Response to request to look at KiwiBuild

Hon Judith Collins
Parliament
Wellington

Dear Ms Collins,

Thank you for raising your concerns about the KiwiBuild programme with me earlier this year. These included whether all of the KiwiBuild activity was covered by appropriations, how relationships with developers were managed, and concerns about specific projects linked to the “Buying off the Plans” component of KiwiBuild.

I asked my Appointed Auditor for the Ministry of Housing and Urban Development to consider those matters as part of the 2018/19 annual audit. They looked at how projects are identified, the evaluation, due diligence, and approval processes, and the processes for managing conflicts of interest.

Our annual audit work is now complete and the findings have been shared with the Ministry of Housing and Urban Development. We have also reported the findings of the annual audit to the Ministers for Housing and for Urban Development, and, as is normal practice, a copy of the letter to the Ministers has also been made available to the Social Services and Community Committee, ahead of its annual review of the Ministry on 20 November 2019.

Now that we have reported the audit findings to the Ministry and Ministers, I can share those findings with you. Our findings are based on the work conducted on several projects, including but not limited to those that you brought to our attention. I have set out below our findings on the matters you raised with me.

Our work on KiwiBuild processes

Our annual audit looked at the two main components of the KiwiBuild programme, the Land for Housing programme and Buying off the Plans. We reviewed a sample of contracts against the Ministry’s systems, processes, and controls for their origination, evaluation, and approval.

Land for Housing programme

The assessment of land for housing follows a well-defined process. There are two clear stages: assessment of the land for entry into the programme; and identification of an appropriate development partner. We reviewed two examples of land packages brought into the programme and the process for identifying land, assessing its suitability, and for identifying and contracting a development partner. From an audit point of view, we found the process to be robust.

Buying off the Plans

We reviewed the process for identifying opportunities to buy KiwiBuild properties “off the plans”. This process includes opportunities for outright purchase of properties as well as underwriting developments with conditions attached to their eventual sale to KiwiBuild purchasers at KiwiBuild price points.

We looked at eight projects, including planning, documentation, how the process was managed, how submissions were received and evaluated, the approach to due diligence reviews, and the process for approving a deal and reaching an agreement with developers. Generally, processes were clear, well planned, and structured. We note that input and assurance from an independent probity auditor is a strength of the current process.

We consider that the Ministry has adequate processes and controls in place to support the appropriate management and approval of these transactions. However, from a programme and system perspective, we have made some recommendations for improvement:

• Although the process for Buying off the Plans is now generally well established at a transaction level, as the programme matures we have recommended that the Ministry further formalise the documentation supporting its approach to the market. It would be helpful to bring together the policy positions currently set out in various documents. If applied to all KiwiBuild programme components, this framework would help ensure consistency (where appropriate) across the range of KiwiBuild projects and market interactions.
• We have also recommended that the Ministry include a more formal assessment of “additionality” in the evaluation process, as opposed to dealing with it separately in due diligence or negotiation. Additionality, or freeing up capital to start new developments earlier than would otherwise be the case, is one objective of the KiwiBuild programme.

Your concerns about specific projects

My auditors considered the specific projects you raised with me. In neither case did we find anything that would warrant further investigation.

Decision-making and coverage by appropriations

You also had concerns about the use of appropriations for KiwiBuild and whether projects are covered by Cabinet decisions. Your concerns included the underwriting of homes already under construction and outright purchase of properties already marketed by developers.

We considered these issues in the performance of our audit work and were satisfied that operations were in scope of both the appropriation and Cabinet approval.

Our future work on housing

My Office is still considering what further work we might carry out on housing and KiwiBuild in particular. Given the significant resources involved in the provision of public housing and other housing support, we continue to have an active interest in the sector. I have yet to make decisions about the focus and form of that further work. 

As well as the annual audit work we will continue to do on KiwiBuild, I will consider further whether there is value in conducting more in-depth work on aspects of the KiwiBuild programme or whether the resources of my Office could be better applied on other housing issues.

Please do not hesitate to contact the Sector Manager responsible for the Ministry of Housing and Urban Development (Tobias Nischalke, tobias.nischalke@oag.govt.nz) if you wish to discuss the findings in more detail. Because of the public interest in these matters, we will be publishing this letter on our website.

Yours sincerely

John Ryan
Controller and Auditor-General