For proactive release: Cabinet Paper: Update on developing vacant and under utilised Crown land in Auckland

For proactive release: Cabinet Paper: Update on developing vacant and under utilised Crown land in Auckland

In Confidence Office of the Minister for Building and Housing Cabinet Economic Growth and Infrastructure Committee Update on Developing Vacant and Underutilised Crown land in Auckland Proposal 1. I propose that we: a) approve the fundamental aim of the development programme; b) continue our engagement with iwi regarding how best to honour the Crown s Treaty commitments; c) s9(2)(f)(iv) and d) authorise the first stage of procurement. Executive summary 2. The sale and development of most Crown land that could be used for housing in Auckland is either subject to a right of first refusal in favour of local iwi, or to a protocol that requires iwi to be given the first opportunity to be the developer. I am committed to honouring these obligations and my officials and I continue to engage with iwi to assist Crown and iwi relations and the efficient progress of development. 3. At the same time, Ngāti Whātua Ropu Limited Partnership has commenced legal proceedings against the Crown challenging aspects of the Development Programme. For that reason, no formal steps will be taken to progress the development of the Moire Road site that we authorised MBIE to purchase until after those legal issues have been resolved. 4. Subject to reviewing the related documents, Crown Law is nevertheless comfortable that we can progress with the identification of potential development partners. Thus, I propose that we delegate to the Ministers of Finance and Building and Housing the authority to undertake the first stage of procurement, whose purpose is to appoint a panel of developers that the Government can call upon to develop specific sites. 5. I propose that, in order to assist in delivering the Government s social objectives in relation to housing, the Development Programme s overarching objective be to contribute to rapidly relieving supply pressure in the Auckland housing market by having additional new dwellings built on suitable parcels of vacant or underutilised public land as soon as possible. 1

6. Finally, I propose that we s9(2)(f)(iv) Background and update 7. The Government has made good progress in delivering a comprehensive work programme to ease housing supply and affordability issues following the recommendations of the Productivity Commission's March 2012 report into housing affordability: a) To increase supply, our programme has focussed on implementing the Productivity Commission's recommendations to increase land supply, reduce regulatory cost and delays, improve sector productivity, improve infrastructure provision and reduce the cost of building materials. b) To assist first home buyers, we have introduced the KiwiSaver HomeStart grant, which has raised house price caps and doubled the grant available to first home buyers purchasing a newly built home. We have also amended the KiwiSaver Act to enable first home buyers to withdraw their member tax credit when purchasing a first home, in addition to their own and their employer's contributions. 8. Auckland continues to face supply issues, driven by historically low levels of residential construction in the wake of the Global Financial Crisis and the recent surge in Auckland's population as a result of high net migration. 9. In Budget 2015 we announced the establishment of a $52.2 million capital contingency fund to facilitate housing development on Crown land in Auckland (the Development Programme ). 10. Following that announcement, on 29 May I hosted a media bus tour and an official launch for developers to showcase the Development Programme, including potential sites for development. This event attracted approximately 300 interested people. Several iwi attended, including representatives from Ngāti Whātua Ōrākei and Waikato Tainui. 11. s9(2)(g)(i) 12. Following the launch, representatives from most of the iwi or hapū who are parties to the collective settlement have met with me and/or my officials on two separate occasions (14 June and 9-10 July). Attendees were engaged and receptive to the Government s plans at both events. I am also continuing to engage with Ngāti Whātua, who attended the 14 June meeting and who met separately with my officials on 13 July. 2

