New Zealand: More light shed on social housing transfers

Brief Counsel

Treasury notes from a public engagement round led by Finance Minister Bill English and Social Housing Minister Paula Bennett over February and March provide more detail on the likely shape of the proposed state house transfers and the issues troubling some potential Community Housing Providers (CHPs) – and, no doubt, their financial backers.

We draw out, and comment on, some of the main themes and policy pointers.


The first tranche of transfers – between 1000 and 2000 houses this year – will be in areas where demand is relatively stable. It has not yet been decided whether this will include Auckland. The Auckland market is acknowledged as "very important" but complex. Other places are seen as "more straightforward".

Transactions may range in size from five properties to many hundreds of properties.

The sales process will be run by the Treasury and will take six to nine months. The Government will be "neutral among bidders" and will not engage in "side line or backroom deals".

Rights of First Refusal (RoFR) to iwi will be negotiated area by area and transaction by transaction. Each RoFR will be different. Some iwi businesses may buy houses and have their social services arm manage the tenants.

The Government is not planning to offer price discounts but accepts that the issue of what constitutes "market value" will be asset specific and a matter for negotiation. It has also acknowledged that the true impact of deferred maintenance may not have been as clear as it is now.

Registered CHPs will be eligible for Income Related Rent Subsidies (IRRS). Any sale must involve a CHP but they can form consortia with developers, financial backers, construction companies or community organisations. Any post-sale redevelopment plans must not reduce the social housing supply.

Local authorities will not be able to access IRRS except in partnership with a CHP on stock in which the local authority has no more than a 49% stake. "We don't want our policies to be an incentive for councils to grow their social housing portfolios when they may not be able to do so sustainably."

The Tamaki transfer

The Government today announced the transfer of around 2800 HNZ houses in Tamaki to the Tamaki Redevelopment Trust (a partnership between the Government and Auckland Council), together with a $200 million loan facility to allow the Trust to accelerate the regeneration work. Ultimately the plan is to build around 7,500 new houses where now there are 2,500 and to sell more than half of these on the open market to help offset the construction costs.

But this deal is entirely underwritten by the Government and allows for costs to be recouped through the sale of properties. The broader transfers programme by contrast relies on private finance but restricts re-sale rights and requires that the property continue to be used for social housing.

Most of the policy dilemmas the Government and potential CHPs and investors are now wrestling with arise out of these restrictions.

Possible road bumps

The feedback Ministers received at the public meetings (in Christchurch, Dunedin, Wellington, central Auckland, South Auckland and Rotorua) shows that there is continuing unease over the proposed sales and that important policy details are still being worked through.

The unease is scarcely surprising given that the two largest suppliers of social housing currently, Housing New Zealand and local government, have struggled to get enough income off rents (including existing subsidies) to keep up with basic maintenance costs - and they have access to cheaper finance and economies of scale which will not be accessible to the average CHP.

Many potential financial investors are also sceptical about the viability of the Government's social housing model, and will be reluctant to trust the available information about HNZ's housing stock. The Ministers accepted that the due diligence process before sale would "put pressure on the Government as to whether the income stream is big enough".

Specific issues include:

Security of IRRS as a funding source

The Ministers acknowledged that some CHPs had been asking for 10 or 20 year guarantees of IRRS funding to provide them with a stable revenue base that they could borrow against. The Government has made no commitments on this score but is planning to legislate to allow for more flexibility over how the IRRS is calculated (the current formula being "very rigid"). These changes will also allow the Ministry of Social Development (MSD), which administers IRRS, to continue payments even when a property is vacant.

The fact is, however, that one Parliament can't bind future Parliaments so clever purchasers will insist on protection clauses in their contracts to protect them against any changes to the IRRS regime.

As yet, there is no indication how lenders to consortia bidding for social housing assets will be able to take effective security over the assets (which will be a fundamental issue for financiers). The type of security those lenders will want is likely to be incompatible with some of the Government's bottom lines.

Tax status of CHPs

Under current charities law (enforced by the Department of Internal Affairs), the provision of housing is not, on its own, a charitable activity. Any costs met by a tax exempt charity in connection with housing or subsidies to a tenant, must be linked to a charitable need, for example a health benefit, relief of poverty or the relief of the aged.

A number of existing CHPs are tax exempt charities. Most iwi organisations are also either entirely tax exempt or have a tax exempt charitable social services arm. They are now waiting on a proposed tax legislation reform which will create a new income tax exemption for CHPs.

Bill English has confirmed that a solution "may be at hand" but has yet to be approved by Cabinet. Until the law is changed, it will create a barrier to participation for many groups as they will be limited to providing housing to people who also have a charitable need.

Tenant placement

The MSD will be responsible for assessing tenant needs and allocating tenants to available social housing. The information available to CHPs about tenants may be limited for reasons of privacy. Yet tenant selection and allocation will be a major potential source of risk for CHPs – for example, 80% of HNZ's maintenance costs are generated by 20% of its tenant population.

Also, many CHPs may be attracted to social housing as a means of augmenting or supporting (in an integrated fashion) other social service programmes they run. Iwi are likely to be interested only in providing housing to their own iwi members. Where this housing comes at a cost that is not covered by the IRRS or other third party funding, then iwi groups are limited by their governing documents to only cover such costs with respect to their iwi membership base (since it is effectively a distribution from group funds).

To work, MSD's approach would need to be aligned to, or at least sympathetic to that context. Whether MSD's mandate would allow this is another matter.

Out of contention

The Government will not provide low interest loans to help CHPs with the purchase price. Neither will it chip in equity. It did this through the Social Housing Unit but "is not going to spend money this way in the future". Whether this rules out deferred purchase price payment arrangements or other forms of vendor finance is yet to be seen.


The message from the Ministers is that the Government is open to ideas. It expects to receive "a whole spectrum" of proposals and is prepared to be flexible about the solutions which will emerge.

Some CHPs have suggested a long-term lease arrangement where the Government retains ownership of the land and the CHP redevelops the houses. The Ministers did not rule this out, saying it would be a "learning-as-we-go" experience.

CHPs do not need to buy HNZC properties to access IRRS. MSD's current Registration of Interest process for new IRRS places in Auckland includes some proposed apartment conversions.

The extent of the acceptability parameters the Government imposes on itself will only be fully revealed as the sales process progresses, depending on how transparent that process is.

Next steps

The timeline for the first tranche of sales is:

  • July - Market sounding, testing of regional interest
  • September - Expressions of Interest
  • Late 2015, mid 2016 - Requests for Proposal, identification of preferred bidders
  • November 2015 - Cabinet to review progress, announce next steps.

The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions