Executive Summary
Community Finance is launching the Community Housing Funding Agency (CHFA), to help tackle New Zealand’s estimated $14 billion social housing deficit. The CHFA is the beginning of a new chapter in supporting vulnerable households, unlocking scale and delivering better value for taxpayers.
The CHFA will bring together philanthropists, fund managers, Government funding and leading charities, and is based on proven models used successfully overseas to efficiently provide lower cost finance to Community Housing Providers (CHPs) and unlock social investment at scale. Finance is critical for CHPs to be able to deliver social housing at the scale our country needs. It is the main component of each new home, but also the largest ongoing expense. That is why Community Finance is launching the CHFA. It will aggregate the finance requirements of leading
CHPs around the country to efficiently raise the money they require from wholesale debt capital markets, by issuing bonds.
As a major upgrade to the current Community Finance model, the CHFA now has a range of new innovative features and enhancements. This includes for the first time, Community Finance providing a private guarantee of future CHFA bonds to encourage investment at scale to support CHPs. This is being unlocked by a group of philanthropic and socially minded investors committed to supporting New Zealand, including the Tindall, Lindsay and Edgar families, the Hoku Foundation and more.
The CHFA will also for the first time, allow the finance needs of leading CHPs to be aggregated – or pooled together – enabling the CHFA to offer much larger bond issues on market standard terms. This helps make the bonds more attractive to a wider range of investors to support scale.
Community Finance as the manager also operates on a much lower margin than banks, which enables the returns for investors and lending rate for CHPs to be further optimised. Community Finance was launched five years ago to respond to what its stakeholders believed were significant inefficiencies in the way social housing was funded and financed in New Zealand. Since then, Community Finance has raised more than $165m through its innovative bond programme and supported a range of charities and CHPs around the country to access efficient finance, including the Salvation Army, CORT Community Housing, Ōtautahi Community Housing Trust, Ka Puta Ka Ora Emerge Aotearoa and Penina Trust. Many new CHP borrowers will be announced over coming months and we are proud to confirm that the first CHP to benefit from the CHFA will be Te Āhuru Mōwai, the largest Māori housing provider in the country, which manages over 950 homes.
With an estimated $297b of funds under management in New Zealand, there has never been more money under management domestically. Yet despite this wealth, there are tragically 21,958 households currently on the Housing Register, highlighting the significant social inequality challenge we face as a country.
These are households eligible for social housing around the country, but are trapped on a Government waiting list, because the country continues to fail to deliver affordable homes at sufficient scale. Numerous studies and reports have highlighted the negative socio-economic outcomes of failing to fix social housing. The results are predictably terrible for the households trapped without adequate, affordable housing and taxpayers lose in the short and long run too, with increased costs in health, education, crime and ultimately productivity. That is before considering the
individual loss of opportunity to live well in this country.
It is more expensive to not fix the affordable housing crisis in the long term for New Zealand. Community Finance, and many others in the sector, therefore think we must act now and launch the CHFA today as part of the solution.
An affordable housing crisis of enormous scale, with finance the largest expense for taxpayers.
If each new home costs $650,000 to deliver, then to house the households eligible for a home (that does not currently exist), will cost over $14b. Given the scale of the problem, it is vital that the system we use as a country is efficient, cost effective and robust. We must address the finance and funding gaps that currently exist. This means we need a system that is proven to work and most effectively combines the strengths and capabilities of the financial markets, developers, charities, philanthropy and Government. The good news is that it is internationally proven and clear how to do this better, even though New Zealand has consistently been an outlier in ignoring proven international precedent and research
in this space.
In New Zealand, CHPs receive long-term, (up to) 25-year Government funding to deliver social housing, enabling the rent to be genuinely affordable for lower income households, with the difference between market rent and the tenant payment paid to the CHP by the Government through the income related rent subsidy, plus an operating supplement.
Government funding makes the rent affordable for the tenant, covers the costs of the CHP, and benefits the wider financial ecosystem, because it makes the bonds issued by the CHFA more attractive, through the combination of high quality CHP borrowers and long-term Government funding. The largest expense over the 25-year period for social housing is finance, which, unsurprisingly, means it is the main cost driver for how much the Government (and therefore taxpayers) need to contribute to the CHPs under each contract. While it would therefore seem logical that past governments would work to effectively and directly lower the finance cost for CHPs and therefore reduce its direct funding cost for each home (like other countries have for decades), this has not
been the case so far. This has increased the cost to taxpayers on thousands of existing homes. This can change.
