All state house tenants will have their tenancies reviewed and be forced to move on once their circumstances change under changes made in the Budget - a step expected to result in 3000 tenants moving out of state houses by 2017.
In other housing changes, the Budget also provides $26.6 million for non-government social housing groups to take a greater role in providing housing to those in most need - including becoming eligible for tenants to get government income-related rent subsidies. Currently only Housing NZ tenants qualify for the subsidies.
The most controversial aspect of the changes is likely to be the tenant reviews.
Finance Minister Bill English said although state housing was required for those most in need, "it can become a trap for those whose circumstances could improve".
"We want to ensure people are in the most appropriate houses for them.
We will be looking at when tenants' circumstances change and when they no longer have higher needs and will help to move them into other housing."
He said that there were some tenants who could afford to rent in the private market if suitable accommodation could be found.
Housing Minister Nick Smith said currently about 10,200 state house tenants were subjected for tenancy reviews, which currently apply to tenancies signed after July 2011. The new policy will increase that to another 53,200 tenants who had signed prior to that cut-off and the reviews will begin in 2014. Housing New Zealand has estimated that the reviews will result in about 1,000 tenants moving out of state houses in 2015/16 and a further 2000 in 2016/17.
The Budget has allocated $46.8 million to extend the tenancy reviews to all Housing Corporation tenants, and it is expected to cost the Government $35.4 million a year from 2016/17 as tenants who move on are replaced by tenants with higher needs who qualify for higher rent subsidies.
Dr Smith said the reviews would be undertaken "with common sense".
"This will mean people can rent state houses when they have high housing needs, and for as long as those needs persist. They will then be given support to move into alternative housing when their situation improves and they are in a position to take that step to independence."
Dr Smith said the reforms in social housing marked a "significant shift from a policy of state housing to a more diverse social housing sector."
"These reforms will open the door for community housing providers to house thousands more people, with the Government funding this on the same basis as Housing NZ."
The Ministry of Social Development will also take over from Housing NZ in assessing people's housing needs - a step Social Development Minister Paula Bennett said would allow people's needs to be considered along with social and income support.
Dr Smith said that community housing providers often did a better job than the state in meeting the need of families.
"New Zealand is out of step internationally with the state dominating social housing provision. There are real social gains from integrating housing provision with services to support people with disabilities, mental health issues, drug and alcohol problems and family dysfunction."
The Government will introduce the Social Housing Reform Bill to Parliament today to make the changes.
* All state housing tenants to have tenancies reviewed: cost $46.8 million.
* Expected to result in 3,000 tenants moving on by 2017.
* Extend income-related rent subsidies to registered non-Government housing providers: $26.6 million.
* Ministry of Social Development to take over assessing housing entitlements.
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