Part 6: Financial support to help Māori landowners build housing

Government planning and support for housing on Māori land. Ngā whakatakotoranga kaupapa me te tautoko a te Kāwanatanga ki te hanga whare i runga i te whenua Māori.

Wāhanga Tuaono – Te p tea tautoko kia kaha ai ngā kaipupuri whenua Māori ki te hanga whare

A key issue for trusts is that we have land, yet no cash resources.

In this Part, we:

It is very difficult to get finance to build housing on Māori land. The main reason is that banks will not normally accept Māori land as security against a loan because it cannot easily be sold. This means that banks have been reluctant to provide mortgages for housing developments on multiply-owned Māori land.

The Government has recognised this barrier and has designed two sources of finance for housing on Māori land. Kāinga Whenua loans (with Kiwibank) provide finance to individual households who want to build on Māori land. The MDP fund provides funds to Māori organisations (ranging from small land trusts to large iwi governance organisations). Additionally, SHAZ is a small fund, managed by TPK, that is used to help Māori landowners develop their housing plans.

Overall, we found the following:

  • The Kāinga Whenua loan scheme is the first bank lending scheme for individual Māori households that offers mortgages for building or buying houses on their land. However, the loans are either unaffordable or not available for most individual Māori households, and uptake of the loans has been very low.
  • For some individuals, because the market for any particular house on Māori land is restricted, building on their land will involve trading-off financial gain against social and cultural well-being. The longer the borrower commits to living in the home, the more the financial drawback of this trade-off reduces. It is also a trade-off that some Māori are comfortable making. Agencies could better inform and support Māori in making this choice.
  • Funding provided to Māori organisations through the MDP fund has enabled some Māori housing developments. However, the programme is out of reach of many smaller Māori organisations that have land but do not have the capacity or finances needed to prepare eligible project plans.
  • Implementation of the MDP fund has not been well resourced or managed, but the programme could be improved by using what has been learned from its implementation so far.
  • The SHAZ fund has helped some smaller Māori organisations to apply for MDP funding, but SHAZ has sometimes been used to fund applications that did not meet the fund's basic eligibility criteria.

Kāinga Whenua loans – financial support for households

Kāinga whenua was very difficult to understand, we found there was no special provisos as a product, no key points of difference so we chose not to use it.

Kāinga Whenua loans are intended to provide mortgage loans to households that have shares in Māori land. The loan scheme was launched in February 2010. Kāinga Whenua loans are an extension of the Welcome Home Loan programme (a no-deposit or low-deposit loan for first-home buyers) for houses built or put on Māori land. The loans are provided by Kiwibank and underwritten by HNZC.

Introducing Kāinga Whenua loans was an important step in addressing the financial barriers to housing on Māori land. This loan scheme is the first to offer finance from a mainstream bank to owners of Māori land – which is one of the most commonly cited barriers to building on Māori land.

Kāinga Whenua loans have yet to meet the expectations of owners of Māori land or of the agencies involved. Only one Kāinga Whenua loan has been made since the scheme was launched in February 2010. A further two have reached final approval, and eight are at the preliminary approval stage.10 Although no formal target was set, Kiwibank and HNZC staff thought that there could be 15-20 loans made in the first year.

The low uptake of the loans is not because of a lack of interest or demand. When the scheme was first launched, HNZC, TPK, and Kiwibank experienced a higher level of interest in the loans. We have identified several reasons for the low uptake of Kāinga Whenua loans:

  • Many Māori households have low incomes and cannot afford to service a home loan.
  • Eligibility criteria preclude those who could afford a loan.
  • Getting consent to build on the land from other owners is difficult without land trusts.
  • Owners of Māori land have found it hard to get advice and information about applying, and there was limited support available to people who applied.

Servicing a home loan is unaffordable for many Māori households

According to the lending criteria for Kāinga Whenua, a household with an income of $45,000 would be eligible for a Kāinga Whenua loan of $170,000 (enough to build a typical three-bedroom kitset house and provide associated infrastructure) so long as the applicants have a good credit rating and meet other criteria, such as living in "commutable distance" to their work. However, many low-income Māori households cannot afford to service a home loan of this size because their income is too low, they have existing debts, or would not be able to meet their other financial commitments as well as loan repayments.

To determine who would be able to repay a Kāinga Whenua loan, Kiwibank uses a hypothetical monthly living allowance (set by HNZC). This approach is standard lending practice. The living allowance, along with the mortgage repayments and other financial commitments (for example, student loan and credit card repayments) is compared with the household's income to calculate whether the household could afford to repay a Kāinga Whenua loan.

