Summary

Housing New Zealand Corporation (the Corporation) manages more than 66,000 state houses on behalf of the Crown. There is high demand for its services, with 11,458 applicants on the waiting list for a state house as at 30 June 2005. The Corporation has assessed 4288 of these applicants as being of high priority for state-provided housing.

In response to this demand, in 2001-02 the Corporation began an intensive programme of acquiring houses by buying, building, and leasing properties, particularly in Auckland. The Corporation plans to buy or lease from the private market nearly 64% of the 1019 properties it aims to acquire in 2005-06.

Our audit looked at the effectiveness of the Corporation’s buying and leasing programmes for acquiring properties for state housing. We expected there to be strong planning, monitoring, and reporting processes for the buying and leasing programmes. We also expected the Corporation to provide state houses in line with financial and quality requirements, and to make state houses available to tenants without delay.

We reviewed the Corporation’s documentation for planning, monitoring, and reporting on the acquisition of properties, and examined the relevant files and electronic records for 48 bought or leased properties. We also interviewed managers and operational staff involved with the buying and leasing programmes.

Our findings

Overall, the Corporation’s buying and leasing programmes are effective and performing well in meeting challenging programme targets. However, the programmes face obstacles – most immediately because property values in Auckland have increased steeply, and in the long term because the exact nature of future housing demand is uncertain.

Planning to get more houses

The Corporation plans effectively for obtaining properties for state housing. It uses the needs of waiting list applicants to identify the type of properties it will buy or lease. This planning process is well integrated with the Corporation’s overall business planning and risk management framework.

The Corporation has a good understanding of most of the costs and benefits of the buying and leasing programmes, and it has introduced new processes to help meet its targets.

Getting more houses

The buying and leasing programmes use similar acquisition processes. The Corporation takes a diligent approach, assessing the investment return of properties and their compliance with quality standards.

The guidelines supporting the acquisition processes, including the guidelines on conflicts of interest, are robust. Proper approvals had been obtained in all but one of the files we reviewed, and there were minor omissions in the documentation of some files. However, overall we were satisfied that the required procedures had been followed.

The Corporation is acquiring suitable properties, but not without difficulty (largely because of difficult property market conditions, especially in Auckland). The increasing use of leasing arrangements has created some risks, identified by the Corporation, in managing and renewing existing leases. The Corporation has started work to address these risks.

Monitoring and reporting

In our view, the Corporation thoroughly monitors and reports on its buying and leasing of properties for state housing. Managers closely monitor the acquisition of houses against acquisition plans, and this informs reporting at regional and national levels. The monitoring and reporting information supports the effective use of state houses as it enables the Corporation to identify and manage instances where houses have more bedrooms than the tenants need, and to redirect its buying and leasing programmes as required.

The Corporation’s external reporting could be enhanced to align it better with the increasing sophistication of the Corporation’s planning process. This would see more information being provided to Parliament, and to other parties with an interest in social housing, about the Corporation’s performance in each region. This would be beneficial given the recent funding that has been designated for acquiring properties in Auckland for state housing.

Our recommendations

We have made 6 recommendations to help the Corporation ensure that its documentation is complete, to increase its knowledge about the costs to the Corporation of leasing properties from private owners, and to enhance the public reporting of its performance.

We recommend that Housing New Zealand Corporation:

• undertake work to understand the full cost of lease management to the Corporation;
• include a checklist of the mandatory documentation to be included on each file in its quality management system guidance for buying and leasing;
• prepare a strategy for making the best long-term use of properties acquired in the absence of more suitable properties identified in the Asset Management Strategy and Regional Asset Management Plans;
• provide more details about the 3 Auckland regions in its annual reporting to the Minister of Housing and the Minister of Finance;
• provide more details about regions of high need in its annual reporting to the Minister of Housing and the Minister of Finance; and
• include the risks associated with the renewal of leases in its national risk management framework, and prepare a recommended approach for regions to use in addressing those risks.