13. On 27 May Cabinet authorised MBIE to purchase 9.5 hectares of vacant Crown land at Moire Road, Massey from the Ministry of Education, with the intention of facilitating its rapid development for housing [EGI Min (15) 11/11 refers]. At that time, I undertook to report back to you seeking your approval of the wider objectives and strategy of the Development Programme. 14. Since then, Ngāti Whātua Ropu Limited Partnership has commenced legal proceedings challenging aspects of the Development Programme. (Three iwi or hapū of Ngāti Whātua are parties to the collective settlement.) Included within the scope of this judicial review are decisions I am alleged to have made in respect of the Moire Road site and other sites ( s9(2)(f)(iv) The Court hearing is scheduled for 5 October. Until the case has been decided, this litigation limits the Government s ability to progress development on the Moire Road site. Thus, no legal or other formal steps have yet been taken to progress the proposed development there. 15. More broadly, the existence of the development protocol attached to the collective deed of settlement, which is discussed further below, and iwi interest in the Development Programme, means we need to further consider how we procure development partners for the sites and the best method for progressing the Development Programme overall. For these reasons, I propose to present the full business case for your approval at a later date. 16. In this paper I set out the fundamental aims and strategic context of the Development Programme and the next steps I propose we take in implementing it, including in particular further engagement with iwi, another site that we can buy and initiating the first stage of identifying prospective development partners. Programme objectives 17. I propose that the Development Programme s overarching objective be to contribute to rapidly relieving supply pressure in the Auckland housing market by having additional new dwellings built on suitable parcels of vacant or underutilised public land as soon as possible, in order to assist in delivering the Government s social objectives in relation to housing. 18. The Government s broad goal is to ensure New Zealand families can access decent and affordable housing because that contributes to better health, social and economic wellbeing. 19. In this regard, the Development Programme has relevance for two of the objectives that we have agreed for the Social Housing Reform Programme, with respect to providing pathways to housing independence and increasing the supply of affordable housing (CAB Min (14) 39/22). Wider housing affordability is a concern for the Social Housing Reform Programme because, unless social housing tenants that have sufficient income can move into reasonable quality affordable rentals in the private rental market, there will be less social housing available for households with even greater housing needs. Similarly, unless households in affordable rentals that have sufficient income can move into reasonable quality affordable home ownership in the private market, there will be fewer affordable rentals available to those households who no longer need the Income Related Rent Subsidy. 3

20. Accordingly, when I present the full business case for the Development Programme, I will also recommend adopting a further objective that will contribute to increasing the supply of new dwellings on these sites at prices that are attainable for first home buyers. Land opportunities 21. Excluding Housing New Zealand land and islands in the Hauraki Gulf, the Crown owns at least 8,500 hectares of land in the Auckland region that is either vacant or has few improvements. Given that it is vacant or underutilised, the majority of the 8,500 ha is zoned for public open space (6,300 ha), with most of that held for conservation purposes (5,500 ha). 22. A further ~1,600 ha is zoned for purposes suggesting it is unlikely to support residential development in the first instance; this includes land zoned for such activities as cemeteries and airports. 23. Of the balance, ~500 ha is composed of: a) over 300 ha of land zoned for residential purposes; b) almost 200 ha of rural land capable of supporting residential uses; plus c) a smaller area with an assortment of various zones that could have potential, including zones for business areas. 24. Finally, there is also almost 100 ha of land zoned for future urban purposes that doesn t yet have operative zoning for residential development. 25. My officials will further assess the 500 hectares of land with operative zoning to identify sites that are attractive for residential development. The determining factor is the extent to which those sites are available, which depends on whether they are still required for their current purpose. Strategic context 26. The Development Programme is part of a wider series of Government initiatives that are contributing towards increasing the supply of housing in Auckland: a) the redevelopment of Housing New Zealand land in Tamaki; 4