The monthly living allowance used to calculate eligibility for Kāinga Whenua is set at a low level. The allowance assumes that a household can raise a child on $26 a week. This allowance makes it look like more families are eligible for the loan than in practice could access it. In theory, four-person families on about $45,000 a year could take out a Kāinga Whenua loan (for the $170,000 three-bedroom kitset house described above). For the family situation we tested, the mortgage repayments would be 33.94% of the household's income in the best case and 36.99% in the worst case. This is above the 30% affordability threshold used by the Department of the Prime Minister and Cabinet's House Price Unit, and indicates that these households would be under financial pressure.

We recalculated who was likely to be able to afford a Kāinga Whenua loan using a monthly living allowance closer to what banks might use for an ordinary home loan. This indicates that the same four-person family on a single income is likely to need to be on least $70,000 a year (depending on the mortgage's conditions) for Kāinga Whenua to be affordable.

Figure 33 shows the approximate proportion of Māori households eligible in theory, in the regions where we audited, for a Kāinga Whenua loan according to current criteria, and the proportion of Māori households we consider likely to be able to afford the loan in practice.

Figure 33
Proportion of Māori households likely to be eligible for a Kāinga Whenua loan, in theoretical and estimated affordable terms

Figure 33: Proportion of Māori households likely to be eligible for a Kāinga Whenua loan, in theoretical and estimated affordable terms.

Note: These diagrams assume an even income distribution within categories. Because the average (mean) income of Māori households is typically low, this is a conservative assumption.

In all four of the regions where we audited, we estimate that about a third of Māori households had an income between the minimum theoretical eligibility ($45,000) and the maximum income for a two-income household ($85,000). This is shown by the segment marked with a dotted line in Figure 33. However, we estimate that about or less than an eighth of Māori households would be able to afford a Kāinga Whenua loan.11 This is shown by the segment marked with a solid line.

Eligibility criteria preclude those who could afford a loan

Applicants must be first-home buyers or in the same financial position as typical first-home buyers in terms of assets and income, and the maximum income for a two-income household is $85,000. This restriction means that many people who want to build housing on Māori land are excluded, even though they meet normal Kiwibank lending criteria. An email survey HNZC conducted in selected regions identified about 30 applicants who were turned away because their income was too high but who would have been otherwise eligible. We were also told of an applicant who asked their employer for a pay cut so that they would meet Kāinga Whenua eligibility criteria.

HNZC has acknowledged that the income cap has proved a barrier to providing loans to applicants who would otherwise be eligible for a Kāinga Whenua loan. It has provided proposals to raise the income cap in the eligibility criteria to the Minister for Housing. The Minister approved these proposals in principle, and they are now with DBH for further consideration.

Getting consent to build on the land from other owners is difficult without land trusts

Not having a land trust for a block of Māori land makes it significantly more difficult to get a Kāinga Whenua loan.

To get a Kāinga Whenua loan, an applicant needs the consent of other landowners to a Licence to Occupy and the tripartite agreement with HNZC. The tripartite agreement means that the house remains a chattel of the borrower, not an improvement to the land (which would mean it would be owned by all the landowners). This allows it to be used as security for the loan and means that it can be repossessed if there is a default on the loan.

Every landowner needs to sign both of these contracts when there is no trust over the land. This is practically impossible when there are many owners – especially as some may not have known contact details or may be deceased and their shares not legally succeeded to.

However, when there is a land trust (typically an ahu whenua trust), the trustees can sign on behalf of all the owners. Despite the importance of land trusts for enabling use of the land, about 70% of all Māori land titles (which is about 40% of all Māori land by hectare) do not have a trust or other management structure over them. Figure 34 sets out how much Māori land does not have a trust over it.

Figure 34
Number and percentage of Maori land blocks with a trust over them, and the total area vested in those trusts, by Māori Land Court region.

Maori Land Court region Total blocks Number of blocks without trust % of blocks without trust Total land area (ha) Land area not vested in a trust (ha) % of area not vested in a trust
Taitokerau 5463 4316 79.0% 145,911 67,040 46.0%
Waikato Maniapoto 3823 2387 62.4% 125,805 51,561 41.0%
Waiariki 5211 3409 65.4% 314,036 118,056 37.6%
Tairawhiti 5289 4026 76.1% 261,981 147,703 56.4%
Takitimu 1356 670 49.4% 87,970 15,039 17.1%
Aotea 3668 2377 64.8% 421,407 161,584 38.3%
Te Waipounamu 2369 1082 45.7% 68,771 23,047 33.5%
Total 27,179 18,267 67.2% 1,425,879 584,031 41.0%

Source: Māori Land Court – Māori land update June 2011.

Difficulties getting advice, information, and support

The process of applying for a Kāinga Whenua loan is long and complicated. We estimate that there are up to 30 steps involved. Applicants will need to interact with a range of agencies and organisations, including local authorities, the Māori Land Court, Māori land trusts and shareholders, HNZC, and Kiwibank.

When Kāinga Whenua was launched, HNZC staff did not know enough about the product to provide effective advice and guidance to applicants. HNZC did not receive any extra funding to support applicants through the process and told staff that they had only a limited role in providing advice. HNZC staff were further instructed to direct enquirers to Kiwibank's 0800 telephone number.

