ora legislation and entity form, setting new Ministerial expectations, and implementing place-based solutions and funding, and delivery settings, to support better outcomes for tenants.

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