COMMENT: On October 1, it will be three years since the Government officially merged Housing New Zealand, Community Housing Limited and the perennially troubled KiwiBuild Unit to form a new Urban Development Authority which it named Kāinga Ora.
Empowered under new legislation passed in 2020, Kāinga Ora inherited most of the roles of these previous agencies, but also gained draconian new powers, which gave it the ability to override Local and Roading Authorities to achieve its goals. In effect, this means that Kāinga Ora can ignore Council District Plans, even though these may have been settled following years of public consultation, if it believes those plans are an obstacle to its objectives.
So how has Kāinga Ora performed since kicking off? According to their surprisingly outdated website, they owned or managed over 67,000 properties in June 2021 (fewer than the 69,000 properties they owned or managed in 2019). But how many homes have they actually built since inception?
Again, according to their website, they delivered 2432 homes in the 2020/21 year. They also had 3500 homes under construction or contract and 3310 in the consenting and procurement stage. Assuming that there is no doubling up in these figures, that’s 9242 houses delivered or in some stage of planning in June last year – a huge improvement over the pathetic numbers delivered through KiwiBuild in the years between 2018 and 2020.
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So Kāinga Ora is a success, right?
To be honest, it’s still too soon to know. For me, there’s still a huge question mark over whether the Government actually has a role to play in the construction of houses, versus simply making it easier for the private sector to do so and providing support to the housing disadvantaged in other ways – and there are also emerging (and worrying) signs that, as I predicted a couple of years ago, we don’t actually have a housing shortage and are now at risk of oversupplying the market.
But perhaps the most worrying indicator was the emergence in July of information which suggests that Kāinga Ora is already in deep trouble, financially. According to the leaked information, which was in the form of a briefing to the Housing Minister, rising construction and interest costs mean that the agency will be unable to repay its billions in debt over the next 60 years.
In January 2020, the Government allowed Kāinga Ora to more than double its debt capacity and the agency is now predicting that that debt will peak at almost $29 billion in 2033, a huge increase over previous debt positions. As a result, Kāinga Ora has warned the Government that it will not be able to deliver on the Government’s commitments, that it is considering suspending home heating and accessibility improvements to the homes that it builds, and that it is so concerned about its position over the next four years that it may require an “equity injection” from the Government.
On top of this, Kāinga Ora has indicated that it may need to take on even more debt to meet the significant maintenance and upgrade needs of 45,000 homes within its aging portfolio because the money required to do this hasn’t been set aside.
To be fair, these predictions are made on assumptions which may not pan out as indicated. Mortgage interest rates are likely to drop over the next few years and the over-all value of the Crown’s housing portfolio is likely to continue to increase, offsetting some of the risk associated with increased debt costs – but the fact that this crisis has emerged so quickly after Kāinga Ora was formed carries echoes of the kind of incompetence and financial mismanagement we’ve seen in other government programs, but on a much larger scale.
If the Government continues on the current trajectory, we run the risk of a financial blow-out which will make the failure of KiwiBuild look like small change and – if my warnings from 2020 are borne out – we may also find that we’ve built thousands of homes that weren’t actually needed.
- Ashley Church is a property commentator for OneRoof.co.nz and a real estate business owner. Email him at [email protected]
