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Speaker 1: I'm Chelsea Daniels and this is the Front Page, a

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Speaker 1: daily podcast presented by the New Zealand Herald. It's been

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Speaker 1: five years since Social Housing in New Zealand was put

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Speaker 1: under the banner of King Order. Over that time, questions

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Speaker 1: have been asked about the financial stability of the organization

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Speaker 1: and the loaded remit Kaying Order has to also lead

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Speaker 1: and develop urban renewal projects. The government made it a

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Speaker 1: priority to investigate the state of the agency, ordering a

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Speaker 1: review led by the former Prime Minister Sir Bill English

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Speaker 1: that painted a stunk image of its fiscal situation. With

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Speaker 1: Housing Minister Chris Bishop processing the recommendations from the report,

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Speaker 1: some are wondering what the future holds for the agency

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Speaker 1: responsible for over seventy thousand public homes.

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Speaker 2: Today.

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Speaker 1: On the Front Page ends at Herald, Deputy Political Editor

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Speaker 1: Thomas Coglan joins us to discuss his recent reporting into

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Speaker 1: the future of Coing or Order and Social Housing in

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Speaker 1: New Zealand. Thomas, if we start a little broadly for

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Speaker 1: those I'm sure exactly what coing or Order is. What

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Speaker 1: does the organization cover because it's not really just a

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Speaker 1: social housing provider, is it.

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Speaker 2: No, it does many things, so The main job, as

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Speaker 2: you say, is as a landlord. Basically has the majority

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Speaker 2: of the eighty thousand public houses in New Zealand which

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Speaker 2: house people who need governments boat housing. Well, it owns

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Speaker 2: the majority of them and it rents them out. But

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Speaker 2: however it also does a lot of other stuff, and

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Speaker 2: this is quite controversial because it got a lot of

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Speaker 2: these jobs fairly recently. So it runs a shared equity scheme,

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Speaker 2: so it actually owns I think slightly over one hundred

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Speaker 2: million dollars worth of other people's houses. So it's a

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Speaker 2: shared owner of private homes with First home buyers, runs

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Speaker 2: a lot of other schemes which are aimed at getting

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Speaker 2: people into their first homes. The First home Buyers grant

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Speaker 2: recently scrapped. It administered that. And then it's also an

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Speaker 2: urban developer, so some of these large urban developments that

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Speaker 2: you see in Auckland, and in particular Auckland, they are

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Speaker 2: kind of led by klient Aura in that respect is

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Speaker 2: something quite different to what Housing New Zealand or other

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Speaker 2: historic government social housing providers have done. They have built

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Speaker 2: a lot of houses obviously, but none of them have

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Speaker 2: quite had the scale I guess of development ambition that

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Speaker 2: client AURA has at the moment.

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Speaker 1: So how does this tie into the income related Rental

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Speaker 1: support housing or the IRRs for short.

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Speaker 2: The way that client aur makes its money, it has

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Speaker 2: to make its money by renting our houses now, because

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Speaker 2: it's tenants are people who can't afford housing on the

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Speaker 2: private market. The rules for social housing are that you

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Speaker 2: cannot pay more than twenty five percent of your income

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Speaker 2: and rent the cat and then the government tops up

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Speaker 2: the remainder with the income related rent subsidy. The only

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Speaker 2: difference between paying it or and other commercial landlords is

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Speaker 2: that client Ura can only pass on a certain amount

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Speaker 2: the costs of the extual tenant and then it sends

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Speaker 2: the bill for the rest of it to the government.

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Speaker 2: And so when you look at clime aura's accounts, there

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Speaker 2: are two big revenue streams coming in. One of them

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Speaker 2: is from tenants and the other is from the Ministry

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Speaker 2: Housing and Urban Development, which tops up to their rent.

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Speaker 2: Where things get challenging is that when it comes to

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Speaker 2: stuff like this urban development ambition that the government are

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Speaker 2: the last government labor had for it, it doesn't really

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Speaker 2: get enough funding to do that, and so many of

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Speaker 2: these other jobs that klim Aura does have to be

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Speaker 2: cross subsidized through its main job, which is as a landlord.

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Speaker 2: And KLi and Aura has for some time been asking

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Speaker 2: ministers to say, well, look, if you want us to

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Speaker 2: do these other things, so that are other jobs, then

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Speaker 2: you kind of need to pay us to do them.

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Speaker 2: And that's kin where some of these problems are actually

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Speaker 2: the way that the rent market in general, not just

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Speaker 2: the government side of it, but for all landlords. Often

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Speaker 2: there isn't actually a lot of money to be made

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Speaker 2: in renting out the house and the cash flow. You

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Speaker 2: don't actually make the money from renting the house so

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Speaker 2: much where the real money is often made in the

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Speaker 2: rental market in New Zealand, that is selling the housing

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Speaker 2: through capital gains, which are famously mainly untaxed in New Zealand.

