Part 6: Investing in social housing

6.1
In this Part, we discuss how effectively Housing New Zealand uses information to make asset management and investment decisions, such as buying and selling houses, and redeveloping and refurbishing existing properties.

Summary of our findings

6.2
Housing New Zealand uses a broad range of information to prepare a view of future housing demand. It has prepared a 10-year asset management strategy that serves as a framework for decision-making. Housing New Zealand is also documenting a view of the results it wants to achieve and how it will achieve them in its strategic plan for 2017-21.

6.3
To support the development of a longer-term asset investment plan, Housing New Zealand needs to continually improve its understanding of the condition of its houses. It also needs to develop a better understanding of its tenants' future needs and how its investments will contribute to sustainable and well-functioning communities.

6.4
Housing New Zealand's ability to prepare a longer-term investment plan is adversely affected by the absence of a coherent long-term social housing strategy.

6.5
The government organisations with responsibilities in the social housing sector (the Ministry, the Treasury, Te Puni Kōkiri, and the Ministry of Business, Innovation and Employment) need to work together on a long-term social housing strategy, including how demand over the long term can be met.

6.6
To also support Housing New Zealand's longer-term asset investment planning, the Ministry needs to become a stronger purchaser. Forecasting future demand is complex, but the Ministry needs to provide a longer-term view of the number and location of housing places it wants to purchase.

6.7
In our view, the Ministry should also use its role as a purchaser of places in social housing to improve outcomes for people in social housing. The Ministry's approach to longer-term planning is evolving.

Housing New Zealand's asset management strategy

6.8
Housing New Zealand has a 10-year asset management strategy that sets out how it will manage its housing portfolio to ensure that it has enough social houses where they are needed. To do this, Housing New Zealand has to make decisions about redeveloping current properties, purchasing new properties, selling properties that are not needed, and building new properties.

6.9
In 2015/16, Housing New Zealand provided 871 replacement and new houses. Many of these were in Christchurch because of the earthquakes there. During 2016/17, Housing New Zealand provided 1524 new houses and is looking to increase this in future years.

6.10
In 2017, the Treasury gave Housing New Zealand's asset management strategy an "A" investor confidence rating. Housing New Zealand is also working on a stronger strategic view of its social housing role by developing a strategic plan for 2017-21. Housing New Zealand also told us that it is currently preparing a longer-term financial plan.

The Ministry's purchasing intentions

6.11
The number and type of houses Housing New Zealand is looking to provide in a location are guided by the Ministry's 2016 Social Housing Purchasing Strategy, previously published in April 2015 as the Ministry's Social Housing Purchasing Intentions.

6.12
The purchasing intentions provided information on the Ministry's expectation of the demand for social housing. The Ministry updated the purchasing intentions document in December 2016 to provide a three-year view of the social housing places it intends to purchase.

6.13
Because the Ministry provides purchasing intentions for the next three years only, Housing New Zealand has continued to do its own demand forecasting so it can have a 10-year view for asset investment decisions. Housing New Zealand uses information such as social housing register information and the number of applications over time to predict demand in more detail than the Ministry's three-year purchasing strategy.

Responding to the challenges of older houses

6.14
An important focus of the asset management strategy is how Housing New Zealand will deal with the different requirements of its older houses (about 40% were constructed before 1966). Housing New Zealand has set a target to reduce the average age of its housing stock from 45 to 37 years in the next 10 years. This means that it needs to "replace or renew" 60% of its houses over the next 20 years.

6.15
Housing New Zealand has stated that, since 2011, about one-third of its houses are increasingly too expensive to maintain, located in low-demand areas, or not the right size for tenants' needs. These challenges reinforce the need for a long-term and co-ordinated view about social housing.

Information needed to support better asset management and investment

6.16
In our view, Housing New Zealand needs to develop a longer-term asset investment plan. This would support longer-term planning and a longer-term view of Housing New Zealand's role in meeting the future demand for social housing.

6.17
Housing New Zealand could improve its use of information to support the development of a longer-term asset investment plan in several ways.

6.18
In particular, a more detailed understanding of the condition of its houses would help Housing New Zealand make better decisions about how to manage them for the future (whether to rebuild, retrofit, or sell). Also, a better knowledge of people in social housing, and their housing needs over time, would allow Housing New Zealand to prepare a more effective longer-term forecast of social housing demand.

6.19
There is also a need for Housing New Zealand to understand how its investments will support building sustainable and well-functioning communities. This is important to ensuring that people have positive outcomes from social housing, particularly because many Housing New Zealand homes are in areas of high social deprivation.

A coherent long-term social housing strategy is needed

6.20
The government organisations with responsibilities in the social housing sector (the Ministry, the Treasury, Te Puni Kōkiri, and the Ministry of Business, Innovation and Employment) need to work collaboratively to provide a coherent long-term social housing strategy. In our view, this stronger leadership would support social housing investment decisions and create a better quality of life for people in social housing.

6.21
It would also provide the direction needed by Housing New Zealand and community housing providers for their longer-term asset investment plans.

6.22
We acknowledge that implementing longer-term plans will be affected by a number of factors. Not the least of these would be policies and priorities of the Government of the day.

The Ministry is continuing to become a stronger purchaser

6.23
The Ministry needs to continue to improve its capability and capacity to become a stronger purchaser of social housing.

6.24
The Ministry's purchasing strategy currently goes to June 2020. Although projecting demand for social housing is complex, social housing providers need more certainty beyond 2020 so they can prepare their asset investment plans accordingly.

6.25
The Ministry could use its role as a purchaser of social housing as an opportunity to improve the quality of life for people in social housing. For example, the quality of service for tenants could be specified in the contracts the Ministry has with social housing providers.

6.26
The Ministry needs to better understand who benefits the most from social housing and how to increase these benefits. Some work on this has been done by the Social Investment Unit and the Treasury, but more work is needed. This work would support both the Ministry and Housing New Zealand in their longer-term investment decisions.

6.27
The Ministry is aware of its need to be a strong purchaser and has started to work more collaboratively with Housing New Zealand. For example, the organisations are discussing a joint approach to forecasting demand and how they can work together to address the high demand for social housing in Auckland. The Ministry's approach to longer-term planning is also evolving.