Kāinga Ora and/or Community Housing Providers as the solution?
It is worth highlighting the alternative, or complement, to CHP delivery, is for the state to deliver the new homes directly through Kāinga Ora. One of the economic impacts of the delivery through Kāinga Ora, has been that it typically requires 100% of the cost of each new home to come from increased Government debt.
If you overlay that with the previously noted $14b potential cost (which is conservative), it becomes obvious why we should be careful in choosing to deliver
through the state alone. This is because the Government’s bandwidth to borrow for other areas would inevitably be impacted. If Kāinga Ora required billions of extra Government debt in the future, this would inevitably be at
the expense of other areas of real need and deficit in the country too, like new hospitals, schools or ferries. It is well documented that New Zealand faces an infrastructure deficit on many fronts, not just in affordable housing.
This is why the norm in overseas countries is for charitable CHPs and/or housing associations to be the main solution. It is why it is logical for governments moving forward to (a) back CHPs and (b) genuinely invest in a system that enables CHPs to efficiently deliver more.
Decades of international experience and research shows New Zealand can tackle the affordable housing crisis far more efficiently if it adopts proven models and tools
Through its ongoing subsidies, the Government effectively foots the bill for financing costs in the community housing sector. It is therefore logical that lowering the cost of CHP finance reduces the quantum of subsidy required. This can limit the burden for taxpayers and boost the retained earnings of the CHPs, which can be reinvested into delivering more homes. This is fiscally prudent and internationally proven.
This dynamic is the same for many countries and was identified in the UK in the 1980s and Australia over ten years ago. In a peer reviewed report on The use of guarantees in affordable housing investment—a selective international review, the researchers identified that “it is clear from extensive Australian field work that commercial borrowing terms and conditions demanded by banks from the community housing sector will significantly impede their role in supplying Australia’s social and affordable rental needs. High interest rates, short terms and significant re- financing risks also diminish the benefit of any public subsidy in the package.”
That can and does equally apply to New Zealand, although it is arguably even more important when bank net interest margins are higher in this country. Banks serve an important role in society and are important to supporting the CHFA as well. ANZ
Bank for example has and continues to provide important support to Community Finance and acted as the Arranger for recent bond offerings to support CHPs and attract new fund managers as investors.
In simple terms, if you want to unlock billions at an efficient cost for a specific sector like this, then banks, even at residential special interest rates, are not the most efficient option. This is proven internationally and there are also domestic examples that demonstrate this. By way of example, the Government itself issues bonds to secure its debt at efficient pricing (it does not borrow from banks). Local authorities in New Zealand likewise work together and issue bonds through the Local Government Funding Agency (LGFA) to unlock lower cost finance. Note in particularly that they
borrow collectively through the one vehicle. The “LGFA was established to raise debt on behalf of local authorities (“councils”) on terms that are more favourable to them than if they raised the debt directly.”
Australian Governments followed international precedent and have delivered for Australians. It can be the same in New Zealand...
In Australia, the equivalent of the CHFA was launched by the Australian Government after years of careful international and domestic research. It issued its first bond, the same year Community Finance was launched privately in 2019. A 2017 Treasury paper noted before its launch that, “The bond aggregator has the potential to provide cheaper and longer term finance to support the development and retention of affordable housing. It will do this by aggregating the borrowing requirements of community housing providers and issuing bonds to the wholesale market at a
lower cost and longer tenor than traditional bank finance.”
Like the LGFA and other international examples from decades ago, Australia recognised it was important to aggregate, or pool, the leading CHPs together, to create the most efficient investment options, not split CHPs amongst lenders and limit the scale. This salient point has been sadly missed by previous governments in New Zealand, without research that supports the approach.
While Australia was late to adopt best practice (but not as late as New Zealand), the positive result and impact of a specialist intermediary being launched to finance CHPs reflects what was proven internationally in the UK, Switzerland, Ireland, France, Netherlands and United States beforehand.
They have all demonstrated over decades a more efficient way to secure finance for affordable housing. In Australia, the results of following international research are unsurprisingly stark and decisive. Housing Australia, through its Affordable Housing Bond Aggregator, has as of October 2024, already approved $4.1b in loans, supported over 18,800 new and existing homes and saved an estimated $740m in interest savings.
