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The future of Council housing in Napier

The current situation

We own and manage 377 Council housing units situated in 12 villages across Napier. This housing is for people on a low income with few assets and a special housing need. Council subsidises the rent these tenants pay. Most of our tenants are aged over 65 and live in nine of our villages that focus on retirement, containing 304 units. The remaining three villages mainly have social housing tenants, containing 73 units. Social housing tenants are people who have a low income with few assets, or those who might have accessibility needs that can’t be met through private rentals.

Over the last few years, costs to provide council housing for our community have increased a lot. Our housing stock has an average age of around 50 years, and maintenance is costing more. The way we provide housing has become financially unsustainable for our ratepayers and community, particularly when considered alongside other services we must provide.

In the last five years Council made a net contribution of $3.5 million to help fund our housing units. This amount includes rent subsidies, maintenance, insurance, debt servicing and renovating units between tenancies. If we continue in this way, we will need to contribute more than $16.1 million over the next ten years.

In around 15 years' time, the number of older people living in Napier will increase a great deal. By this time, it is estimated there will be around 19,500 people aged 65 and over. They will make up 26% of our population*. An increasing number of Napier’s older people cannot afford to pay for private retirement villages, and they rely on affordable rental options for their retirement instead.

We recognise council housing remains one of the core options available in Napier for people whose income is limited to superannuation and who have no other assets. There are limited alternatives for this group in our community. We believe that there are more alternative options available for our current social housing and supported living tenants.

Keeping all this in mind, we’ve been looking at different ways to deliver council housing, acknowledging the current situation is not financially sustainable. We would like your feedback on two questions outlined below.

When considering which option should be progressed, we would apply the following criteria to ensure best value to the community. This includes looking at further potential sale options as well as redevelopment possibilities.

Financial sustainability – Considers whether the approach will be affordable for ratepayers and will enable us to achieve our housing objectives.
Housing supply – Considers the impact on the overall supply of housing across Napier.
Community need – Considers the impact on the community and tenants, both now and in the future.
Potential supplier – Considers the capability and capacity of potential providers and the external environment in which they operate.
Council achievability – Considers the ability of Council to influence housing outcomes and to implement the changes required.

It is important to remember that with all the options proposed, other than the status quo, any change to how we operate our housing will take a significant amount of time to implement.


* Napier City Council Positive Ageing Strategy 2020-2024

Question 1 - Should we continue to deliver our current Council housing by increasing rates and borrowing, or should we shift Council’s focus to retirement housing only and sell our social housing villages?

There are two options to consider under Question 1:

Option 1A: Continue to use loan funding and rates increases to support Council’s current housing delivery approach. This is the status quo.

Option 1B: Shift Council’s focus to delivering retirement housing only and sell some Council-owned housing (This is our preferred option).

P.16 Housing Option 1AUnder this option, we would continue to provide council housing of 377 units across our 12 villages. There will be no change in the service provided, and no disruption to current tenants. The operating and capital costs needed to deliver the current model would increase over the next 10 years, from $4.7 million to $7.5 million annually. As rental income is currently fixed at $4.4 million annually, a net ratepayer contribution of $16 million would be needed to fund our housing activity over the next 10 years. This would mean an average annual rates impact of 1.8% over the next 10 years.

Under this option, we would focus on maintaining the current service level. Limited finances would reduce our ability to adapt to our community’s future needs. For example, this may affect our ability to maintain the standard of our housing units.

P.16 Housing Option 1BThis is our preferred option. By focusing on our retirement community, we’ll be able to meet the needs of the community while also ensuring we are financially well positioned for the future.

Under this option, we would sell three housing villages that are currently used for social housing purposes: Nelson Place, Wellesley Place, and Carlyle Place. These villages have multi-storey units with a mix of 1-3 bedrooms and are not well suited to retirement housing. The money from these sales will be set aside to fund the remaining housing villages.

If we went with this option, there could be disruption for some tenants. It is not certain if social housing and supported living tenants, who occupy the villages to be sold, would need to be moved to alternative non-council accommodation. If this situation were to come about, we would work with these tenants to ensure a smooth transition. Retirement tenants living in the villages to be sold would be offered a place in one of our remaining nine retirement villages. All tenants of retirement age would stay in one of our housing villages, but we would not be able to guarantee that it would be the same unit they are currently in.

Other options

We did consider selling all Council housing. This would mean we would no longer provide housing for social and retirement tenants. Instead, the portfolio could be sold. There would be no certainty that the units and land would continue to be used for housing. We ruled out consulting on this option given Napier’s ageing population, the community need for affordable retirement housing as well as previous community feedback.

