Auditor-General's overview

E ngā mana, e ngā reo, e ngā karangarangatanga aha te motu, tēnā koutou.

In 2020, issues were raised in the media and directly with my Office about the Ministry of Social Development (the Ministry) funding the use of private rental properties in Auckland as emergency housing through the Emergency Housing Special Needs Grant (the emergency housing grant).

The issues were about the quality of some of the private rental properties, the amount that the Ministry paid for the rental properties, and the impact on the long-term rental market of using private rental properties as emergency housing.

The issues raised questions about the Ministry's mechanisms for ensuring that it was getting good value for money on behalf of taxpayers and how it made decisions about funding private rental properties as emergency housing. We were also interested in the process the Ministry used when it stopped funding private rental properties and returned to funding motels as emergency housing.

Emergency housing grants and emergency housing

The Ministry introduced emergency housing grants in 2016. They were one of several initiatives responding to an increasing number of homeless people needing short-term housing while they looked for something more permanent.

The emergency housing grant was intended to fund up to seven nights' temporary accommodation while the recipient looked for alternative accommodation. Until November 2017, the emergency housing grant funded commercial accommodation such as motels only.

The Ministry told us that using motels as emergency housing was not ideal for families, especially larger households that had to be separated in multiple motel rooms. Many motels did not have the facilities to meet the needs of disabled people needing emergency housing.

The Ministry's frontline staff and many of the Ministry's clients were having difficulty finding housing in Auckland, where there was a shortage of affordable rentals, public housing, and transitional housing. As a result, people remained in emergency housing for much longer than the original policy intended.

A pragmatic solution presented itself

In November 2017, a family that had been funded to stay in a motel through an emergency housing grant suggested to frontline staff that the Ministry fund a private rental property that the family found through an online short-term accommodation booking service. The property that the Ministry agreed to fund through an emergency housing grant was more suitable and cheaper than the motel the family had been placed in.

From this small beginning in November 2017, the Ministry's use of private rental properties as emergency housing increased significantly, and the number of suppliers of private rental properties as emergency housing also increased.

Ministry staff told us that having private rental properties available as emergency housing was a "miracle" because it meant that they could find appropriate emergency housing for larger households. However, concerns about the practice were raised over time, including the impact on the supply of long-term private rental properties.

The Ministry continued to fund private rental properties through emergency housing grants until June 2020, after the Government closed New Zealand's borders to international tourists in March 2020 as part of its response to Covid-19.

Although the demand for emergency housing continued to increase, motels that usually provided accommodation to international tourists became available for emergency housing. This allowed the Ministry to stop referring its clients to private rental suppliers. It told suppliers that it would no longer fund private rental properties as emergency housing from 30 June 2020 and encouraged them to make their houses available as long-term tenancies.

Between November 2017 and the end of June 2020, the Ministry paid more than $37 million to private landlords and property management companies in Auckland for emergency housing.

What we saw

The Ministry's frontline staff, who were in a difficult position, took an innovative approach to the urgent need for emergency housing that larger families and disabled people faced. The demand for housing was increasing, but the supply of suitable houses was low. Using private rental properties as emergency housing helped alleviate some of the problem. However, there were significant deficiencies with how the Ministry responded to the issues this approach raised.

The Ministry told us that it was a "price-taker", that it had no contract with the suppliers, and that other agencies, such as Tenancy Services and the Council, were responsible for monitoring the quality of emergency housing. However, I consider that the Ministry remained responsible for accounting for the way it spent money on behalf of taxpayers.

Strategic analysis and support for frontline staff were missing

Although Ministry staff decided to use private rental properties as emergency housing for pragmatic reasons, it represented a significant change in practice. The Ministry's assessment of the practice at a national level and consideration of how this approach aligned with its stated desire to fund warm, safe, and dry accommodation was limited.

The Ministry also did not provide any formal guidelines to its staff about how to make decisions to fund non-commercial accommodation, what price to pay, or how to evaluate the overall impact or cost of using private rental properties as emergency housing.

This may have been acceptable for an occasional or one-off situation, but we expected to see a consistent approach to decision-making, including guidance to staff, as the practice and costs of providing emergency housing this way increased.

The Ministry could not demonstrate that it received value for money

The staff entering into those arrangements on behalf of the Ministry had the delegated authority to do so and were able to agree costs that were "actual and reasonable". However, faced with finding a solution to an immediate housing need, frontline staff seemed to have limited control over what they would pay.

Ministry staff said that there was a pressing need to find somewhere for the people to stay. This meant that suppliers were often able to determine the rate because they knew that few options were available. As a result, the Ministry paid more than the long-term market rate for private rental properties.

This meant that there was a risk that properties would be removed from the long-term rental market in favour of the higher payments offered through emergency housing grants. For example, a long-term lease for a house used for transitional housing at a rental of $1,400 a week was not renewed. Instead, it was used as emergency housing at a rental of $3,900 a week.

Although the Ministry believes that, overall, the amount it paid for private rental properties was no more than it would have paid if those families had been placed in motels, it was not possible for the Ministry to demonstrate that the private rental accommodation it funded as emergency housing provided value for money. Paying the same amounts for different "products" is not the same as ensuring value for money.

