New twists in the state house sell-off

A start of my post on state housing sales... More to come later, but feel free to start discussing now

When John Key announced the latest and most controversial stage of National's state housing reforms in January – that is, the sale of up to 2,000 homes over the next year with thousands more to come – it was done in the context of "building a stronger, more prosperous country". Which makes the appearance of Australian buyers in the scheme all the more contentious.

This weekend The Nation revealed that overseas social housing organisations could register in New Zealand to buy state houses, and that one Australian not-for-profit called Horizon Housing was already interested.

I spoke to the CEO Jason Cubit last week and he confirmed he had been in Wellington on Monday at the first of Treasury's "market soundings" meetings. Horizon manages 2600 houses in Queensland (where they began in 2007) and New South Wales. They own houses worth around $100m and they want to grow. While they're far from committed to buying here, they openly acknowledge it looks like a great opportunity.

For them it's a natural chance to expand. For the government it's a political headache. For a start, many New Zealanders will think that they and their parents and grandparents didn't pay taxes to build good, solid state houses, only for the income generated to disappear across the Tasman. It's like the banking sector all over again.

And it's far too close to John Key's famous warning that he didn't want "New Zealanders as tenants in their own country". While in 2010 he was talking about productive land, why should state houses and their tenants be worth any less?

National may try to spin that this was always on the cards, but there is no mention of it in its policy launch. In fact, John Key specifically said one of the main virtues of the scheme was cooperation with local expertise. Key said:

"Community housing providers already own around 5,000 houses and some are long established.
There’s a lot of potential there.
Locally-based providers can be closer and more responsive to their community.
Providers that focus on particular types of tenants can integrate housing with the other services they provide, like mental health, disability or budgeting support."


A Gold Coast company is a long way from that model.

But the problem seems to be that the government is clearly not getting the enthusiasm from New Zealand's social housing sector on the scale it had hoped. It's trapped between promising a good sale prices to taxpayers and the fact that most potential buyers here won't – or can't – pay a high price.
 For all the talk that this has been coming for years, National seems to be making up this part of the reform as it goes along, and it hitting bigger hurdles than expected.
Which brings us to the second part of the story from this weekend, that since Saturday has gone largely unreported.

Those "market soundings" meetings also asked the potential buyers if they've be more interested in leasing than buying. All the evidence suggests that this was never part of the plan. All of the government's early releases and speeches on social housing talked about sale, without a word suggesting mere leasing. So why introduce this now?

Perhaps National is feeling the political heat from what Paula Bennett once all-but admitted was an asset sale (something it promised not to do again with a mandate at an election); now they can say 'we're not selling them all, we're going to hang on to some for the good of the country'. And I'm told the number of leases would fit inside the existing 2000-home cap, and not be in addition to that.

Yet if National really feared the politics of this, surely its brains trust would have been looser in its language to begin with, ensuring it had more wriggle room.

No, the only logical conclusion is that the government was prepared to spend some political capital on these reforms, yet minsters have since realised that the groups they want to sell to don't have the financial capital to buy. This looks like a market failure by the party of the free-market; they have tried to sell some more assets, but unexpectedly found a serious lack of interested buyers.

It may not be that surprising when you're talking about an investor's need to spend many millions of dollars; a housing market that's flat outside of Auckland, Christchurch Tauranga; homes and tenants that might politely be described as being at the harder end of the spectrum to manage; properties that have suffered from many years of deferred maintenance; and when the government has for the past few years been tut-tutting about its state houses being the wrong size and in the wrong place.

Hardly a terribly attractive proposition.

So National has another housing crisis on its hands, but this one is entirely of its own making. If it needs to lease some, rather than sell, it will be an embarrassing climbdown for a government that claims to be such a strong economic manager.

Key and Co at least have time, with the sales not due until next year. That should give them the opportunity to poll some lines of spin, at least.