A lease for inner-city Auckland office space that housed the last Labour Government’s Three Waters programme cost $2.2 million to terminate a year early.
The Department of Internal Affairs (DIA), which was responsible for the lease, told the Herald that new tenants “were unable to be found”.
DIA and other water services-related staff vacated the office space in Auckland’s Sale St in March 2024 as a result of the new course set for water reform by the coalition Government after the last election. The lease had been set to end on July 1, 2025.
A DIA spokesman said: “An agreement was negotiated with the head tenant, ending the lease early [on July 1, 2024].”
He told the Herald there was a $2.2m cost in fiscal 24/25 when there was no lease cost per se but there were “costs associated with ending the lease by agreement”.
The termination fee cost more than the $2.014m cost of the lease the previous year.
The department said that, if not terminated, the lease would have cost $2.5m in fiscal 24/25, 19% more than the previous year.
The spokesman said that the lease provided for a 3% increase in 24/25, but he has yet to respond to a further request to account for the much steeper year-over-year price increase that had been anticipated.
The size of that anticipated price increase is surprising given the context of relatively high modern office space vacancy rates in and around Auckland’s centre since the pandemic.
The spokesman was not able to clarify whether further operating costs were associated with the lease.
Until March 2024, the Sale St offices housed DIA Three Waters National Transition Unit staff, including contractors and consultants, and it also served as “a hub” for the planned Northland-Auckland Entity A.
The programme aimed to move control of the country’s water services – drinking water, storm water and waste water – away from individual councils and into four new water services entities.
The Three Waters programme was contentious and in early 2023 the plan was revised, the number of new water services entities was increased to 10, and the programme was rebranded, Affordable Water.
The Sale St lease began in October 2022, and when it came to light the following month, Simon Watts, then National’s local government spokesman, told the Herald that the whole picture – the “fancy office building funded by the taxpayer for consultants and contractors to sell broken reforms” – was objectionable.
Watts is now Minister of Local Government. The Herald asked if he was alarmed at the lease termination cost; the minister didn’t answer the question directly.
A spokesman from his office said: “The shutdown of the previous Government’s water services reform programme generated significant savings which were recorded in Budget 2024.″
He also noted that the Government repealed and replaced the previous Government’s water services programme, including taking the formal decision to do so three weeks after the coalition Government was sworn in.
He said the National Transition Unit was fully closed down by the end of March 2023.
The Government is pushing ahead with its own water reform policy. Local councils are now required to meet a looming September deadline for water service delivery plans.
The Government has pushed many councils to join forces with their neighbours voluntarily to form larger water services groups that would make them better able to borrow money, but it is not clear exactly how many will do so.
Labour’s local government spokesperson Tangi Utikere did not directly address questions about the lease termination cost, but he defended the previous Government’s spending on water reform.
“Labour had to reduce water rate hikes and protect ratepayers from high costs associated with water infrastructure. When the current Government cancelled Affordable Water, they sank $1.2 billion in costs and planning, and they made decisions that would leave local councils with no choice but to hike rates – including in Auckland, which has seen water bills go up over 14% in two years.”
Utikere said: “None of these costs would have been wasted if National hadn’t made the short-sighted call to scrap Affordable Water.”
The lease included the top two floors and the large roof deck of a five-story building in the inner-city suburb of Freeman’s Bay.
It was also a base for IT and other external vendors working on the water programme.
At its peak, around September 2023, the Government had more than 600 water reform staff, including contractors (this figure excludes consultants and external vendors).
Outside the transition work, there were more than 300 Wellington-based staff – working in policy, regulation, legislation and related iwi Māori issues – and a further 33 in Christchurch and eight in Hamilton, working on setting up regional water services entities.
Three Waters office space leased in the regions was smaller, and priced more moderately than in Auckland.
According to figures supplied by the DIA, space in Manchester St in Christchurch cost $73,000 for seven months in 22/23, $167,310 for the full year in 23/24, and $71,455 for five months in 24/25. The lease ended on November 30, 2024, at which point the space had been empty for eight months.
Further space in Grantham St, Hamilton, cost $68,430 in 22/23 and $68,430 in 23/24; the lease ended in May 2024.
Kate MacNamara is a South Island-based journalist with a focus on policy, public spending and investigations. She spent a decade at the Canadian Broadcasting Corporation before moving to New Zealand. She joined theHeraldin 2020.