Item 7: Phase One of
the Housing Reserve
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Council
5 October 2021
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REPORT R26236
Phase
One of the Housing Reserve
1. Purpose
of Report
1.1 To
consider phasing the establishment of the Housing Reserve and initiating the
first stage - Phase One of the Housing Reserve (Phase One). Phase One
aims to address immediate housing needs ahead of fully establishing the Housing
Reserve criteria.
1.2 The
proposed objective of the Phase One proposal (which originated from a
suggestion from the Chair of the Urban Development Subcommittee) is to respond
to immediate housing needs by applying a portion of the Reserve for grant
funding to enable partners to deliver an enduring supply of affordable housing
in Whakatū Nelson.
2. Recommendation
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That the Council
1. Receives the report Phase One of
the Housing Reserve (R26236) and its attachment (A2748972); and
2. Approves Phase One as set out in
this report (R26236), including its proposed value of $2 million as grant
funding; and
3. Notes Council may agree to approve
funding to an aggregate total in excess of $2 million if applications that
meet the specified objective and criteria are received; and
4. Approves the process, objectives,
and outcomes for Phase One as set out in this report (R26236) (A2748972); and
5. Approves the evaluation criteria as
set out in A2748972; and
6. Approves, in recognition of the
housing crisis that Nelson is facing, that officers’ recommendations on
Phase One funding applications be brought directly to Council; and
7. Notes that officers will continue
to investigate the use of the Housing Reserve and report on this to the Urban
Development Subcommittee with final sign off by Council.
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3. Background
3.1 The
Council has divested its community housing portfolio (142 bedsits and units) to
Kāinga Ora with final settlement in March 2021. As a result of this
process, Council agreed to establish a Housing Reserve using the proceeds ($12
million). The Reserve has been established on the basis that its purpose would
be ‘to work with and support partners who have the ability to deliver
social and affordable housing solutions for the community’.
3.2 Consultation on the use
of divestment proceeds and the establishment of what is now known as the
Housing Reserve has been undertaken with the community over the several years
that the divestment process has spanned. This includes as part of the Annual
Plan 2019-20, Annual Plan 2020-21, and Long Term Plan 2021-31, where
intensification and affordability of housing was also raised. In general,
there is wide support for the Housing Reserve and its purpose (noted in 3.1
above).
3.3 At
the beginning of this triennium, Council also decided that affordable housing
and intensification would be one of its top three priority issues to address
over the next three years.
3.4 An
additional position (Strategic Housing Adviser) has been created via the
2021-31 Long Term Plan and sits in the City Development Team. The role is to
support the Housing Reserve as well as a number of other housing projects that
Council is actively involved in.
4. Discussion
4.1 Since
the Council’s community housing portfolio divestment in March, officers
have been exploring the different options by which the Housing Reserve might be
allocated to maximise its effect and target social and affordable housing.
4.2 This
has included a number of workshops with elected members; Council on 27 October
2020, the Urban Development Subcommittee on 2 March 2021, and on 14 September
2021, specifically on the concept of a phased approach.
4.3 Consultation
on housing affordability and intensification has also been undertaken as part
of the Long Term Plan 2021-31. A total of 669 submissions (including late
submissions) were received and approximately one-third of submitters commented
on the topic of housing affordability, with many agreeing that this is a key
issue for the community.
4.4 Numerous
meetings with different housing experts and stakeholders have been held to
inform the best use of the Housing Reserve to maximise outcomes. These include:
Nelson Tasman Housing Trust, Habitat for Humanity, Abbeyfield, Community Action
Nelson, Community Housing Aotearoa, Community Housing Regulatory Authority,
Ministry of Housing and Urban Development (MHUD), Director Centre for Research
Evaluation and Social Assessment and Co-Leader Affordable Housing for
Generations National Science Challenge Dr Kay Saville Smith, economist
Shamubeel Eaqub, Wellington City Council, (Build Wellington and social housing
management), Kāinga Ora, Rata Foundation, and the Dwell community housing
provider.
4.5 Feedback
from those with experience in other models has identified this is a complex
process that requires significant analysis to ensure Council attains the
results it seeks from the Reserve. Officers have yet to establish a final
proposal for the Housing Reserve, and its objective and criteria, to be brought
to the Urban Development Subcommittee for consideration, with final sign off by
Council.
A Phased approach
4.6 The
housing crisis is growing at a pace and scale that outstrips other developed
nations, with the average house spend to income now the highest in the OECD[1]. Meanwhile,
CoreLogic’s latest Housing Affordability Report (Q2) reports no change to
the rapidly declining affordability with record house price growth despite the
introduction of regulatory constraints.
4.7 Housing
affordability has been a significant issue in Nelson for many years. Nelson is
consistently one of the least affordable regions for housing in the country
when incomes are taken into account. This places great stress on many
households, particularly on our most vulnerable residents. In this environment,
Council is acutely aware of the need to expedite the Housing Reserve as soon as
is reasonably practicable.