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Speaker 2: And that's something that's also difficult for cime Aora because

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Speaker 2: you know, to make its figures stack up, it can't

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Speaker 2: just flog off a lot of housing and add that

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Speaker 2: money to its bottom line. It needs to continue to

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Speaker 2: own the housing because its job is to own that

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Speaker 2: housing and rent it out to social housing tendents. So

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Speaker 2: you've got all those difficult treads going on inside these

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Speaker 2: accounts and that's contributed to the financial pickle that climb

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Speaker 2: Order has found itself.

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Speaker 3: In a review into the state housing provider is Damning,

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Speaker 3: it found the agency's debt ballooned or fold over the

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Speaker 3: past six years to twelve billion dollars and business is

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Speaker 3: usual without savings or significant investment mean Kying or a

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Speaker 3: needed twenty one billion dollars of government money over the

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Speaker 3: next four years.

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Speaker 1: This is equivalent to we're any Zealander paying about four

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Speaker 1: thousand dollars each to keep kying or going Thomas, can

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Speaker 1: you walk us through the kinds of housing support people get?

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Speaker 2: There are two kinds of basic almost benefits that the

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Speaker 2: government provides. One of them is public housing, funded by

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Speaker 2: the income related rent subsidy. So if you're really in

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Speaker 2: quite die need of a house and you really really

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Speaker 2: can't afford it, you might be evicted, you might be

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Speaker 2: unable to get any housing on a private market, you'll

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Speaker 2: go on the social housing waitlist and then hopefully eventually

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Speaker 2: you'll be allocated at public house. So most of these

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Speaker 2: owned by Kying or a run by clying, or sometimes

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Speaker 2: they run by Community Housing Providers or chips CHP CHIP.

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Speaker 2: But for all intents and purposes as a tenant. You

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Speaker 2: might not know the difference. A community housing place is

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Speaker 2: still subsidized by this income related rent subsidy. The only

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Speaker 2: difference is that the government sends the money to the

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Speaker 2: CHIP rather than sending the money to caying AURA. So

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Speaker 2: if you're in really bad need the then eventually, hopefully

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Speaker 2: you'll get one of these places. You've obviously got emergency housing,

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Speaker 2: which has been in the news recently, motels and stuff,

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Speaker 2: and that is for people quite a new acute need

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Speaker 2: who are unable to get a permanent place just yet.

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Speaker 2: Because obviously there is that weight list and people in

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Speaker 2: those houses get an average of eighteen thousand dollars a

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Speaker 2: year in government support for their housing. So that's how

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Speaker 2: much that income related rent subsidy is generally on average worth.

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Speaker 2: In the past, we've talked about state housing for example.

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Speaker 2: This is the modern version of what that looks like,

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Speaker 2: and we've got roughly eighty thousand households that are in

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Speaker 2: that boat at the moment, and there's about twenty five

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Speaker 2: thousand households that are on the weightlist for a place.

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Speaker 2: There's another form of support. It's been around in some forms.

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Speaker 2: It's the seventies really accelerated in the nineties and that's

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Speaker 2: called the Accommodation Supplement. There are more than three hundred

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Speaker 2: thousand people who receive this, and this is a payment

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Speaker 2: that goes to people who are in the private rental

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Speaker 2: market but need some help paying the rent. It varies

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Speaker 2: depending on where one is. Obviously, rents very throughout the country,

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Speaker 2: and this is substantially less generous. It's worth about five

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Speaker 2: thousand dollars a year per persons to the people who

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Speaker 2: get it. It gets paid out like a benefit does,

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Speaker 2: and it's meant to help people whose incomes are not

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Speaker 2: high enough to pay the rent. It's quite controversial because

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Speaker 2: really this money goes from the government's checkbook into the

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Speaker 2: hands of private landlords. It props up high rents in

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Speaker 2: the country because the more government support you give to

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Speaker 2: the rental market, the more landlords will logically take. We

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Speaker 2: know e kind of research done by the Ministry Housing

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Speaker 2: and Treasury and the Reserve Bank are recently showed that

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Speaker 2: rent prices typically mirror people's incomes, so benefit like the Accommodations,

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Speaker 2: which boosts people's incomes, will allow landlords to boost their

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Speaker 2: rents as well. So it's quite it's quite controversial, and

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Speaker 2: it creates almost two different classes of housing support for

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Speaker 2: people because one group gets very generous or I mean,

