This is the on-the-record part of a briefing which began off-the-record and was offered by Mr English in response to a Herald editorial on 13 October headed 'Voters should have been told of reform'
Read the editorial here
The key point in the off-the-record part of the briefing was that the Government wants to change the way it delivers social housing support from the provision of houses to the provision of housing subsidies - specifically the Income-Related Rental Subsidy (IRRS), which allows tenants to pay rent fixed at 25% of their income and pays their landlord the difference between this and "market rent" (currently taken to be the average lower-quartile rent in the neighbourhood).
Registered Community Housing Providers (CHP) have been able to access the IRRS for new tenants who have taken up tenancies since 14 April 2014.
So far only about 50 CHP tenants are receiving the IRRS because CHPs have generally been applying for the subsidy only for tenants in CHP-owned houses.
But Mr English said CHPs were free to apply for the subsidy for tenants in any house - i.e. a CHP could rent a house from a private landlord, put in a tenant with a housing need that qualifies them for social housing, and then get the IRRS for that tenant so they would only need to pay rent at 25% of their income.
He said he wanted tenants to have a choice of "2 million houses", not just the 68,125 Housing NZ houses as at 30 Sept 2014.
Herald journalists present at the briefing were Herald editor-in-chief Tim Murphy, chief leader-writer John Roughan, social issues reporter Simon Collins and Auckland Council reporter Bernard Orsman.
Mr English spoke to a diagram showing the choice that tenants now have between Housing NZ and CHPs.
English: This here [pointing to HNZ on the diagram] has become a pool of long-term dependency. You get in and you stay in so you don't move out. So it's creating large future liabilities, having them in here. If you go back to the original report in 2010, their big thing was about mobility, so how you meet serious housing needs but enable people to keep moving back up the ladder to independence. And Housing Corp doesn't, and it costs us a hell of a lot more than the housing subsidies.
So if you're a sickness beneficiary, and you get in here because you meet the various criteria, and you have undiagnosed or untreated depression, no one ever came and knocked on your door and said, 'How are you getting on, maybe you could work now.' Ten years later you're on the invalid's benefit, and you leave the invalid's benefit when you die or turn 65 (those are the main exits), and if you are in a Housing Corp house you never move out of there, you are there for 30 years just because we stuffed it up in the first 12 months and didn't do something about it. So that's where the cost is. The cost of failure is tenants building up very long-term costs which are absolutely avoidable. If we break out of this kind of sacred-cow stuff, which is that you have got to own the house - I don't care about owning the house, because the cost of owning the house is that you have destroyed the lives of thousands of people, and that matters to us.
Q. In the new ministerial structure, are you responsible just for Housing NZ?
English: Paula [Bennett] is the one at the top [the top of the diagram, which shows tenants at the top with a choice of landlords at the bottom] - she is called the Minister of Social Housing, which is essentially the purchase minister, she's responsible for getting everybody a house. She's going to be responsible for this, and I'm just going to do the kind of asset/financial side of it so it doesn't confuse everybody.
Q. Like the Minister of State Owned Enterprises?
English: Sort of the SOE Minister, yes. She's got her head around all that stuff, she helped set it up. And then Nick [Smith, who remains Minister of Housing] is the regulatory guy, so he's working the rules for all housing.
Q. Why have you decided to sell perhaps 20% of state houses?
English: We haven't decided to sell 20% of them.
Q. How will you decide which state houses to sell - will they be in areas of low demand such as Wanganui or in areas of high demand such as Auckland?
English: Don't know yet. There area number [of sales] going on now, in low-demand areas there's sales to individuals. That's about 300-and-something last year. So there are areas where people are paying market rent, why would you own a state house? They are better owners of them than we are. So that will pick up a bit. It will be both [high- demand and low-demand areas].
Q. Who will be eligible to buy them? You've said they don't have to be non-profits, but what about iwi, as in Weymouth, and private developers on condition that they sell some houses back to social housing providers, as in Tamaki? [English had already said in the off-the-record briefing that buyers would not have to be not-for-profit entities]
English: This is a nonsense discussion. This is all focused on buying and selling the houses, but the main thing is what's going to happen to the people. Are we getting houses that are going to meet the needs of our customers? We have customers, not just houses. These customers are people with kids, with illness, with mental illness, no jobs, never worked, beaten up, right - we have customers. These people matter to us, and we are going to get better housing for them and also better opportunities. Our job is we are paid for people who are utterly dependent on us to get a roof over their heads. So when we are selling a house, it's not greed, it's to get all better houses instead of treating them like shit, which is what's happened with Governments and state housing for years. It was worst under the last Labour Government, absolutely the worst, because they were totally focused on the houses. So it's not greed and it's not right-wing extremism, it's recognizing that the people working in the rain in Auckland the other day pay us $200 a week in PAYE, that's why we have $17 billion worth of houses - not the generosity of the Government but the generosity of your readers, and we are wasting billions in that system, in an economic sense but certainly in a personal sense we are not helping the people who need it.
