The Minister of Housing Chris Bishop has announced a series of proposals aimed at removing barriers faced by Community Housing Providers (CHPs) in delivering social housing. 

”Levelling the playing field”

The Government wants CHPs to be treated on a level playing field with the state-owned Kāinga Ora - Homes and Communities (Kāinga Ora) when it comes to accessing finance to deliver social housing. 

While, like Kāinga Ora, CHPs already receive the income related rent subsidy (IRRS) to support their funding model for the construction, maintenance and operation of community housing and wrap around services, CHPs still struggle to access competitive debt finance. 

By comparison, Kāinga Ora has the advantage of being able to access Central Government backed borrowing, meaning that Kāinga Ora can borrow at lower interest rates compared to CHPs. 

By addressing this perceived disparity, the Government is seeking to unlock the potential of CHPs, enabling them to make a greater contribution to affordable housing solutions and help house more people in need.

Key proposals for CHPs

To support this initiative, the Government has directed officials to advance proposals to:

1. Enhancing financial attractiveness of contracts: adjust IRRS contracts so that they are more appealing to lenders. The changes to be considered include removing termination for convenience clauses, extending compensation terms, and offering early funding approval to improve certainty for CHPs;
2. Increased use of leasing: increase the use of leases for new-builds for additional community housing, in cases where leasing delivers value for money;
3. Upfront capital support: make a portion of the operating supplement (agreed in principle up to $70 million) available upfront as equity to CHPs, improving their ability to secure financing at competitive rates; and
4. Credit enhancement interventions: explore other structural options to improve CHPs’ access to debt, including:

•    providing direct Government lending or guarantees to CHPs;
•    establishing a Crown intermediary to provide financing efficiencies; and
•    providing lending or guarantees to a private lender.

Separately, the Reserve Bank is currently reviewing standardised risk weightings applied to CHPs, in light of a concern that current risk weightings unduly restrict CHPs’ borrowing capabilities. This follows calls by the deputy chief executive of Community Housing Aotearoa, Chris Glaudel, who has also challenged the Reserve Bank’s current classification of CHPs and urged it to establish a separate asset class that recognises the risk profile of CHPs in line with other countries. 

Next steps

The Treasury and Ministry of Housing and Urban Development will collaborate with CHPs through early 2025 to refine these proposals, with an aim for the Ministers to receive detailed advice in the first quarter of 2025.

Get in touch

If you would like to discuss this latest announcement, please get in touch with any of the contacts listed below or your usual Simpson Grierson contact.

Special thanks to Ishma Nasheed for her assistance in writing this article.