Knives out for Kāinga Ora

'Chris Bishop vs Kāinga Ora' started well before the Housing Minister's party formed Government

Note this a longer read.

TLDR: Bishop had always intended to shortchange Kāinga Ora and malign the Board and Executive. The $500,000 independent review of Kāinga Ora was anything but, and poses serious ethical issues in both conduct and outcomes. Kāinga Ora had a debt to assset ratio of 0.25 when the Government said it was not financially viable. Commentators have noted that financial profile is appropriate and could even be seen as a “huge success” for a social housing provider. KO built over 80% of all net new public homes. It didn’t deserve this storyline.

A quick recap: Kāinga Ora’s stoush with a private property developer

In October 2022, dual Australia and New Zealand listed private property developer Winton filed a $138.5 million litigation against the Crown's housing agency Kāinga Ora, accusing it of anti-competitive conduct.

Winton was unhappy that Kāinga Ora had declined to consider Winton's planned development in South Auckland as a "Specified Development Project" (SDP).

SDP designations were created to help streamline urban development projects, but much more significantly, any projects approved as SDPs would be able to sidestep the then Resource Management Act development process, and avoid costly consents.

In other words, Winton wanted Kāinga Ora to help them “fast-track” their development in Auckland.

Kāinga Ora defended the claim vigorously, citing it was “surprised Winton had not briefed Auckland Council, Waka Kotahi or the Ardmore Airport, which would be a next door neighbour..”

“Auckland Council had publicly expressed concerns about the flood risk at the site which it would have wanted to address, and users at Ardmore Airport were concerned about a risk of aircraft noise sensitivity.”

“Winton had refused an offer from Kāinga Ora to attend a joint meeting with Auckland Council to discuss the Sunfield proposal.”

Kāinga Ora also pointed out that provisions in the Urban Development Act 2020, were designed to advance developments that might have “otherwise struggled,” which it did not believe Winton qualified under.

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Winton’s close ties to the National Party

Winton is a super donor to the National Party. Newsroom reports that in 2023, director-shareholders Chris and Michaela Meehan donated $103,260 to the National Party campaign coffers.

Earlier in the year, Chris Meehan “also donated $50,000 to Act. And his company Speargrass Holdings Ltd donated another $52,894 to National last year.”

In 2023, Winton appointed Steven Joyce, a former National Party finance and infrastructure minister to sit on their board. Meehan was at oddds to point out,

“As a Winton board member, Steven’s economic, financial and strategic credentials will add considerable value around the board table. He has not been appointed for government relations or political lobbying.”

NB: Steven Joyce is also one of the National’s new expert advisory panel members for the infamous one-stop-shop fast track bill.

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Chris Bishop sides with Winton

In 2022, Bishop had sided with Winton in their stoush against Kāinga Ora.

In a National Party press release at the time, Bishop said, “Legal action by housing developer Winton against Kāinga Ora reflects deep frustration at the Government’s incompetence over housing development.”

In 2023, months before the election, he reiterated that support for Winton, albeit in a more circumspect way.

Each time, Bishop made no mention on the reason why their application was rejected, and the scope and context of how the Urban Development Act 2020 should be applied.

In other words, by not including the context and professional responsibility that Kāinga Ora was exercising in declining to review Winton for SDP status, his knives were already out for the crown housing agency.

Once in Government, Bishop didn’t take long before he started publicly maligning Kāinga Ora.

In December 2023, one month after forming the newly elected Government, now Housing Minister Chris Bishop started the process of calling into question Kāinga Ora’s viability and credibility - a process which was inevitable in its outcome before it even started.

He said, “Since coming to office, ministers have received further worrying advice about the financial situation of Kāinga Ora. We are not releasing that information at this time as it is commercially sensitive, but it confirms that an independent review is the right course of action.”

Just as with the Kiwirail Interislander process, the Government needed to provide a paper trial of credible headlines before headlining privatisation. They would speed run it, as much as possible, but still needed to be circumspect.

The use of “independent” experts was now par for the course.

For example, Steven Joyce, Winton’s board member, will be paid a reported $4000 a day to head the Government’s Fast Track Advisory panel. Joyce has made good money from his post Ministerial career. In 2023, Otago Times reported that his advisory firm had been paid $1mn from the cash strapped Waikato University.

In the case of Kāinga Ora, Bishop hand picked Bill English - over casual text messages.

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How ex National Party' Bill English’s “independent review” of Kainga Ora unfolded

Chris Bishop solicited Bill English in November 2023, and approved his appointment and terms, before Cabinet approval had even been secured.

How the deal was arranged by text messages between Bishop and English

November 2023 Texts

• Bill English: Chris will there be a review of KO.

• Chris Bishop: We are going to do an independent review into finances, performance, cost, etc. Commence it asap, hopefully get terms of reference and reviewers sorted before Christmas. 

• Bill English: I could help with that.

• Chris Bishop: Excellent let's do that

December 2023 Cabinet approval and texts

• Chris Bishop tables Cabinet request to conduct a review of Kainga Ora and holds discussion

• Chris Bishop formally approves Bill English's appointment

• Bill English states further terms by text: "It will help if it's a short sharp review. No public submissions or field trips"

• Chris Bishop "Definitely not. Three people. You and two others... No involvement from KO. Independent."

Independent, indeed. The question is for whom.

When asked in Parliament, if Chris Bishop instructed Bill English not to involve Kāinga Ora, Chris Bishop responded : "Uh, no. And they were involved in the review, he met with Kāinga Ora."

After the report was issued, Newsroom reported that the Board expressed serious concerns about the veracity, accuracy and diligence of English’s review.

For example, they noted, it had limited engagement between reviewers and Kāinga Ora, with “some conclusions appearing to be informed by analysis based on anecdotes.”

