A report authored by former finance minister Bill English has found Kāinga Ora would need a $21 billion cash injection over the next four years to cover its growing losses.
The Coalition Government commissioned the former National Party minister, and two others, to review the Crown housing agency after becoming concerned about its operating losses.
English’s report was released on Monday after Cabinet approved four of its recommendations.
Housing Minister Chris Bishop said it had two broad findings. Firstly, that it was financially underperforming and non-viable without increased Government support.
And secondly, that the wider social housing system was not delivering enough results and needed to be opened up to more providers.
“The review found that Kāinga Ora has had easy access to debt but insufficient focus on fiscal discipline, and low levels of accountability have led to growing annual losses and a deteriorating financial situation,” Bishop said.
Simon Moutter, former Spark NZ chief executive, has been appointed chairman of the housing agency and has been tasked with presenting a “turnaround plan”.
English’s report said Kāinga Ora “not financially viable” with its annual operating deficit forecast to grow from $520 million last year to $700 million by 2028 and its debt was set to hit $23 billion.
Easy access to debt, poor governance, and a broad remit had resulted in an insufficient focus on fiscal discipline and low levels of accountability.
The board was presented with financial information which was “effectively banking on future government funding to bridge the gap” created by annual operating losses and debt servicing.
While the report acknowledged that the pandemic, supply chain disruptions and inflation had been challenging, they weren’t a full explanation for the cost escalations
It also said Kāinga Ora had “substantially” increased its capacity to add to New Zealand’s housing stock and build a better quality of house.
“However, we consider that the imperative to increase the number of houses rapidly has resulted in a high-cost structure and poor financial discipline,” it said.
It recommended that:
- Government funding for all housing-related outcomes should be consolidated under the Minister for Housing, Chris Bishop.
- The Ministry of Housing and Urban Development become an “active purchaser” which commissioned social houses from private providers
- More housing decisions should be localized closer to individual communities
- Make a number of other changes to enable more providers to participate in social housing
- Replace the board of directors, narrow the scope of the agency, and ask it to develop a “credible and detailed plan” to eliminate operating losses.
70 Comments
“had easy access to debt!” Would venture that mentality and approach bedevils and eviscerates the responsible functioning of both central and local government in NZ from Northland to Southland. So long as you can borrow then how much your operation is inefficient and wasteful, what does it matter. In short unaccountability in its very worse form. Understand for example that the sudden resignation of the chairperson and directors from tChristchurch City Holdings was largely because the parent council had refused to approve the financial restructuring being requested as the main purpose of that was simply to enable further borrowing.
I was talking to a colleague, nearing retirement, the other day amd she advised her and her partner were returning to NZ shortly. They have been in Australia for the past 20 years but wanted to obtain the non-means tested super as they had too many assets to receive it in Australia. I wondered how common this might be. The policy is costing the young in NZ far too much and has to change.
I guess when defenders make the excuse 'those receiving Super have paid their taxes all their life', they normally don't specify that they were paid in New Zealand.
Hard to blame the individual when the scheme is so damned generous - up to the politicians to plug the holes.
Hence an income test. I have no issue with assets, but if they're deriving an income from those assets don't just tax them on it, remove their ability to claim an old person's benefit.
But someone will come along as they always do, and claim we should turn a blind eye because Super is money they'll spend in the economy with GST etc.
I have an issue with assets too, there's no need to pay benefits to someone in a multimillion dollar home. There are options like downsizing or reverse equity to deal with the cashflow issue - in Australia the government provides a home equity release scheme to turn equity into pension.
No asset test just means we are paying benefits to preserve someone's inheritance (which isn't taxed here either).
While I'm all for saving the taxpayer money from being spent where it's not needed, I just feel in some cases an asset test might be a little too....punitive.
But I do agree, Australia seems to manage just fine with asset and income tests, and they're a country of back to back trade surpluses. Maybe their old people are far less entitled than the crop we have here.
Given that peoples financial status can change quite rapidly (someone who passes a means test on Friday can win lotto on Saturday or inherit from rich Auntie Maude on Monday) think of the substantial and on-going cost of means testing each and every old-age pensioner at say annual intervals. An eye-watering amount of time, staff and overheads would be involved.
Means testing on income and assets is done for the hundreds of thousands of other beneficiaries. So doing any different actually is an added cost.
Hence why so many destitute and unable to work actually say they will finally be able to have an income when they turn 65 and see an improvement in being able to afford necessities.
