Part 2: Strategic planning for buying and leasing houses

2.1
In this Part, we discuss:

• our expectations of the Corporation’s strategic planning for buying and leasing houses;
• the information used to support acquisition planning;
• how the Corporation aligns asset planning with business planning;
• considerations in assessing the costs and benefits of the buying and leasing programmes; and
• the Corporation’s targets for acquiring houses.

Our expectations of the planning for buying and leasing houses

2.2
For the Corporation to effectively provide state houses and achieve the targets agreed with by the Government, it needs to have planning processes that can assess housing need and then direct resources appropriately.

2.3
We expected the Corporation to:

• make the best use of the information available to it when assessing housing need;
• align plans for obtaining houses with its wider business goals and strategies;
• incorporate a risk management framework into planning for obtaining houses; and
• understand the costs and benefits of its buying and leasing programmes.

Information used to support acquisition planning

2.4
We expected the Corporation to allocate housing based on need. To assess this, we examined whether the Corporation had a system for measuring the letting of houses to people in need and whether this system was monitored and reported on.

Allocating housing based on need

2.5
People who seek housing assistance from the Corporation are assessed and grouped into 4 categories:¹

• an A-priority household has severe and persistent housing needs and is unable to access suitable housing without state intervention;
• a B-priority household has significant and persistent housing needs and is unlikely to access suitable housing in the near future without state intervention;
• a C-priority household has a moderate housing need that is likely to get worse, possibly requiring state intervention; and
• a D-priority household, despite experiencing some disadvantage, is able to function in the private housing market.

2.6
The Corporation concentrates on finding state housing for the applicants assessed as an A-priority or B-priority household (high-priority applicants). The Corporation periodically reassesses the people on the waiting list to ensure that their priority status remains accurate.

2.7
The Corporation identifies the type of state house most suitable for applicants by learning about their social, medical, and personal needs. A large family will need a house with more bedrooms, while a person with disabilities may need a house with special facilities.

Comparing availability of housing with need

2.8
The Corporation uses information about the needs of applicants to determine the type of properties that it should obtain. For example, the Corporation compares the profile of its existing housing stock against information about the type of houses that applicants need. Figure 3 compares the number of bedrooms available in existing state houses in Auckland with the number of bedrooms needed by high-priority applicants.

Figure 3
In Auckland, number of bedrooms in existing state houses and bedrooms needed by high-priority applicants

Source: Aggregation of the Corporation’s data from December 2005 for the 3 Auckland regions.

2.9
One of the Corporation’s main objectives is to acquire suitable properties for high-priority applicants. Figure 3 shows that, while only 11% of state houses in Auckland had 4 or more bedrooms, 20.5% of the high-priority applicants had been assessed as needing houses with 4 or more bedrooms.

2.10
The Corporation uses this type of analysis to determine its strategy for obtaining additional state houses in Auckland. For example, acquiring properties with 4 or more bedrooms is an identified priority for 2005-06 housing acquisitions in Auckland.

2.11
The Corporation also compares the profile of existing state houses with long-term forecasts of housing requirements. Based on population growth predictions, it estimates that it will need to increase its portfolio by 9634 properties by the year 2016 to retain state housing at its current 4.24% share of the total housing market.²

2.12
The Corporation has drafted a plan for how the housing stock will need to change because of this growth. The draft plan shows that, by the year 2016, the Corporation will need to have made a net increase of 1237 houses of 4 or more bedrooms, 4100 3-bedroom houses, and 4297 houses of 2 or fewer bedrooms. The Corporation has put in place an annual process for producing and updating these long-term forecasts.

2.13
However, the forecast to 2016 is uncertain because of the unpredictability of population growth and demographic changes. The Corporation has found that this uncertainty is compounded when it tries to predict the needs of households between regions and within regions.

2.14
To counter some of this uncertainty, the Corporation is researching trends in the needs of existing tenants and waiting list applicants. It is also considering how these are likely to change in the future. We consider that this project has the potential to support the Corporation’s wider forecasting work and provide a more detailed picture of future housing need.

2.15
Overall, the Corporation is making good use of available information about housing need. It is also seeking to improve the information available to it. This supports the planning process for acquiring additional houses, and is important given that housing investment is long-term. Nearly 73% of all state houses have been owned by the Crown for more than 25 years.

Aligning asset planning with business planning

2.16
We expected the Corporation to have aligned its asset and business planning processes to ensure that the objectives of its acquisition programme could be achieved effectively.

2.17
Each of the Corporation’s 6 business groups (see Figure 1) produces an annual business plan that contributes to the Corporation’s overall business plan and Statement of Intent. Each of the 11 regions also produces a business plan, which involves staff from the different business groups working closely together.

2.18
The regional planning for the 2005-06 financial year introduced new joint planning procedures. In each region, a joint planning team prepares and signs off a set of planning documents that includes: a regional profile that documents the Corporation’s understanding of the needs of the local community; a regional strategy that provides a 3-year view of the Corporation’s priorities for the region and links them in to the wider outcomes included in the Statement of Intent;³ and a regional action plan that details the specific activities that will be undertaken in the region to support the Corporation’s priorities for the coming year.

