Social housing reforms should come as no surprise

One of the biggest post-election news stories has been announcements, or at least ministerial suggestions, that the Government is about to embark on a sell-off of up to 20,000 state houses.  These suggestions have been cleverly bracketed with hints that this sell off will be to NGO social housing providers such as the much respected Salvation Army.   This way the idea of partially privatising another state asset doesn’t look so bad to middle New Zealand who are not really connected to the daily struggles of most state house tenants anyway. 

Details of how such deals may occur are almost non-existent and The Salvation Army itself appears to be far from committed to such an idea[i].  Other NGO social housing providers have however been circling like vultures about to descend on the nearly dead carcass of public housing and have helpfully offered the Government suggestions on how state housing can be transferred to them[ii].  Some iwi [iii] and local councils [iv] have also shown an interest in such sales.

While there have been widespread expressions of indignation[v] about these latest privatisation plans they should come as no surprise given that there were clear signals prior to the election of significant changes to how social housing will be run. 

As far back as 2010 the Government has signalled its social housing reform agenda.  In early 2010 the Housing Shareholders Advisory Group (HSAG) was formed from ministerial appointments.  The Group’s brief was to provide Housing New Zealand’s shareholding ministers (the Ministers of Finance and Housing) with advice on how better to utilise the then $14 billion in assets tied up in state housing to best deliver housing assistance to the most vulnerable New Zealanders.  HSAG dutifully came up with a set of recommendations[vi] which included focusing HNZ on its core business of being a social housing landlord, and shifting housing policy functions to the MBIE and housing needs assessment to MSD through its Work & Income branches.

In addition, HSAG proposed that the Government work actively to develop the capacity of NGO social housing providers and this is where the plot thickens.  HSAG identified two types of NGOs to become involved in social housing – ‘cost plus NGOs’ and ‘profit-based NGOs’.  Private sector for-profit businesses are of course NGOs in that they are not government but this renaming of the private sector as ‘profit-based NGOs’ is a form of newspeak designed perhaps to obscure an underlying privatisation agenda.  But even then HSAG has been quite clear about the extent to which HNZ should be squeezed for higher dividends, its assets sold off and private capital introduced into the social housing sphere.  

Subsequently Government has more or less followed the advice of HSAG through its social housing reform programme.  In its advice to the replacement Minister of Housing Nick Smith[vii] in early 2013 the Treasury succinctly defined the reform programme as involving “a less dominant role for HNZC, where non-government social housing providers enter the market, and/or existing providers expand their operations, and HNZC makes more efficient use of capital.’ MBIE now leads housing policy although with some input from Treasury, MSD administers the housing needs assessment function and various moves have been made to develop genuine not-for-profit NGOs as social housing providers.  Some of these changes were embodied in amendments made in 2013 to the Housing Restructuring and Tenancy Matters Act.

Since then there have been a number of further developments which don’t exactly inspire confidence.  In providing advice to Government of how to develop other social housing providers MBIE[viii] has admitted that ‘Sophisticated price information is lacking in the social housing market, and we do not truly understand the cost of social housing. We need to achieve a balance in the sustainable use of social housing funding, whilst being cautious in the use of taxpayer money. The lack of this information creates a strong barrier to supplier development, and results in new entrants (primarily Community Housing Providers) seeking capital funding assistance from Government in order to participate in, or expand their role in social housing’.

In response to this need for funding for community housing providers the Government offered a paltry $10 million in capital funding each year for the next three years and extended access to income related rent subsidies to NGO social housing providers but not to councils[ix] which provide as many as 10,000 social housing units.  To date apparently just 50 units owned by NGO providers have been included in this extend subsidy programme. 

Government has now established a so-called ‘Independent Transactions Unit’ (ITU) which is expected ‘to lead, on behalf of the Crown’ the development of a fair, efficient and effective social housing market through transactions that may involve transfers of HNZC assets (and tenants) to establish new scale providers, making future HNZC capital investment contestable or other financial mechanisms’ [x].  In proposals offered to Cabinet[xi] MBIE and Treasury suggest that these transfers of HNZ assets could be between 20% and 40% of its housing stock. This advice is freely available in the public domain so the possible sell off of up to 20,000 state houses as suggested by Mr English[xii] and Ms Bennett should really come as no surprise.

There is however a high level of wishful thinking in Mr English’s belief that he can sell off   state houses for what real estate valuers say they are worth.  This is in part because social housing comes with social obligations on the part of whichever party owns them.  These social obligations impose costs on the owner/operator, some of which might be covered by subsidies such as the $718 million which HNZ will receive in taxpayer subsidies this year.  But HNZ’s proposed dividend back to the Crown this year of around $90 million[xiii] from an asset base now estimated at $18 billion[xiv] shows how difficult it will be for any future social housing provider to break even if they are carrying even modest levels of debt.

The not-for-profit NGO sector, including the philanthropic sector, probably doesn’t have the billions of dollars needed to fund a purchase of even 20% of the state housing stock at market values. Iwi corporates may be able to stump with some of the required cash but they are likely to be wary of such investments especially if they are based in regions where house prices are stagnant.  They face a further problem of moral hazard if the incumbent tenants are also tribal members and they are forced to act like a commercial landlord literally against their own whanau. 

The immediate answer to such problems is to offer substantial discounts to any prospective purchaser and this where HSAG’s ‘profit-based NGOs’ come in.  In other words, a fire sale to the private sector.

The costs and consequences of all of this are probably only now becoming apparent to the Government officials charged with making it happen.  The over-riding difficulty here is that the Government is attempting to do this on the cheap – to undertake a radical and perhaps overdue restructuring of social housing while attempting to cap subsidies and extract higher dividends from Housing New Zealand.    

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