Alarm bells are ringing over the financial situation of Kāinga Ora - Homes and Communities, with Housing Minister Chris Bishop announcing a new chair will be appointed and the board will have a "refresh".
The scathing review into the Government's public housing landlord, led by former Prime Minister Sir Bill English, was released on Monday. It found the social housing system is not socially or financially sustainable.
The Government commissioned an independent review of Kāinga Ora to look into the Crown agency's financial situation, procurement and asset management. The other panel members are investment advisor Simon Allen and strategy advisor Ceinwen McNeil.
When Housing Minister Chris Bishop announced the review back in December, he said he was deeply concerned about the agency's deficit and had worrying advice about its financial situation.
Kāinga Ora is a large Crown entity with an annual expenditure of $2.5 billion and total assets of $45 billion.
A report by the Treasury and the Ministry for Housing and Urban Development found Kāinga Ora's level of debt had grown from $2.7 billion in 2018 to $12.3 billion in June 2023.
The review said the agency has been reporting operating deficits before tax over the past four years. The total level of debt is forecast to grow significantly in the coming years to reach a level of $23 billion by 2028.
"Advice released last year suggests that if Kāinga Ora continues on its current trajectory, their debt would reach $28.9 billion by 2033," Bishop said.
Bishop announced on Monday the review had found Kāinga Ora has had easy access to debt but "insufficient focus on fiscal discipline" coupled with "low levels of accountability" led to growing annual losses and a deteriorating financial situation.
However, he has ruled out a mass sell-off of state houses as a solution to the agency's financial woes.
The review made two broad findings:
"First, Kāinga Ora is underperforming and not financially viable without significant savings as well as funding and financing changes. Second, the wider social housing system is not delivering the results New Zealand needs, and is lacking in transparency and accountability, coupled with a poor understanding of tenant outcomes," Bishop said.
The Government was also concerned about the findings in the review on the governance of Kāinga Ora. Bishop said it found there was not a clear separation between the board's governance role and operational management.
"They saw evidence that the board has been acting more as an advisory function rather than governing," Bishop said.
The review found in the May 2023 board budget pack there was no Statement of Financial Position.
"The budget assumed that new lending of several billion dollars from the Government would be approved, the build pipeline included a line entitled 'Zero Net Growth' describing disposals of an indeterminate kind of over 3,000 homes per year, and did not provide a budget scenario where Kāinga Ora is limited to the funding agreed by the Government," Bishop said.
Cabinet has agreed to four of the seven recommendations today, which are:
- Recommendation 4(a): Aligning contractual arrangements across Kāinga Ora and Community Housing Providers (CHPs)
- Recommendation 5(a): Refreshing the Kāinga Ora Board
- Recommendation 5(b): Issue Simplified Direction to Kāinga Ora
- Recommendation 6: that Ministers set an expectation that the Kāinga Ora Board will develop a credible and detailed plan to improve financial performance with the goal of eliminating losses.
The Government has appointed Simon Moutter, best known for his time as managing director of Spark New Zealand, as the new chair of Kāinga Ora. He will step into the role on June 4. He replaces acting chair John Duncan who took over after chairman Vui Mark Gosche resigned earlier this year.
A refreshed board is expected to be in place in July.
"Ministers will then issue a new Letter of Expectations which makes crystal clear our expectations regarding Kāinga Ora's focus on fiscal sustainability, value for money, and a 'back to basics' approach for their essential functions," Bishop said.
"The first task of the refreshed Board will be to present a Kāinga Ora turnaround plan to Ministers by the end of the year, which focuses on returning Kāinga Ora to financial sustainability and eliminating losses.
"The other changes proposed by the review, including moving to a model where the government becomes an active purchaser that takes a social investment approach to cost-effectively improving housing outcomes, will be considered in the coming months. At first blush, the recommendations align with our broader social policy objectives, so we will be looking at them closely, as well as considering broader housing funding settings."
Following the review's announcement, Kāinga Ora made the decision to delay some work programmes, such as KiwiBuild. Official Information Act documents sent to RNZ found nearly 1300 homes were paused pending the probe's outcome.
The Government was also waiting on the report's recommendations to send an updated letter of expectations regarding anti-social tenants to Kāinga Ora.
In March, the Government instructed Kāinga Ora to take stronger actions against antisocial tenants including making it easier to terminate tenancies for severe and persistent cases. It said only three people were evicted in 2023 despite hundreds of serious complaints each month.
It also pushed the agency to strengthen its approach to recoup rent from tenants who are in arrears, including evicting tenants who continue to fail to pay rent. The Government said the total debt owed increased from $1 million to $21 million between 2017 and 2023.