2.19
The Corporation’s 3 Auckland regions have worked together to produce a joint Regional Strategy and Regional Action Plan.⁴ The 3 regions face similar challenges and we consider they are well placed to help each other in addressing them.

Asset planning at a regional level

2.20
A Regional Asset Management Plan is linked to each Regional Action Plan. These plans identify the gap, if any, between the current housing stock administered by each neighbourhood office and the current and expected demand from the waiting list.⁵ The plans give targets for asset programmes of 1-3 years to address any gaps, including buying and leasing new properties.

2.21
There is a team responsible for national co-ordination of the Regional Asset Management Plans. This involves prioritising the resources available to the Corporation. To do this:

• The national team provides regional planning teams with estimates, based on previous performance, of the number of properties each region requires.
• The regional planning teams review these estimates and update them based on current market conditions and the most appropriate housing programmes to use.
• The national team compares the updated plans with the Corporation’s national priorities throughout regions, and makes any adjustments that are needed.
• The Regional Asset Management Plans are finalised once appropriations are confirmed in the Budget and the Corporation’s budgets and business plans are approved.

2.22
When making adjustments between regions the Corporation considers the need in each region and the ability of the region to meet that need. We are satisfied that the Corporation has enough information to make sound decisions when prioritising its activities.

2.23
The Corporation consolidates the finalised Regional Asset Management Plans into a national Asset Management Strategy that sets out the overall targets for the numbers of houses to be acquired. Figure 4 shows how these regional plans are linked to the national Asset Management Strategy.

Figure 4
Connections between Housing New Zealand Corporation’s regional and national planning

Source: Adapted from Housing New Zealand Corporation (2005), Asset Management Strategy.

2.24
In our view, the Corporation’s regional planning process is improving. For 2006-07, it has clarified documentation requirements and the roles and responsibilities of staff . In the longer term, the Corporation is seeking to undertake more detailed regional planning. Rather than the current focus on planning by neighbourhood office, the Corporation is considering planning at “precinct” level. Precincts are specific areas, within the wider areas overseen by neighbourhood offices, that have their own demand and demographic profiles.

2.25
We consider that the Corporation has a comprehensive business planning process that effectively co-ordinates its business groups and regional offices when planning for acquiring houses.

Risk management and planning for acquiring houses

2.26
We expected the Corporation to have identified the risks associated with the acquisition programme, to be monitoring and reporting on those risks, and, where necessary, to be developing and implementing mitigation strategies.

2.27
Risk assessment takes place at each level of the business planning process. It is supported by workshops with the various business groups and with the executive team.⁶ The main output of the risk assessment process, known as the ORCA document,⁷ includes all significant risks for each of the Corporation’s major activities, and highlights risks that might affect the achievement of the objectives in the Statement of Intent.

2.28
Each Regional Asset Management Plan contains a statement of the main risks to achieving housing targets for the region as a whole, as well as a summary of the housing issues facing each neighbourhood office. This assists in the production of a Group business plan, where a specific risk management plan is prepared that requires a completed risk assessment matrix adapted from Australia/New Zealand risk management standards.⁸

2.29
The ORCA document lists 17 risks that might affect the delivery and quality of newly acquired properties. We have summarised these risks into 5 categories:

• a challenging property market in which the Corporation is unable to access suitable properties;
• poor planning with too much emphasis on meeting targets at the expense of providing the right housing;
• a failure to achieve quality standards;
• an inability to balance financial and social aspects of projects; and
• insufficient project management.

2.30
The Corporation has controls in place to manage these risks:

• using a complete planning process;
• regularly consulting and managing relationships with internal and external stakeholders;
• making detailed guidance material available for staff ;
• overseeing and regularly reviewing projects;
• ensuring that dedicated resources are available for important tasks; and
• committing to business improvement.

2.31
There are 2 other important outputs of the risk management framework. The first is a selection and compilation of the top 10 risks to achieving the objectives in the Statement of Intent.⁹ The other is the Corporation’s Assurance Plan. The Assurance Plan sets out the Corporation’s priority risk areas for internal audit review and sets a schedule of audits for compliance with business procedures.

2.32
The Corporation has a risk management framework that is overseen by the Board’s Assurance Committee. Risk management is an important part of the Corporation’s business planning process and is incorporated into the planning for acquiring houses. In our view, the risk management framework is well developed, and risks to achieving housing targets are well monitored.

Considering the costs and benefits of the buying and leasing programmes

2.33
We expected the Corporation to have considered the costs and benefits of the buying and leasing programmes, and to take these into account when setting acquisition targets.

2.34
The buying and leasing programmes have been in place for a long time. The buying programme has been a constant activity since the former Housing Corporation was formed in 1974, and the leasing programme began in 1995.

