Extra costs possible from housing sale to K¯ainga Ora
The council may help fund redevelopment costs
Tauranga ratepayers could end up footing some of the costs associated with the redevelopment of elder housing villages the city council has just sold to the Government for below market value.
The Bay of Plenty Times Weekend can reveal an agreement between Tauranga City Council and Ka¯inga Ora stipulates the council could be forced to help fund redevelopment costs if deemed necessary by the housing agency.
In May, the council sold seven elder housing villages to Ka¯inga Ora for $17.2 million – $25m less than their capital valuation. As of July last year, the value for the villages totalled $41.65m.
The sale meant the villages would transition from elder housing to public housing, widening the scope of who is eligible to live there. But there was significant remedial work to be done first.
Documents obtained via the Local Government Official Information and Meetings Act show that while Ka¯inga Ora would take the lead on the design, planning, funding, financing and delivery of redeveloping the properties, it could lean on the council for help to fund redevelopment.
In the Partnership Agreement for Elderly Housing Villages between the council and Ka¯inga Ora, a clause stated Ka¯inga Ora “may identify required infrastructure capacity investment to support the development of the properties”.
“Given the joint aspiration of redeveloping the properties, TCC will actively engage with Ka¯inga Ora and consider the priority and funding options for the required infrastructure, including within Annual Plan processes.”
It was expected any “such infrastructure funding” should align with the council’s Long-term Plan, construction timelines, and plans for housing action, priority development areas and spatial plans.
The redacted document did not detail how much this could equate to, or whether there was a cap on this funding. However, the cost for retrofitting the properties, which Ka¯inga Ora included in its original base price, was $32.4m.
The document also stated redevelopment would maximise the density of the properties - subject to still delivering tenant wellbeing and good design outcomes, and the new development being consistent with recent similar Ka¯inga Ora developments and policies.
“The new properties will be used primarily for public housing to house existing tenants, public housing tenants and housing for other low income and vulnerable people in Tauranga who are most in need of housing,” the document stated.
Asked what was meant by “infrastructure investment”, Tauranga City Council general manager of strategy and growth Christine Jones said this translated to transportation, water, wastewater and stormwater effectively, public amenities supporting the property’s redevelopment rather than the specific project itself.
“For example, the Te Papa Spatial Plan identifies the need in some areas across Te Papa for investment in these types of infrastructure to enable intensification. Similar investment is likely to be identified through the O¯tu¯moetai Spatial Plan process.”
Jones said any infrastructure investment would be included in the council’s Long-term Plan or Annual Plan processes - both subject to community consultation and “no decisions have been made”.
Ka¯inga Ora regional director Darren Toy reaffirmed Jones’ statement that the clause regarding infrastructure investment pertained to transportation, water, wastewater and stormwater, as “these are expected to be the main infrastructure needs”.
However, he would not rule out this “investment” expanding to cover other costs.
Only the $34.2m retrofitting cost would be solely borne by Ka¯inga Ora.
Asked why the infrastructure cost was not included in the belowmarket price paid for the villages, Toy said that while redevelopment was considered it was “too early for infrastructure costs to be known”.
In a separate document, also obtained via the Local Government Official Information and Meetings Act, key findings from independent auditors and advisery service KPMG highlighted that Ka¯inga Ora’s proposed price was about 64 per cent of the portfolio’s book value.
In a copy of advice provided to the council, KPMG stated the assumed “major retrofit” at up to five of the villages was “a key aspect that materially lowers the price”.
However, KPMG stated the Ka¯inga Ora price was “broadly in line” with similar transactions, “particularly when considered in the context of the significant level of redevelopment/retrofit that is a requirement of the arrangements with Ka¯inga Ora”.
Telfer Young prepared a valuation on the basis that there was an obligation to redevelop four of the nine villages, which, for those villages, resulted in a material reduction in value at less than 33 per cent of the original valuation, the document stated.
The Ka¯inga Ora refurbishment was expected to happen over the next 15 years.
In conclusion, KPMG stated the Ka¯inga Ora deal achieved a “fair outcome for ratepayers through a reasonable upfront price”. Combined with the private sale of the Hinau St and Pitau Rd villages, the financial outcome was expected to be positive.
In May, Council Commission chairwoman Anne Tolley said the sale of the seven villages was expected to be balanced with the private sale of the Hinau St and Pitau Rd villages, believed to yield considerably more value, and these proceeds would go towards Tauranga’s social and community housing goals.
As of March last year, the Hinau St and Pitau Rd two villages were valued at $18m-$23m. However, at the time, Citizens’ Advocacy Tauranga chairman Rob Paterson said the sale of the seven villages to Ka¯inga Ora for $17.2m price was, in his view, an “absolute rort”.