4.8 The
Phase One approach recognises that there is no better time to assist given the
continuing increase in housing costs (build and land). Phase One can also help
with the testing of proposed priorities, criteria, and process to assist in
refining how the balance of the Housing Reserve, or parts of it, are applied
going forward.
4.9 The
proposal is to use a portion of the Housing Reserve as grant funding for
applications this year ahead of fully adopting the Housing Reserve objectives
and criteria. The amount of funding proposed to be made available for
Phase One is $2 million. This amount has been suggested as appropriate to test
the objective, criteria, and process, as set out in attachment A2748972, while
offering support to more than one affordable housing development. It also does
not significantly diminish the Housing Reserve (leaving around 85% of the
Reserve still available).
4.10 Noting the overarching objective of this
proposal to address immediate housing need, it is not proposed that the $2
million allowance should be a ‘hard cap’ that cannot be exceeded if
Council receives meritorious applications slightly in excess of that
value. Council would have the flexibility to evaluate and approve
applications that collectively exceed this when they are brought back for
consideration.
4.11 This
approach is supported by local stakeholders, as grant funding enables entities
such as Community Housing Providers (CHPs) to increase their equity and ability
to leverage other funding, including bank finance.
4.12 It
is important to note that approving Phase One does not oblige or commit the
Council to this method, its objectives, criteria, and process in the future. If
it so chooses Council can decide on a different approach, to applying the
remaining Housing Reserve.
Proposed Phase One process
4.13 The
proposal is to use a portion of the Housing Reserve (circa $2m) as grant
funding, with decisions on applications this calendar year.
4.14 If
Council approves this approach officers will:
· Call for
applications from entities with a local presence that are well-positioned to
deliver affordable housing in Whakatū Nelson. (Noting the reasons for
having a focus on affordable as set out below.) Applicants will be
required to have an identified site and submit concept plans.
· Use the attached
criteria (A2748972) to evaluate applications. This is a simplified and
streamlined approach based on MHUD’s “Value for Money Evaluation
Process and Criteria”, that is used to assess loan funding applications
from CHPs for public housing developments.
· Evaluate
applications. The proposal is to for the evaluation panel to include officers
and a representative from Kāinga Ora.
· Bring funding
recommendations back to Council this year for approval.
· Continue to
develop the Housing Reserve objectives and criteria for the use of the
remaining funds and report these to Council for approval in the first half of
2022.
4.15 It
is not proposed to cap the amount each entity may apply for, as each
application would be evaluated on its own merits.
Key
matters that inform Phase One
Social-affordable housing
4.16 Consultation
with the community on the Housing Reserve has been on the basis that the
purpose of the Reserve would be ‘to work with and support partners who
have the ability to deliver social and affordable housing solutions for the
community’.
4.17 Affordable
housing and housing affordability are two related but slightly different
concepts. Affordable housing provides housing for low-moderate income
households at a price that enables them to meet other essential living costs
and have an acceptable standard of living. Although different measures are
used, it is generally accepted that households should spend no more than 30% of
gross household income on housing. Housing affordability, however, is a term
that can be applied to all income groups, even those in higher-income bands can
experience high housing costs.
4.18 Affordable
housing commonly takes the following forms:
· Affordable rental
– Long-term rental accommodation for low-moderate income households,
provided at discounted or subsidised rents. For example, provided at 70-80% of
market rates.
· Affordable home
ownership - Homes produced to sell at KiwiBuild price points or other
affordable housing products, such as rent to buy (Progressive Home Ownership).
Includes land sold to builders with a requirement to build affordable housing
within a set timeframe.
4.19 There
is no one definition of social housing, and it can be commonly used to describe
both public and affordable housing.
4.20 Social
(public) housing is provided to individuals or families on the Housing Register
who are eligible for the income-related rent subsidy (IRRS). Providers include
Kāinga Ora (state housing), and CHPs registered with the Community Housing
Regulatory Authority.
4.21 The
Government currently provides registered CHPs with access to no- interest loan
funding for public housing developments. However, no government funding is
available for affordable housing developments. The Government also has its own
Public Housing Plan which sets out its additional housing targets for Nelson.
For these reasons, and in recognition of Council’s own priority for
affordable housing, Phase One is recommended to target affordable housing
developments (i.e., affordable rental and affordable home ownership).
4.22 Phase
One would be open to any entity that meets Council’s objective and
criteria. This includes any of Nelson’s CHPs that are currently
well-positioned to respond to Nelson’s housing situation. An advantage of
access to grant funding at this point is that it has the potential for CHPs in
the process of planning social (public) housing developments to target the
affordable rental market instead.