Kiwibank's contact centre staff would ask some basic clarifying questions and then refer the applicant on to a specialist lender (including a Kiwibank Mobile Mortgage Manager, a Home Loans Direct Lender, or an NZ Post Banking Consultant). Because of the relatively low number of enquiries for Kāinga Whenua that met the eligibility criteria (compared to other Kiwibank products), some of the specialist lenders were unlikely to be greatly experienced in dealing with Kāinga Whenua customers.

HNZC and Kiwibank focused on setting the financial and legal criteria for the loans. HNZC did not receive extra funding to provide support to applicants. In their view, this limited their consideration of how applicants would get advice and guidance. HNZC has acknowledged that there was not enough support and advice available to applicants when Kāinga Whenua was launched. Evidence from the Low Deposit Rural Lending (LDRL) programme shows that investing in support and guidance can improve uptake and reduce the risk of defaults on loans.

Figure 35 sets out good practice in supporting owners of Māori land with home ownership.

Figure 35
Example of good practice in supporting owners of Māori land when they start home ownership

There is evidence from the LDRL programme that investing in support and advice for potential borrowers can be effective and reduce defaults on loans. LDRL provided 142 loans for houses on multiply-owned Māori land between 2000 and 2009. The main difference between LDRL and the Kāinga Whenua loan scheme was that a coach/broker supported applicants for LDRL throughout the process.

People who wanted to apply for a loan under LDRL had to go through a training course that covered the financial implications and responsibilities of home ownership and were advised how to clear debts, save a 3% deposit, and be ready for home ownership.

This support continued through the first five years of the mortgage, based on evidence that, if a borrower can be helped to not default during these years, they are likely to not default during the rest of the mortgage term.

To improve advice, guidance, and support, HNZC has held workshops in regions where there is Māori land that people want to develop for housing, such as Whangarei and Rotorua. The workshops have covered the application process, what needs to be signed and when, how lending criteria can be applied, and the support HNZC project managers are able to provide.

The workshops include Kiwibank staff, the local authority, Māori Land Court staff, a lawyer, and people who have experience in working with Māori housing projects. The intention is to have more consultation and training with and for Kiwibank staff and to clarify roles and responsibilities for providing advice and guidance.

Since Kāinga Whenua was launched, HNZC staff have also taken on a greater role in providing the necessary support and advice. Some HNZC regional project managers talk people through the process and provide one-to-one support with their applications. Despite this support, we consider that there could be much better and clearer communication between HNZC, Māori Land Court, Kiwibank, and local authorities so that people who want to apply for a Kāinga Whenua loan can easily get consistent information and advice.

Risks to households borrowing money to build a house on Māori land

… we have a different understanding – alternative thinking, we want a home not for investment … we want a home for our kids and grandparents to be warm!

There are particular financial risks that owners of Māori land are exposed to when they get a mortgage to build a house on Māori land. Because the right to occupy Māori land is restricted, it is difficult to sell a house on Māori land. The limited market for houses on Māori land means that a house on Māori land is likely to lose rather than gain value.

If forced to sell, the owner is unlikely to get more than the salvage price for the house (about $35,000 for an average relocatable house). This is because whānau are unlikely to pay much more than the salvage value, in case they are left in the situation where the only way to sell the house is by salvaging it. If circumstances change or the borrowing household cannot meet its mortgage payments, they could be left with a large debt that they cannot repay by selling the house.

It is important that owners of Māori land who do borrow to build a house on Māori land receive advice and guidance to ensure that they do not default. Figure 35 gave an example of how this was achieved under the LDRL programme.

HNZC underwrites the loan made by Kiwibank so that, if there is a default, HNZC will pay the value of the Kainga Whenua loan to Kiwibank. This minimises Kiwibank's risk and makes it possible for Kiwibank to participate in the scheme. HNZC can then, in turn, repossess the borrower's house to recoup its costs, under the tripartite agreement it signs with the borrower and the relevant land trust.

If a household does default on the loan, the most likely consequence is that HNZC will have to remove the house. This leaves the household without a house and usually causes HNZC to incur a loss. Further, if the house sale price does not pay off the debt in full, HNZC will require the borrower to enter into an arrangement to pay off the remaining debt. Investing in support for borrowers to minimise this risk is likely to prove more beneficial for both parties.

Our conclusions on the effectiveness of the Kāinga Whenua loan scheme and ways it could work better

Kāinga Whenua loans have, so far, not proved effective in helping to overcome the difficulties Māori landowners experience when seeking finance to build or to buy houses on Māori land. The uptake has been very low, and the scheme has cost HNZC at least $100,000 to set up (excluding staff time). Kiwibank has also incurred costs in designing the product. As we have described, there are a range of reasons for the low uptake, some of which HNZC is now addressing.

