1700 new staff. $24 million on an office fit out. Debt blow out to $28 Billion by 2026 which won’t be repaid by 2082!
by Cam Slater on the BFD
The Labour campaign in the 2017 and 2020 elections had housing as their number one priority. They promised to build 100,000 Kiwibuild homes and to fix the growing waiting list for emergency housing. Instead what they’ve created is a basket case; an organisation bloated with large numbers of excess staff and a burgeoning debt burden that has blown out so badly that the Minister has been warned about it in briefing papers to cabinet.
The one thing Kainga Ora hasn’t done is build new homes. But they have spent $24 million on flash office fit-outs.
Housing Minister Megan Woods has been warned not to grant any future Budget bids to state housing agency Kainga Ora for a time, after fears of unsustainable debt levels.
A leaked document from the Ministry for Housing and Urban Development shows that spiralling construction costs have led to a debt blowout at Kainga Ora, with fears the Government will be unable to completely repay the increase in debt over the next 60 years.
The document, dated June 17, says Kainga Ora is “investigating” cost-cutting measures such as pausing a programme to improve heating in homes or retrofitting old homes with improvements that make them accessible to people with disabilities. Officials said the ideas might result in some “cost savings” but they will not address the root cause of the blowouts.
Predictably, the minister, Megan Woods, in between mouthfuls of sausage rolls, denies that there is a problem.
Woods’ office said that “no decisions were made on the recommendations and Minister Woods sought more advice on the matters raised”.—NZ Herald
Dithering, prevarication, and not one inkling as to how to fix this problem that threatens to dwarf its own plus-size minister.
National’s housing spokesman Chris Bishop said the document shows Kainga Ora has become a “basket case”.
“In the last four years they’ve spent $24m on their own office renovations, hired 1700 official staff and these documents show they’re planning on hiring an additional 485 in 2023 alone,” he said.
The document shows Kainga Ora’s deteriorating financial position, largely as a result of spiralling construction costs, which are not offset by increased income.
Officials presented a cost comparison of what Kainga Ora’s building programme will cost using its latest 2022 economic model with costs using its “previous benchmark” from pre-inflation spike 2018.
Using 2018 economic assumptions, the average interest cost per year for each additional state housing place would be $14,457. The revised 2022 model used by Kainga Ora has the average interest cost of a new place at $29,339.
Using the 2018 assumptions, Kainga Ora’s interest costs would be $571 million in 2025/26 – instead, the most up-to-date assumption expects those costs to be $842m.
Kainga Ora’s debt is now forecast to peak in 2033 at $28.9b – the previous benchmark had debt peaking much lower, at $20.9b.
Officials at the ministry warned that they had “concerns with Kainga Ora’s financial performance over the next four years and will be reviewing options on addressing Kainga Ora’s funding”.
They said the review would look at “Kainga Ora’s funding, financing, and spending”.
The officials said Kainga Ora’s budget bids for next year should not be progressed until the ministry’s “strategic approach” for Budget 2023 had been agreed. Kainga Ora had wanted those bids to be progressed earlier.
Which are nice bureaucratic words for ‘out of cash and out of time’. If Kainga Ora were a business it would be insolvent, its CEO and board members on charges, the banks calling in loans and receivers working out how much loot they could get from a fire sale of questionable assets.
But wait, it’s worse than that:
Bishop said the blowout had occurred at a time when Kainga Ora was not adding many new state housing places.
“This has cast serious doubt on the Government’s ability to meet its targets,” he said.
They said the short term presented a “significant challenge” to Kainga Ora’s sustainability with its deficit increasing fourfold.
“Over the coming four-year period, forecast net deficit after tax continues to worsen with a $662 million deficit projected for the 2023/24 financial year (the 2020/21 actual deficit was $152 million for comparison). Kainga Ora will need to use more cash each year to cover interest costs, which leaves less available for operating activities to reinvest through renewals,” officials warned.
It warned Kainga Ora’s debt is now forecast to peak at $28.9 Billion in 2033 before it begins to be repaid and that the new debt will not be repaid by 2081 when $8.9 Billion will still be outstanding.
The many drivers for the blowout include “headwinds” in the construction sector pushing up costs, higher building cost inflation relative to the income Kainga Ora receives, and “broader” Government expectations of the agency.
The document questions the efficacy of Kainga Ora’s model.
The model is broken, but they continue to pour good money after bad on the premise the Government is underwriting all that red ink.