3 December 2014

Auckland Council’s new initiative to increase supply of affordable housing

Auckland Council has agreed to offer a limited guarantee as a means of securing up to $30 million from the philanthropic community, so that cheaper loans can be made to community housing providers.

The council’s guarantee will provide greater confidence to bond investors, and enable cheaper and more favourable loan terms to be offered to community housing providers, boosting the supply of affordable housing in Auckland. This could reduce the cost of homes by up to $6000-$8000 per dwelling.

“Auckland Council’s limited guarantee can assist community housing providers to access funding at more favourable rates and terms, so they can concentrate on their business of delivering more affordable homes,” said Deputy Mayor Penny Hulse, the chair of the Auckland Development Committee. “I’m thrilled this innovative proposal will now add to the council’s initiatives in creating affordable housing options for Aucklanders.

Mayor Len Brown says: “The 3-year pilot will allow for the building of around 200 affordable homes across Auckland, homes that are sorely needed. The housing bond guarantee is a low-cost, low-risk way for the council to facilitate the provision of new affordable homes, with the community housing sector overseeing the pilot and building the new dwellings.”

The initiative will see the council provide a limited guarantee on bonds issued by an independent housing fund agency to philanthropic investors. The housing fund agency will then provide the money raised from the bond sales as loans to community housing providers.

Under the plan, Auckland Council will guarantee bonds to a maximum of $6 million over three years which will allow the community housing sector to raise $30 million of socially responsible investment from trusts, foundations and companies, at a slightly lower interest rate than would be available from other lending institutions. The council will provide the guarantee and $200,000 of initial capital to be repaid on terms to be finalised including requisite risk management, governance and operational requirements and sourcing start-up working capital.

A new entity, that is independent of the council, will be created which will be responsible for raising the capital from investors and overseeing the loans which will be provided to registered community housing providers. These organisations will then build affordable homes initially within Auckland’s 80 designated Special Housing Areas.

As well as the bond guarantee, the initial seed capital of $200,000 will provide an initial reserve fund to meet any delays in repayments of the interest on the bonds, as the programme becomes established.

ENDS

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