Social, Community Development and Housing Committee

Supplementary Agenda

 

 

Notice of Meeting:

An ordinary meeting of the Social, Community Development and Housing Committee will be held on:

 

Date:                                     Wednesday 28 February 2018

Time:                                    1.30pm

Venue:                                 Council Chamber, Level 2, Civic Offices,
53 Hereford Street, Christchurch

 

 

Membership

Chairperson

Deputy Chairperson

Members

Councillor Phil Clearwater

Councillor Glenn Livingstone

Councillor Jimmy Chen

Councillor Anne Galloway

Councillor Yani Johanson

Councillor Aaron Keown

Councillor Tim Scandrett

 

 

27 February 2018

 

 

 

Principal Advisor

Mary Richardson

General Manager Citizen & Community

Tel: 941 8999

 

Liz Ryley

Committee Advisor

941 8153

liz.ryley@ccc.govt.nz

www.ccc.govt.nz

Note:  The reports contained within this agenda are for consideration and should not be construed as Council policy unless and until adopted.  If you require further information relating to any reports, please contact the person named on the report.
To view copies of Agendas and Minutes, visit:
https://www.ccc.govt.nz/the-council/meetings-agendas-and-minutes/

 


Social, Community Development and Housing Committee

28 February 2018

 

 


Social, Community Development and Housing Committee

28 February 2018

 

Part A        Matters Requiring a Council Decision

Part B         Reports for Information

Part C         Decisions Under Delegation

 

 

TABLE OF CONTENTS

 

C       18.     Resolution to Include Supplementary Reports............................................................. 4  

STAFF REPORTS

B       19.     Growing Social Housing.................................................................................................. 5  


Social, Community Development and Housing Committee

28 February 2018

 

 

18 Resolution to Include Supplementary Reports

1.       Background

1.1          Approval is sought to submit the following report to the Social, Community Development and Housing Committee meeting on 28 February 2018:

19.   Growing Social Housing

1.2          The reason, in terms of section 46A(7) of the Local Government Official Information and Meetings Act 1987, why the report was not included on the main agenda is that it was not available at the time the agenda was prepared.

1.3          It is appropriate that the Social, Community Development and Housing Committee receive the report at the current meeting.

2.       Recommendation

2.1          That the report be received and considered at the Social, Community Development and Housing Committee meeting on 28 February 2018.

19.   Growing Social Housing

 

 


Social, Community Development and Housing Committee

28 February 2018

 

 

19.    Growing Social Housing

Reference:

18/185037

Presenter(s):

Bruce Rendall, Head of Facilities, Property and Planning

 

 

1.   Purpose and Origin of Report

Purpose of Report

1.1       The purpose of this report is to present to the Social, Community Development and Housing Committee with a range of scenarios/ tools that will help increase or reintroduce the supply of social housing within Christchurch.

Origin of Report

1.2       This report is provided in response to the Housing Committee’s resolution HSTF/2017/00008.  The subcommittee requested “a report from the Head of Property covering the substance of the presentation and discussion and include recommendations to the 11 December 2017 meeting.

1.3       The presentation addressed a prior resolution of the Committee about “targets, scenarios to increase or reintroducing social housing stock, finance options and rates impact.”

2.   Significance

2.1.1   The decisions in this report are of low significance in relation to the Christchurch City Council’s Significance and Engagement Policy.

2.1.2   The level of significance was determined by Author

2.1.3   The community engagement and consultation outlined in this report reflect the assessment.

 

3.   Staff Recommendations

That the Social, Community Development and Housing Committee:

1.         Receive the Growing Social Housing report.

 

4.   Context/Background

Introduction

4.1       The Housing Subcommittee has asked for information about increasing or reintroducing social housing stock, including the finance options and rates impact.

4.2       The report does not address the question of “should Council increase or replace lost social housing stock?”  Council’s current policy settings– specifically the Housing Policy 2016 and Social Housing Strategy 2007 - provide for this in a general sense.  Additionally, no Christchurch City Council target is proposed as there is no certainty that Council can replace lost stock or grow its stock without either a change in Council policy regarding rates funding or the successful achievement of the majority aims outlined in this report.