Obviously they were deemed as being too wealthy when they had to crowdfund that cancer treatment or funeral costs (actually has happened where beneficiaries with cancer had benefits cut after having been forced to crowd fund for treatment, medical equipment and funeral costs for their family).
Seems only fair that those who are actually wealthy, fit and able should face the same level of asset testing after 65, especially if they have other sources of income, like pay, rental, and business income which the IRD already tracks and has data on to share with other government agencies.
Andrew- agree, and universal benefits avoid the very real unfairness associated with extremely the high marginal tax rates that kick in as benefits are abated. IMO we need to introduce more universal benefits eg family tax credits should also be universal (like the old family benefit was). Much fairer for all. But need a properly progressive tax system.
Incorrect Dan. The money has been paid in by the user. So it is not the fault of the payer the Government has mismanaged the funds to not be able to make super payments to EVERYONE who has paid in. All they are doing is replacing the money that should have been there all along.
Here is a paper on the history of superannuation in New Zealand. It's from 2008 before National stopped contributing to the super fund so our situation is actually a lot worse, but the overall history is accurate. I would encourage you both to read it.
Super in New Zealand is unique that is funded from general taxation rather than from a dedicated fund. It is explicitly a "pay-as-you-go" scheme. Super as it is structured was not a contributory scheme many seem to assume that it was. The Muldoon government scrapped the super fund when they came in and since then people have not been contributing to their own retirements, but funding the generation before them. This was fine in the 20th century when demographics were far more balanced and people didn't live as long, but that is not the case now and the demographic situation is worsening.
The social contract is not a legal argument, there would be a legal basis for those claims if people had been contributing to a superfund during their working lives but the majority have benefitted from not having to pay into one and getting super funded by the current generation. As I have repeatedly stated on this forum a setup as we have it is inherently unsustainable. At a certain point, we will have too many people collecting super vs working and actually paying taxes, that also need to fund other services such as healthcare and infrastructure.
I would love for everyone to get universal super but it's becoming inherently unaffordable, people are receiving more from superannuation than they paid tax during their working lives. For me personally, I would rather not burden my hypothetical children with something that financially cripples them and would rather they had a functioning society to live in.
The average super "user" receives about $20k p.a. after tax. The median individual income in NZ is $66k. PAYE on that is $13k. For simplicity, let's extrapolate the numbers without inflation. Average life expectancy is 82, so 17 years on the pension.
Today's median wage earner will need to pay $340k in tax to just cover their Super, basically the first 26 years of their working life assuming they start on the median wage at 18. This will put them to the age of 44 by the time they start paying for hospitals etc. Let's put all their GST towards Super too then, they'll be 35. Assuming they're a median income earner.
Or are you saying the tax paid on the average income of $25k p.a. in the 1980's should still be there and be sufficient to fund $20k p.a. today?
That literally isn't correct though, it is a pay-as-you-go scheme. It was very briefly set up as you have described above by Norman Kirk, but that was rescinded and it has been a pay-as-you-go scheme ever since.
When universal super was setup we had more workers per retired individual, something like a 9 of workers to every superannuant. This balance is inverting and we are trending towards more like 2-3 workers to every superannuant. It's simply not sustainable long term if people keep living longer and requiring more expensive medical treatments.
Take two people on equal income: one decides to spend lavishly, the other decides to save
Come pension age, the one who spent all receives means-tested pension. The other will not
So the one with a more reckless lifestyle will be rewarded with larger total income per lifetime than the one who saved
I know we're a consumerist society but personally I'm unsure I want to encourage that
Are you suggesting someone will make a calculated decision to blow all their money during their working life just so they can get a Government pension that is arguably bugger all to live on?
Let's say we bring in an Income Test like I have suggested (ignore assets for a moment), the one who decided to save will end up with more because you'd have abatement thresholds. Assume super starts tapering off at the median income of $65k, the "saver" can earn $65k in investment income before abatements kick in, plus the $20k super they'll be on $85k meanwhile the lavish chump can enjoy $20k.
I get that is an unwelcome incentive, but that's the case with all our benefits. Why does the squeaky wheel get the grease?
I would question what price you'd put on maintaining that incentive. It better be worth a few billion dollars per year.
I do also suspect that the type of person who is successful and financially able enough to put money aside, is not going to throw it all away to subsist on 500 bucks a week. I know I wouldn't.
