Building of public homes has increased substantially over the past five years, but the housing register has generally grown more quickly than people have been placed into social housing. It is abundantly clear that more building is needed, but the recent review of Kāinga Ora and its funding issues cast a shadow over the entity’s ability to efficiently and effectively continue construction.

In this article, we look at how the social housing crisis has developed over recent years. We then set out our expectations for future building activity given the previous government’s plans and the signals from the new government. We conclude that Kāinga Ora’s build rate could be close to zero by the 2025/26 fiscal year, with the government relying on Community Housing Providers for any increases in the stock of social housing.

The waiting list for state housing reached a record high of 27,234 people in April 2022, more than eight times the number of people on the housing register in June 2015. This lift represented an increase in the percentage of households on the register from 0.20% to 1.42% between mid-2015 and mid-2022.

Chart 1 shows that, since late 2022, the number of people on the register has stabilised at between 23,000 and 26,000, but with strong immigration continuing to push up rents, a considerable number of people remain vulnerable to requiring housing assistance.

Chart 2 compares the number of applicants housed per quarter against new additions to the register (net of people who are not placed in social housing, but who leave the register due to changes in circumstances). Where the additions to the register exceed the applicants housed, the total number of people on the housing register increased during that quarter.

Although the build rate of social housing has risen over the past five years, demand for social housing has grown even faster. For the more than 25,000 people on the register, the median length of time they are currently waiting to be housed sits at 206 days, or almost seven months.

Last month, the government released an independent review of Kāinga Ora, which looked into the financial position, procurement, and asset management processes of the entity. The review showed a heavily leveraged financial position and large operating deficits.

The review resulted in, among other things, the requirement for a new board to be appointed and the establishment of a turnaround plan. Until the government has received and approved a turnaround plan from the refreshed board, no further funding will be budgeted for the entity to deliver additional social housing places. It is likely that the government will take a more restrictive approach to funding and keep a very close eye on Kāinga Ora’s operations in coming years.

There have been two other key areas of change for Kāinga Ora. Firstly, Minister of Housing Chris Bishop announced that the KiwiBuild programme will officially be scrapped, as outlined in National’s pre-election plan, although an official date is yet to be decided. The government’s policy focus for improving the affordability of housing has instead pivoted to a strategy based on liberalising planning rules and asking councils to plan and zone for more future housing. Secondly, the National-led government has announced it will put an immediate end to First Home Grants, which cost $62m per year on average over the last five years.

The end of the First Home Grants and KiwiBuild initiatives are expected to free up funding for other housing developments. For example, the government allocated $140m released from the end of First Home Grants to instead fund 1,500 new social housing places. These new social housing places will be provided by Community Housing Providers (CHPs), not Kāinga Ora. Delivery of the 1,500 new social housing places is to be phased from July 2025 onwards. However, it is unclear what the $140m will provide, as the $93,000 per “place” is certainly insufficient to build 1,500 new homes. It seems likely that this money will be used to fund income-related rents for 1,500 additional households over the next few years.

The government has been building state houses at the fastest rate in about 30 years, with almost 12,000 new builds completed since mid-2017, resulting in a net increase to Kāinga Ora’s public housing stock of over 8,100 homes. CHPs have completed a further 2,300 new builds, and another 5,250 CHP homes have been added to the social housing stock as they have been leased from the private sector.

Kāinga Ora’s number of homes under construction peaked at almost 7,400 in April last year, with 4,658 of these homes earmarked for social housing.1 Chart 3 shows that, over the last year, Kāinga Ora’s build rate has eased to about 6,300 homes, although most of this dip has been in KiwiBuild and private developer construction.

In March, Kāinga Ora stated that of its 6,300 homes under construction or contracted to be built across New Zealand, about 4,500-4,700 were set to be delivered by June 2024, with the remainder being ready by June 2025. Kāinga Ora CEO Andrew McKenzie also said around 5% of the 6,300 homes “under construction” have been cancelled, and out of the 2,000 homes in the planning phase, a small portion might not proceed due to the outcome of feasibility assessments. Mr McKenzie attributed these outcomes to significant construction cost increases.

Kāinga Ora’s 2022-2026 Statement of Intent set out a target of a net additional 6,300 newly constructed public and supported homes over the four years to June 2026. By June 2023, progress towards this target of 2,526 homes had been made, so based on the pipeline of homes outlined above, this target could be almost reached by the end of this month.2

More recently, in the Ministry of Housing and Urban Development Public Housing Plan: 2024-2025, the Ministry predicted that total public housing would increase by 7,000 homes over the two years to June 2025 through all providers, which would take the public housing stock to about 86,500 homes (see Chart 4). As at April 2024, there was a total of 81,860 social houses provided by Kāinga Ora and CHPs.

Given current government budget constraints and the pressure on Kāinga Ora following the recent review, it is hard to see social housing places continuing to be built at the same pace as before. The effective freeze on additional capital funding for the agency, and the lack of commitment from the National-led government to increase the social housing stock beyond the homes currently under construction, suggest that Kāinga Ora’s build programme could fall away substantially over the next 12 months. In fact, the government’s shift towards CHP provision of social housing places could see almost no new Kāinga Ora building from 2025/26 onwards.

High construction costs will also act as an impediment on the agency’s ability to keep up with the growing demand for social housing in New Zealand. As a result of this outlook, the shortage of state housing looks set to persist for years to come.

We have previously advocated for the government to take the opportunity of a downturn in residential construction to address New Zealand’s shortage of social housing, effectively supporting the industry by significantly increasing construction of state houses while private sector activity is low.

Residential construction activity is currently down 8.2% from a year ago and 14% from its September 2022 peak. With annual consent numbers having fallen from 51,000pa to 35,400pa since mid-2022, further declines in activity are on their way. Social housing development should be ramping up while the industry is less constrained for capacity. But as in other areas of fiscal policy, government actions in recent times have been heavily pro-cyclical – adding to demand during the boom of 2021 and 2022, and then reducing demand in the current recession.