Wellington city councillors are being careful not to back themselves into a corner over a subsidy for its bleeding social housing arm.
Councillor Fleur Fitzsimons has suggested that means exploring ideas for mixed tenure developments where social housing tenants, low income earners, and those paid above the average wage could all live in the same complex.
The council is currently exploring two options in parallel to solve City Housing's bleak financial trajectory of becoming insolvent by June 2023.
There are live discussions with the Government about the council gaining access to the Income Related Rent Subsidy (IRRS), which would turn City Housing's operating deficit into a surplus.
The second option under consideration is creating a Community Housing Provider (CHP) to look after the council's portfolio.
The subsidy is currently only available for new tenants going into Kāinga Ora or Community Housing Provider (CHP) social housing.
Councillors considered progress on these two options at a Social, Cultural and Economic Committee meeting today.
Under the IRRS, low-income tenants pay no more than 25 per cent of their income on rent. As many as three-quarters of City Housing tenants pay more than 35 per cent of their income on rent.
Councillor Rebecca Matthews said the council shouldn't have to change the structure of City Housing to access the subsidy.
But she also said: "we have to be very careful not to back ourselves into a corner."
"I really don't want people to be alarmed about a CHP- if that's what we have to do, we will do it."
Councillor Jenny Condie said it wasn't fair City Housing tenants didn't have access to the IRRS.
"We need to get them access to it", she said. Condie described a CHP as a "plan B" for doing that.
Committee chairwoman councillor Jill Day said the IRRS was clearly a big part of the council's solution.
But she stressed it shouldn't be seen as the only solution, because it did not address the need for more housing supply.
It's becoming increasingly clear that a plan for more supply will be critical to getting any help from the Government.
An amendment was successfully introduced by councillor Fleur Fitzsimons agreeing that council officials would provide advice on mixed tenure developments late next month.
"We need to raise our sights above the financial survival of City Housing", she said.
Mixed tenure would mean social housing tenants, low-income workers, and those paid above the average wage living in the same complex, she said.
"If we do this right we can cross-subsidise internally and make City Housing sustainable in the future."
Housing Minister Megan Woods said the estimated cost to extending IRRS to the council was about $50m over four years- a revision of $100 million, which was a preliminary estimate.
She noted council tenants were already housed.
"Diverting IRRS funding from our current pipeline to existing council places would mean that we could not deliver all of the new public housing places under the Public Housing Plan and move people who are in need of public housing, off the housing register and into homes."
But Woods didn't rule out extending access to the IRRS. She said she would not be pre-determining the outcome of work underway with the council regarding its housing challenges.
Mayor Andy Foster said he expected options being worked through with Ministry of Housing and Urban Development officials to be finalised by December.
City Housing was effectively bleeding $30,000 for every day spent finding a solution, he said.
Council officials' preferred CHP model is for council to own the housing assets and lease them to an independent charitable trust. Council would maintain influence through a minority representation on the Board.
Officials have also recommended a capital injection of between $20-50 million to set up a CHP.
Consultation on any move would be a part of next year's annual plan.
It would take 12-18 months of work to get a new CHP operational, the same amount of time needed for legislative change to extend the IRRS to councils.
The only other viable options the council has are to divest the assets, or fund the shortfall through rates or debt.
The equivalent rates increase needed would be a 7 per cent increase year-on-year for the next 10 years.
Officials have advised this would not improve tenant wellbeing and would not adequately manage the costs of housing alongside other financial pressures the council has.
Meanwhile, the council also signed a Deed of Grant with the Crown in 2007 agreeing to a $400m upgrade programme for the City Housing portfolio, which was effectively a Government bailout.
But that upgrade has cost more than first thought. The first half went over budget and now the second half, which is meant to get underway next year, is more expensive than first thought too.
The estimated cost for the second half has increased from $180 million to $286 million, however, this was calculated in 2020 so actual costs are likely to be even higher.
Council officials' default position is that the council would borrow directly for the upgrade programme.
But if a workable option could be developed for an off-balance sheet solution by enabling the CHP to borrow outside of the council's constraints and credit rating considerations, this would be preferable.