Lets say the one who blew all their money had to spend on cancer treatment as they were exposed to a highly carcinogenic substance in their work (happens frequently in NZ and not covered by ACC in most cases). Would you be ignorant of the reason why most are on benefits still. Or are you willing to admit in life most people are not lucky enough to be poor by choice. Most are poor by circumstances around their birth, and their health that they had no choice in.
Sadly for those under 65 finding themselves on benefits significantly less then the pension benefit with no housing support they quickly die from cancer as the benefit for those on jobseeker under 65 does not cover GP appointments or medication costs. Two birds with one stone I guess for you.
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
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.
That's firmly on Labour, and it's a terrible outcome, both financially and socially. We are all going to pay a high price for the previous government's debacles.
A prudent way to do it would be to grow the debt at a manageable rate, making sure the market can service the demand volume. Also, you would expect a decent management to deliver a certain number of houses, rent them out effectively turning WIP into income-generating assets before borrowing more.
Clearly, Labour forced KO to do the opposite: overburden itself with debt to take on an excessive number of projects. May balance out in the medium-term but not the best way to run things.
A prudent way to do it would be to grow the debt at a manageable rate
Would that be the same way successive governments have maintained a 'prudent' population growth policy by chance?
While I have no doubt there are inefficiencies that could be improved on, it seems to be a case of chickens coming home to roost and KO was left holding the bag/picking up the pieces for decades of poor government policy with respect to housing and immigration.
Frankly I'm surprised no one is saying that KO's woes are a 'good problem to have' since they've been exacerbated due to our high house prices!
They're exacerbated by complete ineptness.
- New KO houses are not being built to unified designs, often a section with 4-6 houses being built, has each house as a separate design, layout, and construction method.
- refurbishment of existing KO houses gets done at a 200%-%300 premium over what the private sector would sensibly do them for.
And it's not just KO, other government departments were given blank checks to commission their own construction projects, with absolutely zero oversight into whether the projects were economically sensible, or even necessary.
The only rationale I can think went behind all this was a government who was desperate to do something, anything, to make themselves look like they're doing anything. Without ever really asking whether they should, or how, or why.
They made Soviet era construction methodology look relatively sensible by comparison.
Indeed Pa1nter, those sound like the inefficiencies I refer to.
Do you agree with me KO's job has been made harder due to NZ's high house price to wages ratio and population growth?
The only rationale I can think went behind all this was a government who was desperate to do something, anything, to make themselves look like they're doing anything. Without ever really asking whether they should, or how, or why.
Agree with the first sentence. I think the should = yes, how = could be improved upon per you post, why = shelter is a need and I think we (society) have made rules preventing people building their own and from working/training opportunities (via immigration) so it's only reasonable for society to clean up its mess.
This is a really insightful comment except the last ideological dig at Soviet era.
While there were massive problems under that system I'm not defending it, there's plenty of big corporates who operate in a similar inefficient and top down fashion just look at Fletcher Building or Fonterra two of our largest companies here in NZ.
You're very right I would like also to see some standardised cookie cutter low cost development done by KO and furthermore if the residential property market takes another leg down they should be taking advantage through aggressive countercyclical expansion.
Whether it's a government agency or a private corporation the problems are the same and the outcome depends on having knowledgeable people driving it rather than at each others throat scoring political points (which National is doing here but Labour does as well) or mucking around with beuracracy which is horrific in NZ as well.
It's a bit over $28K per section when you combine it with the 2 sections next to it that will hold the rest of the housing ($3.95M for 4.8Ha and $6.5m for 8.8Ha). The land is well known for going underwater and was bought 3-4 years ago.
They paid over twice as much as they should have just because they had limitless funds. RVs are in the $1.6M-$2.5M range.
*Riverbend Road, yes, and further along Waterworth Ave as well. Two of the sections flooded two months after they bought them in 2020, and they bought the final plot (the $7M purchase) the following year.
According to an interview with Neil Kirton (HBRC councillor) some parts of the land are actually below sea level and it was inundated again during Cyclone Gabrielle. It's currently a retention dam while Napier addressed its wider stormwater issues. Interview here.
They were tasked with building more social housing, so it doesn't seem problematic that they took out debt to the term of 20-30% of their asset base to build more social housing. They have much less debt than your typical private landlord.
Some of this spending doesn't appear to have been the most cost effective, in part because of the well known surge in construction costs recently, hopefully any of that gets sorted out.