Enduring
4.23 The
proposal of having an enduring Housing Reserve has been raised by both Council
and stakeholders. This could take the form of:
4.23.1 continual
investment in, or recycling of the Reserve, so it continues to operate in
perpetuity; or
4.23.2 purchase
of an asset, such as land, used in a manner that supports partners to deliver
affordable (and/or social) housing on a perpetual basis; or
4.23.3 housing
(including the recycling of funding for housing) that is retained for
affordable (and/or social) housing over its natural lifetime (50 years).
4.24 Officers are recommending that applicants
to Phase One of the Housing Reserve meet the definition of
‘enduring’ in 4.23.3 above. As noted, this definition may be
further developed, however, in the final Housing Reserve criteria.
Draft objective and
priorities of the Phase One
4.25 The
proposed objective of the Phase One is (noting the definition of ‘enduring’
in 4.22.3 above):
The Housing Reserve-Phase One
will be invested to support and enable partners to deliver an enduring supply
of affordable housing in Whakatū Nelson.
Summary of proposed outcomes
sought
4.26 To
be consistent with Council priorities, it is considered that applications to
the Phase One of the Housing Reserve will need to:
4.26.1 Be
delivered by capable, experienced development partners with a local presence;
and
4.26.2 Deliver
enduring affordable housing (e.g., housing for low-moderate income households
at no more than 30% of that household’s income); and
4.26.3 Result
in durable housing. This will be defined by the applicant but could mean one or
more of; energy-efficient, affordable to run, sustainable (environmentally
friendly, low-carbon), universal design, Homestar 6 criteria or other relevant
ratings; and
4.26.4 Use
co-investment (e.g., leverage funding from other sources); and
4.26.5 Commit
to commencing the construction process of the development within 12 to 24 months.
4.27 A
full set of the proposed evaluation criteria for which Phase One applications
would be evaluated is attached to this report (A2748972).
5. Options
5.1 The
following options have been identified in relation to the Housing Reserve at
this juncture.
Option
1: Approve the Housing Reserve-Phase One
5.2 This
option involves a decision to phase the Housing Reserve and initiate the first
stage (Phase One), a grants scheme for experienced, affordable housing
development entities that have a local presence. This approach is responsive to
immediate housing needs in Whakatū Nelson and the readiness of
organisations to meet that need. It also recognises that there is no better
time to assist given the continuing increase in housing costs (build and land).
Additionally, grants are easy for officers to administer. It also provides an
opportunity for officers, stakeholders, potential partners and Council to
‘road test’ the objectives, process, and criteria to inform best
practice for the balance of the Housing Reserve.
Option
2: Status quo: For officers to report to Council on all of the
possible mechanisms for use of the Housing Reserve
5.3 This
option involves Council making any or all its decisions on the Housing Reserve
at the same time. This could ultimately still result in a phased approach to
funding; however, it would delay any decisions on funding approval until the
objectives, process, and criteria of the Reserve in totality have been approved
by Council. The primary advantage of this approach is that all the different
options by which the Reserve might be used can be considered by Council
together.
Option
3: Consider individual funding requests to the Housing Reserve
5.4 A
further option to address immediate housing needs (in the absence of having the
Housing Reserve objectives and criteria fully established) is to consider
individual funding requests by way of a report/s to Council on an ad hoc basis.
For example, this approach might support affordable housing developments that
are currently ready to go. However, the disadvantage of this approach is
that each request would be considered on its merits without a contestable evaluation
process. It would also be more time consuming for officers and elected members.
Moreover, this avenue is currently available to any party i.e., officers can
receive requests now and would report these to Council.
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Option 1: Approve the Phase
One. This is the recommended option.
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Advantages
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· Responsive
to immediate housing needs and the readiness of some organisations to meet
that need.
· Enables
the delivery of housing while also providing a platform to test objectives,
criteria and process.
· Recognises
that there is no better time to assist given the continuing increase in
housing costs (build and land).
· Provides
a transparent, contestable process by which interested parties may apply.
· Saves
time as elected members (and officers) can evaluate applications in one lot
at the same time.
· Phase
One can be monitored and evaluated for effectiveness and used to inform other
Housing Reserve initiatives.
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Risks and Disadvantages
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· The
Housing Reserve is partly reduced without a full analysis of options.
· May
slow down analysis of other Housing Reserve options as officers resource is
diverted in the short term.
· Amount
allocated may not achieve considerable gains in additional housing.
· Amount
allocated may not be sufficient to fund all the applications that meet the
criteria fully.
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Option
2: Status quo- do not approve the Phase One but continue with full analysis
of options
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Advantages
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· Enables
Council to consider a range of options and funding mechanisms at the same
time.
· Officers
resource is not diverted from the full options analysis.
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Risks and Disadvantages
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· Is
a slower process that is less responsive to immediate housing needs.
· It
is likely that this process may still recommend grant money as part of the
Housing Reserve approach.