Setting up Kāinga Whenua as an extension of Welcome Home Loans placed significant limitations on its design and implementation. The loan product was not designed using evidence of Māori household incomes and what Māori households could afford. Adequate testing and analysis of the product, which should have included consultation with Māori organisations, could have foreseen the problems with the current design of Kāinga Whenua.

The Government underwriting loans to gain access to private finance for building houses on Māori land is an innovation. Many of those we spoke to were keen that the Kāinga Whenua loan scheme be improved rather than removed. We note that the kind of guarantee used under Kāinga Whenua may be a useful tool for helping to finance housing on Māori land under future programmes.

The Māori Demonstration Partnership programme – support for Māori trusts

Lending to individual households to build on Māori land has had only mixed success. A recent review of the Rural Housing Programme commissioned by the DBH (see Part 2, Figure 4) questioned whether "homeownership is a realistic option for many whānau" because of low household incomes.

The MDP fund provides finance to Māori trusts, organisations, and service providers. Government programmes that target trusts, rather than individuals, can lead to more-sustainable housing solutions. The Rural Housing Programme review concluded that developing Māori land on a house-by-house basis was costly and had not resulted in well-planned developments linked to employment and services. The review recommended that house-by-house approaches be "replaced by a community redevelopment approach".

The primary financial risks for individuals who build on Māori land are not present for trusts, because Māori trusts are inextricably linked to the land. This means that the risks to individuals posed by possible changes in personal circumstances are not present.

Working with an established group rather than individuals enables a "community redevelopment" approach. The group can provide housing developments that have a mixed tenure – ranging from houses that are owned, rented privately, or leased to HNZC as state housing. The MDP fund is intended to support these types of developments. Trusts that have experience in delivering social or health services can provide wraparound social services to help whānau maintain their house, improve their well-being, and avoid defaulting on the terms of the agreement for living in the house.

The MDP fund is a contestable fund that is part of the HIF. In 2009/10, $5 million of the $20 million HIF fund was set aside for MDP fund projects. These housing projects are funded by a combination of Crown funds (in the form of low-cost loans and grants) and Māori organisations. Māori organisations are expected to contribute 50% of the equity needed for the project. The equity can be in the form of land, funds, or labour (often referred to as "sweat equity"). According to HNZC:

The Māori Demonstration Partnerships will create traction in building housing, primarily on multiple owned Māori land, and, in doing so, work with Māori land trusts and iwi authorities who are in a position to provide equity and forms of security to develop sustainable and affordable housing. The partnerships will also assist in addressing housing issues in isolated areas where there are ongoing supply and quality issues, alongside projects in urban areas.

The funding is typically a loan that has an extended interest-free period (of up to 10 years). The loan can be used for building houses and for infrastructural services to the houses. Capacity funding was made available to the successful applicants, who typically used it to pay for professional services needed as part of planning the development (for example, architectural drawings). Capacity funding is no longer available.

Some important aspects of the MDP fund were still being decided when the fund was implemented. For example:

  • Selection criteria were still being worked out when trusts were invited to apply for funds.
  • It was not clear whether the MDP fund would provide grants or loans.
  • It was not clear whether Māori land could be used as equity.
  • In some cases, HNZC and TPK funds were used to support trusts to apply that were later deemed to not meet eligibility criteria.

… in the beginning, we had to find our own information regarding MDP. Due to internal changeover, [the trust] didn't receive critical information which didn't come until the last three weeks prior to shut-off …

In the first year of the MDP fund, trusts found it difficult to get clear and consistent information on how to apply and what they had to do to be eligible for funding. The information that local HNZC provided them with did not always correspond with that of the national HNZC staff.

When key decision-making was with the national office, it was unclear who had delegated authority at a regional level which added to the uncertainty. When decision-making came back to the region, it was easier to work collaboratively. The Trust needs to know clearly what the rules are and what's required. With HNZC there is room for improvement and flexibility.

In 2008, DBH commissioned a review of the HIF, of which the MDP fund is a part. The review raised concerns about the lack of transparency in decision-making. After this review, a decision-making framework that scores and ranks all submissions was introduced. This framework was further updated after the first year of the MDP fund, when it became apparent that the MDP fund needed more tailored criteria. In 2010/11, these were:

  • being a Māori or iwi organisation;
  • having the capability to provide housing-related services;
  • having a project that generates a new supply of housing;
  • having a project that is ready to begin before 2012; and
  • being able to contribute 50% equity to the project cost.

Introducing a transparent framework for deciding which applications would be considered and accepted for the shortlist is a step forward. However, several trusts we spoke with were still unclear about what criteria they had to satisfy to be accepted from the shortlist to receive MDP funding.

As currently structured, the MDP funds tend to go to trusts that already have existing capacity. There is a risk that trusts with land that is suitable for housing but lacking either strong organisational capacity or financial income will remain unable to access funds to develop their land for housing. The main reasons for this are:

  • high upfront costs before Māori trusts receive any funding; and
  • the MDP fund being administered less as a partnership and more like a standard contestable fund.

