Maligned board hits back over Kāinga Ora report

Kāinga Ora’s board of directors told former Prime Minister Sir Bill English and his reviewers they had the wrong end of multiple sticks before his slim, 37-page report condemning the agency’s performance and governance was issued.

It emerged on Newshub on Tuesday that English was effectively appointed to the role chairing the review in a text message exchange with Housing Minister Chris Bishop before the Cabinet approved the inquiry

The much-maligned board’s views on the draft review have also been released under the Official Information Act.

English’s review faulted Kāinga Ora for its borrowing and spending, tenancy and maintenance services, construction deals and relationships with builders and alternative social housing providers, and the board for governing with insufficient financial information. His review recommended removing the housing funding function to the overseeing Ministry of Housing and Urban Development (HUD) and splitting social housing into at least five Crown companies around the country.

Before the review was handed to the Government, which published it last week, a draft was given to Kāinga Ora for comment. Its response was not issued by Bishop in a vast file of background documents but emerged on Tuesday after an OIA application.

Also issued was an exchange of chummy, informal text messages between Bishop and English, in which English offered to help on the review.

“Excellent, let’s do that,” replied Bishop on November 29.

English: “I will help if it’s a short sharp review. No public submissions or field trips.”

Bishop replied: “Definitely not. Three people. You and two others… HUD and Trsry to provide secretariat. No involvement of KO. Independent.”

Labour has since seized on that “no involvement of KO” to say Bishop had a set agenda against the housing agency and says the subsequent Kāinga Ora feedback was ignored.

English and the other reviewers, businessman Simon Allen and urban development expert Ceinwen McNeil, have been paid $274,000 so far of $500,000 allocated by the Cabinet in December for the inquiry. That sum was taken from a HUD budget line for provision of transitional housing for those in urgent need of accommodation.

Once the English review was ready in draft, it went to Kāinga Ora, who replied in mid-April, before English submitted it to Bishop four days later.

The Kāinga Ora paper begins with the acting board chairman, John Duncan, saying the directors were “broadly comfortable” with English’s recommendations on the wider social housing system, including having HUD as a single funder.

But it takes detailed issue with assumptions and comments in the draft on Kāinga Ora’s finances, including correcting the review repeatedly on the sources of funding and responsibility of other agencies for programmes and costs in the system.

And it notes the limited engagement between reviewers and Kāinga Ora, with “some conclusions appearing to be informed by analysis based on anecdotes.”

The 10-pages of feedback contains three pages of “factual errors”.

And it challenges English to omit from his review an appendix of feedback the reviewers heard in meetings within the sector – which ended up remaining in the report, but with a note that the claims had not been verified.

That appendix, including anonymous comments about the board’s own performance, its relationship with the chief executive Andrew McKenzie and Kāinga Ora’s maintenance, finances, costs and relationships, is described by the board as inappropriate and containing errors and omissions.

It had not undergone checking with sufficient rigour, the board feedback says.

More specifically, Kāinga Ora tells English his draft review confused the agency’s funding (from the Government through its income-related rent subsidy) with its financing costs (its borrowing to build houses). 

“Page 18 of the report refers to a total forecast cash cost to the Crown of $21b over four years which includes all Kāinga Ora cash spend, including capital and operational, and that this is the ‘most accurate way of measuring the cost of social housing’. This logic is flawed as it is double counting by adding the funding cost and financing cost:
– The Crown pays Kāinga Ora IRRS rents of ~$1.5b per year (in today’s dollars)
– The Crown also lends Kāinga Ora money to meet its capital costs, and receives interest payments from Kāinga Ora. The Crown in turn borrow that money from debt markets, with their interest costs more than met by Kāinga Ora. This element of the model has no cost to the Crown
– The only cost to the Crown is the commitment to pay IRRS rents and OS.”

It also alleges his review failed to understand the Ministry of Social Development was responsible for Māori housing provision, and did not understand why private developers’ land costs could be lower, not having to redevelop existing sites.

On Kāinga Ora’s financial performance, the feedback document sums up: “Concluding Kāinga Ora is not financially sustainable fails to recognise that we retain a strong balance sheet, with fungible assets and very strong current and projected rental flows. Our longer-term financial modelling demonstrates the situation improves dramatically.

“Given the savings we are beginning to achieve, the Kāinga Ora Board believes the organisation is financially sustainable. However, to continue growth in new social housing will require changes to the funding and financing model to better reflect current market conditions.”

The agency tells English it requested a finance and funding review led by Treasury and HUD and approved by former finance minister Grant Robertson in 2022, and believes the overall funding system needs further attention.

“The review appears to conflate concerns about the performance of the social housing system with Kāinga Ora performance. The review should accurately identify the system changes that are required so that those that sit outside the Kāinga Ora mandate can be addressed by the correct system player.”

And the Kāinga Ora feedback challenged a focus in the review, amplified by both Bishop and Prime Minister Christopher Luxon when releasing it, that the board had incomplete financial information before it at a crucial directors’ meeting.

“While recent budgets did not include a full forecast balance sheet, they do extensively traverse balance sheet implications and risks. We also provide a long-term outlook based on a 60-year model that helps contextualise the longer-term implication of decisions and investments – which is key for a long-term asset owner.

“In addition, the board does sign off the budget balance sheet through the SPE process, and did so at the same board meeting in which the budget was agreed.”

Kāinga Ora also challenges the politicians’ claims its board was simply assuming continued Government funding and access to borrowing. “This is not the case. The budget assumes funding for additional social housing concludes at the end of the approved Public Housing Plan [2025].”

Bishop announced the Government had agreed to English’s recommendation to refresh the board, appointing former Spark chief executive Simon Moutter as chair.  It was also stopping funding any additional social housing through Kāinga Ora.

A report to the Cabinet on other recommendations, such as setting HUD as the single funding authority, and establishing contestability between a much smaller Kāinga Ora and new community housing associations based regionally, would follow from July.  The new Kāinga Ora chair must provide a detailed “and credible” financial operating plan to the Government by November.

Labour’s housing spokesperson Kieran McAnulty says: “The review was submitted to the Government only four days after Kainga Ora’s response, and no changes appear to have been made as a result. 

“It was misleading of the minister to tell Cabinet that there was broad support for the review within Kainga Ora when their response clearly shows that was the opposite.”

It had shown serious and credible errors and wrong assumptions, McAnulty said.