· Likely
to attract additional spend generated from escalating housing costs
(construction, property, and land), although this will still apply under
option 1 for the remainder of the Reserve.
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Option
3: Consider individual funding requests to the Housing Reserve via a report
to Council.
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Advantages
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· Requests
can be individually considered.
· May
be more flexible.
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Risks and Disadvantages
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· Time
intensive for officers.
· Attracts
higher risk – from both potential partners and ratepayers - due to
consideration of proposals in an ad hoc manner without a clear process,
objective, criteria, or transparent, contestable process.
· Reduces
opportunities to align with learnings from partners for best use of the
Reserve.
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6. Conclusion
6.1 This
report proposes a phased approach to the Housing Reserve to address some
immediate housing needs while the criteria, process and objectives of the
Reserve are being established and recommends that Council approve the Housing
Reserve- Phase One as set out in this report.
7. Next
Steps
7.1 If
the Council approves the approach recommended in this report officers will work
to the following timeline to advance the Phase One.
7.1.1 7
October 2021 – Applications open for 4 weeks. Officers will publicly call
for applications to the Phase One, including a media release and an email to
stakeholders with a local presence.
7.1.2 3
November 2021 - Applications close.
7.1.3 November
– Officers evaluate applications with assistance from Kāinga Ora.
7.1.4 9
December – Report on recommendations to Council meeting.
Author: Gabrielle
Thorpe, Senior City Development Adviser
Attachments
Attachment 1: A2748972 - Phase
One of the Housing Reserve - Evaluation Criteria ⇩
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Important considerations for decision making
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1. Fit
with Purpose of Local Government
The intent of the Housing Reserve is to support the
wellbeing of the community by working with and supporting others to provide
adequate social-affordable housing in Whakatū Nelson.
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2. Consistency
with Community Outcomes and Council Policy
During divestment of its community housing
portfolio, Council has consulted with the community on the use of divestment
proceeds and the establishment of what is now known as the Housing Reserve
through the Annual Plan 2019-20, Annual Plan 2020-21, and Long Term Plan 2021-31,
where intensification and affordability of housing was also raised.
The recommendations in this report are also
consistent with Council’s affordable housing and intensification
objectives, which have been identified as a priority issue during this
triennium for Council.
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3. Risk.
There is a risk that some parties may not agree with
the Phase One approach as recommended in this report. This includes entities
with other ideas about its use or who are ineligible to make an application
to Phase One due to its criteria or the timeframe involved. Additionally,
there is potential for challenge on the basis Council has not yet fully
developed the objective, process, and criteria for the full Reserve.
These risks have been partly mitigated through the
ongoing engagement with experts and stakeholders on the use of the Housing
Reserve. Additionally, the phased approach provides an opportunity for
Council to ‘road-test’ its proposed objective, process, and
criteria by applying a portion of the overall Reserve to service immediate
housing need before decisions are made on the balance.
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4. Financial
impact
This report recommends that circa $2m of the Housing
Reserve is made available for Phase One grant funding. The Housing Reserve
has been established through the divestment of Council’s community
housing, therefore, this decision has no further financing/funding impact.
Likewise, there is existing officer resource to administer Phase One from
within the City Development Team.
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5. Degree
of significance and level of engagement
While there is a high degree of community interest
in housing affordability in the region generally, this proposal has been
assessed against Council’s Significance and Engagement Policy as being
of low significance overall. No new funding is required, it does not
involve any transfer of strategic assets and will have no impact on debt
levels or Council’s financial capability.
Additionally, Council has already undertaken
considerable consultation on the establishment of the Reserve with the local
community, and its possible use with experts and stakeholders. Establishing
the Reserve was viewed favourably by the community and the objective proposed
for Phase One is consistent with the overarching objective outlined in
earlier consultation. For that reason, officers therefore consider
Council is already adequately informed of community views in relation to this
proposal.
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6. Climate
Impact
Council has opportunities to demonstrate leadership
arising from this decision by setting criteria that acknowledges and supports
the development of durable housing.
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7. Inclusion
of Māori in the decision making process
Engagement with iwi on the Housing Reserve,
including the proposal for Phase One, was undertaken at the 28 September 2021
Iwi Managers Forum.
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8.
Delegations
The Urban Development Subcommittee (UDS) has
delegations to consider Housing Reserve. However, in accordance with section
5.2.2 of the Delegations Register, matters within the area of responsibility
of a particular committee, subcommittee or subordinate decision-making body
may be considered directly by Council instead on the recommendation of the
Chief Executive and with the agreement of the Chair of the subcommittee and
the Mayor. This has occurred in this case, and the Chair of UDS will report
to the following meeting of the subcommittee regarding the reason for doing
so, and the outcome of the matter at the Council meeting, in accordance with
the Delegations Register.
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