Wellington City Council is considering selling 20 social housing properties so its cash-strapped City Housing arm can pay for redevelopment commitments.
The properties are among 204 units council officers have decided do not meet criteria for retention or redevelopment. They are also destined for the chopping block in the coming years.
But the situation has prompted a rethink of how City Housing is funded, including reaching into ratepayers' pockets.
Wellington City Council has already spent the $220 million it received from the Government in 2008 as part of a 20-year deal to upgrade its social housing stock.
That money ended up being enough to upgrade half of the portfolio.
It was initially thought the council would invest additional money from its rental income.
But rising costs through the likes of insurance and a volatile construction industry has left the upgrade project short.
The proceeds from the sale of the 20 properties are earmarked for the development of social housing on Nairn St.
The site was vacated in May 2017 after an assessment found the building could pose a risk to life in a moderate earthquake.
Tenants were relocated in alternative properties within the city council portfolio and the building was demolished.
The two plots on Nairn St have now been cleared while options are assessed for the redevelopment.
Social Housing and Housing Partnerships portfolio leader councillor Fleur Fitzsimons said selling existing assets was not her preferred approach to investing in social housing rebuilds.
"I think we need to take a very cautious approach before making any decisions to sell properties and that means a case-by-case approach to assess whether the asset is of strategic value, or whether it makes more sense to sell it and use the proceeds to invest in housing redevelopments within the City Housing portfolio."
Fitzsimons said the City Housing model needed a fundamental rethink.
"Many residents already think the council does provide some rates funding to City Housing, but actually there is none and in fact, City Housing itself pays rates to the council."
The council owns more than 2000 units across its portfolio, which house about 3500 residents.
Officers have already indicated the financial sustainability issues to councillors.
Earlier this year Fitzsimons asked for a report outlining potential solutions, which is underway.
She said that could be a mixed model of social, affordable and high-end market rentals within a much bigger City Housing portfolio that would wash its own face.
But she also wouldn't rule out rates funding of City Housing.
Under the original partnership deal with the Government, the council is legally bound to retain about the same social housing levels for the 20 years following.
Although divestment would temporarily reduce stock, some rebuilds will increase the number of social housing units from what was originally on site.
Kāinga Ora has first right of first refusal over the 20 properties, the list of which remains confidential.
Council spokesman Richard MacLean said they were then offered to previous owners or their descendents, then to iwi.
Only after that process would they be put on the open market.
MacLean said the council would work with tenants to find alternative housing and, where possible, rehouse them within the City Housing portfolio.
"If we are unable to do this, we will work with other social housing providers and agencies.
"We work with individual tenants to understand their current housing needs and the best options available to them."
MacLean confirmed tenants had been informed their properties are subject to a decision about divestment and would be kept updated throughout the process.
The proposal to deem the 20 properties surplus to operational requirements will be considered at a Wellington City Council Strategy and Policy Committee meeting on Thursday.