Using Public Private Partnerships to Improve Housing Affordability

Westpac and Housing

• Westpac has been in New Zealand for 150 years and our primary business in that time has been helping New Zealanders buy houses. We have over 200 branches across New Zealand, so we appreciate the local drivers and know the locals.

• We know that buying a house is not just a financial proposition, that it has the potential to be more than just a roof over your head - a house can be a home, a place for families to grow up, of memories…

• Affordable housing is an issue that requires us to look deeper than just income and wider than ability to service debt, it is about understanding the local context for New Zealanders and their varied needs.

• Affordable housing is a growing issue for New Zealand. The percentage of New Zealanders who own houses is falling. The main reason is that they can't afford to buy – house prices have grown faster than incomes.

April 20, 2023

Home ownership has limits

• The role of banks has traditionally been to address the financial side of helping people buy houses.

• But buying a house is not the answer for everyone. It is important to recognise that some people will never be able to afford a house.

• Nevertheless they still need homes - they need somewhere dry, clean, and safe and to be there long enough to be part of a community.

• While some New Zealanders will never buy houses, they may benefit from long term tenancy. Currently, long term tenancy options aside from home ownership and state housing are few.

• There are no easy answers, but the needs of those who will never be able to afford a house is also an aspect of the affordable housing issue we are very conscious of.

April 20, 2023

Impact of Christchurch Earthquake

• Following the 22 February Christchurch earthquake, there are a number of additional factors which will reduce housing affordability:

– Government estimates that approximately 10,000 houses were destroyed in the Christchurch earthquake, many of which will need to be rebuilt

– There is increased demand for houses in other towns and cities in New Zealand, due to people leaving Christchurch

– More houses will be needed in other centres due to population inertia, ie some people who planned to move to Christchurch will have changed their minds and decide to stay in their current location instead

April 20, 2023

… and “Leaky Homes”

• The “leaky homes" issue is another factor that will reduce housing affordability. The official estimated cost of repairing/replacing existing dwellings is $11-22 billion.

• The Christchurch earthquake and leaky homes means that most of the largely fixed number of tradespeople will be divided between replacing "existing stock" and the new houses required by normal population growth, internal migration (especially to Auckland), and immigration.

• The recent leaky homes litigation has also reinforced local councils' liability for signing off compliance with the building code. Councils are being incentivised to put in place more exacting compliance obligations to manage their liability which add to the cost of building a new house.

April 20, 2023

What would make houses more affordable?

• Housing would be more affordable if there were more houses in the right places.

• This means increased medium-density housing with a mix of people, close to public transport infrastructure and places of work, particularly in Auckland.

• There are two new ways of making this happen that are being contemplated and Westpac supports:

– public private partnerships (PPPs)

– not for profit initiatives using Government capital/stock transfers

• Affordable housing is a huge problem and there is space for many different types of solutions which work together in different ways.

• New Zealand has a once in a generation opportunity now to really make a difference in many New Zealanders' lives. The nature and scale of the problem obliges us to look for new solutions.

• I firmly believe that PPPs complement other affordable housing initiatives, including the not for profit sector's.

April 20, 2023

Westpac PPP experience

• Westpac has experience with a housing PPP in Australia

Bonnyrigg Living Communities

and I would like to spend some time this morning talking about it.

• Before I do so, I would like to make it clear that while Bonnyrigg has been extremely successful in Australia importing Bonnyrigg as it is may not be a perfect fit for New Zealand.

• Part of why I am here is to listen to you, to understand the not for profit point of view; so I have the opportunity to think about how we can collaborate together on the ground in New Zealand.

• We would like to create some successful New Zealand examples of affordable housing built by a partnership of all sectors working together.

April 20, 2023

What is a Public Private Partnership? • A PPP is a concept rather than a rigid formula. The concept involves bringing

together the strengths of the public and the private sectors – and in this case the not for profit sector - to deliver an outcome better than any one of them could deliver on its own.

• PPPs are flexible and can take a variety of forms, but essentially involve a business venture “procured” by government. The project is developed and operated by the private sector. The private sector assumes most or all of the risks - financial, technical and operational - in the project, and obtains a commercial return.

• A special purpose vehicle is created as a private sector consortium, incorporating debt finance, equity finance, a construction contract and a maintenance contract.

• Success of a PPP is due to a number of factors: efficiency in procurement (design, build and on-time delivery); innovation and quality in design; reduced strain on public sector balance sheet; and whole of life project management.

April 20, 2023

An example of a Housing PPP • Bonnyrigg is a social housing PPP with the New South Wales Department of

Housing.

• The objective is to redevelop the Bonnyrigg estate.

• This is a NZ$1 billion project to redevelop the old Bonnyrigg public housing estate.

• It involves replacing the over 800 existing state houses with approximately 2,500 new houses and providing ongoing management of the 833 social houses.

• There are some related benefits, which include a neighbourhood centre and community infrastructure. These aim to build economic capacity and a strong, vibrant and open community, focusing on positive social impacts.

April 20, 2023

Bonnyrigg Estate

Bonnyrigg - “Before”

Bonnyrigg Structure

16

Funders Procuring Entity

Can be Government or public bodies e.g. Universities

Investor A Investor B Investor C

SPV

Equity

Private sector consortium forms SPV to develop, build, maintain and operate the asset.