The 10-pages of feedback contained three pages of “factual errors”.

That seems to confirm Bishop’s initial direction - “no involvement from KO.”

None of the Board’s responses were made public and were instead were obtained by OIA after the fact.

And the media - writ large - repeated the Government’s narrative of “financial concerns” at KO.

This is independence under the Coalition Government.

This is narrative and spin over care and due diligence.

This represents the superiority of large corporate money over social interests.

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Financial commentator Bernard Hickey calls Kāinga Ora a ‘huge stonking success.'

I’ll quote Hickey directly from this RNZ article:

"You could argue actually that there isn't nearly enough debt inside Kāinga Ora, because for most people, they are able to borrow quite a bit more than 25 per cent of the value of their home. [Kāinga Ora’s current asset to debt ratio is about 0.25.]

"Certainly, if you valued Kāinga Ora like any other home, you'd say to yourself, actually, it's been a stonking financial success over the last five or six years, because the value of its homes, in particular the value of its land, has risen much faster than the value of its debt, just as every other homeowner in New Zealand can claim credit for unearned gains, because land prices rose dramatically."

He says it's "magical thinking" on the part of both the government and voters to think the government could increase the number of homes and not take on extra debt.

"If you said that to a regular person who was looking to buy a new house, they would say that's not possible and [so] would the bank. That's the irony here - the government says it wants to build lots of new houses but doesn't want to do it with any of its own borrowings - which would be totally impossible for a regular home buyer."

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The outcome was inevitable

I knew the end was coming for Kāinga Ora’s existing mission, Board and senior executives.

It was just a matter of time.

It was not only the circumstances of the report, or that it was a close National Party associate that was writing it for them for $500,000, there were other early signals:

• The Government removed $1.5 billion of funding from Kāinga Ora in the May 2024 budget. At the time, National claimed it intended for KO to continue its operations as usual.

• When announcing funding for 1500 places of social housing, to replace the First Home Buyers Grant, Bishop called out that none of the funding would go to Kāinga Ora

• The Government is amending the Overseas Investment Act to sell our land to foreign entities for rent-to-build programs

• Close relationships with private developers in monetary and relationship terms

• In May 2024, Bishop ordered Kāinga Ora to stop work on its builds. 5299 homes were in progress - 3001 of those consented homes. (Not for the first time I notice the irony of crashing the economy for profit as the construction industry falters without support.)

Three days ago, their CEO and five of their Director left the organisation.

It was only, ever, a matter of time.

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Remembering the good Kāinga Ora did

Kāinga Ora was always an easy target. As the largest landlord and builder in the country, there was inevitably bad press. Unruly tenants caused ire in the press, and many feared Kāinga Ora builds would affect local resale values and crime statistics.

Kāinga Ora was to provide social housing and it performed its function.

The largesse of spin is you can take anecdotes, a few impressions, some accurate but mostly a gross generalisation, and with intention, one can spin that up into a much larger storyline than it is.

An example of this is the hysteria around ram raids in June 2023, when ram raid statistics were well on their way down from the peak of 2022 and decreased steadily to September 2023 and beyond. Today, that is recognised as fact. However, it was not perceived as such at the time. Perception is not always reality.

As Bernard Hickey noted above, whether Kāinga Ora was performing well or not could be seen as a matter of political ideology, rather than financial fact.

An organisation which builds homes for New Zealanders is expected to carry debt. 25% of assets is not significant in those terms. And the value it generated - in pure financial terms - has been extraordinary.

Between ~ 2017 - 2022, Kāinga Ora built 80% of all net new public homes in New Zealand.

They own or manage 72,000 homes across New Zealand.

99.8% of their tenanted homes meet Healthy Homes standards.

Kāinga Ora houses 185,000 New Zealanders.

And in the past 3 years alone, they have built in communities across the country. For example, 160 new homes in Gisborne with another 162 already underway.

Kāinga Ora has developed a gold standard template for govt and social housing builds internationally - reducing the time from design to build by ~40%.

Partners from overseas have visited New Zealand to study the model.

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What’s next?

The answer is simple. Property developers, who are large donors to National and ACT, will profit. Winton may even be able to withdraw its lawsuit as the Government’s “fast-track” one stop will welcome its application.

I anticipate many of the upcoming policies to be of benefit to developers as the Govt pivots strongly around its storyline that it is helping New Zealanders by developing on greenfield, and without adequate consultation.

That reality is yet to be seen.

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Post publication addendum

Just in on the press 10 minutes ago - Kainga Ora’s outgoing board Chair tells RNZ:

"I decided I wasn't prepared to work in the board (after what I experienced.)

I think Kāinga Ora is a remarkable success story which I was involved with for six years. Ignoring its achievements, which the government has done, is a major policy mistake.

And not continuing any funding from 2025 - capital - and saying that can no longer build homes and apartments, but should be just be a landlord, is to just abandon one of the largest organisations in New Zealand that works to improve construction."

Kāinga Ora's borrowing was what allowed it to ramp up construction of new homes.

"Has anyone ever bought a house or built a house without doing any borrowing? The money doesn't come off trees. In fact, Kāinga Ora owns - well, the state owns - 72,000 houses and they are worth close to $40 billion… We have one of the lowest debt rates against asset capital - much lower than, in fact, that the Reserve Bank recommends."

She said the final report was "no different" to the draft, suggesting those involved in writing it had already made their minds up, and ignored any rebuttals.

She’s right.

Unfortunately for her, this was going to happen and this path was set as soon as the National Government was elected. I sensed it from December. Each breadcrumb they left since then only affirmed it.

The Coalition Government’s pulpit is much stronger than common sense and facts, and folks like Chris Bishop and Nicola Willis know it.