Wellington City Council is considering establishing a Community Housing Provider (CHP) to get its social housing arm out of financial strife.
Meeting documents reveal council officials are recommending this option as the future of City Housing, which has 1927 properties and 3200 tenants.
It's forecast to be insolvent by June 2023.
Meanwhile, a special purpose vehicle is also being considered to sit alongside the CHP to fund a looming upgrade programme.
But social housing portfolio leader councillor Fleur Fitzsimons is skeptical and said she did not support any model that gave council less control over making sure rents are affordable.
Council papers on the matter were scheduled to be released earlier this month and discussed at a subsequent meeting.
They were then pulled at the last minute until after Budget 2021 was announced.
It's understood this was in case there was any last minute deal-making on councils gaining access to something called the Income Related Rent Subsidy (IRRS) scheme.
Under the scheme low-income tenants pay no more than 25 per cent of their income on rent.
At the moment, the IRRS is only available for new tenants going into Kāinga Ora or CHP social housing. Councils do not have direct access to it.
If City Housing was eligible for the subsidy, it would have an operating surplus of $5m instead of a deficit of $6m.
For tenants, it would make a significant difference to rental affordability as the majority of them pay more than 25 per cent of their income in rent. As many as three quarters pay more than 35 per cent.
But it turned out there was nothing in the Government's budget to help the council with its $400 million social housing dilemma.
So, council officials have now recommended a CHP be established to provide tenancy management services and access to the IRRS.
Fitzsimons said it was "obviously disappointing" the council still didn't have access to the subsidy and the case must continue to be made to the Government.
Labour has previously said on the issue that its focus has been on increasing public housing supply when considering more housing funding, including increased supply from CHPs.
Meanwhile, council officials have also recommended establishing a sustainable funding model to raise money more easily for capital costs like housing upgrades and asset maintenance requirements.
This could be a special purpose vehicle, an off-balance sheet financing tool, that would sit alongside the CHP.
In 2007 the council signed a Deed of Grant with the Government agreeing to a $400m upgrade programme for the City Housing portfolio.
It also committed the council to remain as a social housing provider until at least 2037.
The Government agreed to fund the first half of the upgrades, $220m, and the council agreed to meet the cost of the second half, $180m.
But the first upgrades actually cost $69.5m more than what was estimated, which was paid for from City Housing's dwindling cash reserves.
On top of this, the estimated cost of the second tranche of upgrades has now blown out to $286m.
Things like increasing construction and insurance costs have contributed to this.
These upgrades, plus routine asset maintenance and renewals, amount to $446m over the next ten years.
The changes being proposed would involve a renegotiation of the Deed of Grant.
Fitzsimons said she was sceptical about establishing a CHP because there were a number of unanswered questions, including whether the Government would agree to amend the Deed.
"I don't support the council having less control over important matters like making sure rents are affordable and that we building a strong community within social housing in Wellington."
City Housing's financial situation is no quick fix- the lead-in time to establish a CHP can be as long as three years.
So it's also being recommended the council funds the first three years of City Housing in the Long Term Plan through debt and the last of the cash reserves.
This will allow time to establish any alternative funding arrangements, which would be confirmed when the Long Term Plan is next due for review or as an amendment.
The rest of the operating and capital costs for City Housing are also accounted for in the 10-year budget from years four to 10, despite officials considering these debt-funded costs as unaffordable.
These costs were previously omitted, but the council received a qualified audit opinion which said the council couldn't leave out $402 worth of costs on the basis of being in a conversation with the Government about a solution.
Now that the total costs are technically funded to satisfy Audit NZ, Fitzsimons said she has reconsidered whether the council should be taking a special purpose vehicle further.
"There is a strong case for just getting on with the much-needed renewals and upgrades to the homes.
"In my view the council must build mixed communities across the city and ensure that rental income for those who can most afford it subsidises those who can least afford it. This is the pathway to financial sustainability and meeting the high demand for social and affordable rentals in Wellington."
The recommendations will be discussed at the new Social, Cultural, and Economic Committee on June 2.
Councillors will soon relinquish their portfolios as part of a new governance structure at the council.
Social, Cultural, and Economic Committee chairwoman councillor Jill Day will be the new spokesperson on social housing issues.
She said City Housing tenants knew and trusted the council as a responsible landlord.
"This is an important consideration in any decisions about the future model for City Housing.
"I would need some convincing that a CHP would be able to provide the same level of oversight by democratically elected councillors who are responsible to all residents."