This highlights the opportunity of efficient finance and social investment at scale, but also the real opportunity cost for New Zealand, if we don’t invest in the right system and proven tools to unlock finance efficiently. One of the aspirations and benefits of the CHFA is that it creates a tangible way to scale KiwiSaver and fund manager investment into an area of real social need in our country. We have designed the CHFA to provide an attractive investment through the bonds, while limiting the downside impact of speculative private investment into affordable housing, due to the CHP charities being prioritised as the owners of the homes. The importance of this was noted by Scott Morrison, the then Treasurer in Australia in 2017, who stated
“As is already occurring overseas, the goal is for affordable housing to be conceived not so much as a real estate investment, but a longer-term fixed interest investment that can comfortably sit within institutional investment portfolios.”
Community Finance and the impact investors in the Community Housing Investment Fund lead by example and launch a private guarantee to support New Zealand
To enable the CHFA to be launched to support community housing nationwide, Community Finance has raised additional capital privately, and is also launching the Community Housing Investment Fund.
This enables, for the first time, investors buying bonds through the CHFA to
benefit from a limited private guarantee. This additional credit enhancement is designed to encourage investors (particularly KiwiSaver and fund managers) to invest in the bonds at greater scale. This anticipated growth will directly support the CHPs to deliver more homes in New Zealand and help more CHPs refinance from banks to save interest costs. James Palmer, Chief Executive of Community Finance, confirmed “We are fortunate to partner with a range of philanthropic and socially driven impact investors who have been prepared to walk the talk and deliver genuine positive impact for our country and those in need.
The evidence is clear, the need is great and the way to do this is internationally proven. We are proud to lead from the front and announce a private guarantee to support our leading charities in this sector. While this is a big step, it is in line with Community Finance’s purpose and commitment as a social enterprise and will make it easier for a targeted public guarantee to follow in the future, as proven in Australia
“If we genuinely want to supercharge community housing in our country, this can be a defining moment in our history, when we truly bring together the best of philanthropy, impact investors, fund managers, charities and Government.”
One of the new key impact investors to support Community Finance, as both a new shareholder and as a cornerstone impact investor in the Community Housing Investment Fund, is the Hoku Foundation. Eve Jolly, Foundation Director, Hoku Foundation, stated,
“This is a long-term investment. Our investments into both Positive Capital/Community Finance and the Community Housing Investment Fund removes a significant constraint for community housing providers, giving them greater access to the capital they need. We know there are improved socio-economic outcomes for people and communities as a result of being in quality, stable, affordable homes. Hoku is proud to support getting the Community Housing Investment Fund and CHFA started and hope many others will choose to do the same over time.”
Community Finance would not have been able to launch the CHFA without the support of a range of its cornerstone investors over the last five years. We would in particular like to acknowledge the leading role local fund managers and KiwiSaver providers have played in mainstreaming impact investment to support CHPs in New Zealand with Community Finance. This includes (but is not limited to) Generate, Simplicity, Pathfinder, Westpac KiwiSaver scheme, Harbour Asset Management, Trust Management, Clarity Funds Management and Forsyth Barr.
In 2025, when the first bond is issued by the CHFA, we look forward to further fund managers joining the growing investor base to create further win/wins that demonstrate that we can invest in our own country, make money and positively impact our communities. We would also like to acknowledge the shareholders that continue to support, enable and encourage our work in mainstreaming impact investing and scaling charities on the front line of social investment through affordable housing.
Sir Stephen Tindall, Trustee of the Tindall Foundation and director of K1W1, confirmed:
"After working for nearly 20 years in the community housing area we have seen first-hand the on-going benefits of ensuring every family in New Zealand has a safe and affordable place to live.We are delighted to be backing Community Finance and the CHFA and we encourage other impact investors and the Government to do the same to help increase affordable housing supply. Impact investment like this delivers financial returns and positive outcomes for New Zealand. The time is now for genuine impact investment."
Looking forward and the opportunity for Government support of the CHFA
There is reason for optimism. The Government is to be applauded for publicly backing CHPs, which included announcing this year funding for 1500 new social housing places between 1 July 2025 and 30 June 2027. The CHFA will help CHPs deliver this more efficiently, but with the funding representing less than 7% of the nationwide waiting list, we need to continue to take serious measures as a country in 2025 and beyond to fund and finance the deficit over the medium and long term. Our aging population is only going to increase the need.