Background

4.3       Council has a vision for housing in Christchurch:

That all people in Christchurch have access to housing that is secure, safe, affordable, warm and dry.

We want a city where anyone who wants to be housed can be. As a basic human right, we recognise that good, adequate housing is the building block of individual wellbeing and strong communities, ensuring that all our citizens can be all that they wish to be.

Housing Policy, 2016

4.4       Council has multiple avenues in meeting this vision, with one of these roles being the provision of social housing.  Council’s definition of social housing is:

Not-for-profit housing programmes that are supported and/or delivered by central or local government, or community housing providers, to help low income households and other disadvantaged groups to access appropriate, secure and affordable housing (on the Housing Continuum, includes Emergency Housing and Supported Rental).

Housing Policy, 2016

4.5       Council has been providing affordable accommodation to low-income residents of Christchurch for almost 80 years, being a pioneer of social housing in New Zealand. The first units were built in 1938 – 16 pensioner units in Sydenham.  Today it owns 2478 units, located across the city and on Banks Peninsula, which makes it one of New Zealand’s largest owners of social housing.

4.6       While there is no legislative requirements for providing social housing, Council’s role in provision is justified as it enables community outcomes, is consistent with its strategic directions, and is supported by appropriate policy validation. 

4.7       As a result of earthquakes in 2010 and 2011, Council lost many units, resulting in a current position of 366 units (including some still to be demolished) less than before the earthquake.  Council’s insurance payout was insufficient to fund the repair and replacement of all units.  In line with Council’s current policy settings, priority has been given to repairing rather than replacing destroyed units.

Demand

4.8       Council staff have undertaken some preliminary consideration of demand for new social housing over a ten-year period. 

4.9       Estimating the demand for additional social housing units comes from two sources: MBIE's Housing Market Assessment (Ian Livingstone, 2013), and the Salvation Army's 'Taking Stock' (Alan Johnson, 2017) report. The MBIE estimate (defined as 'other need', i.e. social housing, however provided plus emergency and homeless) is for 2,950 additional units from 2011 to 2031, i.e. 148 per year, principally based on Census and HES data.  Using the current proportion of social housing as a target, Council could aim to meet 30% of demand or 44 units per year.

4.10    The Salvation Army estimate is for 2,000 to 2,500 additional social housing units nationally per year for the next decade, principally based on an increasing number of retired renters who would struggle in the private market.  Taking a mid-point of 2,250 units with Christchurch at 8% of the population and Council again at 30% of the extra demand means 54 units per year.

4.11    Taking these two assessments into account it would be reasonable to propose a figure of 50 units per year as demand for new social housing in Christchurch. 

4.12    The Ministry of Social Development contains a register of those waiting for social housing.  According to this register, there are 458 people on the register in Christchurch City as at September 2017. 

4.13    Looking at supply and demand over a ten-year period with Christchurch City Council keeping a 30% share of the market (providing that the rest of the market responds to the gap between supply and demand) gives us an estimated 500 units to be added to the Council’s portfolio at 50 units per annum.   The costs of this, at a Homestar 6 level, and taking into account land and project management costs, is estimated at $20 million per annum.

Policy

4.14    Current policy regarding growth in its social housing stock is contained in the Social Housing Strategy 2007.  Key requirements are:

4.14.1 Council will maintain, upgrade and where appropriate increase its supply of social housing.

4.14.2 Advocating to government, charitable trusts, non-profit organisations and private sector for the provision of social housing.

4.14.3 The Council’s social housing operation is rates neutral.

4.15    Additional guidance is provided in Council’s “Revenue, financing and rating polices” (contained in the Long Term Plan 2015-25). 

4.15.1 These policies indicate that housing should primarily be funded from fees and charges.  It provides the following guidance “Council considers that this Activity provides some community-wide benefit by providing affordable housing to those in need.  Housing rentals are intended to be sufficient to cover operating costs without subsidy from other sources.”

4.15.2 The policies also indicate that capital expenditure on housing should come from either “Earthquake Recoveries” or “Reserves”.  While the specific reserves is not identified, it is assumed that this means the Social Housing Fund.

