Hon Chris Bishop
Minister of Housing
Associate Minister of Finance

The Government has agreed to a series of changes to remove barriers faced by Community Housing Providers (CHPs) in delivering social housing, Housing and Associate Finance Minister Chris Bishop says.

“Social housing is an important part of New Zealand’s housing market, providing affordable rental housing for low income tenants. CHPs do a great job of providing housing for people in need and already operate around 13,700 social homes across New Zealand.

“The Government wants CHPs to be treated on a level playing field with the state-owned Kāinga Ora – Homes and Communities when it comes to competing for funding to deliver social housing. Unlike the last government, we are agnostic as to whether the state or the community sector delivers social housing.

“While CHPs have been able to access Income-Related Rent Subsidies (IRRS) provided by the government since 2014, they often struggle to access finance that fairly reflects underlying risk for building social houses, while Kāinga Ora can access borrowing by the government.”

To help address this disparity and lower the cost of finance, the Government has directed officials to advance the following changes in the short-term:

1. Changes to contracts for new housing supply to make the IRRS revenue stream more attractive for investors and financiers, including exploring removing termination for convenience clauses, extending compensation terms and looking at funding approval arrangements, including early approval in principle to enable CHPs to invest with greater funding certainty.
2. Increased use of leasing to provide social housing, in cases where leasing delivers value for money. This could help deliver more social housing very quickly, and would only be available for newly built homes that have not yet been occupied.
3. Capitalising part of the Operating Supplement currently paid to CHPs for new housing developments, to be paid upfront when contracts for new social housing are agreed. This capital funding, agreed in principle to be up to $70 million, will be made available in targeted circumstances to provide equity to CHPs allowing them to raise finance at better rates. This Operating Supplement would otherwise be paid to CHPs over time during the life of the contract.

“Furthermore, the Reserve Bank is currently considering options to review standardised risk weights. The Minister of Finance will be setting an expectation that this work prioritises the treatment of CHPs. Both Ministers and the sector are concerned that current risk weightings penalise CHPs, reducing their ability to borrow at competitive rates from banks,” Mr Bishop says.

“The Government is also committed to exploring a credit enhancement intervention for CHPs so that they can access suitable debt. Over the next three to four months, the Government will consider a range of options to support CHPs’ access to debt on terms reflective of their real risk and circumstance.  

“Ministers have directed the Treasury and the Ministry of Housing and Urban Development (HUD) to investigate options for supporting CHPs to access debt. In addition to removing any barriers to capital markets financing CHPs, these options could include: 

• providing direct lending or guarantees to CHPs,  
• establishing a Crown intermediary to provide financing efficiencies, or 
• providing lending or guarantees to a private lender. 

“CHPs having access to finance that is not unnecessarily restrictive will give them a stronger economic case for building more social houses, and makes progress toward CHPs and Kāinga Ora working on a level playing field to deliver social housing. 

“Agencies will be working with the CHP sector through the first quarter of 2025, and then report back to Ministers with advice.

“Together, over time these changes will help us achieve contestability between CHPs and Kāinga Ora for delivering new social housing places and will help deliver better value for money as well. In social housing, better value for money means we’re able to deliver more social homes and house more people in need.”

The Treasury and Ministry of Housing and Urban Development will work with the CHP sector to deliver advice on these changes to Ministers in early 2025.

© Scoop Media