b) s9(2) (f)(iv) c) smaller scale redevelopment of Housing New Zealand sites pursuant to HNZC s asset management strategy. 27. The size and complexity of the first two initiatives mean that neither is likely to contribute to a rapid supply of additional dwellings over the short term (2-3 years), although small parts of the Tamaki redevelopment will make some contribution. 28. In contrast, vacant or underutilised Crown land in existing urban areas is likely to present fewer difficulties to develop and thus is a good option for rapidly responding to the immediate demand for more new dwellings. While the smaller areas of land available to the Development Programme (when compared to the Government s larger initiatives) means it won t be able to deliver the same volume of new dwellings over the medium to long term, it can make an important contribution in the short term (2 3 years) as the Government s larger initiatives get under way. Crown obligations under the Public Works Act and relevant Treaty settlements 29. Most Crown land that could be used for housing is subject to both the Public Works Act 1981 (PWA) and a right of first refusal (RFR) under various Treaty settlements. Treaty commitments 30. The Crown has negotiated a number of RFRs over Crown land in Auckland. In most cases, the relevant RFR is the RFR in the collective settlement, which applies to all Crown land in a defined area of Auckland with certain exceptions, such as where land is being disposed of to assist in achieving the Crown s social objectives in relation to housing. 31. A key consideration during negotiation of the collective settlement was how to balance the Crown s housing objectives with providing adequate commercial redress to the mana whenua iwi of Auckland in the form of an RFR over Crown land. During negotiations, iwi expressed disappointment that the Crown insisted both on an exemption for housing and the ability to set aside Crown land for state housing purposes post-settlement, but ultimately agreed to sign the deed on that basis. 32. To address iwi concerns, a position was agreed and recorded in the Department of Building and Housing (now MBIE) Protocol, which forms part of the collective deed of settlement. The Protocol applies to situations where the Crown intends to develop RFR land to achieve or assist in achieving the Crown s social objectives in relation to housing and to involve a party other than the Crown in the development. 33. Under the terms of the Protocol, the Crown is required to offer the Whenua Haumi Roroa o Tāmaki Makaurau Limited Partnership an opportunity to be the developer of the land, on such terms as might be offered to the private sector. However, an exception to the Protocol applies if applying the Protocol would substantially frustrate the Crown s housing objectives, increase costs or reduce efficiency for the Crown. 5

34. I am committed to honouring the Crown s statutory, contractual and Treaty obligations, including under the Protocol. To do so requires further discussions with iwi to assist the efficient progress of development and to assist Crown and iwi relations. 35. s9(2)(h) Legal risks 36. Ngāti Whātua state in their legal claim that setting Crown land apart for State housing purposes post settlement negates their RFR right and is unlawful. They also claim that the Development Programme is not consistent with State housing purposes and that I could not lawfully form the opinion that disposal of Moire Road will assist in achieving the Crown s social objectives in relation to housing. 37. 38. 39. Also note that, although the Crown has entered into a collective settlement with the 13 iwi or hapū in the Auckland region, the Crown must also settle individual claims with each iwi separately. Currently, 11 of the 13 iwi or hapū who ratified the collective settlement have not yet settled their individual claims with the Crown. Some of those individual settlements include RFR obligations on the outskirts of the Auckland region, such as Whangaparoa. The Crown is also required to retain sufficient land to settle these claims. Implications 40. For the time being, therefore, we will not complete the purchase of the Moire Road site from the Ministry of Education, nor announce in the Gazette that the land is being set aside for State housing purposes. 41. s9(2)(h) s9(2)(h) s9(2)(h) Opportunities for iwi participation 42. My officials and I have indicated to iwi that the Crown is open to a range of ways that it could fulfil its obligations under the Protocol and the RFR: 6