The Ministry needed to do some analysis to decide what a fair rate was, such as comparing the market rates of weekly rental options for fully furnished houses or similar. It also needed to provide staff with guidance about what rates to agree with suppliers. The Ministry did not do this analysis or provide this guidance.

The Ministry did not monitor the quality of the accommodation

The Ministry said that its focus for emergency housing was on ensuring that people had a warm, dry, and safe place to stay. However, it did not have a way to check that the accommodation being provided met these expectations.

The Ministry does not consider that it was responsible for assessing the quality of the housing it provided or that it has the regulatory mandate or capacity to do this. The only mechanism that the Ministry said it had for ensuring that accommodation was suitable was by responding to complaints from people living there.

The Ministry received numerous complaints about the quality of some of the houses that it placed people in. We were also told about dwellings with building debris; that did not have cooking facilities, furnishings, or bedding; and that did not have appropriate consents from Auckland Council.

These could have been isolated incidents, but it is not possible to know their extent because the Ministry did not record and retain the addresses of the homes it housed people in, set standards for the properties it used, or have a process to check whether those properties met its expectations. The Ministry also did not have an accurate record of the complaints it received.

In our view, although there was evidence that service delivery staff responded to some individual complaints, the Ministry should have had mechanisms to ensure that it was clear what quality of housing should be supplied for the price it was paying. It should also have had controls to ensure that quality housing was being delivered.

In September 2019, the Ministry wrote to suppliers outlining several points focused on delivering the type of accommodation that aligned with its goals of warm, dry, and safe accommodation. For example, it asked providers to ensure that properties complied with the Residential Tenancies Act 1986, to provide accommodation with chattels (such as a heater, bedding, and linen), and to make properties available for inspection.

The Ministry considered setting up service level agreements with the suppliers at this time. It also began asking suppliers to provide evidence that they had authorisation to rent out their property as emergency housing when they registered as a supplier. Having an agreement with suppliers outlining these expectations and obligations, and requiring authorisation, are all matters that the Ministry may have considered earlier in the process to help ensure that recipients of emergency housing grants received the quality of accommodation that the Ministry expected.

In effect, the Ministry had a high-trust model with suppliers. When a public organisation is spending public money with a degree of trust that it will be put to certain use, it is important that the organisation is clear on the standards it expects. It is also important that it can verify whether those funds are being used as expected and what they are providing.

In this instance, we saw agreements to pay suppliers an agreed amount to provide accommodation, and little more than that. The Ministry had no way of knowing what standard of accommodation was being provided (and, in many instances, where that accommodation was) and whether it met the needs of those being housed.

Having an agreement with suppliers outlining these expectations and obligations, and requiring authorisation, are all matters that the Ministry could have considered earlier to help ensure that recipients of emergency housing grants received the quality of accommodation that the Ministry expected.

A system that relies on some of the most vulnerable in our community to make complaints is clearly inadequate. In my view, this is not enough to ensure that the Ministry met its aim of funding warm, dry, and safe emergency accommodation through emergency housing grants.

Good planning and strategic thinking help deliver effective services

Good planning and strategic thinking are important elements of delivering services to those that need them effectively. There is little evidence that it did the planning it needed to do to achieve its aim of funding warm, dry, safe emergency housing.

The Ministry has currently stopped paying to use private rental properties as emergency housing. However, it continues to fund emergency housing, including housing for larger households and disabled people. I encourage the Ministry to consider the needs of people requiring emergency housing more carefully and more strategically, consistent with the principles of the Homelessness Action plan and the Ministry's strategic documents.

This includes assessing the costs and benefits of each option, both in the short term and the longer term, what guidelines and support it provides to frontline staff for arrangements such these, how it could provide clear standards and expectations about what is to be provided, and what the best arrangement between the Ministry and suppliers should be.

Concluding comments

Closing the borders made more commercial accommodation, such as motels, available as emergency housing for larger households and disabled people. However, that availability will likely change when New Zealand reconnects with the world. Some commercial accommodation suppliers may revert to providing accommodation to tourists. The Ministry should be planning for this now.

Whether or not the Ministry plans to use private suppliers, it should consider the lessons from our work. Consistent with its obligations under the Aotearoa/New Zealand Homelessness Action Plan, the Ministry should work with the Ministry of Housing and Urban Development and the communities most affected by homelessness to find and assess the available options.

The Ministry and the Ministry of Housing and Urban Development are jointly leading work on the Aotearoa/New Zealand Homelessness Action Plan to develop more effective responses to homelessness and reduce reliance on motels as a form of temporary accommodation.

The Ministry says that this work has resulted in it making numerous changes to its emergency housing processes to better support clients. This includes introducing new support roles (for example, intensive case managers), extended grant periods, improved data capture and supplier registration processes, and strengthened staff referral and placement practices.

I hope that the Ministry can use the findings in this report when it is considering how best to respond to the needs of people requiring emergency housing .

Acknowledgements

I thank the Ministry's staff and the staff at the Ministry of Housing and Urban Development for their assistance with this inquiry. I also thank people from elsewhere in the public sector and those involved in emergency housing for their information and views.

Nāku noa, nā

John Ryan
Controller and Auditor-General

6 December 2021