Design &Construction (D&C)

Operations and Maintenance (O&M)

Construction Contract Maintenance Contract

• Provide project financing via bank debt and / or bonds

• Arrange syndications for large value projects

• Derivative sales, commonly interest rate and CPI swaps

• Deliver asset finance solutions Payment

Construction & Operation

Bonnyrigg Structure

• Bonnyrigg was the first social housing PPP in Australia.

• The procuring entity is the New South Wales Department of Housing and Westpac acts as both senior debt financier and equity investor.

• Becton was selected as the Design and Construct contractor while Spotless provides operations and maintenance.

• There is a 30 year concession with the New South Wales Department of Housing to fund, design and construct the project in 18 stages over a 14 year period, provide facilities management services and undertake tenancy management services in respect of social housing.

• St George Community Housing is the not for profit managing the tenants in social housing.

• Out of the 18 stages, stages 1 and 2 are completed and occupied (approximately 220 houses) and stage 3 is being completed now.

April 20, 2023

What Makes Bonnyrigg Different

• Bonnyrigg seeks to maximise positive social outcomes through a mix of social and private housing.

• The project is designed to achieve comprehensive and integrated social and physical renewal of the estate. The goal is have in place a vibrant and sustainable community.

• Effort has been made to ensure Bonnyrigg is a well rounded community with facilities for health, education, sport & recreation, religious, social and cultural considerations.

April 20, 2023

Bonnyrigg - “After”

Masterplan

Westpac’s role in Bonnyrigg

• Westpac manages the development of Bonnyrigg and provides the debt funding.

• In undertaking the Bonnyrigg project, Westpac believes it has pioneered the partnership between banks and not-for-profit organisations in delivering social and affordable housing outcomes.

April 20, 2023

Core challenges

• Bonnyrigg is the first time Australia has had a PPP developing mixed private and state housing.

• It was essential to understand a "community in transition". Many existing residents were concerned about what a transformed Bonnyrigg would look like and every effort was made to address and manage the underlying anxiety.

• Bonnyrigg requires balancing commercial and social objectives and understanding the relationship between them

• Bonnyrigg also requires balancing the needs of today's public tenants and future private residents

April 20, 2023

PPPs meeting the needs of those who require housing• Westpac recognises the increasing shortage of housing and New Zealand, and

the social issues present in community based housing.

• PPPs have proven to be a very effective response.

• We have participated in 6 PPP deals to date and are expanding our footprint in other forms of social and community housing, leveraging the Australian government’s commitment to this national challenge.

• Westpac hopes to be able to similarly leverage the New Zealand government's innovative new approach to providing housing to those in need.

April 20, 2023

Westpac's other affordable housing initiatives in the third sector• The Australian Government has adopted two core vehicles of promoting growth

in the social and affordable housing space together with not-for-profit providers.

– The Social Housing Growth Fund; and

– The Nation Building Tender

April 20, 2023

Social Housing Growth Fund

• Under the New South Wales Government’s Debt-Equity model, grants were provided by Housing New South Wales to be used in conjunction with private sector funding for property acquisition.

• Under this model, Mission Australia Housing received a $16.9m grant, where ~$31m of residential properties will be acquired, in conjunction with approx $14m funding from Westpac over 3 years.

• 101 dwellings will be acquired in 8 property developments.

• Approximately 46 of these will be used in social housing, where the tenant is unemployed and reliant on welfare benefits.

• A further 55 are for use in affordable housing, where the tenant is employed but with very low to moderate income.

• Mission Australia Housing is acquiring the properties as they are built and have only partially drawn the Westpac facility at this juncture.

April 20, 2023

Nation Building Tender

• One of the Australian Government’s recent core strategies to aid the development of social and affordable housing in Australia has been the Nation Building Tender in 2010.

• This involved the transfer of $1.35bn of housing stock to the not-for-profit sector in New South Wales (4,551 dwellings).

• Community Housing Providers (CHPs) were required to apply for registered CHP status and submit a full tender response in Feb 2010.

• Mission Australia Housing achieved a level one CHP status and was awarded three of the 17 housing packages available in the tender, including a total of 1,046 dwellings worth approximately $300m.

• Westpac continues to build on our relationship with Mission Australia Housing and other core CHPs, working to be the leading financier in understanding and delivering on both the challenges and opportunities of this industry.

April 20, 2023

What’s Next?

Final thoughts

• Westpac would like to participate in providing well planned, well located, large scale housing initiatives that enable New Zealanders to afford to be part of the diverse communities that New Zealand needs now more than ever.

• We would like to get to know the not for profit housing providers here today.

• For those in the not for profit sector who are interested in finding out more about participating in large scale housing initiatives, we are organising a tour of Bonnyrigg and opportunities to engage with a range of Australian parties, including not for profits such as Mission Australia Housing.

• For more information on the tour please talk to me, John Johnston who is here today, or you can get in touch with us through David McCartney from Community Housing Aotearoa.

April 20, 2023

Using Public Private Partnerships to Improve Housing Affordability

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