a) The default option is to adhere to the terms of the Protocol described in paragraphs 25-28 above and focus on agreeing the detailed steps needed to implement it. b) If iwi are more interested in the resulting houses than in taking on the role of developer, it would be possible to ensure that iwi are given preferential rights to purchase the completed houses from the developer (rather than purchasing the bare land). c) If iwi have particular interests as a potential developer, such as location, zoning, size or value, it may be possible for the Crown to identify sites that match those development preferences and that are suited to achieving shared objectives. d) If iwi are interested in further social housing and shared equity schemes similar to those that led to the development of the Weymouth site in south Auckland, it would be possible to explore more such partnerships on other Crown sites. 43. When my officials met with Auckland iwi to discuss common objectives and options they expressed considerable interest in participating in developments for State housing purposes and considered their participation to be fundamental to achieving our Government s Maori housing strategy, He Whare Āhuru He Oranga Tāngata. They agreed they wanted to pursue versions of the first three options described above. 44. However, because most of the iwi or hapū are yet to reach a settlement with the Crown, their representatives stressed that their ability to participate in offers under the Protocol is constrained by lack of progress on their settlements. In turn, while they acknowledged the need to rapidly increase housing supply in Auckland, their lack of settlements means they are not prepared to endorse the Government s objective in this regard. The lack of settlements also means there is ongoing uncertainty over which parcels of land will be claimed by which of the 13 iwi or hapū. For these reasons, the remaining individual settlements need to be completed with urgency. 45. Once we have explored these possibilities in greater detail with iwi, I will report back to you with the results and the implications for the Development Programme. s9(2)(f)(iv) 7

s9(2)(f)(iv) s9(2)(j) s9(2)(f)(iv) s9(2)(f)(iv) Identification of prospective development partners 53. Both because not all land is subject to RFR ( s9(2)(f)(iv) and because iwi may decline to purchase or develop any one site that is offered to them, it is important to progress procurement with the private sector with respect to the Development Programme more generally. 54. To ensure that development happens rapidly and that the Government has suitable powers to intervene if the developer breaches its obligations, we need to procure developers with sufficient financial strength that they are able to access the necessary capital to develop a site without needing a mortgage and without having to demonstrate a certain number of pre-sales to its financiers. 8

55. Rather than attempt to establish each developer s capacity every time we seek proposals to develop a site, I propose that we pre-qualify a selected panel of developers with the appropriate experience and financial capability. To do this, we need to issue an open invitation to the development community to express their interest in participating in the Development Programme. This first stage of procurement will invite all interested developers to make short-form submissions that demonstrate their capability and experience to rapidly develop land for housing and, in particular, their ability to do so without needing to rely on sources of capital that require a mortgage to be registered over the relevant land. 56. Iwi will be welcome to participate if they wish to, either separately or through the limited partnership that represents them collectively. However, any participation through this channel will not prejudice their rights under the RFR. Consequently, because iwi must be offered any land opportunities first, whether under the RFR proper or under the Protocol, they may consider there to be little advantage in making a submission to this stage of procurement. 57. I propose that we delegate to the Minister of Finance and the Minister for Building and Housing acting jointly the authority to issue an Invitation to Partner (ITP) to the development community seeking this information. s9(2)(h) 58. 59. s9(2)(h) s9(2)(h) Procurement risks 60. The litigation limits the Government s ability to secure development agreements over sites that are subject to RFR obligations until after the Court hearing in October. The Crown s RFR obligations may also deter some developers from expressing their interest in the Development Programme altogether. 61. As I am committed to honouring the Crown s obligations to iwi, the information we provide to the development community as part of the ITP will make the Crown s obligations clear and give us confidence that any developers who respond are willing to participate subject to those obligations. Once appointed to the panel, I will ensure the selected developers are kept informed about the Government s progress in identifying sites and the extent to which iwi are electing to develop them. 62. It will also be important to communicate to the development community that the Government cannot guarantee that any particular site will be made available for 9