Design of the MDP fund makes it difficult for smaller land trusts to apply for funding

Māori trusts that have applied for MDP funds have had to incur high costs before they could submit their initial plans. HNZC's operational policy requires a project plan with resource consent issues resolved at the submission stage (see Figure 36). Under the operational policy, trusts had to meet this requirement before receiving any capacity funding to help with developing their proposals.

Successful MDP fund applicants paid between $110,000 and $215,000 to resolve resource consent issues and get a confirmed project plan. Such amounts can be a challenge for trusts to pay before receiving finance from the MDP fund. Typically, Māori trusts that have applied for MDP finance do not expect to begin receiving an income from houses until 12 to 18 months after building begins. This means that Māori trusts need to have significant amounts of cash available to pay for the development. Many trusts do not have enough finance to pay this cost. HNZC allows this cost to be included as part of the applicant's equity contribution. However, this presumes that a trust has enough money to pay those costs without any capacity funding.

If the operational policy were rigidly adhered to, some trusts would not have been able to participate. In practice, the planning process for the MDP fund involved applicants seeking capacity funding from HNZC (to greater and lesser extents) to meet the application requirements. This meant that the successful applicants did not have "a confirmed project plan with resource consent issues resolved" as part of their initial submission. Although this flexibility on HNZC's behalf is to be commended (because without it, viable projects would not have progressed), there are three other conclusions that can be drawn:

  • Not sticking to the operational policy may explain some of the confusion MDP fund participants noted about what was required in the selection process.
  • There was not a smooth transition between stages, which was inefficient.
  • The process can be streamlined. Information that was originally required was not needed or was not needed until much later.

Figure 36
Housing New Zealand Corporation's process for Māori Demonstration Partnership fund applications

Figure 36: Housing New Zealand Corporation's process for Māori Demonstration Partnership fund applications.

The current two-stage approval process (submission and then proposal development) is designed to reduce the risk that trusts invest heavily in a plan that will not be approved. We consider that, if project managers could invest more time in building their understanding of and relationship with a trust, they should be able to assess and advise on eligibility much earlier, before planning has progressed far. Likewise, stronger relationships would reduce the need for some information currently required by HNZC for assessing MDP fund applications.

Capacity funding is no longer available as part of the MDP fund. In our view, this is unfortunate. Most Māori landowning trusts are small and unlikely to have the skills and knowledge necessary to develop housing projects without support.

The MDP fund has been administered less as a partnership and more like a contestable fund

… it is important for HNZC to live up to the true meaning of Māori Demonstration Partnerships – working with Māori as Māori, understanding and being cognisant of Māori protocols and processes of doing things, demonstrate what you can and will do, and work in true partnership – utilizing the values of trust, honesty, integrity.

In our review of HNZC documents and our discussions with HNZC staff, we did not find a definition for "partnership". An internal evaluation of the MDP fund commissioned by HNZC also found that the MDP fund could be improved by clarifying "partnership".

HNZC National Office staff went further, telling us that the MDP fund is not a partnership at all and that they administer the MDP fund to get the most "leverage" for Crown funds. We understand "leverage" in this context to mean the ratio of private sector or Māori funds to taxpayer dollars spent on a housing development. It also refers to maximising the number of houses and bedrooms built for that money.

The MDP fund operates on an annual funding basis because the funds come from an annual appropriation. This means that successful trusts must work within tight timeframes. It also compromises the development of partnerships between HNZC and Māori organisations because HNZC is reluctant to invest much time in developing partnerships and building the capacity of organisations when they do not know whether the programme will be running from one year to the next.

HNZC regional project managers have varied in their approach to these "partnerships". In some cases, HNZC managers have worked very closely with trusts to provide expertise and professional assistance to help them with their housing projects. In other cases, HNZC managers have focused on checking whether trusts meet HNZC criteria. Some trusts expressed frustration at regular staff changes in HNZC and the different approaches that different project managers have taken to working with them.

The state [agencies] also needs to notice the care that needs to be taken in relationships, and building sustained relationships at a local whānau up approach … look at the natural structures that exist within communities, we have our own infrastructure, whakapapa relationships [are] strong. There is a willingness to work in partnership.

HNZC also told us that the requirement for the Māori organisation and HNZC to each contribute 50% of the equity for a project is an example of partnership. However, the 50% equity provided by a Māori organisation is a cost, while the 50% provided by HNZC is largely a loan that the Māori organisation pays back with interest. Therefore, we do not consider that the equity contribution shows "partnership".

HNZC needs to be clearer about what it means by "partnership" in a Māori context, so that it does not create expectations that it may not intend to meet. Because "partnership" has various connotations in the context of Crown–Māori relationships, HNZC needs to better define what it means and better explain this to its staff. Figure 37 analyses the MDP fund by looking at its different parts and describes the experience that Māori trusts have had. HNZC's management of the MDP fund has not always met the expectations of Māori organisations for what a "Māori Demonstration Partnership" would be.

