CHPs play an important role in delivering long-term public housing places for people in urgent need of housing support, alongside Kāinga Ora – Homes and Communities. Social housing tenants receive an Income Related Rent Subsidy (IRRS) which (broadly) covers the balance between the tenant’s rental payment (generally set at 25% of a tenant’s net income) and the market rent for the property.
The Government is driven to create simpler and clearer funding streams for CHPs to access, aimed at “levelling the playing field” between the state and the CHP sector when it comes to competing for funding to deliver social housing. This aligns with the Government’s broader initiative to enable the private sector to assist in addressing New Zealand’s housing and infrastructure deficit.
As part of Budget 2024, in May this year, the Government committed NZ$140 million to fund 1,500 new social housing places which will be provided by CHPs.
The changes announced last week signal another step towards enabling CHPs to deliver more social housing. The changes are aimed at removing some of the barriers that CHPs face in securing private funding and financing for social housing projects, compared to Kāinga Ora – Homes and Communities which can access Government borrowing, and at lowering the cost of finance to CHPs.
Short-term changes
The Government has directed officials to advance three changes in the short-term:
|
1) Changing the underlying contracts to make the IRRS revenue stream more attractive |
2) Increased leasing of properties for social housing |
3) Capitalising part of the Operating Supplement for CHPs |
|
The housing contracts that CHPs enter into with the Ministry of Housing and Urban Development for the provision of IRRS places will be changed to make the IRRS revenue stream more attractive for investors and financiers. Specifically, the Government will explore removing termination for convenience clauses, extending compensation terms and implementing funding approval arrangements. |
The Government will review and reset its framework for the use of leasing to provide social housing, in cases where leasing delivers value for money. Leasing will only be available for newly built homes that have not yet been occupied. The idea is that this will deliver more social housing at a faster rate.
|
NZ$70 million of the Operating Supplement funding subsidy that CHPs receive, in addition to IRRS, to enable new housing developments will be paid upfront when contracts for new social housing are agreed. This will replace the current approach of spreading the Operating Supplement over the life of the relevant CHP’s contract with the Ministry of Housing and Urban Development. The capital funding will be made available in targeted circumstances to provide equity to CHPs, enabling them to raise finance at better rates. |
Exploring broader options
When delivering a speech announcing the changes, the Hon. Chris Bishop stated that the Government will consider a range of options to allow CHPs to access debt on terms reflective of their real risk and circumstance. Options for change include:
|
1) Reviewing risk weighting
|
2) A credit enhancement intervention |
|
The Reserve Bank of New Zealand is currently considering options to review standardised risk weights. The Government has said it expects this to be done in a manner which prioritises the treatment of CHPs given the concern that current risk weightings penalise CHPs, reducing their ability to borrow at competitive rates from banks. |
The Government has also directed investigations into a range of options for supporting CHPs access to debt. These could include (but are not limited to):
|
From here
Overall, the agreed and proposed changes should enable CHPs to access less restrictive finance and move towards “competitive neutrality” between state and community provided housing. The hope is that a level playing field will deliver more social homes at better value, forming part of the solution to New Zealand’s housing crisis.
The Treasury and Ministry of Housing and Urban Development will work with the CHP sector to deliver advice on these changes to Ministers in early 2025.
The Government’s official press release can be found here.
If you have any questions about this article or community housing more generally, please get in touch with the contacts listed or your usual Bell Gully adviser.
Thanks to Sarah Downs for her assistance in preparing this article.