4.15.3 Overall the “Revenue, financing and rating polices” would indicate that while the primary mechanism for funding housing is through rents (i.e. fees and charges) community wide funding (i.e. rates) is also contemplated. 

4.16    Together these policies effectively restrict Council to maintaining its existing social housing.  The reason for this is, in simple terms, the rent received from tenants is not sufficient to both cover operating and capital (including new and replacement supply) costs.

4.17    The policies do not explicitly prohibit the use of rates funding to assist the provision of social housing by others.

The Housing Fund

4.18    During the preparation of this report staff have modelled several financial scenarios to assess whether or not the existing housing fund could be used for growing social housing.  These models show that this is not possible.

4.19    Figure 1, which assumes no borrowings and is based on current standards, indicates there would be a deficit running from year two onwards.  Figure 2, which assumes borrowings and current standards, indicates that there would be a deficit from 2020 onwards.

4.20    Officers have also considered varying the assumptions underlying the modelling.  These assumptions are:

4.20.1 Council aims to maintain numbers in perpetuity (That is, Council’s financial model includes an allowance for the demolition and rebuild of each individual unit at the ends of its life);

4.20.2 The useful life of a unit is 90 years;

4.20.3 Inflation is at 2%, interest on capital with the housing fund is 2% and the cost of borrowed capital is 6%

4.21    Varying the assumptions, such as by making the decision not to replace units at the end of their life does allow the fund eventually to return to surplus, however, this option is not feasible as it requires a rates subsidy and while there will be a short term increase, in the long term this option results in a reduction of over 100 units.

4.22    Overall the modelling reinforces that it is not possible under current policy settings for Council to fund new or replacement units.

Figure 1 Social Housing Fund Performance (Cash Scenario)

 

Figure 2 Social Housing Fund Performance (Loan Scenario)

Funding and Financing

4.23    The original request asked for information about “finance options” to “increase housing stock”.

4.24    Funding and financing are important concepts when discussing social infrastructure provision, however, there is often confusion between them.   They are distinctly different concepts - 

4.24.1 Funding is the source of funds which ultimately pays for the housing, and can be sourced:

·   indirectly from community members via the application of public (e.g. taxes, rates) or private (e.g. philanthropic grants) funds;

·   indirectly through development contributions (e.g. betterment levies; development bonuses); or

·   directly from social housing tenant (e.g. rents).

4.24.2 Financing is money raised upfront and can be:

·   monies raised from banks and other investors to pay for infrastructure, which ultimately must to be repaid by one of the funding sources; or

·   not raised at all, if infrastructure is paid for directly from national or local government funds.

4.25    Increasing Council’s social housing stock requires consideration of both funding and financing matters, however, funding is the most important of these.

4.26    The ongoing revenue stream (the funding) must be sufficient to cover the operating costs, meet the needs of financers (either return on equity or repayment of debt (including interest)) and, if important to the social housing provider, fund replacement and new supply.  Frequently there is a gap between revenue and expenditure to cover costs, requiring an operating and/or capital subsidy. 

4.27    For the balance of this report the focus is on funding matters except where explicitly noted.

5.   Options for Meeting Demand

5.1       Options to help meet the demand for the additional units include:

5.1.1   alternative funding sources / raising revenue such as:

·     rates funding (either as a capital or operational grant);

·     taxpayer subsidy (through allowing Council’s to access the Income-Related Rent Subsidy (IRRS) and increasing the number of properties that qualify);

·     philanthropy; 

·     cross subsidisation through mixed development; and

5.1.2   reducing development costs:

·     provision of free / discounted land;

·     development contribution waivers;

·     consenting fee waivers;

·     innovative building techniques;

·     alternative procurement methods;

5.1.3   reducing finance costs;

5.1.4   a combination of the above.

5.2       Options have been presented both from the perspective of Council developing its own social housing and, in line with policy, supporting other partners.

5.3       It is unlikely that there is a single mechanism that will allow Council or the community housing sector to deliver all unmet demand.  Instead the options presented in this report can be considered as “tools” in the “tool box” of approaches available to Council to help meet demand for social housing.

Alternative Funding Sources

5.4       Raising revenue through increasing rents has not been considered in this report as Council no longer controls the rent setting process for the social housing units it owns.