Figure 37
Māori trusts' assessments of the Māori Demonstration Partnership fund

Expectations Performance
  • Māori potential is realised.
  • Māori land, where appropriate, is used for housing.
  • The programme is designed and targeted according to Māori needs and aspirations.
  • Tikanga: Māori protocols are understood and practised by HNZC.
Templates and paperwork for MDP fund applications were taken from the HIF. There was little space on applications to describe what projects would do to support Māori.

Two of the four accepted applicants in 2010 are projects on general land, not Māori freehold land.

The MDP fund's design does not take into account the peculiarity and legal complexity of Māori land well. For example, HNZC was unsure about how Māori land would be valued when used as a contribution to a partnership – well after the launch of the MDP fund.
  • Shows what can be done.
  • Good practice is identified.
  • Innovation: Different approaches are taken – risk is managed not avoided.
  • Learning is captured, disseminated and applied to future projects.
There is no overall strategy for capturing, disseminating, or using what has been learned from partnerships.

It is not clear how the MDP fund will be used to help further partnerships between Māori and HNZC (or DBH).
  • Trust
  • Honesty
  • Integrity
  • Both sides bring something to the table
The capacity-building support provided by the MDP fund was highly valued. Trusts say that they would have really struggled without it, but the capacity-building support was provided well into the process. Trusts had to meet high upfront costs before they could access capacity funding. This may have excluded smaller trusts.

Trusts were encouraged to expect expert support (such as project management, design, and engineering) and professional guidance from HNZC. These expectations were not fully met.

Managing the partnerships has been driven by financial considerations.

The approach HNZC has taken to managing the MDP fund has been to manage risks by supporting trusts with robust financial and organisational structures.

The MDP fund has yet to result in ongoing partnerships between HNZC and Māori organisations.

There is no medium- or long-term vision or strategy for the MDP fund. Funding is annual, so HNZC is reluctant to work with trusts that are not yet ready to submit applications.

What has been learned from Māori Demonstration Partnership fund projects

The four MDP fund projects that had approved funding at the time of our audit have each approached the challenge of building on Māori land differently (see Figure 38). Two are using Māori freehold land, and the other two are using general land that they have purchased. Some of the partnerships are exploring new ways to enable home ownership, while others are participating in HNZC's House Leasing Programme (commonly referred to as a leaseback arrangement).12

These different approaches are likely to improve knowledge about how to effectively use Māori land for housing. However, because there is no system to capture and share knowledge, there is a risk that the knowledge will not be used.

Figure 38
The four Māori Demonstration Partnership fund projects approved in 2010/11

Trust Summary of the project
Ngati Hine Health Trust Eight rental houses for kuia/koroua houses, and two transitional home ownership houses, $899,675 Crown funding (includes loan, grant, and capacity grant).

The transitional home ownership houses will be used for whānau whose home-ownership aspirations are out of their reach. Whānau would stay in the houses for up to two years, during this time receiving social service support and home-ownership education, so that they are ready and can achieve home ownership. Ngati Hine Health Trust refers to this as a "landlord plus" approach.
Te Rūnanga o Ngati Awa Ten kaumātua housing units, five houses for home ownership, $1,032,000 Crown funding (grant).

Te Rūnanga o Ngati Awa is taking a shared equity approach, where the Rūnanga provides financial support to those who are unable to purchase a property using traditional home loan products. It intends using a rolling lease approach, with tenure secured by an underlying agreement for the trust to either purchase back or renew the lease at sale or end of lease. Setting up a secure rolling lease arrangement will provide lenders with the security to lend and home owners security of tenure while the trust retains ownership of the underlying land. This approach also works within Te Ture Whenua Māori Act 1993 because it does not trigger alienation provisions.
Mangatawa Papamoa Blocks Inc (MPBI) Ten kaumātua housing units, $2,140,000 Crown funding (including a loan and a grant).

MPBI has secured a commercial loan from a mainstream bank to help with the initial cost of the project. MPBI intends to lease the units back to HNZC to be used as state housing for the first 10 years.
Te Rūnanga o Te Rarawa Seven standalone houses and a large communal building. $1,554,562 Crown funding (loan).

Te Rūnanga o Te Rarawa are piloting a "Paa Kāinga" approach – a community potentially using an extended whānau model (although not necessarily with an extended whānau) for members of Te Rarawa to live together in. The intention is to use this more traditional style of living for further future developments, which would provide a more supportive whānau environment.

Targeting financial support

Most government support is targeted at getting more houses built on Māori land. In particular, central government's support is targeted at providing access to finance.

