Delivering more housing when it’s needed most

Chief Executive Andrew McKenzie outlines this approach and the work under way as the agency ensures the housing needed is delivered while working within its budgets.

Kāinga Ora is delivering new housing at pace – we have around 6,300 homes under construction or contracted to be built across the country.

Of these between 4,500 – 4,700 will be delivered in the 2023/24 financial year, with the remainder being ready to house people and whānau by the end of June 2025.

We also have another 2,000 homes in planning phases.

Every working day, we deliver around seven newly built homes, and the trajectory of our build pipeline means we continue to deliver the extra social housing which is urgently needed.

This is despite the significant cost pressures the construction sector faces.

Over the last three years, for example, the cost of building a home using traditional project processes has risen dramatically, with material and labour costs increasing by nearly 40%. Naturally, that impacts on our budgets.

A small portion of the homes in planning may not proceed due to the outcome of our feasibility assessments. Like other prudent developers, we constantly review and assess the feasibility of our planned projects to ensure they can still be delivered within budget and that the original business case still stacks up. Our planning also takes into account the supply intentions for additional social housing across the country, as outlined in the Public Housing Plan.

We put a significant amount of work into the planning, design and consenting stage of a new housing development to ensure that it is of a high quality, meets local regulatory requirements, and fits well within the neighbourhood. That work can be time-consuming and market conditions can change as we work through that process.

While we may not proceed with some developments, and several of these have been reported in the media, the vast majority of the houses in our pipeline are, and will be delivered. 

The rising cost of developing and building is something every developer in the country is grappling with, and having to re-evaluate projects goes with the territory - it would be unwise not to.

Creating more efficiencies

So we can continue to deliver houses as efficiently as we can, we have also been transforming our approach to building homes, developing a new housing delivery system that dramatically improves pre-construction and on-site performance. The time taken to design, consent and build homes has been reduced significantly, project delivery times are much more reliable, and cost is much lower. We have tested it on specific typologies of housing and know that it is a far better process to use for home delivery.

Given the rising cost of developing land and building houses, and the opportunity created by our new system, we have been reassessing projects where construction has yet to start, on a case-by-case basis, to determine if they are still financially viable, and whether there are more cost-effective options available. 

Typically, this involves firstly exploring the delivery options we have across a region for achieving our portfolio aspirations, and then examining how that specific site meets our needs, delivery risks the site might have, project financial feasibility and it’s fit with our preferred delivery method. Based on this analysis, we then make a decision on the best option - continue with our initial plans for that project, rescope it, or sell the land.

Funding our builds

The social housing model that Kāinga Ora works to relies on the organisation borrowing 100% of the construction cost to build the additional homes requested of us, and then using the 60-70 years of rent revenue it will receive to pay the interest on that debt, repay it, maintain the homes, provide tenancy services, pay Council rates and other costs.

It also borrows to meet the up-front cost of a compressed timeframe for renewing its existing homes, as well as for redeveloping its existing landholdings so that land can support more intensive land use. We are also delivering 40 years of renewal activity – that’s the major upgrade or replacement of thousands of our older state homes - into a decade.

Kāinga Ora owns over $50 billion of homes and land, and has debt of $15 billion. That debt has increased by $13 billion since 2018, as the organisation has invested $14.5 billion into the construction of additional homes, renewal of existing homes and redevelopment of land to enable more homes to be built across New Zealand.

We acknowledge the construction sector is under pressure – as a residential build customer who partners with over 300 building firms  - we’re seeing that, but through the partnerships, systems and programmes we have, we are successfully delivering the additional housing this country needs.