To further highlight the building momentum for system change, the Government announced a Request for Information for Financing Social Housing in August 2024. Encouragingly, this stated that “Solving New Zealand’s fundamental housing lack of supply is a top priority for the Government. As part of this, the Government is interested in supporting better ways to finance social housing provided by Community Housing Providers (CHPs).”
proud to provide this international research and the details of overseas proven models over the last year, and again, as part of this process in August. This all highlighted the importance of a specialist intermediary for CHPs, a targeted Government guarantee of the bond programme, the importance of aggregating leading CHPs together (not splitting them, as shown through the LGFA in New Zealand), the importance of CHPs owning homes and limiting lease deals and formalising step-in rights (with the guarantee). A targeted guarantee has been the norm to support CHPs and housing associations worldwide for decades, with Australia being a late adopter of the model. In 2013, research by Australian Housing and Research Institute noted,
“Government guarantee schemes to address the supply of affordable housing have been established in a number of countries including the UK, Ireland, Switzerland, the Netherlands and the United States.” The rationale for a Government guarantee is logical and Community Finance is leading by example by going first with its own private guarantee. As noted in Australia,
“Guarantees are used by many governments to reduce reliance on public funds, build market confidence amongst new investor segments and accelerate investment in required social and economic infrastructure such as social housing. They aim to bolster the credibility of new initiatives and can be used to establish new pathways of investment. Ultimately, they aim to attract suitable long-term investment and reduce the cost of finance.”
Prior to the launch of Housing Australia, another key study correctly highlighted that
“Government guarantees lower the perceived risk of affordable housing investments to those loaning money. As a result, borrowers can offer lower interest rates and still attract investors. In turn, lower interest rates mean affordable housing developers can provide more stock to targeted lower and moderate income households. Government guarantees are justified as a way to correct market failure in providing sufficient housing for these households."
A Government guarantee of the CHFA bonds would be a remote, contingent liability.
While it would be noted in the Government’s budget, it would not have to carry a direct cost, as it would be improbable that it would be called upon. This makes sense when there have been no failures in this sector in New Zealand (as expected with the long-term Government funding) and reflects how they are treated by many other countries. The Australian research which highlighted this approach to public finance accounting standards further noted, “Justification for the use of guarantees is often framed in terms of cost savings to government, as the provision of direct funds
decline. Notable is the near zero default rate amongst the European social housing guarantees reviewed, and their minimal impact on government accounts.”
Paul Gilberd, Chief Executive of Community Housing Aotearoa, adds, “Community Housing Aotearoa commends the team at Community Finance and their philanthropic partners for delivering this much needed new tool into our housing system. We have actively worked with numerous partners over many years to establish a longer-term and lower cost debt issuer to reduce the cost of new affordable and social housing supply. It is great to see it finally introduced to New Zealand.
“Based on the success of similar bond aggregators such as Housing Australia, which has saved the Australian taxpayers 100s of millions of dollars through longer term, lower cost finance, we expect Community Housing Providers to deliver more new social housing per dollar invested. Once this philanthropic funding has demonstrated the viability and effectiveness of this innovative model, we hope government will follow behind and further scale it up. Partnerships such as this are critical to solving New Zealand’s affordable housing shortage.”
Based on all of the above, Community Finance invites the Government and all political parties, to support and partner with CHPs and Community Finance to adopt what is internationally proven and help our country to deliver finance efficiently with the CHFA. The LGFA is proof that local authorities benefited from aggregating (borrowing together through a single entity) to create more attractive and larger bonds to the financial markets. Australia has further proven the tangible benefits of a more cohesive and integrated funding and finance system through Housing Australia, delivering thousands of new homes, billions in investments and nearly $1b in finance savings already, critically enabled by a Government guarantee of the bond programme.
While continued improvements to the procurement and contracting terms of the IRRS funding to CHPs has helped and new improvements will inevitably continue to be announced by governments (which do help), at the end of the day, if we do not add the government guarantee to the CHFA bonds (which will cost nothing to the Government or taxpayers to adopt) and do what is proven and efficient, costs for taxpayers will continue to be avoidably higher than necessary.