This emphasis on getting houses built is not without merit. It takes considerable effort to overcome the barriers to housing on Māori land, which is the first hurdle in increasing the supply of affordable housing on Māori land. However, for trusts to be able to afford to build housing, they need to be confident that they have the ability to manage and pay for the development in the long term.

Apart from the building costs, a trust will incur other costs through managing a rental housing development throughout its lifetime. A trust must be able to afford not just the initial costs and the ongoing loan conditions but also associated costs, such as:

  • rates;
  • insurance on the houses;
  • maintenance of the properties;
  • tenancy management; and
  • some contingency for vacancy and bad debts.

We carried out some financial modelling to determine the long-term costs of managing an affordable housing development. It is important to consider and plan for these costs if affordable housing on Māori land is to lead to sustained improvements in the quality of life of those housed on them. A criticism of past programmes is that those housed could not or did not maintain the houses. This has been costly for communities and governments, and is a driver of the need for housing solutions. Figure 39 sets out the results of our modelling.

Figure 39
Income and expenses for a trust providing 10 rental houses on Māori land in today's dollars

Figure 39: Income and expenses for a trust providing 10 rental houses on Māori land in today’s dollars.

Note: The second kink in the profit and loss line is explained by the trust paying interest at the 10-year mark. Because the interest is tax deductible, the profit the trust receives increases.

The main difference between this model and a development on general land is that we have not included any increase in the property value as part of the income for the trust (commonly referred to as "capital gain"). For a development on general land, the increase in the property's value over time would offset at least some of the additional costs of running the development. Because the realisable value of a house on Māori land is likely to be less than the cost of building it, this option is not available to many Māori land trusts.

The graph indicates that under current MDP fund assistance (primarily loans that are interest-free for the first 10 years), trusts developing housing on Māori land will require another income stream in the initial years of the development to cover the costs involved. This may require further government assistance, may constrain which trusts can get involved, or could risk resulting in poor management of the development (such as not maintaining the houses) because of the financial constraints.

Figure 40 sets out the assistance currently available with these costs.

Figure 40
Assistance currently available for long-term development costs

Elements of both the MDP fund and a mainstream programme, the Home Leasing Programme, can make housing developments on Māori land more affordable.

The loans made under the MDP fund are interest-free for the first 10 years.

Interest is calculated only on the principal still to be paid after the first 10 years. Trusts can therefore "frontload" their principal payments, and reduce overall the amount of interest they would have to pay on the loan. This, in turn, helps trusts to reduce their costs and begin to break even at an earlier point than if the loans had been on purely commercial terms.

Under the Home Leasing Programme, HNZC can lease houses from a trust (or individuals) to use as a state house for up to 10 years. HNZC finds the tenants from its applicants for a state house and provides lease income to the trust, based on market rent less tenancy management fees. This gives the trust an assured income from the development and is commonly referred to as a "leaseback arrangement".

These programmes reduce the overall costs of building houses and provide a stable income from those houses.

We consider that there is still a gap in the support to Māori land trusts in the area of developing capacity for ongoing management of social housing. As well, addressing the gap between when capacity funding can be accessed and when costs are incurred may reduce the barrier of upfront costs.

Recommendation 4
We recommend that the Department of Building and Housing better target financial support programmes by:
  • better matching the support available to the financial circumstances of Māori, so that it is available and affordable for more Māori organisations and households;
  • making financial support available when costs are incurred; and
  • structuring the financial support to make housing developments sustainable.

Our conclusion on the Māori Demonstration Partnership fund

The MDP fund has had some successes – four partnerships were approved in 2010/11 that should deliver 44 houses. As a product that seeks to work with Māori groups and offers financial assistance for the costs associated with building houses on Māori land, it represents a step forward for HNZC. The four projects under way could provide sustainable housing solutions.

The annual funding cycle for MDP creates uncertainties about the future of the programme. This has meant that HNZC has not been able to invest heavily in partnerships with trusts.

The MDP fund has been relatively costly to implement. Based on HNZC's Crown Programmes Review, we estimate that, in 2009/10, HNZC spent $2.6 million administering the $5 million available under the MDP fund.

The way in which HNZC managed the fund did not match the expectations of partnership that HNZC had raised amongst Māori organisations. This damaged the trust between some Māori organisations and HNZC. More needs to be done to capture what has been learned from the approach taken by each of the different projects about what works well and what does not.

The DBH is now responsible for managing the MDP fund or any initiative that replaces it. There is a risk that the knowledge and learning HZNC built up through administering the fund could be lost.

One of the challenges for the MDP fund has been that many trusts that manage land blocks suitable for housing lack the project management, technical skills, and cashflow to be eligible for funding. This means that, although they have potentially viable and effective plans for housing on multiply-owned Māori land, the plans are not going to be realised under the present programme. These trusts can be characterised as land rich but cash poor. Unless the MDP fund can be redesigned to address this issue, it will not reach its full potential to increase the supply of affordable houses on Māori land.

