Kāinga Ora’s borrowing limit lifted by $4b
The Government is gearing up to announce in an election year that it will borrow $4 billion more to almost double its plans for state house building, Bernard Hickey reports exclusively
The Government has quietly lifted the borrowing limit for the newly formed Kāinga Ora social housing agency by $4.05 billion to $7.1 billion so it can build and refit almost 4,800 more state houses on top of the 6,400 already planned.
The extra borrowing could allow the Government to lift its state house building plan from 6,400 by 2022 to 11,200. The plans come as Labour's support partner, the Greens, called for more borrowing to fund state housing.
This is big news for those watching the Government's borrowing and investing appetite, and the likely economic and political downstream effects of billions in extra construction and consumer spending over the next couple of years.
Just quietly, the new Treasury Secretary's Senior Solicitor Katherine Reinhold announced in the Government Gazette on Monday in a snappily headlined item (Notice of Approval Given Pursuant to Section 160(3) of the Crown Entities Act 2004 that Finance Minister Grant Robertson and Housing Minister Megan Woods decided on December 19 to increase Kāinga Ora's borrowing limit under its own name to $7.1 billion from January 1 this year.
Kāinga Ora then announced in its investor section (but not its home page) to bond market investors yesterday that its lending limits had been increased and it planned to borrow $2.5 billion through issues of its Wellbeing Bonds in calendar 2020, including a new longer-dated bond "in the next few months." It also said it was open to suggestions from investors to issue a bond maturing in more than 15 years, which is relatively unusual in Government bond circles here. Kāinga Ora is the Crown agency formed on October 1 to bring together the old Housing NZ Corp owner of state houses, KiwiBuild and the Hobsonville Land Company (HLC).
"The increased limit provides headroom for future debt issuance, helping us to continue financing much-needed warm, dry and safe houses across New Zealand," Kainga Ora said.
Woods confirms move
Housing Minister Megan Woods told Newsroom via email that Kainga Ora had already delivered over 3,400 additional public houses and had begun work to upgrade thousands of older homes.
"But to maintain that pace Kāinga Ora needs extra financial headroom," Woods said.
“This extra $4b will enable Kāinga Ora to continue to deliver more public housing of the right size in the right place. This includes progressing large scale urban developments in Northcote, Mangere, Mt Roskill and Oranga, which will deliver around 22,000 new homes over the next 10 to 15 years in Auckland. The majority of these costs are for infrastructure," she said.
“The money will also be spent on upgrading around 2,000 older state homes and 500 multi-unit buildings to make them warmer, drier and healthier. Currently we have record low rates on the cost of borrowing and we’re using that to invest in our people.”
It's not yet clear whether this extra $2.5 billion in borrowing this calendar year and the overall $4 billion increase is part of the yet-to-be-detailed $12 billion infrastructure spending package announced by Robertson last month.
The Government increased Housing NZ's own borrowing limit from $1.08 billion to $3.05 billion in June 2018. It had been lifted from $150 million to $1.08 billion by the previous Government in May 2017.
Kāinga Ora owns 65,500 state houses that house 187,000 people and were valued at $29.1 billion midway through 2019, according to this investor briefing in October. That includes 45,000 homes that will become obsolete over the next 20 years and need to be replaced. It built 1,461 homes in 2018/19, which was above its 1,380 target and a significant way along to the Government's Budget 2018 plan to build 6,400 new state houses over four years to 2022.
Borrowing for an extra 4,800 homes
The Government has yet to announce what its new target will be. But if the cost of social house building was the same as for the first 6,400 for a total cost of $4 billion, then it would allow an extra 4,800 homes to be built with the higher borrowing limit, lifting the target to 11,200.
The Government has been saying since 2018 it planned to build at least 1,600 new social homes each year for the next four years, including 1,000 state (Kāinga Ora) homes each year for the next four years, with an extra 600 homes a year coming from community housing providers (CHPs) .
The Housing and Urban Development Ministry's latest monthly public housing update showed Kāinga Ora and CHPs were ahead of their 1,600 target for the current 2019/20 year ended June 30, having completed 802 by the end of November, and they were on track for 2,650 by the end of June this year, albeit including 554 scheduled for the month of June (just before the beginning of the election campaign). Kāinga Ora is reported to be on track to produce a net 1,033 new homes for the year (including the retirement of 880 obsolete homes) and CHPs are expected to build 815.
Desperate need for new homes
The houses are sorely needed, given HUD's update for November also shows the number of applicants for social housing has trebled since 2016 to a record high 14,496 by the end of November, including 86 percent classified as 'Priority A', which means they are 'at risk' and have a 'severe and persistent housing need that must be addressed immediately'. (See chart below) The median time to house these severely at risk people rose to 119 days in November from 101 days in October.
There were also 3,019 people in transitional social housing as at the end of November, which includes living in motel units, campground cabins and pre-fabs. That's up 13 percent from a year ago and includes 1,171 in Auckland, 361 on the East Coast of the North Island, 268 in the Bay of Plenty and 299 in Wellington.
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