Maligned board responds to Kāinga Ora report

Kāinga Ora’s board told former Prime Minister Sir Bill English and his critics that they had got several things wrong before their slim 37-page report condemning the agency’s performance and governance was published.

It emerged on Newshub on Tuesday that English was indeed appointed to chair the review in a text message exchange with Housing Minister Chris Bishop before the inquiry was approved by Cabinet.

The much-maligned board’s views on the draft review have also been published under the Official Information Act.

English’s review blamed Kāinga Ora for its borrowing and spending services, leasing and maintenance, construction agreements and relationships with builders and alternative social housing providers, and the board for governing with insufficient financial information. Its review recommended removing the housing finance function from the Department of Housing and Urban Development (HUD) and splitting social housing into at least five Crown corporations across the country.

Before Bishop published the review last week, a draft was given to Kāinga Ora for comment. Her response was not issued by Bishop in a vast archive of background documents, but emerged Tuesday after an OIA request.

An informal and friendly text message exchange between Bishop and English was also issued, in which English offered to assist in the review.

“Great, let’s do it,” Bishop responded on November 29.

English: “I will help you if it is a brief and precise review. “No public performances or excursions are allowed.”

Bishop responded: “Definitely not. Three people. You and two others… HUD and Trsry will be in charge of the secretariat. There is no KO involvement. Independent.”

Labor has since seized on that “KO non-involvement” to say Bishop had an established agenda against the housing agency and says Kāinga Ora’s subsequent comments were ignored.

English and the other reviewers, businessman Simon Allen and urban development expert Ceinwen McNeil, have so far received $274,000 of the $500,000 allocated by the Cabinet in December for the investigation. That sum was taken from a HUD budget line item for providing transitional housing for those in urgent need of housing.

Once the English revision was ready in draft, it was sent to Kāinga Ora, who responded in mid-April, just before English sent it to Bishop four days later.

Kāinga Ora’s document begins with acting board president John Duncan saying directors were “generally comfortable” with English’s recommendations on the broader social housing system, including having HUD as the sole funder.

But he questions in detail the assumptions and comments in the draft about Kāinga Ora’s finances, including the review’s repeated correction of funding sources and other agencies’ responsibility for the system’s programs and costs.

It contains three pages of “factual errors.”

And it challenges English to omit from his review an appendix of comments that reviewers heard at meetings within the sector, which ended up remaining in the report, but with a note that the claims had not been verified.

That addendum, which includes anonymous comments about the board’s own performance, its relationship with chief executive Andrew McKenzie and Kāinga Ora’s maintenance, finances, costs and relationships, is described by the board as inappropriate and containing errors and omissions.

According to the comments of the board of directors, a control had not been carried out with sufficient rigor.

More specifically, Kāinga Ora tells English that his draft review confused the agency’s funding (from the Government through its income-related rental subsidy) with its financing costs (its loans to build houses).

“Page 18 of the report refers to a total projected cash cost to the Crown of $21 billion over four years, which includes all Kāinga Ora cash expenditure, including capital and operating, and that this is the ‘most accurate way to measure the cost of social services’. accommodation’. This logic is flawed since it involves double counting when adding the financing cost and the financing cost:
– The Crown pays Kāinga Ora IRRS rents of approximately $1.5 billion a year (in today’s dollars)
– The Crown also lends money to Kāinga Ora to cover its capital costs and receives interest payments from Kāinga Ora. The Crown, in turn, borrows that money from the debt markets, whose interest costs far exceed Kāinga Ora. This element of the model has no cost to the Crown
– The only cost for the Crown is the commitment to pay the rents and the IRRS OS.”

It also alleges that its review failed to understand that the Ministry of Social Development was responsible for the provision of housing to Māori, and failed to understand why private developers’ land costs could be lower, without having to redevelop existing sites. .

On Kāinga Ora’s financial performance, the feedback documents summarize: “Concluding that Kāinga Ora is not financially sustainable fails to recognize that we maintain a strong balance sheet, with very strong current and projected fungible assets and rental flows. Our longer-term financial model shows that the situation is improving dramatically.

“Given the savings we are starting to achieve, the Kāinga Ora Board believes the organization is financially sustainable. However, continuing the growth of new social housing will require changes to the funding and financing model to better reflect current market conditions.”

The agency tells English it requested a review of finance and financing led by Treasury and HUD and approved by former Finance Minister Grant Robertson in 2022, and believes the overall financing system needs more attention.

“The review appears to conflate concerns about the performance of the social housing system with the performance of Kāinga Ora. The review should precisely identify the system changes required so that those outside Kāinga Ora’s mandate can be addressed by the correct system actor.”

And Kāinga Ora’s comments challenged a focus in the review, amplified by both Bishop and Premier Christopher Luxon in publishing it, that the board had incomplete financial information before it at a crucial directors’ meeting.

“While recent budgets did not include a full forecast balance sheet, they do broadly cover balance sheet implications and risks. We also provide a long-term perspective based on a 60-year model that helps contextualize the long-term implications of decisions and investments, which is key for a long-term asset owner.

“In addition, the board approves the budget balance through the SPE process, and did so at the same board meeting in which the budget was agreed upon.”

Kāinga Ora also disputes claims by politicians that his board was simply assuming continued government funding and access to loans. “This is not the case. The budget assumes that funding for additional social housing ends at the end of the approved Public Housing Plan (2025).”

Bishop announced that the Government had accepted Mr English’s recommendation to refresh the board and appointed former Spark chief executive Simon Moutter as chairman. He also stopped funding additional social housing through Kāinga Ora.

A report would be presented to Cabinet from July on other recommendations, such as establishing HUD as the sole funding authority and establishing contestability between a much smaller Kāinga Ora and new regionally based community housing associations. The new Kāinga Ora president must provide the Government with a detailed “and credible” financial operational plan by November.

Labor housing spokesperson Kieran McAnulty says: “The review was submitted to the Government just four days after Kainga Ora’s response, and it does not appear that any changes have been made as a result.

“It was misleading of the minister to tell Cabinet that there was broad support for the review within Kainga Ora when his response clearly shows the opposite was true.”

It had shown serious and credible errors and erroneous assumptions, McAnulty claimed.