5.5       Council’s current policy is not to fund social housing from rates.  Council could change its policy and allow for rates funding for new social housing.  This can be either for capital or operating “grants”. 

5.5.1   If Council decided to allow for rates funding, then the mechanisms for capital or operating “grants” can be developed.  As preliminary advice options might include direct Council delivery, grants to not-for-profit organisations such as community housing providers, contributions to joint ventures with Housing New Zealand, or conditional subsidies to private developers who provide social housing. 

5.5.2   Operating grants refer to the scenario of Council renting property and then using this (directly or indirectly) for social housing.  Council is likely to need to provide “top up” funds to meet the gap between costs (market rent, operating costs, admin costs) and revenue (social housing rent, IRRS (if applicable)).

5.5.3   This report does not advocate one way or another for changing this policy.  The better place to do this is through the planned review of the Social Housing Strategy.

5.6       Currently the main form of taxpayer subsidy is through the IRRS. 

5.6.1   Under government policy, local government is not eligible to receive the IRRS.  Council could advocate for the IRRS to be made available to local government.

5.6.2   The IRRS is available to community housing providers (CHPs), with the Ōtautahi Community Housing Trust (OCHT) receiving this subsidy for some of the properties they manage for Council.  Additionally, Council understands that the Government can enter into long term contracts for IRRS places, which help underwrite the cost of development. 

5.6.3   Council could also advocate that more long term IRRS places were funded in Christchurch, providing guaranteed funding streams to encourage the OCHT and other CHPs to invest.

5.7       There is a long history globally of philanthropy funding social housing.  The New Zealand experience is more limited, however, organisations such as the Rata Foundation and Westpac Bank have contributed to recent social housing projects in Christchurch.   More research is required before it can be determined if philanthropic funding could contribute to meeting ongoing social housing needs in Christchurch.  History suggest however, that it is an unlikely source to meet all needs – rather, it is one “tool” in the funding “toolbox”.

5.8       Mixed developments, which allow the sale of affordable and market houses to cross subsidise social housing, could help meet social housing demand.   There are successful examples of this already in the Christchurch context.  Council has explored this option before, with mixed success, however, this should not preclude further exploration.  Officers seek guidance from the Committee on their appetite for doing this, particularly with the involvement of other partners.

Reducing Development Costs

5.9       Council has in the past made land available freely (as part of the capitalisation of the OCHT) or at discounted values (e.g. Goulding Avenue).  This helps reduce the cost of development by others (e.g. Community Housing providers).  Council could continue to do this on a case by case basis.

5.10    In some cases, Council has purchased whole properties, where only part is required for a specific operational purpose.  In accordance with Council’s policies, and where appropriate, some of this land could be made available for community housing providers to develop social housing.  Council itself would not be eligible to use this land given the purchase has been rates funded and its use as social housing would be inconsistent with Council’s policy relating to rates neutrality (The rates neutrality restriction only applies to Council social housing)

5.11    Community housing providers have identified that development contributions increase the cost of social housing developments.   Council has recently approved a scheme whereby it waives these development contributions for community housing provider.  This scheme will reduce the cost of delivering new social housing. For community housing providers, however, the benefits will not be available to either Council or Housing New Zealand.

5.12    Consenting (both building and planning) fees also increase the cost of developing new social housing.  Through its Housing Policy 2016, Council has committed to exploring ways of reducing these costs to support social and affordable housing.  As Council’s consenting function generally operates on a user pays basis, and it would be inequitable for those requiring regulatory consents to subsidise social and affordable housing, a rate payer subsidy may be required.

5.13    The Community Housing Sector has identified innovative building techniques as a possible way to drive down development costs.  They have suggested that prefabrication, standardised designs and standardised components could help reduce costs.  This approach would reduce the amount of customisation available to meet tenant needs.

5.13.1 If Council was to adopt this approach, it could involve using common floorplans, prepared by the sector and negotiated with individual suppliers.  Alternatively, Council could join with a centralised purchasing scheme such as the one recently suggested by the sector.

