29 May 2024

A crisis at Kāinga Ora

From The Detail, 5:00 am on 29 May 2024

The government's social housing arm is under scrutiny for its levels of debt. But is it really as bad as it sounds?

New three-level Kainga Ora container-style units at 15 Kingsway Ave, Sandringham. 27 May 2024. New Zealand Herald photograph by Jason Oxenham

 The government was concerned that Kāinga Ora under the Labour government had been not disciplined and had generated too much debt. Photo: Jason Oxenham / NZ Herald

A financial commentator says Kāinga Ora could be seen as a "stonking financial success".

That analysis is a far cry from the headlines over the last week, which have criticised the government's social housing agency for "underperforming" and being "not financially viable".

Today on The Detail, financial journalist Bernard Hickey analyses the agency's finances and the government's plans for social housing.

This comes after an independent review into Kāinga Ora, led by Sir Bill English - former National Prime Minister and minister responsible for Housing New Zealand. 

It was commissioned by Housing Minister Chris Bishop in December and released last week.

"The government was concerned that Kāinga Ora under the Labour government had been not disciplined and had generated too much debt," Hickey says.

And that's exactly what the review found. But Hickey believes whether the agency is in financial strife or not is up to your political and ideological views.

Financial journalist, Bernard Hickey Photo:

"This accusation that it's not financially sustainable, that relies on some big assumptions about how big you think the size of government should be [and] how big you think the size of overall government debt should be," he says. 

Kāinga Ora's debt grew from $2.7 billion in 2018 to $12.3 billion in June last year. It's forecast to grow to $23 billion in four years time. The current asset to debt ratio is about 0.25. 

Hickey doesn't think that ratio is bad news. 

"You could argue actually that there isn't nearly enough debt inside Kāinga Ora, because for most people, they are able to borrow quite a bit more than 25 per cent of the value of their home," he says.

"Certainly, if you valued Kāinga Ora like any other home, you'd say to yourself, actually, it's been a stonking financial success over the last five or six years, because the value of its homes, in particular the value of its land, has risen much faster than the value of its debt, just as every other homeowner in New Zealand can claim credit for unearned gains, because land prices rose dramatically."

He says it's "magical thinking" on the part of both the government and voters to think the government could increase the number of homes and not take on extra debt.

"If you said that to a regular person who was looking to buy a new house, they would say that's not possible and [so] would the bank. That's the irony here - the government says it wants to build lots of new houses but doesn't want to do it with any of its own borrowings - which would be totally impossible for a regular home buyer."

Hickey also discusses the government's approach to adding more social housing - seemingly moving away from Kāinga Ora to community housing providers.

"National have a particular view to try to reduce the size of Kāinga Ora's housing stock, relative to the total housing stock - i.e. to reduce the size of government and to take housing more and more back into the private sector and that is an ideological approach."

The result, he predicts, is that the current government won't build many homes.

"Certainly less than the previous government - and the price of residential land will rise as a result and the rents that will be earned from private rentals will be higher."

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