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Speaker 2: you don't want to say too generous, because obviously it's

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Speaker 2: not quite the life of luxurally living in a social house,

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Speaker 2: but relatively speaking, it's quite a lot of support. And

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Speaker 2: if you're in a publicly funded public housing place, and

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Speaker 2: then you've got another group of people which gets substantially

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Speaker 2: less support and is left to fend for themselves in

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Speaker 2: the private rental market, that creates a massive problem because

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Speaker 2: it incentivizes people to get into a public house and

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Speaker 2: stay in that public housing system and not come out

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Speaker 2: of it and try their luck on the private rental market. Again,

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Speaker 2: it basically means that there is a one way direction

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Speaker 2: of travel towards public housing, which is putting immense pressure

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Speaker 2: on it when it's such a scis resource. You know, again,

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Speaker 2: there are about eighty thousand places and twenty five thousand

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Speaker 2: people on the weightlist. There's a massive weightlist considering this

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Speaker 2: the overall size of the of the portfolio.

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Speaker 1: If it is such a good deal, Thomas, how does

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Speaker 1: the government urge people on so those twenty five thousand

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Speaker 1: do get a chance to move in.

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Speaker 2: Well, the last government built a lot of houses, and

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Speaker 2: that's probably the bigest thing to do, is just build

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Speaker 2: a lot of houses with Historically, I mean, you can

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Speaker 2: pull any number of statistics out there. You need to

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Speaker 2: build more public houses. You also need to build more

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Speaker 2: private houses, because the reason people need social housing is

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Speaker 2: that they can't afford private housing. And the reason why

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Speaker 2: they can't affoid private housing is that the private mental

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Speaker 2: market's absolutely cooked. Unfortunately, the incentives that are absolutely cooked.

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Speaker 2: At the moment, we've got construction costs are actually plateauing

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Speaker 2: a wee bit at the moment, they might even be

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Speaker 2: coming down, but for a long time, construction costs we're

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Speaker 2: going sky high. We've got high interest rates, which means

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Speaker 2: that you know, if you want to build some houses

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Speaker 2: to rent, you've got to borrow money, which costs a

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Speaker 2: pretty penny at the moment, and then you've got to

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Speaker 2: pay people to build it. And at the moment it's

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Speaker 2: very expensive to pay people to do that, so it's

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Speaker 2: really it's really not a good time. But the sort

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Speaker 2: of secret to fixing this is to actually ensure that

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Speaker 2: private housing is affordable and public housing is accessible, and

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Speaker 2: right now, both of those things aren't happening. You know

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Speaker 2: that you can't get into a public housing place. The

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Speaker 2: weightlist is very long, and the weight list is long

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Speaker 2: partly because the private rental market is so expensive and

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Speaker 2: people can't afford it.

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Speaker 1: The new government commission to report into kyung Or Order

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Speaker 1: and was chaired by former Prime Minister Sir Bill English.

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Speaker 1: What did that report look into and what are the

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Speaker 1: headline findings from it?

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Speaker 2: So it locked into the financial state of client order.

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Speaker 2: So the Labor government was aware that Climate Order financially

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Speaker 2: was in a bit of a state Client Order basically

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Speaker 2: got caught out. It arguably hired excessively. It was it

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Speaker 2: grew would be a very big organization. It did that

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Speaker 2: urban development stuff that we were talking about earlier. It

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Speaker 2: wasn't adequately remunerated for that urban development stuff. So it

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Speaker 2: asked for money to be able to do that. Said, look,

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Speaker 2: if you want us to be a massive urban developer,

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Speaker 2: you're going to need to pay us for it. We

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Speaker 2: can't subsidize it through selling assets and then are other

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Speaker 2: sort of rental work. So we knew that there was

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Speaker 2: a problem there. So Billing this was commissioned to look

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Speaker 2: into it. He saw that Clian Aura had forecast large

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Speaker 2: deficits going to the future. It had a very large debt.

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Speaker 2: There were a number of reasons for this. The staffing

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Speaker 2: obviously was an issue. He thought that they that Client

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Speaker 2: Order sort of did gold plated builds. I guess he

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Speaker 2: would argue sorry that it built, that it was someless,

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Speaker 2: slightly distracted by things like modular construction and new green

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Speaker 2: energy standards. Wouldn't really it probably should have been what

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Speaker 2: should have been focused on building as many houses as

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Speaker 2: possible for the largest sort of cost. There were other

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Speaker 2: issues about the number of works progress that it had

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Speaker 2: on and the amount of money it cost to have

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Speaker 2: such high borrowings before you actually could bring the houses

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Speaker 2: that you had borrowed money to build to the market. Obviously,

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Speaker 2: if you're going to build three thousand houses, you've borrowed

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Speaker 2: the money to build those three thousand houses, well, it

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Speaker 2: starts to cost you the day you borrow that money.