2.35
Both programmes are useful for responding quickly to housing need. The benefits of buying or leasing single properties (rather than building them) lie in the variety of properties available, the relative speed of the process, and the flexibility of where the properties are situated. Arranging to lease properties before they are built gives the Corporation a degree of influence over their type and design. We consider that the Corporation’s sound planning system allows it to tailor the use of buying and leasing to areas where they are most likely to be effective.

2.36
The Corporation believes that a significant benefit of the leasing programme is that it allows the Corporation to increase state house numbers without capital expenditure. This means that greater resources are available for the Corporation’s other programmes that do require capital, such as buying and building new properties. Because of the advantages of leasing, the Corporation plans for the leasing programme to deliver 35% of all acquisitions in 2005-06. As at 31 December 2005, only 4.6% of the 66,000 state houses were leased from private property owners.

2.37
However, the Corporation considers that, to meet future leasing targets, the leasing programme should be improved to attract a wider range of property owners into the programme. It has created the position of national Lease Programme Manager to support staff dealing with leases, to investigate opportunities for improving the leasing programme, and to represent the leasing programme to the private market.

2.38
In our view, the Corporation is aware of most of the costs and benefits of the buying and leasing programmes. It has recognised that it could improve the leasing programme, and work is underway to make the programme more attractive for property owners and more efficient for the Corporation.

Costs of lease management

2.39
In addition to time spent managing the tenancies for state houses (for example, signing tenancy agreements, and arranging maintenance), Corporation staff also spend time managing the relationship between the Corporation and the property owners. This interaction involves, for example, negotiating annual rent reviews, managing disputes around maintenance liabilities, and seeking to renew leases when they expire. Relationship management is important because the Corporation intends to renew expiring leases, where appropriate, to meet its overall housing targets.

2.40
The regional offices told us that lease management is putting an additional burden on their staff , both in day-to-day business and when leases come up for renewal. We discuss this further in Part 4. However, to support planning activities, the Corporation needs to undertake further work to understand the full implications of the cost of lease management on the leasing programme, and on its wider business. This would enhance the Corporation’s ability to assign suitable resources to lease management and to plan for renewing leases.

Targets for acquiring houses

2.41
The Corporation considers that it faces challenging housing targets for 2005-06 to 2008-09, but a new planning approach adopted by the team with responsibility for acquiring houses should assist in meeting these targets.

2.42
In recent years the Corporation has mostly met its targets for acquiring houses, but not without difficulty. In 2003-04, the Corporation increased the total number of state houses by 903, when its target was 944. In 2004-05, 1050 state houses were added, when the target was 1054. In both years, the Corporation acquired more houses through the buying and leasing programmes than was originally planned, to make up for shortfalls in its building programme.

2.43
In 2005-06, the Corporation aims to increase the total number of state houses by 1019. It intends to increase the number of state houses by 815 for 2006-07, by 675 in 2007-08, and by 655 in 2008-09. During our interviews, staff responsible for sourcing properties suitable for state housing indicated that these targets are challenging but achievable. Difficult property market conditions, especially in the 3 Auckland regions, were seen as the biggest challenge to meeting the targets.

2.44
The Acquisition and Development Team has introduced a planning approach to help ensure that all acquisition programmes achieve its targets. In addition, the Corporation’s Asset Management Strategy allows targets and budgets to be transferred between programmes to make the best use of available resources (see paragraphs 4.13-4.16).

2.45
The Acquisition and Development Team’s planning approach involves identifying likely houses and beginning the acquisition programme for targets set in the current year, as well as identifying likely houses for meeting targets in the future (including leasing arrangements that involve a long negotiation, planning, and construction phase). Staff were focused on meeting targets in the current year, and looking for opportunities to address targets out to 2008-09.

1: Housing New Zealand Corporation (n.d.), Social Allocation of Housing New Zealand Corporation Housing. The assessment is based on criteria that include the ability to afford a house in the private market, the condition of an applicant’s current housing and whether it is overcrowded, whether the applicant is discriminated against, and whether the applicant’s situation is sustainable.

2: The main assumptions underpinning the predictions are that current economic and social conditions will prevail. The Corporation uses “medium” household growth forecasts and net migration from Statistics New Zealand to inform its work.

3: The Corporation publishes the strategies on its website – www.hnzc.co.nz.

4: However, each of the Auckland regions produces a separate regional profile.

5: Information about the expected level of future demand comes from the Corporation’s forecasts to 2016 (see paragraphs 2.11-2.13).

6: The executive team includes the Chief Executive and the General Managers of the Asset Services, Housing Services, Strategic Services, Support Services, and Housing Innovations business groups.

7: The ORCA document is part of the risk management framework. Its name is an abbreviation of “objectives, risk, control, and alignment”.

8: The Australian/New Zealand Standard AS/NZS 4360:2004 Risk Management.

9: These risks are regularly reviewed by the Assurance Committee and are published in the Statement of Intent.