Wellington Mayor Tory Whanau's long-term plan fulfils a 2007 housing deal the city council made with Helen Clark's Government. Composite Photo / NZME
Senior journalist Georgina Campbell’s A Capital Letter column takes a deeper look at issues in Wellington, where she is based. Georgina has a particular interest in local government, transport, and seismic issues. She joined the Herald in 2019 after working as a broadcast journalist.
ANALYSIS
Wellington City Council is spending more than half a billion dollars on upgrading its social housing portfolio to fulfil a 2007 deal with Helen Clark’s Labour Government.
The council owns 1931 social housing units across the city. Many of these properties were built in the 1960s and 1970s and no longer meet the needs of tenants.
Almost 20 years ago, the council acknowledged the units were nearing the end of their useful life but said the cost of upgrading them was too great for ratepayers alone.
So, in 2007, the council struck a deal with the then-Government.
Housing Minister Chris Carter announced the Government would give $220 million to the council over 10 to 15 years to significantly upgrade Wellington’s ageing social housing stock.
“In return, the council has agreed to reinvest rental income back into its housing business, fund all other replacement and renewal costs for its housing, improve its tenancy management, and remain in social housing for 30 years at current service levels,” Carter said.
The “unprecedented” deal would improve the quality of life of some 4000 tenants, he said.
Carter described the existing units as small, cold, noisy and poorly configured for modern living.
At the time then-Wellington Mayor Kerry Prendergast issued a press release welcoming the decision.
The deal would help the council with building code compliance including seismic strengthening, and improving insulation and ventilation, she said.
Issues around tenant safety and security would also be addressed.
“We will also be able to upgrade basic kitchen and bathroom amenities, enhance our existing community facilities, and importantly, reconfigure many of our bedsits into larger accommodation,” Prendergast said.
The government cash injection was enough to upgrade roughly half of the council’s housing portfolio and that work was done over the next decade.
It was always intended that the council would upgrade the remaining portfolio after that work was completed. At the time of the deal, this was estimated to cost the council $180m.
The problem was that by 2020, the council’s share had escalated to $286m.
Then the Covid-19 pandemic came along and the cost blew out again against a backdrop of a “white hot” construction market. With detailed design work now undertaken, the cost is nearly $593m over the next 10 years.
In comparison, in the same long-term plan, $104m has been earmarked to complete the new Te Matapihi Central Library, $1.1 billion has been set aside for the transport network, and there’s $1.8b for water pipes.
The Ministry of Housing and Urban Development is in charge of monitoring the deed and making sure the agreement is fulfilled.
Parts of the deed haven’t quite worked out as intended such as the agreement to reinvest rental income.
It might have been thought the council could charge a higher rent for those upgraded properties, which would generate income to help pay to upgrade the other half of the portfolio.
However, the council also has a rental policy with several subsidies to make accommodation affordable for tenants in genuine hardship.
As it turned out, rents set at 70 per cent of the market rate didn’t fully cover operating costs, let alone upgrades.
By 2021, there were warnings that the council’s social housing arm would be insolvent by June 2023 if nothing changed - a reality that called into question whether the council should be a provider.
City Housing’s annual operating deficit was forecast to be $8.7m in the first year of that council’s draft long-term plan and was set to increase further over the ensuing decade.
There were cash reserves of $50.6m, allowing the council to complete Healthy Homes upgrade requirements and meet the operating deficit and basic asset renewals for two financial years.
From then on the council’s draft budget provided for the operating deficit to be debt-funded until a sustainable solution was agreed on.
The situation was not helped by council tenants being ineligible for the Income Related Rent Subsidy scheme.
The subsidy means low-income tenants will pay no more than 25% of their income on rent, with the Government paying the difference between that and market prices.
It was only available for new tenants in Kāinga Ora or Community Housing Provider social housing.
The council decided to establish a Community Housing Provider, which would allow new eligible tenants to access the government subsidy.
As of August 2023, the council leased almost 1800 properties in its City Housing portfolio to Te Toi Mahana.
Te Toi Mahana is now responsible for running and providing tenancy management for those properties and about 3000 tenants.
As part of the deal, the council has gifted 34 social housing units to Te Toi Mahana and $23m to help it build new social housing
The council retains ownership of the majority of the portfolio and the trust operates it.
It’s hoped that after upgrading the second half of the social housing portfolio, it will be fit for purpose for many years to come and tenants will finally get the warm, affordable, and modern homes they deserve.