TOP’s Social Housing Policy

Part of TOP Policy #7 – Thriving Families is a reform of rental housing law. This part of the policy is called ‘Decent Housing for Decent People’. The main aim of this is to ensure that ordinary Kiwis can have a secure, affordable, warm and dry place to call home provided by the private sector rental market. This vision is totally achievable if investors in housing refocus away from speculation and toward getting the stable long-term returns offered by the rental market. That is where our TOP Policy #1 – Tax Reform will also play a role. It will directly hit the speculative demand for assets by halting the rise in prices.

Most people renting could benefit hugely from improved tenant protection within the rental market, as proposed by TOP Policy #7. However, there will always be a portion of society that simply cannot afford the market rental. Currently our Government helps these people in two ways:

1/ Accommodation Supplement. This is a subsidy paid to people renting with private landlords to ensure the cost of rent doesn’t become prohibitive. Effectively it subsidises private landlords and pushes up rents and house prices. This model is costly at $2b and needs reform, but that is another story.

2/ The provision of social housing; mostly through Housing NZ (93%) and the remainder through the community housing sector (including iwi and other charities). These providers all get payments to ensure that rents are at 25% of the tenant’s income (Income Related Rental Subsidy or IRRS). Some Councils also provide social housing, but the Government explicitly excludes them from receiving the IRRS. For that reason, Christchurch have transferred their stock into a community housing organisation.

The trouble is that the number of houses on offer has been stagnant for almost 3 decades, so in per head of population terms, provision of social housing has been falling. While ultimately the private market will answer most people’s accommodation needs, there will always be the need for a social housing sector. So how will this continue to grow with our population?

In an attempt to boost supply of social housing the Government has been trying to stimulate the supply from community housing providers. It has done this in two ways – offering the IRRS as security for them to undertake new builds, or by offering to sell Housing NZ stock at a reduced price. As predicted, this strategy appears to have failed because the social housing sector lacks the capital to make the most of either of these offers. As a result Housing New Zealand remains virtually the monopoly provider of social housing services. Government seems to have acknowledged this and is now asking Housing NZ to build more houses – financed via retaining any profit they have.

So there are two questions here. Firstly can the community housing sector do a better job than Housing NZ? And if so, how do we give them the boost they need?

Can the community housing sector do a better job?

Transfers of housing stock to the community sector have been widespread in Australia and the United Kingdom. While there is no evidence that the ‘increased competition’ leads to better value for money, there is evidence that the quality of the service improves.

There are a number of reasons why this is the case:

employees of the providers are free from government bureaucracy and are more innovative in how they operate;
when independent of government they can make plans for the long term rather than reacting to the latest government policy flip flops (e.g. how much profit politicians want to make from Housing NZ);
they are resident in the local area – so can be customised to the locality and its needs and drawing on the support and goodwill of the community;
they are not seen as part of government so their tenants are more willing to talk to them about their problems;
because of the above point they are far better able to be a ‘one stop shop’ for other social services to their tenants (such as ensuring they get the support they need, linking them with health, education etc), overcoming the ‘six cars in the driveway problem’.

A better service at the same cost? Empowering the local community? Seems like a good deal to us. So why don’t we get on with it? Seems like Labour and the Greens are addicted to big public sector provision via Housing NZ, and National are too tight to do what is needed.

What is the best way to kickstart the community housing sector?

A 2016 review suggested four ways to improve social housing in New Zealand. The first was to increase funding to Housing New Zealand, which has effectively been done by allowing them to retain profits for the forseeable future. However the other options remain on the table; providing capital subsidies for the voluntary sector, transferring stock to the voluntary sector, and developing a cost-based rental sector.

The advantage of transferring stock is that it would in reality be costless to the Government. If we accept that social housing will always be needed and can’t be flogged off to the private sector, and that Housing NZ is not likely to make a profit for the forseeable future, then the value of their assets is effectively zero. Why not put it in the hands of the community housing sector, and let them raise debt on that asset to fund more stock?

Some of course would claim that the community housing sector lacks the scale needed to do this at low cost, but that is the whole point of the stock transfer. In giving them housing stock you are capitalising an organisation that does have the expertise to make smart business decisions. They could use the equity tied up in that stock to borrow the money needed to build even more social housing. Economies of scale in the management of social housing only really exist at a local level, there isn’t any real reason to have one national provider.

Once the houses are built, the Government has already promised to pay for income related rents for tenants that fit the bill. Ultimately the aim should be to shift everyone that needs it into cost-based social housing, so we can cut the Accomodation Supplement bill and keep rents down.

There would certainly need to be greater regulation of the sector to accompany any stock transfer to ensure that these new social housing organisations didn’t rip people off. We’d also need to make sure they didn’t discriminate against tenants – religious organisations for example couldn’t force tenants to read the bible. However, with their newfound scale, such regulation facilitates good operation rather than being a burden. A cost-based social housing sector would be born.