Recommendation 5
We recommend that the Department of Building and Housing, working with other agencies, build the capacity of Māori organisations that plan to participate in housing. This includes their ability to project manage a housing development through the legal and practical processes required to successfully build houses on Māori land.

The effectiveness of Special Housing Action Zones

Without the funding of SHAZ, the project wouldn't be where we are now.

The Special Housing Action Zone funding assisted greatly in research, without it we wouldn't have been able to do a feasibility plan. We were able to identify who are ready to move forward with specific trusts including those who could possibly move to Māori Demonstration Partnerships …

SHAZ is a fund managed by TPK. SHAZ was set up in 2000 in response to several fatal fires in Northland arising from substandard accommodation. SHAZ rapidly grew beyond the initial zones and eventually led to the Rural Housing Programme being established in three regions – Northland, East Coast, and Bay of Plenty. At the time of our audit, TPK managed a fund of $456,000. TPK uses this for building the capacity of Māori groups to address housing issues.

The approach TPK has taken to implementing SHAZ reflects better partnership principles than many other Māori housing interventions. The first step in the process is for TPK staff to visit trusts with housing aspirations and to discuss their plans. TPK staff then advise the trust on developing their plans and begin to assess what kind of assistance, financial or otherwise, the trust needs.

HNZC and TPK have agreed that TPK will work with Māori groups until they have the capacity to apply to the MDP fund. HNZC will then work with the groups to develop their projects. SHAZ funding has been used to pay for planning and design work as part of trust applications to the MDP fund.

Despite the relatively small amount of funds available, trusts value SHAZ funds and the support of TPK highly, particularly in terms of turning their aspirations into costed and professionally developed plans. SHAZ has been integral to many MDP fund applications, both successful and unsuccessful (see Figure 41). The fund has been used to:

  • develop a tool kit for building houses on Māori land;
  • help landowners to prepare feasibility plans;
  • identify trusts that would be suitable for MDP funds; and
  • support several hap groups to develop concept plans and to employ staff to implement their housing plans.

Figure 41
The effect of funding programmes on those who want to use Māori land for housing

An individual or whānau who has shares in Māori land and wants to build or move a single house onto part of the land block A small ahu whenua trust that plans to build a small number of houses on its land A larger Māori trust or iwi governance organisation with plans to build housing for its beneficiaries
The whānau can apply for a Kāinga Whenua loan, but a one- or two-earner household whose income is over $85,000 will not be eligible and will struggle to get finance.

Any whānau who have a poor credit history will not be able to get a Kāinga Whenua loan.

Whānau can get some support with their application and guidance through the process from the local HNZC project manager.
The trust will struggle to access finance from the MDP fund, because of a lack of skills and experience in housing.

The project could continue with funding by each household taking an individual Kāinga Whenua loan. This would be time-consuming and, because each of the loans will come at different times, will not realise potential economies of scale.
The organisation will be well placed to meet MDP fund criteria. There will be audited accounts, and the organisation will be able to buy professional skills and support.

The cost of these houses is likely to be cheaper (for each house) because of economies of scale. We estimate that the average economy of scale between a small (two to four houses) development and a large (20 houses) development was $6,737 for each unit, with a range of $3,828-$11,681.

Critical success factors for effective funding programmes

Critical success factors for government funding initiatives

Government funding is more likely to be effective when:

  • it is tailored to the particular circumstances of Māori landowners – for example, Kāinga Whenua loans would be more successful if the income cap were raised and other solutions were developed for low-income households;
  • different ways of funding allow for a mix of tenure options to enable people from across the socio-economic spectrum to be housed (helping the "community redevelopment" approach proposed for replacing the Rural Housing Programme);
  • funding is available when costs are incurred so that upfront costs, particularly for planning, can be funded;
  • funding is realistic about long-term costs (building on the success of the 10-year interest-free loans available with the MDP fund); and
  • the capacity of Māori trusts to manage their housing developments is built, to improve the contribution that housing can make to longer-term social outcomes.

Critical success factors for owners of Māori land

Māori landowners will be best placed to take full advantage of funding initiatives for housing on Māori land when:

  • they are committed to living on their land for the long term (selling the house may be difficult because it is on Māori land);
  • if there is more than one family who wants to build on the land block, they work together (which will be cheaper); and
  • small trusts build their skills. TPK can help identify the type of skills training that can be accessed, so that the trusts are well placed to apply for funding.

10: This means that Kiwibank agrees that it is willing to lend a certain amount to a borrower if they can find a home for that amount and successfully complete the other processes they need to go through (such as getting consent from the other owners of the land for them to build on it).

11: Actual results will depend on the household compositions in each region, and the financial circumstances (including credit history, account behaviours, and other debts) of individual households.

12: Under leaseback arrangements, HNZC would lease the homes built from the MDP trust for 10 years to use as state housing. After the 10 years, the homes can be returned to the trusts that own them, to rent or sell as they see fit.

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