Wellington City Council lobbies Government for help with social housing funding hole

Wednesday, 2 June 2021

Wellington City Council is asking for urgent talks with the Government about getting access to a rental subsidy that would help the council’s social housing arm climb out of a massive funding hole.

And it says if it doesn’t get the funding, it may need to offload its social housing stock to a separate entity to manage the houses and fund the required upgrades.

The council is facing a $403 million shortfall for the upgrades over the next 10 years, as well as staring down the barrel of annual operating deficits that are set to reach almost $50m by 2031.

The council is lobbying the Government for access to its income-related rent subsidy to help reduce its operating deficit. (File photo)

“Our housing business unit is bleeding – effectively it’s bleeding to death,” Wellington Mayor Andy Foster said. “It can’t keep doing what it’s doing at the moment.”

To help it out of the hole, city councillors have asked mayor Andy Foster and chief executive Barbara McKerrow to formally lobby the Government for access to its income-related rent subsidy.

The subsidy would enable rent payments to be topped up to market rates for eligible social housing tenants, generating more money for the council and helping to reduce its operating deficit.

Currently, the council charges low-income tenants no more than 70 per cent of market rates for rent.

But new tenants of Kāinga Ora or a community housing provider have their rents capped at 25 per cent of income, with the government topping up with the income-related rent subsidy.

Wellington City Council not only wants access to the subsidy, it wants it be available for existing tenants as well.

It’s estimated about 80 per cent of Wellington’s social housing tenants would be eligible for the subsidy.

Wellington Mayor Andy Foster says the council’s social housing unit is “effectively bleeding to death”. (File phto)

Mayor Andy Foster, who has agreed to start the formal negotiations, told councillors at a meeting on Wednesday that the council needed to act urgently.

Its social housing programme was due to leak an average of $27,000 a day for the next three years because of the gap between expenses and income, he said.

At the same time, the council has asked its officers to explore the possibility of establishing a community housing provider (CHP) to manage its social housing stock, because CHPs are eligible for the subsidy.

The council would go down that route if the Government was not able to provide the subsidy, and could end up handing over its assets to the CHP.

It was possible the council would need to sell the assets, but it would not get “anywhere near” full value for them, Foster said.

Infometrics senior economist Brad Olsen has applauded the council for looking at establishing a community housing provider. (File photo)

Community Housing Aotearoa chief executive Scott Figenshow said Wellington City Council was under 'tremendous' financial pressure - but so was every council around the country.

The crux of the problem was that the funding system for community and local government housing was ineffective.

'There’s also a human right to housing aspect. If you’re a resident and you actually meet the eligibility criteria for income-related rents. Shouldn’t you be able to access the income-related rent subsidy regardless of who your landlord is?'

Economist Shamubeel Eaqub is also a fan of the community housing provider model. (File photo)

Infometrics senior economist and director Brad Olsen said investigating how a community housing model could work in the future was the right thing for the council to do.

'We know that Wellington City Council has struggled in a sense to upgrade the housing stock… Wellington’s housing stock is particularly poor in quality. It’s not a problem that will go away.'

The proposal was a 'very strong, clear, concise' message to central Government that the council, which is New Zealand's second biggest landlord, behind Kāinga Ora, needed more support, Olsen said.

The proposal would require weighing up whether losing direct control over decision-making about the social housing stock was worth the financial benefits that the rent subsidy could bring.

Economist Shamubeel Eaqub, from Sense Partners, said Christchurch City Council's social housing had been operated by a CHP for several years.

“It makes complete sense. The tenant is much better off. The council is much better off.'

It could take up to three years to establish the CHP, so the council is proposing to fund the programme in the meantime through debt and City Housing cash reserves, which stand at $50.6m.

Council staff have been asked to report back on the proposals by September.

Correction: Wellington City Council charges low-income tenants no more than 70 per cent of market rates, not of their income, as previously stated. (amended 8.30am, June 3, 2021)