Also of concern, we will likely continue to see a high number of leases as part of our social housing delivery system, where CHPs have little or no ownership of the homes. This will perpetuate the current inefficient system and result in less of the long-term capital gains being held by the charities. That will continue the cycle of capital constraints for our leading CHPs in the long term, limiting their ability to deliver the 10,000+ homes we need CHPs to supply. That does not have to be our future. We don’t have to be an outlier country that does not adopt smart, efficient and proven tools to deliver social investment. Community Finance has launched the CHFA to support New Zealand and CHPs and to shine the path towards greater social impact investment at scale. Investors, charities, governments, taxpayers and vulnerable households can all benefit when we work together effectively, back
what works and invest for New Zealand’s future.
Additional background information:
What is the Community Housing Funding Agency?
The Community Housing Funding Agency has been created by Community Finance. It will aggregate the leading Community Housing Providers in the country to help them secure long term, lower cost finance.
It will raise the money to support this lending by issuing bonds in New Zealand. Based on the success over the last five years of Community Finance, these are forecast to continue to be predominantly acquired by a range of fund managers and KiwiSaver providers. This helps create a real win/win, where we can use our collective retirement savings to invest in social housing in our country.
Community Finance will continue to be the manager, working with Community Housing Providers and impact investors, to help build the bridge between the different sectors. Community Finance operates on a lower margin than banks, which helps investors to obtain the returns they need, while still lowering the cost of finance for the leading charities providing social housing around the country.
The specialised intermediary model has been proven overseas over many decades as the most effective method to provide both scale and lower cost finance for community housing providers and housing associations globally. Examples include the Housing Finance Corporation in the UK (launched in 1987) and Affordable Housing Bond Aggregator in Australia (which issued its first bond to support community housing providers in 2019). While the Community Housing Providers are growing in scale, the bonds issued for these types of entities are typically guaranteed by the government, to further lower the cost of finance and enable social housing to be delivered at greater scale more efficiently for taxpayers.
What is Community Finance?
Community Finance is a social enterprise launched in 2019. Community Finance, and its related company Positive Capital, provide the connection between wholesale investors to positive impact investments. Our primarily focus is on financing leading
Community Housing Providers that provide affordable homes around the country with long-term Government funding.
We have extensive experience in the social and affordable housing sector and have designed the Community Housing Funding Agency based on proven domestic and international research. For its work in innovating, supporting and delivering efficient finance for CHPs in New Zealand, Community Finance was awarded the inaugural Best Impact Investment Fund 2021 by Mindful Money, received the Transforming New Zealand Supreme Award and Outstanding Collaboration Award in 2021 at the Sustainable Business Network awards and in 2022 received the inaugural
Innovation in Financial Services Award from INFINZ.
What is the Community Housing Investment Fund?
The Community Housing Investment Fund has been formed by Community Finance to provide the Community Housing Funding Agency with capital and liquidity to enable it to aggregate the borrowing needs of, and create efficient finance for, leading CHPs to support the delivery of social and affordable housing at scale. It also supports the private guarantee, together with Community Finance, to enhance the desirability of the bonds issued by the Community Housing Funding Agency, to encourage social investment at scale.
It is also designed to support the delivery of new affordable and social housing, by providing construction and development finance to select developers, to help CHPs acquire high quality, warm, dry and affordable housing. Impact investors in the Community Housing Investment Fund are playing a critical role in crowding in other investors into the social investment space and delivering positive impact.
What has Australia achieved in the five years since it launched the Affordable Housing Bond Aggregator with a Government Guarantee for the bonds?
What is the AHBA?
Housing Australia provides low-cost finance to registered community housing providers (CHPs) for social and affordable housing projects via the AHBA. The AHBA sources funding from wholesale debt capital markets by issuing long-term social and sustainability bonds and from a line of credit provided by the Australian Government.
How it works?
The AHBA aggregates funding requirements from CHPs and finances them primarily by issuing long-term social and sustainable bonds in Australian wholesale debt capital markets. The bonds are guaranteed by the Australian Government and have a AAA (stable) credit rating from Standard and Poor’s.
Housing Australia can also access funding via a $1 billion line of credit from the Australian Government to advance shorter-term loans to registered CHPs for construction finance projects or to provide funding in advance of a bond issuance.
In each case, the cost of the AHBA’s funding is passed through to the CHP borrowers plus a lending margin to cover Housing Australia’s associated operating costs and to build capital reserves over time.
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