What is potentially the biggest privatisation of state assets so far begins today with the start of the sale of Housing New Zealand houses in Tauranga and Invercargill.

All up Housing New Zealand’s portfolio is 62,500 houses currently valued at $22 billion.

Today the Government is offering 1140 houses in Tauranga and another 370 in Invercargill for sale.

They should be worth at least $450,000,000.

Though that is relatively small compared to the $4.7 billion generated by the four electricity company floats this initial sale is the only the first of what the Government hopes will be many.

Obviously this is going to be a drawn out process and it may well be that not all the houses are ever sold.

But there is a fiscal catch in the sales process as officials admit that the final sales price for many of the houses could well be below their current value on the Government’s books.

That’s because bidders for the houses will be able to discount their bids according to the quality of the tenants.

And officials admit they have also not yet tried to do a social investment actuarial evaluation of what privatising the houses might mean to future housing and welfare expenditure.

So there is considerable fiscal risk in the whole sales process.

But Social Housing Minister Paula Bennett argues that the situation with Housing New Zealand stock and the changing nature of the tenants who live in it meant the Government had to do something.

She points out that 80% of Housing New Zealand tenants receive a benefit or superannuation.

Many have mental health issue or are recently discharged prisoners — very different tenants from the returned servicemen with their nuclear families who occupied state houses in the 50’s and 60’s.

This is reflected in a huge mismatch between Housing New Zealand stock and demand.

At the end of June – according to Ministry of Social Development figures — on in three people on the Housing NZ waiting list were single person households.

But only 9% of all housing New Zealand bedrooms are in bedsits or single bedroom houses.

There is thus no real pressure on families in multi bedroom houses to move on.

“Some of today’s families have been there for three generations,” Ms Bennett told National’s Wellington regional conference.

“Until recently those people were simply lost in the system.

“I call it passive exploitation, benign neglect.

“It is easy to thin that the state has done its job because it has built a house irrespective of whether it is the right size in the right place.

“But we put someone in there and we pay the rent – job done.

“That’s not good enough.

“The status quo is not good enough.”

So Ms Bennett sees the privatisation of the houses as the first step towards developing a much more flexible set of options for MSD when they come to place people in accommodation.

She talks about being able to “wrap social services around” the tenants.

And officials believe that the sales could see some interesting consortia emerge who might embrace financial skills, iwi connections and innovative social management skills.

Interestingly the officials say that the successful bidders will not be judged solely on how much they are willing to pay.

They will be required to demonstrate how they can manage the social side of the housing arrangements. They will be assessed on community links and their ability to improve tenant outcomes.

In return the new owners will get market rents paid by MSD and possibly in some cases a guarantee of 52 weeks rent a year regardless of whether the property is occupied.

The tenants will pay an income related rent and the rest will be the accommodation supplement top up provided by MSD.

The sales process is a multi-phase one with four stages:

  • Market sounding beginning today for up to eight weeks.
  • Expressions of interest by the end of November
  • Requests for Proposals by late February early March
  • Negotiations with the preferred bidder which could take up to another 10 weeks.

The Government is moving cautiously on this.

But if it gets it right there will be more after Tauranga and Invercargill.