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Speaker 2: You're paying interest on it, But you don't actually make

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Speaker 2: money for those three thousand houses until those houses have

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Speaker 2: really to lived in. So Client Order had massive borrowings

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Speaker 2: but didn't necessarily have the rental income to sustain those

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Speaker 2: massive borrowings Client Order just like anyone who's dabbled in

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Speaker 2: the housing market recently has borrowed a lot of money

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Speaker 2: and is being caught out by punishingly high interest rates.

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Speaker 2: And that's really a story that has taking place across

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Speaker 2: the New Zealand housing market, across the housing markets of

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Speaker 2: the developed world, there are a lot of people who

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Speaker 2: are up to their eyeballs and dead and paying very

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Speaker 2: high interest rates to service it. And for Client Order,

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Speaker 2: that's a really big problem.

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Speaker 1: I can rule out a mass sell off of state houses.

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Speaker 2: We're not there with a mass plan to sell off

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Speaker 2: state houses. What we are there to do is actually

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Speaker 2: increase the stock of social housing.

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Speaker 1: It's like they've only just realized it costs money to

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Speaker 1: build houses. They talked about the increase in debt, they

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Speaker 1: didn't once talk about the increase in assets. How did

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Speaker 1: the government respond to this report?

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Speaker 2: So the government, I mean, one of the findings we

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Speaker 2: didn't mention was that is that Buildings was very critical

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Speaker 2: of the organization's governance and argued that it hadn't really

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Speaker 2: had enough of a focus on the financial implications of

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Speaker 2: what it was doing. The government responded by really accepting

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Speaker 2: that recommendation and as pivoting towards using more community housing

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Speaker 2: providers a set of client in order to provide public

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Speaker 2: housing places in future. So the government is committed to

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Speaker 2: the ongoing provision of public housing and it has committing

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Speaker 2: to growing the number of places that people who need

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Speaker 2: housing support can get. However, it is looking to do

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Speaker 2: that through a different method, which is community housing providers. Now,

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Speaker 2: there's a private, well not for profit organizations that are

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Speaker 2: basically the same as Kyle Auora, but they're owned not

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Speaker 2: by the government, and they also must not charge more

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Speaker 2: than twenty five percent of someone's income and rent, and

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Speaker 2: they also receive the income related rent subsidy from the

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Speaker 2: government to provide that. Basically, the sort of short answer

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Speaker 2: is the government really isn't that impressed with kin or

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Speaker 2: As governance and has therefore decided to shift the emphasis

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Speaker 2: of new places new housing places to these community housing

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Speaker 2: providers for now.

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Speaker 1: And Thomas, from the people that you've spoken to, does

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Speaker 1: it seem like caying an order can be fixed or

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Speaker 1: are the issues just too far gone?

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Speaker 2: There are some acceptance of the fact that the financial

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Speaker 2: position is worrying. There is still a lot of dispute

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Speaker 2: over who's fault it is whether it's been asked to

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Speaker 2: do so, much like this urban development thing. There's also

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Speaker 2: a question as to whether it's caring or as fault,

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Speaker 2: or whether the whole model is broken. You know, pi

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Speaker 2: Aura is run like a really big landlord. The models

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Speaker 2: of being a landlord is broken. You know. The only

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Speaker 2: way to make money from being a landlord is to

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Speaker 2: sustain your debt payments through rent and then make your

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Speaker 2: money when you sell the properties, make your money through

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Speaker 2: capital gains. So there's a question as to whether the

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Speaker 2: model that CI or or any public housing provider operates on.

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Speaker 2: There's a question as to whether that is sustainable for anyone,

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Speaker 2: let alone a government entity. The question of whether it

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Speaker 2: can be fixed is actually it's one that's almost the

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Speaker 2: secondary question. The question which we still don't get to

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Speaker 2: the bottom of us is not whether it's broken. People

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Speaker 2: except that it's broken, but the question of why it's

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Speaker 2: broken is the one that people are still litigating.

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Speaker 1: Thanks for joining us, Thomas. That's it for this episode

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Speaker 1: of the Front Page. You can read more about today's

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Speaker 1: stories and extensive news coverage at zat Herald dot co

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Speaker 1: dot MZ. The Front Page is produced by Ethan Siles

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Speaker 1: with sound engineer Patty Fox. I'm Chelsea Daniels. Subscribe to

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Speaker 1: the front page on iHeartRadio or wherever you get your podcasts,

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Speaker 1: and tune in tomorrow for another look behind the headlines.