Question 2 - If we shift to a focus on retirement housing, how can Council deliver this in an effective way?

Question 2 only needs to be considered if Council chooses its preferred option of focusing on retirement housing (Option 1b). We would like to gather your thoughts on this now, so we know the community’s views in advance.

P.17 Housing Option 2AUnder this option, Council would continue to deliver housing services the same way we currently do. We would look after the housing assets and run the tenancy management services. There would be fewer housing villages though, as we would sell the three social housing villages (Nelson Place, Wellesley Place, Carlyle Place). For the remaining retirement tenants, and for new retirement tenants, there will be no change in service or rent.

The funds made from selling the three social housing villages will be set aside to fund the running of the retirement villages for the next ten years only. After this the funds will have been fully used, and we would likely return to the same financially unsustainable position we’re in now. This means we would need to reassess our housing service before the ten years are up. This could potentially include rental increases and changes to how we deliver the service.

This option means there will be little disruption and change in the short to medium term, but we will likely need to reconsider everything again in the longer term.

P.17 Housing Option 2BIn 2022 we shifted towards a flat weekly rental rate. This was based on 80% of the cost of providing all housing villages at that time. The other 20% was a council contribution that we funded with loans. There are forecasted cost increases, so our 20% contribution will increase significantly over the next ten years. One way to help minimise these increases is to review rental annually so that it stays at 80% of the cost of running the housing, as this cost grows over time.

This means we could afford to provide retirement housing over the longer term and consider developing villages further. This option allows us to better provide for the needs of current and future tenants because we could respond more easily to increasing costs and demand. We would also work with other housing providers to see if they could manage the tenancies or look after maintaining the houses, so these services are provided efficiently. Any arrangement would need to consider the needs of existing tenants.

Funds would be generated through selling the social housing villages (Nelson Place, Wellesley Place and Carlyle Place). We would also consider developing some of the remaining villages. We would work with other housing and development providers to decide which options would be best. Our intention would be to generate enough money to replace older units with new ones. This would allow us to respond to the growing community need for retirement housing, and to provide fit-for-purpose homes. This option would involve us entering commercial negotiations with other housing and development providers.

We acknowledge that this option would create disruption and uncertainty for current retirement tenants if future development and sales took place. However, we will be committed to engaging with tenants and the community once plans are more formally developed. We’re committed to providing affordable and healthy homes for people aged 65 and over who have no other accommodation options.

P.18 Housing Option 2CIndependent delivery means the service would be provided by other housing providers on Council’s behalf. If this option was taken, we would explore the potential to lease or transfer our housing assets to other providers. This means that the housing service would be run by an independent provider – such as a community housing provider – and not Council. The new provider would make decisions on any future rent increases.

This option is highly dependent on a successful commercial negotiation, and it would need significant resources in the short-term to confirm arrangements. We would use the same criteria as outlined earlier to assess whether there is a housing provider that can deliver housing services and ensure the best value to the community.

An independent delivery approach could mean that housing is delivered in a more responsive manner, but it would mean that Council no longer has control over the services provided.

There would likely be little disruption to remaining retirement tenants in the short to medium term. There could be further disruption as the new provider makes decisions about how to best deliver the services.

While some debt funding will be needed in the short term to cover these transition costs, further long-term debt is not expected once the lease or transfer has occurred.

What does ‘mixed delivery’ mean in our preferred option?

Mixed delivery means our housing villages could be delivered by Council, plus the potential for delivery by other providers.

What about previous consultations?

In 2022, we consulted with the community on whether to keep the housing or sell some or all of it. Council decided to keep all housing and fund the shortfall through loans for a few years.

Our intention had been to consult on a rates increase in the 2023/24 Annual Plan, to fund housing over the long term. Our focus on recovery from Cyclone Gabrielle meant we had no resources to do any consultation for the 2023/24 Annual Plan.

Since the 2022 decision, rising costs have impacted our ability to keep the houses maintained with the budget we thought would be required. Our preferred option of keeping our housing villages in their current form must now change.

Council officers are creating a housing strategy that will outline Council’s role in housing. Council currently acts as a connector, an advocate and a housing provider to ensure there are sufficient options for retired people who cannot afford private rental and home ownership. This will be reflected in the housing strategy.

Did Council historically ringfence its housing income?

In 2015, a fund was established to ringfence the housing income away from the rest of Council’s finances. Research into this undertaken in 2022 identified that only maintenance expenditure was ringfenced in 2015, and this was corrected in 2019. Since 2019, all our housing activity has been fully ringfenced.


 

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