5.13.2 The regulatory environment can act as an impediment to innovation, particularly when a nation-wide standardisation approach is proposed.  Council could assist through early involvement of its regulatory staff.  This may be through a case management approach.  Other areas where Council can assist is through advocating for quicker approvals for innovative techniques and products, and providing a quicker path for standard building designs (reducing time and cost of building).

5.14    Alternative procurement methods, such as centralised purchasing at scale can help reduce costs.  These methods can reduce the transaction costs for both clients and builders.  Additionally, these models can help increase certainty about a pipeline of developments over a number of years.   If Council wished to develop its own units, then this is a potential mechanism to help reduce costs.

Reducing Financing Costs

5.15    Financing costs are the interest and other costs associated with borrowing for developments.

5.16    The key question is can Council obtain, or help other obtain, free or low cost finance?   This is also a broader question which has been raised in the social housing sector globally.

5.17    Mechanisms that exist include low interest loans through local or central government, subsidisation of interest rates and provision of guarantees.

5.18    These matters are worth further exploration and it is recommended that the Committee seek further information on them.

The Role of the Ōtautahi Community Housing Trust (the Trust)

5.19    Council established the Trust in 2016 to manage its social housing tenancies.  The Council still owns its social housing buildings and land but leases these assets to the Trust. 

5.20    The Trust is responsible for tenancy management, rent-setting and the day-to-day maintenance of units (from 1 July 2017), while major repairs and renewals remain the Council's domain.

5.21    Over time Council’s expectations are that the Trust will also develop its own social housing for Christchurch, however, these expectations are not formalised in the lease or other Council approved document.

5.22    The Trust has indicated a desire to develop additional social housing units.   Their objectives are to:

5.22.1 Build at least 400 new social houses;

5.22.2 Construct between 50 and 100 new homes per annum; and

5.22.3 Build affordable houses and offer opportunities for assistance into home ownership.

5.23    Council has previously (2014) made strategic decisions on the provision of social housing services, that included a proposal to use $50 million of social housing assets to capitalise the Trust.   In 2016 Council made decisions to structure the capitalisation as $5 million gift and $45 million loan. 

5.24    The Trust has indicated that this structure may impact on its ability to meet its additional social housing goals.  This matter will separately be considered by Council.

6.   Discussion

6.1       This paper has presented a range of tools that could assist in meeting the current and future demand of social housing in Christchurch.  They do not necessarily allow Council to meet demand itself, but are still worth pursuing as they will help provide social housing in Christchurch.

6.2       Under current Council and government policies, there is no scenario that allows for Council to directly meet all of the demand for additional units.

6.3       If government policy changed, allowing Council to access the IRRS and all units received IRRS, then Council could retain its current policy and meet the demand for additional units.

6.4       If Council changed its policy and allowed rates subsidy (to cover debt servicing, land costs and the waiver of development contributions and consenting costs), the loan was repaid over the life of the buildings (90 years compared to normal 30), the Trust (as tenancy manager) achieved high IRRS rates, and Council resolved not to replace units at the end of their life, then Council could also meet all the demand.

6.5       Council’s existing policies will help other providers meet some of the demand. 

6.6       Assuming Council wishes to meet some of the demand for social housing directly, some of the tools may benefit Council.  For instance, Council may be able to work with others to undertake a mixed development on land it owns, particularly if it can leverage existing land and funding for replacements in the budget.  Such developments would only be on a small scale.

6.7       The suggested actions in this report could form a possible work programme, complementing the existing activity in Council’s “assisted housing” activity.  The main foci are advocacy and development cost reduction measures.

 

 

Attachments

There are no attachments to this report.

 

Confirmation of Statutory Compliance

Compliance with Statutory Decision-making Requirements (ss 76 - 81 Local Government Act 2002).

(a) This report contains:

(i)  sufficient information about all reasonably practicable options identified and assessed in terms of their advantages and disadvantages; and

(ii) adequate consideration of the views and preferences of affected and interested persons bearing in mind any proposed or previous community engagement.

(b) The information reflects the level of significance of the matters covered by the report, as determined in accordance with the Council's significance and engagement policy.

 

Signatories

Author

Bruce Rendall - Head of Facilities, Property & Planning

Approved By

Anne Columbus - General Manager Corporate Services