Community housing funding: Govt to extend direct line of credit to providers and consider underwriting bank loans to sector

Housing Minister Chris Bishop needs community housing providers to be equipped to do more of the heavy lifting delivering social houses. Photo / Mark Mitchell

The Government is opening its wallet to help charities do more of the heavy lifting in the provision of social housing.

It has committed to establishing a direct line of credit to an agency set up by a social enterprise that lends to community housing providers (CHPs).

The idea is that formally connecting the Government’s big balance sheet to CHPs’ main financier, the Community Housing Funding Agency, reduces the risk for those who buy the bonds the agency issues.

If the agency can get a good credit rating and secure lower-cost funding, it can lend more to CHPs at a lower cost.

The Government needs CHPs to scale up, as it isn’t throwing as much money at its own social housing provider, Kāinga Ora – Homes and Communities, as the Labour Government did.

Currently, CHPs account for around 13,000, or 16%, of New Zealand’s social housing stock. A thousand of the 1500 new social houses the Government put money aside for in Budget 2024 will be delivered by CHPs from June.

Housing Minister Chris Bishop has committed to making a $150 million liquidity facility available to the Community Housing Funding Agency.

To put this in context, Community Finance, which established the agency, has raised $250m in six years to support 11 CHPs.

About $6 billion would be needed to build houses for the roughly 20,000 households on the Government’s social housing wait-list, according to Community Finance chief executive James Palmer.

Speaking to the Herald, Palmer described the Government’s support for the community housing sector as a “watershed moment”.

He noted it was the norm overseas, including in Australia and Europe, for governments to back specialist financial intermediaries that lend to CHPs.

Community Finance’s funders include philanthropists and charities, including the Tindall, Lindsay and Edgar families and the Hoku Foundation, as well as KiwiSaver and other fund managers including Generate, Simplicity, Pathfinder, Westpac, Harbour Asset Management, Trust Management and Clarity Funds Management.

Palmer said it usually lends to CHPs at an interest rate about 100 basis points below that of banks.

While the Government can borrow for much less, CHPs claim they’re more efficient than Kāinga Ora and can provide more bespoke support to their social housing tenants.

Palmer said Community Finance was very judicious when it came to assessing who to lend to – indeed, there are many other CHPs that don’t get finance through it.

Accordingly, Bishop is looking at getting the Government to underwrite bank loans to CHPs to make them more attractive to banks, much like it guaranteed bank loans to businesses during the pandemic.

This would mean that if a CHP couldn’t repay its debt, the Government would repay a part of it. In the case of the Covid-era Business Finance Guarantee Scheme, the Government agreed to repay 80% of an approved loan a business couldn’t repay.

Palmer was supportive of the idea, but admitted it could involve a lot of admin.

The stringent terms of conditions of the Covid-era scheme was one of many factors that limited its uptake.

Westpac NZ’s institutional and business banking managing director Reuben Tucker said the Government removing the risk banks face lending to CHPs should “materially” lower borrowing costs and help more developments get off the ground.

He also wanted the Reserve Bank to allow banks to hold less capital in relation to loans they issue CHPs.

Currently, the regulator requires banks to hold similar levels of capital for CHPs as they do for commercial property, despite CHPs having a fairly certain income stream once houses are built, as the Government subsidises the rent social housing tenants pay.

Palmer was sceptical about changing the bank capital rules, noting that CHPs don’t all carry the same credit risk as each other.

The Reserve Bank is currently considering whether to make its capital rules more granular, with Finance Minister Nicola Willis suggesting she may want it to loosen its rules altogether.

While this could reduce the cost of borrowing, it could also make banks weaker and boost their profits.

Taking a step back, Palmer was pleased the Government was taking big measures to support the social housing sector to scale up.

Paul Gilberd, chief executive of the industry group – Community Housing Aotearoa – said the sector had for years been calling for the Government to adopt models used overseas to support a financier for the sector.

He said the $150m liquidity facility for the Community Housing Funding Agency could be scaleable.

Gilberd also hoped the Crown’s involvement would give more investors confidence to buy the bonds the agency issues.

He noted investors sometimes found it difficult to meet the “social” part of the “environment, social, governance” commitments.

Gilberd believed investing in the agency would be a relatively safe option, as in addition to having the Crown’s liquidity facility there, the risk is spread across the various CHPs the agency lends to.

Jenée Tibshraeny is the Herald’s Wellington business editor, based in the Parliamentary press gallery. She specialises in Government and Reserve Bank policymaking, economics and banking.