Kāinga Ora makes a splash with Wellbeing Bonds

Kāinga Ora – Homes and Communities (Kāinga Ora) brings together multiple agencies. Sam Direen, Wellington-based treasurer, tells KangaNews about operational changes, sustainability debt and investor engagement.

What operational changes has the creation of the agency brought and has the funding approach changed at all?

Kāinga Ora is now the government’s key delivery agency for public, affordable and market housing, rather than these functions being split across different entities.

We talk about funding being allocations for our income-related rent subsidy, which represents the bulk of our revenue, and financing being debt we raise in capital markets.

Financing has always been dedicated to public housing, which was the key focus of the former Housing New Zealand, so there has been no change in approach as a result of this merger.

A key piece of legislation for Kāinga Ora now in the House of Representatives is the Urban Development Bill. It covers some financing and planning powers of Kāinga Ora that allow us to build communities. This may have implications for our funding and financing down the line but it is too soon to know.

In January this year, the agency announced an increase in its borrowing protocol limit to NZ$7.1 billion (US$4.6 billion) from NZ$3.1 billion, including a Wellbeing-Bond programme of NZ$2.5 billion for the calendar year. Does New Zealand have the capacity to meet this increase in supply?

We issued NZ$800 million in 2018 and NZ$1.5 billion in 2019 so we have been ramping up since coming back to the market. We intend to issue the full NZ$2.5 billion in New Zealand dollars and have provided some information about how we plan to do this. We explicitly note that long-dated private placements are of interest. Capacity is a function of limits and appetite but we have been encouraged by what we have heard recently about both.

Around the time of the establishment of Kāinga Ora, the debt programme was incorporated under a framework for Wellbeing Bonds. For the benefit of international readers in particular, can you give some colour on what the New Zealand government’s Wellbeing budget means? What are the advantages of aligning the funding programme with it?

Wellbeing Bonds are sustainability bonds that have the added feature of aligning with New Zealand Treasury’s living-standards framework. This is what Treasury uses to give governments fiscal and economic advice.

The living-standards framework has been in development for 10 years and has formed the basis of Treasury’s advice. It has been a natural framework to align Kāinga Ora as a government agency.

The government has directed the public sector to embed a wellbeing approach into operations. This is us signalling such, which we hope will lead to better wellbeing for our tenants.

Kāinga Ora released its sustainability financing impact report, covering the 2018/19 financial year, in November 2019. What were its key findings?

Our analysis suggests moderating export growth in the next 12 months. Prices for Australia’s major exports will probably drift lower after seven-year highs in June 2019. However, a weaker Australian dollar will offset this and continue to support our export competitiveness and Australian dollar export receipts.

US-China trade tensions and slowing global industrial demand will put pressure on exporters of base metals, although China’s efforts to stimulate infrastructure development will continue to support demand for materials such as iron ore and aluminium. Services exports are expected to continue to grow steadily. Overseas student enrolments are underpinning this, as is the lower Australian dollar over the last year. 

Agricultural exports, on the other hand, will weaken as the ongoing drought hits crop and livestock production. Manufacturing exports are expected to continue to increase steadily, especially exports of medicinal and pharmaceutical goods and professional and scientific instruments.

Longer-term demand for these products will probably be driven by an ageing population in Asia and Australia’s reputation as a high-quality producer.

Engaging with offshore investors has been an ongoing project since the agency re-entered public debt markets in 2018. Last year was tough for global demand for New Zealand dollars. Can you give an end-of-year report on global investor engagement?

We need to continue telling our story to a wider audience. It is a simple sustainability story that resonates well with investors but the aspects of it that investors were not aware of took us by surprise.

We are increasing the frequency and quality of our communication and look forward to our primary dealers relaying this story to their networks.

Something new we are introducing this year is an investor day KangaNews is helping us host, which will be taking place in August. We plan to provide investors an opportunity to hear from our chief executive and key senior management, as well as to visit construction sites and finished properties in thriving communities.