An early investor in a potentially $100 million fund setting out to tackle Bay of Plenty housing inequalities says it has “massive potential for change”.
The Housing Equity Fund has been established with $40m in total provisionally invested from Bay Trust, TECT, Tauranga City Council, Rotorua Trust and the Whakatāne-basedTrust Horizon.
The fund has a minimum initial goal of $100m, including borrowing, but it hoped to grow this by producing enough return to attract more investors - including some with “billions of dollars”.
Bay Trust impact investment and partnership manager Terri Eggleton said the idea was born from a brainstorm between the trust and the Tauranga Community Housing Trust about how to attract more money into the housing solutions sector.
She said the fund’s goal was to create housing that was “affordable, sustainable and delivered to the people in need to create equity”.
It would increase housing stocks by building, buying, and acquiring developments in the region, working alongside community housing providers, social agencies, builders and developers, and investors. It would not buy existing homes.
Eggleton said it would focus on creating housing that met community needs. For example, the one- and two-bedroom homes required by the vast majority of people on the waiting list for public housing.
She said another example of a need could be the housing crisis in Ōpōtiki described by local community housing providers as “wildly underestimated”.
It intended to develop new homes and build communities with mixed-tenure housing - a mix of market rentals, social housing rentals, elder housing and owner-occupied homes. The fund would retain ownership of most of the homes.
“What we don’t want is a whole development of low-cost housing for people on the bottom of the rung.”
She could not put a timeline on when it would start its first development, but with “many barriers” to overcome, she said it was “not going to happen overnight”.
“The sooner the better, as far as we’re concerned.”
Early investments from community organisations would enable it to borrow money to establish the fund.
Bay Trust, TECT, and Tauranga City Council had provisionally invested $10m each, and Trust Horizon and Rotorua Trust $5m each. Rotorua Trust would release the provisional investment in two tranches. The Tauranga council was also considering investing another $10m.
Rotorua Trust trustee and investment committee chairman Gregg Brown said the fund had “massive potential for change if it grows to the expectations that we envisaged it may”.
He said contributing to the fund was different to the trust’s usual practice of giving grants.
Rotorua Trust trustee and local councillor Gregg Brown. Photo / Laura Smith
It had two-fold benefits: A financial return for the trust and “social good” generated by the fund addressing the housing crisis and issues arising from homelessness and unstable accommodation.
He said if the fund could generate returns, “why wouldn’t an investor choose social good over another investment of equal risk?”
Tauranga City Council has said its proposed investments would come from the proceeds of the sale of its elder housing portfolio.
Community consultation on the investment proposal ended in June. The results would be presented in a council meeting on August 14, with a decision due then on whether the council would invest and, if so, how much.
Eggleton said the money from each community investor would be drawn down for opportunities in their part of the region. The groups would have a say in how to invest in their area, rather than a fund manager deciding, to ensure the fund would address local needs.
Bay Trust impact investment and partnership manager Terri Eggleton. Photo / Alex Cairns
She said this type of investment fund was common overseas, and some large investors had at least five per cent of their portfolio in funds for social or public housing.
There had been “frustration” among very large investors with “billions of dollars” that had housing overseas but could not get traction in New Zealand.
Some were consulted about this idea and she believed they would jump on board with the right proposition.
New Ground Capital and Brightlight were the fund managers appointed by the founding shareholders.
New Ground Capital managing director Roy Thompson said the two companies saw the fund as a “unique region-wide collaboration of community-minded organisations”.
He said it would help organisations “already doing the hard mahi in the housing space”.
It did not intend to become a registered community housing provider.
Thompson said the fund was open to investment from individuals or organisations qualifying as wholesale investors.
He said investors will be exposed to development risk as well as the risks of investing in long-term affordable rentals.
He said the founding shareholders had established a 10-year total financial return of consumer price index (CPI) plus 4 per cent, which would be a combined result of rental income, development margins and house price inflation.
That return would be “well below normal commercial returns”, with the foregone return being applied to increasing its social impact, such as by reducing rents below open market levels, he said.
Thompson said all investors benefited from a fully diversified fund, while being assured at least as much capital as they committed - probably double - would be invested within their area.
Cira Olivier is a social issues and breaking news reporter for NZME Bay of Plenty. She has been a journalist since 2019.
