Government tests market appetite for social housing

31 August 2015

The Government today released information memoranda to test market appetite for social housing transfers in Tauranga and Invercargill.

The documents specify that it is a market sounding exercise only, and not part of any formal procurement process.

On offer

The Government owns and operates 371 properties in Invercargill and 1,257 in Tauranga. How many it will put up for transfer will be decided according to the response it receives to the market testing. 115 dwellings in Tauranga and three in Invercargill have been excluded from sale because they are subject to iwi rights of first refusal.

The two proposals differ in that the Government would prefer to make a single transfer transaction in Tauranga, but is looking for one to three transactions in Invercargill.

It is prepared to consider both lease and sale options. Potential providers could include:

• existing Community Housing Providers, and
• providers who are currently operating in a related sector (a description that would seem to take in Serco).

Providers will not be expected to provide all of the services themselves. They could form a consortium or sub-contract partners to bring in requisite skills.

The Government is looking for providers who can bring in innovative thinking or new expertise to bring “a positive change” for tenants. This may be through:

• different approaches to interacting with tenants
• enhancing links across social services
• efficient housing stock management and maintenance, and
• reconfiguring the portfolio of properties to better match community needs.

Two key contracts would be entered with the Government:

• an Outcome Agreement with the Ministry of Social Development (MSD) for tenancy and property management services paid through an Agreed Rent per property, a proportion of which will be paid by the tenant and the remainder through the Income Related Rent Subsidy, and
• a Sale and Purchase or Lease Agreement with Housing New Zealand through Treasury’s Transactions Unit, the value of which would take into account the fact that the properties were to be used for social housing. Whether a sale or lease will be preferred is likely to be driven by strategic considerations and perceived future demand for that social housing (i.e. lack of demand would indicate ultimate disposal).
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The memoranda contain new information that responds to some of issues that potential participants have identified:

• the Government will take vacancy risk provided social housing properties are required and made available by a provider
• providers will have specific maintenance obligations
• the Government’s rent supplement will be indexed to market rent over the term of the Outcome Agreement
• capital proceeds on any properties that are subsequently divested will be shared between providers and the Government
• properties will be encumbered as “social housing properties” and the Government will take a second mortgage to protect its position (although allowance is made for direct agreements with debt funders where the circumstances require)
• Outcome Agreements will contain step-in rights for MSD in case of provider failure (a provision which would seem to allow an intervention similar to the Department of Corrections in Mt Eden Prison), and
• providers will be responsible for rent collection from tenants, but the Government can redirect tenant rental streams direct to providers.
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The Tauranga memorandum is available here, and the Invercargill memorandum, here.

ENDS

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