Wellington, December 18,2023
Crown housing agency Kainga Ora’s finances and operations will be the subject of an independent review as part of the new National-led Coalition Government’s 100-day plan.
This was announced by Housing Minister Chris Bishop, who accompanied Prime Minister Christopher Luxon at the post-Cabinet press conference held in Wellington on Monday, 18 December 2023.
Of particular concern was Kainga Ora’s operating deficit, which was $520 million last year and forecast to increase.
“This deficit has a direct impact on OBEGAL [operating balance before gains and losses] and continues to put pressure on the return to OBEGAL surplus,” Bishop said.
Bishop noted Kainga Ora had total assets of $45 billion and an annual expenditure of $2.5 billion, with $12.3 billion of debt, up from $2.7 billion in 2018.
He said Cabinet had received “worrying advice” about Kainga Ora’s finances but was reluctant to divulge the details “as it is commercially sensitive.”
Asked about the choice of former Prime Minister Bill English to lead the review, Bishop said English was National’s finance minister and was responsible for Housing New Zealand between 2008 and 2016.
Former investment banker Simon Allen and engineering consultant Ceinwen McNeil will assist English with the review.
State housing goals
Bishop implied the review was necessary because Kainga Ora was failing to deliver its objectives.
“It is critical that Kainga Ora is focused on efficiently building social houses for people in need while also delivering value for tax payers’ money, and this review will be able to provide recommendations to ensure that these objectives are being met,” Bishop said.
But Kainga Ora’s management has blamed spiraling construction and maintenance costs for its budget overrun.
Kainga Ora’s finance manager Gareth Stiven said those costs had overtaken the rental income, putting “considerable pressure on our budget.”
He said cost cutting measures were in place and the agency was working on its own review of its asset management and maintenance system.
House prices fell sharply over the past two years with Kainga Ora’s portfolio dropping in value to $45.1 billion, down from $48.8 billion in June 2022.
Kainga Ora had a net asset base worth $30.3 billion and could absorb additional debt.
“We are monitoring our capital position alongside our operating environment to ensure the pace of our investment is manageable within our overall financial parameters,” Stiven said.
Rating agencies, however, were less optimistic.
Though S&P Global Ratings and Moody’s gave the agency a Triple A rating over the past year, on the back of government support, the agency’s stand-alone rating from A&P was downgraded to A- in February, with a forecast of higher debt and interest costs by 2025.
Social housing deficit
Prime Minister Luxon criticised the previous Labour Government’s track record on social housing.
“Some New Zealanders have higher needs than others. And one place where that is obvious is in social housing,” he said.
Rents had gone up by $180 a week under Labour, pushing more people on to the wait-list for social housing, Luxon noted, and added that “some of the most vulnerable New Zealanders depend on Kainga Ora.”
The wait-list had lengthened from over 6,000 “when Labour took office to around 24,000 today,” the PM noted.
“Kainga Ora is New Zealand’s largest landlord. Obviously, its performance for tenants matters. But with $45 billion worth of property, roughly around 8% of Crown assets, it’s important for the Crown’s balance sheet. Its debt trajectory is, frankly, quite concerning.”
In what the Prime Minister termed “the familiar story of Labour hiring more people to produce worse results,” Luxon pointed to the agency’s burgeoning staff numbers, which had grown to “around 1,450 over the past four years.”
“It’s fair to say from what we see [that] Kainga Ora is falling well short of expectations,” Prime Minister Luxon concluded.
Venu Menon is an Indian Newslink reporter based in Wellington