Nope Joe. A couple of things. The assets are owned by the taxpayer and therefore investing must be prudent. Second, debt has to be repaid and given the first point, revenue shouldn’t be below the cost of capital. And worse still, below the Government cost of capital. National would probably prefer to sell them, but realise it would be a fire sale as Labour have dug a bloody deep hole. And by the way, Mark Gosche is about as inept as they come.
Lol how many other govt. agencies are not financially viable and rely on regular cash injections?
Govt. is not a for-profit corporate institution.
Social housing was originally designed to negate the imbalances of "the market". Ultimately a governments core responsibility. Is this an attempt to further privatise social housing?
https://thespinoff.co.nz/politics/25-09-2023/did-national-really-just-s…
Heard first hand from a couple of mates who sold their rental apartments (last year) ... KO swooped in paid top dollar, didn't even negotiate - needless to say they were delighted. Quite high brow inner Auckland suburbs too which seems a strange place to buy for social housing. Probably worth 20-30% less now .. knuckle dragging KPI driven .. these actions also out bid the hard saving FHB
KO were well known for bidding $100k above others at auctions over the last 6 years. Stopping FHBs and others from owning homes & contributing to the housing price escalation.
https://www.nzherald.co.nz/nz/kainga-ora-spends-1b-buying-state-homes-i…
Those who profited from the housing boom will be long gone by then, handing the debt burden to whoever is left behind.
On the question of who is left behind: young Kiwis with marketable skills will jump ship to greener pastures, those less fortunate shafted by our broken education system will be stuck behind.
How come they are making a $500m loss growing to $759m in four years but need $20b over 4years to cover those loses?
KO are spending to much, but are going to become an "active purchaser". And save money?
As to the complaint of over doing the cheap debt, that's only ridiculous in hindsight. There were numerous economists and I'm pretty sure even national party members pushing both central and local government to binge while the interest rates were low.
just look at who prepared the report, same person that transferred state houses to community providers last time.
they should have got someone independent of all parties to review kianga ora
The Government is set to proceed with its controversial plan to sell more state houses while expecting community providers and iwi to provide more social housing.
Bill English didn't actually manage to sell any last time did he? The housing charities that kicked the tyres on them realised they were going to be a a huge cash sink, and the government wasn't willing to provide any ongoing funding and so they walked away. Now he's complaining that KO requires ongoing funding...
I think the biggest point that is missed here is that over the last few years we have had resourced constrained supply and KO have been incredible active consuming resource. So arguably they have added absolutely zero to the housing market.
Now, had the private market built houses and Government left its powder dry, KO could just be starting to ramp up.
"Not financially viable"... WTF does that mean? Its social housing, not a corporate entity! No government agency AFAIK is "financially viable", they all require a massive input from the taxpayer.
- Government funding for all housing-related outcomes should be consolidated under the Minister for Housing, Chris Bishop.
Ahh, I see why they had to beat up KO so much, Bishop is gunning for even more control over everything he can. He just also happens to be one of the ministers who can decide to issue resource consent without any checks or balances. Quite a little empire he is building.
How ironic - National did diddly-swat for social housing and employ an ex-National party minister to write a damning report on Kāinga Ora. This should have been an 'independent' report far away from politicians input. NZers are constantly being let down by their governments in this regard.
At least the Labour government build houses that were dry and not mouldy. Says a lot about a society who look after their people. Not sure that this government are looking after all NZers interests. Landlords perhaps, but the rest of NZers? Time will tell.
A blast from the past -- Bill English did such a good job last time.
https://www.rnz.co.nz/news/national/258382/'too-many-gaps'-in-state-hou…
Now who was it a couple of weeks ago created a bold lettered headline the NZ was not a Business so it shouldn't be run like one!! now was the one Leader of the Labour Party who has run this country for the last 6 years, and run the Country into a massive debt regime, here is the beginning of the unravelling of just how bad we are now positioned, I'm 75 was a maintenance contractor involved with HNZCI for 40+ years, after every Labour regime we were faced with this exact situation, massive debts, massive cost cutting, massive work quantities cut to the bone desperate tradies cutting prices to the bone to get a job to feed the family, this time this has gone to a new level and it will last for years as the sinking ship gets refloated, this is a terrible situation and the flow on into the construction industry will be absolutely huge! in 12-18 months the unemployment of tradies/Apprentices/sub trades, unless carefully monitored is going to be devastating, NZ we are going to be in massive trouble here, unless the panic button is not pushed and an orderly exit is organized, in the past the panic button has been pushed and not released, I KNOW!! AS I'VE WORKED AND NAVIGATED THOUGH IT!!
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