Q. What will be the criteria for people who buy state houses?
English: If you are selling to a Community Housing Provider (CHP), they have got to be registered. Actually no, that's not quite correct - we can sell to anybody, in that sense we haven't established criteria about sales, we are working through how all that might work, so we wouldn't want to get ahead of ourselves. To get the income stream you have to get the Income-Related Rental Subsidy (IRRS), that's the housing subsidy. You have to be two things: One is that you have to be the person who needs it, number 1, and number 2, they can only take it[the subsidy] to a CHP, and then sales will be there. We can sell to people who want to get into that market. All of this is uncertain. We've got all the other bits in place but the market bit we are working on. We will just go to the market and see who turns up, basically.
Q. You said [in the off-record briefing] that consortiums will need to have financial expertise. Will they also need to have a non-profit player?
English: Possible. We might do that. But the priority thing is that they can carry out the functions. If Todds [Property] turn up and say we want to buy some of them, we might say, 'Well, hang on, they have people in them, what are you going to do about that?' And most of the people who have shown an interest - generally, particularly financiers and developers are not interested in this social housing because it's hard. What drives their interest [for those who are interested] is wanting to do a better job with the tenants - you know, wraparound services or whatever. So it's all a bit open-ended.
Q. Will the buyers be required to maintain at least the current number of social housing units?
English: Don't know the answer to that. Remember we don't - in the long term it doesn't matter how many houses they own, because that doesn't determine our ability to meet the needs of the people. Ideally we want 100,000 community houses out there from which we can pick, or 500,000 from which we can pick. Because the stuff that matters is:
• Are they close to their mother?
• If their aunty is the one who gets them out of bed in the morning, why do we put them on the other side of Auckland?
• If their kids are in school, why don't we give them the house close to the school, instead of making them all shift over there and leave the guy who beat them up in the house they were in close to the school?
So it's all that kind of intangible value that the system takes no account of. So on a lot of this stuff we haven't got the answers specifically to the questions because we haven't finalized all that. But we would prefer to be as unconstrained as possible around buildings, so that we can be as unconstrained as possible around choices for tenants. As soon as you start saying you are restricted to this, and it's got to be you and it's got to be that, you are putting the politics ahead of the tenants. What we want is the most choice for the most tenants to get the best job.
Q. Community housing groups say they can't afford to pay a full market price for any property, even with the IRRS which tops up their incomes to market rents, because even market rents do not currently provide a commercial rate of return on current land values (i.e. land values are based on expected capital gain as well as rental income, but a community provider that intends to hold a property indefinitely will never benefit from the capital gain). They therefore want to either (a) buy the houses at a discounted rate based on their actual expected income stream, or (b) acquire the houses for zero upfront cost with payment deferred for 10 or 20 years, or (c) pay full market price but continue to receive capital grants from the Government for new housing. What do you think of these options?
English: That is exactly the process we are going through. I wouldn't want to prejudge where that will go because we are all guessing, because we haven't actually been to an open market. So I had exactly this discussion in the last week with officials and I said to them, 'We all think we know what will happen, but let's find out what will actually happen.' So you actually have to go to the market to actually start finding out what the price really is.
Q. So you will put a house up for sale and see what you get?
English: Yes, that's right. What it will do is it will throw up all the issues. They [buyers] will say, 'How do I know I'm going to get tenants?' You see, Housing Corp know they are a monopoly and there is a queue, so their problem is too many tenants, and what we want to do is create a market where people need to get tenants so they are offering us better conditions and better prices.
Q. If I own an investment property, can I choose the tenant who comes into my property with an IRRS?
English: That's a very good point and the MSD [Ministry of Social Development] people are working through that right now. This is on a level of sophistication the public sector hasn't dealt with before. Fundamentally we'd prefer the tenant to have a choice and it may be that providers might say, 'I want the easy ones, not the hard ones, OK?' Well, there's a lot of easy ones, actually, a lot of them are single women aged 50, they don't wreck the place actually. You know, the sterotype is built off a few bikie gangs.
