Affordable Housing: The future for New Zealand some thoughts

1. Affordable Housing: The future for New Zealand�some thoughts

2. In most OECD countries, housing markets pose substantial policy challenges The Global Financial Crisis (GFC) in retrospect: A prolonged period of relaxed lending standards, across asset markets Unprecedented levels of debt US maintenance of low interest rates, post 2001 Poor regulatory practices In US, no recourse to borrowers, some level of over-building Highly interconnected financial markets But ultimately a failure of housing policy and unsustainable home ownership

3. Some consequences of the GFC Unwinding of debt, everywhere Almost all asset prices have declined House price collapse High default rates (US 2.5%, UK 1.3%) By comparison, the S&P 500 fell by more than 40% since October 2007, then has been recovering FTSE All Shares Index has fallen 39%, then has been recovering Property Markets..??

4. Housing Markets - Housing Under Supply Land Infrastructure Regulation Population pressures - Fertility rates - Internal movements - Migration

5. Housing Markets - Housing Affordability Costs relative to incomes Access to credit Demographic charges Labour market mobility

6. Housing Markets - Distributional Impacts Low income groups, housing stress Housing costs in the private rental market Mismatch in affordable and available dwellings

7. Housing Markets - Tenure Movements Decline in home ownership Rise in private rental Declining social housing

8. S

9. The Scope of Government Action Housing Systems Government Intervention 1-12 EAROPH1-12 EAROPH

10. Non-Market Supply Through Single State Providers is Increasingly Under Scrutiny. Unwillingness of governments to invest The scale of funding required versus budget and other priorities Public sector reform principles: - Transparency - Benchmarking - Contestability - �Crowding� theories

11. Affordable or �Community� Housing Organisations � An Emerging Institutional Form Characteristics: Long history in Europe and North America - urban renewal - affordable housing - specialist housing - housing �plus� Neither state nor market Unusual blend of policy skill and market acumen Commercial in all respects, �not for dividend�

12. Public or State Housing and Community Housing � Current Characteristics Public Housing Community Housing - Progressively residualised - small - Stock in poor condition - embryonic, with some new capacity - Maintenance liabilities - growing quickly, but limited inherent prospects - Operating deficits - diverse - Concentrations of disadvantage - concessional tax treatment - Stigma - private debt - Poor status in the community and policy - private investment circles - philanthropy - Unlikely to ever be adequately resourced - Local Government Relationships - planning gain - broader tenant profile - commercial governance - high levels of accountability - consumer confidence These attributes need to be considered from a systems/design/ and re-design perspective WAWA

14. Rationale for social housing growth in Victoria, Australia (continued) Benefits non-Government investment in social housing (leverage); growth in social housing; social mix and sustained tenancies; meeting demand for housing assistance for low income households increasing choice advantages not available to government (GST exemption; Commonwealth Rent Assistance; Tax exempt/charitable status; Higher tenant eligibility income range than for public housing; Access to the private finance market; access to donations from philanthropic and private sectors, more flexible rent setting options)

15. Features of these new providers Profit and loss Low income risk High fixed operating costs Low margins Balance sheet High Net assets Low debt and good security Variable interest coverage

16. Government Funding arrangements

17. In Australia: Rent (market based) + CRA (i.e. A.S) + Tax Concessions (GST, Stamp Duty) + Private Debt + Equity (e.g. undercapitalised land) = New Supply

18. Financial Planning and Modelling in the sector Key factors include:- Rental income/tenant profile Interest payments on debt Maintenance provisions Tenancy management costs Sales/tenure diversification These are informing the viability and leverage outcomes which may be possible for any project

19. Raising Finance Bank will require first-ranking security over which they may exercise their power of sale Land must be capable of being sold unencumbered to maximise its value as security Tripartite or deed: Priority of interests Notice by lender to state if HA defaults and cure period Cancellation of recording in register if bank exercises power of sale

20. Governance and Management:Emerging characteristics Skills-based Boards, rather than Management Committees CEO�s from a range of backgrounds Strategic and growth-orientated Delegation instruments in place Policies and procedures to monitor compliance Risk management and mitigation systems Efficient operations Customer � focus Resident participation ethos Community and place-management capability

21. Housing Choices Australia � An example Manages 1600 tenancies in Victoria - 300 in Tasmania, under development - 250 in Northern Territory, under development Development program over past 18 months of 600 units Net Asset position now approx $450m Now establishing as a national organisation on a collaborative basis

22. 65 staff members $50m current debt facility;$50m additional available Asset growth increased by 33% last year, 35% current year. Growth drivers: - Nation Building Stimulus - Mergers - New Subsidy Streams Housing Choices Australia � an example (continued)

24. HCA Directors James Forrest: Chairman, Partner of Mallesons Stephen Jaques Simon Moore: Vice Chairman, Executive General Manager, Group Development for the National Australia Bank Ltd Peter Galante: Director of Galante Business Solutions and Mornington Peninsula property development company Prof. Mike Berry: Professor of Urban Studies and Public Policy at RMIT University Assoc Prof. Kath Hulse: Senior researcher at the Institute for Social Research at Swinburne University William Bowness: CEO of Wilbow Group Pty. Ltd. which is involved in the provision of structured property finance in Australia Cr Jennifer Kanis: Lawyer and practices in employment, industrial relations and antidiscrimination law.

25. Springfield Road, Croydon (10)

27. Nelson Street, Ringwood (36)

28. Rosling Lane, Dandenong (4)

29. Keneally Street, Dandenong (12)

30. Callaway Park, Sunshine (22)

31. New Quay, Docklands (85)

32. Potter Street, Dandenong (3)

33. Freshwater Drive, Craigieburn (8)

34. Hollows Court, Craigieburn (8)

35. Cottrell Street, Werribee (15)

36. 51 Alma Road St Kilda, Scottsdale(8)

37. Drill Hall Redevelopment (59)

38. The Haven, 53 Fitzgerald St., South Yarra(14)

40. What does this mean for New Zealand? Policy drivers need to be as clear as possible Problem definition Evidence base Moving to a new system will require financial incentives: Treatment of historic debt Maintenance liabilities Growth in supply Gap between market rent and subsidised rent � who pays?

41. What does this mean for New Zealand? (continued) Private funding (i.e. debt) will impose new disciplines: Free cash-flow Asset cover Crown �interest�/wind-up provisions Alignment of public and private interests A form of regulation will be needed to protect tenants and to satisfy funders

42. New organisational capability will be required Governance Treasury/banking Business Development/financial analysis Development/construction HR/Organisational Development ICT Policy What does this mean for New Zealand? (continued)

43. An unbundling of State Housing will involve unforeseen participants Non-housing service providers ALMO�s (or equivalents) Corporatised former State Housing �..as well as Community Housing Organisations What does this mean for New Zealand? (continued)

44. Conclusions Moving towards a multi-provider model is part of an international trend Australia is also moving down this path Quick progress can be made, providing the new system is consciously designed Financial models are at the core of viable and sustainable reform

45. Conclusions (continued) Private housing markets will not provide adequately for certain households: - very low incomes - people with disabilities - people who are un-well - diverse cultures - migrants/refugees - people with unstable incomes - people seeking long term, stable, affordable accommodation - across business and property cycles

46. Conclusions (continued) This was recognised in New Zealand before most OECD countries (1905 Workers Dwelling Act) The path ahead is exciting, challenging and will have a distinctively New Zealand character