The sudden closure of the Mind Matters Trust house in Titirangi may stem from Government limitations on district health board spending or it may be a case of an overwhelmed trust board failing to hold its nerve.

Whichever, the demise of the highly-regarded facility reflects the insecure environment which NGOs in the critical area of mental health exist in.

Everyone - from clinicians, the Mental Health Foundation and health board bureaucrats to former patients - speaks highly of the residential home which opened in 2003 in tranquil bush with views over the Manukau.

About 130 Aucklanders aged 15 to 25 experiencing "first episode" mental illness spent time at the house last year, often for two to three weeks at a time.

For acutely unwell young people, the therapeutic setting, specialist staff and focus on recovery was a quantum leap from the alternative of mixing with older adults in hospital-based units.

Mind Matters was the dream of Angela Paykell, driven by her son's experiences with mental health services in the 1990s; her husband David bought the Titirangi property.

It had its ups and downs in the early years under a private funding model, but it found its feet after the Waitemata and Auckland district health boards saw its value and began to fund beds for their clients. Waitemata paid for three beds, Auckland two.

The staff of eight included registered nurses, occupational therapists, social workers, and support workers. The emphasis was on recovery rather than respite. This made it a unique publicly-funded service for young people with mental illnesses.

But Waitemata grew concerned about the facility's distance from its North Shore clients and wanted Mind Matters to relocate. The trust board argued it needed to preserve its therapeutic location and last July Waitemata gave six months notice that funding would cease.

The trust board began to look for alternative funding sources. Bram Kukler, a consultant engaged by the board, says it explored a fee-paying model and offering the service nationwide.

"But we found that in the current environment it's not possible to do that without district health board backing.

"It's not do-able for mainstream New Zealand families to pay $550 a day for an average stay of three weeks - that's mortgage material."

Paykell, who chaired the board in its early years, resigned as patron on February 18, the day after the trust's house in Titirangi closed.

She does not accept that there were no alternatives. Nor do others who helped set up the house or who have since used its services.

When advised that the board was worried about going into deficit, she offered to take back the reins. Paykell says the trust attracted substantial donations each year and had significant reserves.

Options to diversify income included moving to a fee paying service, approaching health boards outside Auckland, or going national.

Last year, a new strategic plan was written and plans drawn up to market the centre to GPs and schools; but these were not implemented. She says there was a significant turnover of board members during 2009.

The centre manager, Christine Rigby, also departed. "[The closure] came as a bit of a shock - we had proved there was a need. It was upsetting for the staff and for the young people who go there."

Janet Peters, an adviser on mental health services, suspects the closure has more to do with a board getting out of its depth than the tight funding environment for community agencies.

"They spent thousands on reports to strengthen the trust then decided not to act on those. I can't understand why they took that route without talking to Angela Paykell or others," says Peters,

"They could have approached DHBs such as Counties Manukau and Bay of Plenty and Waikato. They could have looked at a half-private, half public model. It sounds like they panicked."

Robert Ford, Auckland DHB planning and funding manager, says the house's closure came "out of the blue".

"If they'd told us earlier they were having financial troubles we would have been happy to talk."

He concedes that Auckland wouldn't have been able to pick up all of Waitemata's funding.

Kukler, a former Waitemata mental health funding and planning manager, says the board did extensive work on alternatives. "We approached other DHBs but they are all in retrenchment mode. There's no new money going around. We did some work around marketing a fee for service model but found we were unlikely to get the volumes from a national marketing campaign to GPs and schools."

Board chairwoman Sue Copas says the board took the decision to be prudent about the trust's reserves (understood to be around $700,000) rather than run them down to zero while trying to attract new clients.

Copas is an engagement adviser with the Families Commission whose involvement with Mind Matters stems from her son's referral to the house when he was acutely unwell. "It was a very difficult decision for all of us personally and professionally."

She points out board members were volunteers. Mind Matters was a small organisation with limited capacity.

She and Kukler agree Mind Matters filled a large gap in youth mental health services. They hope it may be possible to persuade other district health boards to support "a sustainable service which may or may not be in Titirangi." But despite informal discussions with Counties Manukau, there is no lifeline in sight.