Q. What are you going to do with the proceeds from the sale of state houses?
English: Haven't decided. I mean, if we want less stock, there's not much point in rebuilding stock with it. So it might go into other forms of housing support or whatever. Some of it could go into the Consolidated Account. We haven't made a decision about that. Buit we are moving away from the model of being obliged to maintain the number of state houses, because that question is premised on the idea that we must have 60,000 houses. No we mustn't, actually. We must do something about the 6000 people in the queue [the waiting list of 5599 people as at 30 Sept 2014]. That's what we must do, and we'll deploy the proceeds accordingly. People are much more worried about the number of houses than the people in the queue. We are just going to keep on that debate until we change it. You should be kicking our arse over who's in the queue. Instead you guys are spending the next six months kicking our arse over how many houses we own.
Q. I don't think that's true.
English: It is, that's the story he will write. It's for the next three months: how many houses are we selling, and what greedy developers are going to get hold of them.
Q. And is the money going back to your budget!
English: And is the money going back to my budget! Well we've got 5000 people living in bloody garages and you are going to try and get the public to stop us helping them, because you're going to say the houses matter the most. And the property-developing Herald, we are going to be running against the property-developing Herald until we crack this, just like we're running against the speculator Council. You know, you have your conspiracy theories. So Auckland Council props up property values, and your advertisers clip the ticket on them. And we want to change that.
Q. As long as you have 5000 on the waiting list, surely you don't want to reduce the number of social houses?
English: No. That's a very good question. The key to where you should be kicking our arse is how many IRRSs are we willing to pay for. At the moment the number is limited by the number of state houses. In the last Budget we put in an extra number to sort of oil the wheels, I think it was 500, I'd have to go back and check. So the real issue is: are we willing to pay more for more because there are people in the queue? And the answer to that is: yep, there's no reason why not. Although we would want to make sure that everyone who's in a state house needs to be there, and that's what the reviewable tenancies are about. We have got people in here, 4000 of them, paying market rent, and that matters because of the general supply constraint. So here's the sequence, and we want to test it in reality. So you say, OK, we're going to have 500 new IRRSs at $12,000 each, say 1000 of them, that's $12 million, so that's not hard. Then the market will say, 'Well, where the hell are the houses?' They'll say, 'Well, Housing Corp's full, South Auckland's full, West Auckland's full. What about Special Housing Areas, why don't we get some new houses going there because we need them?' OK, so you have an interest there, so I can say, 'We just spent another $100 million on IRRSs, but there's nowhere to put the people, and it would take forever for Housing Coro to build, look how long it's taken them to build 200 in Tamaki, so we can't build them fast enough.'
Q. So are you going to contract with people to build more houses?
English: Well, we'll see what the market produces. We'll find out. We may end up doing that. Ideally we'd go out and we'd say, 'Here's a bunch of tenants.' And what will happen is people will come to us, and some of the groups we've talked to, and they'll say, 'You sell us 200 houses with 200 tenants in them, give us their IRRs, give us a bit of a discount, we've got a bit of capital as well that we could put in, and we could redevelop that into 500 houses., and you decide whether you want all 500 or just the 200 you've still got.' And they can redevelop, sell off 200 houses, and then, because they're in the middle of Tamaki, go and buy 200 in Henderson or one of the Special Housing Areas or something. There's endless possibilities there. We just want a normal supply function to operate.
Q. Have you asked Housing NZ to put some of its housing development plans on hold pending your decisions about selling some of their assets and requiring them to compete for new social housing contracts?
English: No. They are rethinking their asset management strategy. We probably wouldn't stop them. We need a lot of people doing a lot of things to execute this change. We can't do 200 houses at a time because we have got thousands of people, so my inclination is to have as many people transacting as possible. But it's got to be coherent across government, we've got a bit of work to do yet.
Q. But if Housing NZ wants to develop some land, and you're planning to sell it off....
English: We are not going to be cutting it out from under them. We have yet to have that discussion, I've only had this job for a week. We have got to do 'both-and', so we need them going much faster, and we need other people going much faster.
Q. This looks as if it's going to take a long time?
English: Ten years. We don't have the capacity to do anything like 20% [immediately], partly because all those uncertainties need to be resolved. It will probably take a couple of years to sort through those issues. We'll do transactions, but they will probably keep throwing up different issues. It's a long process.