Week in Review

Treasury raises fears for public housing funding

Treasury has raised concerns that the structuring of the Urban Development Authority, which includes KiwiBuild, could see money drain away from public housing.

Treasury has serious reservations about Housing Minister Phil Twyford’s Urban Development Authority saying there is a risk private developers could drag down public housing.

The UDA is a “one stop shop” for large-scale developments, and brings together Housing New Zealand (which owns and lets public housing), HLC (a Government developer in Auckland), and KiwiBuild (tasked with building houses for first-home buyers). 

But a briefing paper from Treasury to Finance Minister Grant Robertson casts serious doubts on the UDA in its current form.

It says the proposal risked revenue being drained from public housing into urban development activities. 

Treasury also fears the risks of private-sector developments could be transferred onto the public housing balance sheet. This could include KiwiBuild developments: when houses intended to be sold as KiwiBuild homes failed to find buyers and were bought by the state it could drain money away from public housing.

Last week the Government bought seven KiwiBuild homes from developer Mike Greer after they failed to sell. 

Treasury already had concerns about the public housing balance sheet following a decision at the last Budget to allow Housing NZ to borrow an additional $2.9 billion to build 6,400 public homes over four years. 

This was controversial as Treasury felt it more efficient and cost-effective to allow HNZ to borrow on the Government’s core balance sheet. Treasury also said there was a “significant risk” that debt could be considered Core Crown debt. 

With HNZ rolled in together with KiwiBuild and HLC in the UDA, they each share the same balance sheet, meaning failed developments including those involving KiwiBuild homes could risk the integrity of that balance sheet. 

That could have an impact on HNZ being able to use its balance sheet to deliver public housing.

The Treasury document says “development is inherently risky, and a major financial failure could impact on public housing”.

Twyford yesterday confirmed that KiwiBuild would be receiving no new funding in the 2019 Budget, meaning anything would have to come from funding already allocated or leveraging the balance sheet of the UDA to borrow more. 

The Treasury briefing suggests one of the benefits of the UDA would be to allow borrowing to fund more developments.

“It would have automatic access to HNZ’s land and balance sheet to enable developments and fund land purchases and infrastructure,” it says. 

Another UDA option was called a “semi-integrated approach”, which would combine HLC and KiwiBuild but only a “rump HNZ”.

Twyford rejected concerns of debt contagion.

“I just don’t take that very seriously, we’re putting Housing New Zealand into the new entity because we want public housing at the centre of what we do,” he said. 

Treasury actually recommended this option above the “fully-integrated” option chosen by the Government but it says this model “would also have limited access to capital at the outset to sustain it over a period where there may be no revenue”.

It advised Twyford to consider choosing the semi-integrated option, as it was less risky, especially for vulnerable tenants. 

“The risks of the fully-integrated option are more significant than the risks of the semi-integrated option, since the former particularly affect the public housing tenants, who are highly vulnerable,” the paper says. 

It also raises concerns the UDA risked losing the Government’s public housing focus, mis-aligning “public housing and urban development objectives”.

There was a “risk of one function being prioritised over another, in particular weighting development over tenant welfare".

It also raised fears of "the risk of contagion from one function to another".

National's housing spokesperson Judith Collins told Newsroom that while she was not opposed to bringing together agencies in a body like the UDA, she was worried about capability. 

“These are people who can’t deliver 1,000 [homes] in 18 months and they want us to believe they can cope with 60,000 rentals and all the tenants that go with that,” she said. 

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