residential construction, nor guarantee that any one developer will be offered a development contract. 63. I note also that the proposed timing of the ITP coincides with the Request for Information (RFI) proposed by the Ministry of Social Development and the Treasury. The draft RFI has two components, the purchase of an additional 2,200 social housing places in Auckland and the identification of potential areas for Housing New Zealand stock transfers (likely outside Auckland). The RFI is designed to appeal to Community Housing Providers, but also to a broader group of parties that may not necessarily be the ultimate provider of social housing (i.e. developers, land owners and people with expertise in modular buildings). 64. Consequently, there is likely to be an overlap between the groups targeted by the Government s two procurement processes. To avoid confusion, my officials will refer to the Treasury process in the ITP documents and distinguish between the two. Report back 65. Once the first stage of procurement is complete, I will report back to Cabinet and seek your authority to proceed with the Development Programme as a whole, including approval of the business case and the next stage of procurement. I will also update you on agreements reached with iwi and the status of legal proceedings. Financial implications 66. s 9 ( 2 ) ( f ) Consultation ( i 67. v The Treasury has been consulted in the drafting of this paper. The Department of ) the Prime Minister and Cabinet has been informed. Crown Law advice has been obtained. Treasury comment 68. Treasury s view is that this paper should be deferred until there is further discussion on the implications of commencing the first stage of procurement for the vacant Crown land programme in Auckland and purchasing Council land for development. The proposal to release an ITP request significantly overlaps with the release of a Request for Information by Treasury and MSD for additional social housing places in Auckland. The two procurement processes are not sufficiently aligned and market capacity to respond to both concurrently is unclear. 69. Treasury further questions the value of releasing an ITP in the market to test development capacity at this point in time. Cabinet is yet to sign-off on the business case for this programme and there is a risk that decisions will continue to 10

be made in isolation of a wider strategy around procurement, engagement with iwi and the Crown s expectations from these developments. Going to the market without information on these aspects, including what parcels of land are available for development and how the Development Protocol will apply, risks a sub-optimal response. In the absence of a business case, it is also unclear how the purchase of Council land fits with the Crown s wider goals around this programme of work. The Crown is already involved in litigation over Moire Road, and The Treasury is concerned that proceeding with the plans outlined in this paper could aggravate and/or expand the scope of that litigation. Human rights implications 70. This paper raises no human rights issues. Legislative implications 71. This paper has no immediate legislative implications. Regulatory impact analysis 72. A regulatory impact statement is not required for the proposals in this paper. Publicity 73. The Office of the Minister for Building and Housing (in conjunction with the Office of the Prime Minister and the Minister of Finance, as appropriate) will manage the publicity resulting from any decisions in this paper. Recommendations 74. I recommend that the Committee: s9(2)(f)(iv) 1 note that the Government s broad goal is to ensure New Zealand families can access decent and affordable housing because that contributes to better health, social and economic wellbeing; 2 agree that, in order to assist in delivering the Government s social objectives in relation to housing, the Development Programme s overarching objective be to contribute to rapidly relieving supply pressure in the Auckland housing market by having additional new dwellings built on suitable Crown land as soon possible; 3 note that the Development Programme has relevance for two of the objectives Government has agreed for the Social Housing Reform Programme, with respect to providing pathways to housing independence and increasing the supply of affordable housing [CAB Min (14) 39/22 refers]; 4 note that, excluding Housing New Zealand land, the Crown owns approximately 500 hectares of land that is either vacant or significantly underutilised in Auckland and that will be in a zone that can support residential housing under the Proposed Auckland Unitary Plan; 11

5 note that: 5.1. the Government is already pursuing a range of initiatives to directly increase the supply of social, affordable and other housing in Auckland, including the Tamaki redevelopment and other suburb-level redevelopment of HNZC land; 5.2. these very large scale developments will eventually supply large volumes of dwellings, but the complexities of such projects mean they will take time to deliver; 5.3. vacant or underutilised Crown land in existing urban areas is less complex to develop than the Government s larger scale initiatives and can thus respond more rapidly to demand in the short term (2-3 years); 6 note that most Crown land that could be used for housing is subject to rights of first refusal under various Treaty settlements and to offer back obligations under the Public Works Act 1981; 7 s9(2)(h) 8 note that, in order to protect the Government s social objectives with respect to housing in Auckland, a Protocol was agreed between the Crown and the Tāmaki Collective that applies to situations where the Government wants to develop land for housing that would otherwise be subject to a right of first refusal; 9 note that the Protocol requires the Crown to offer the Whenua Haumi Roroa o Tāmaki Makaurau Limited Partnership an opportunity to be the developer of the land on no less favourable terms than would be offered to the private sector; 10 note that honouring the Crown s statutory, contractual and Treaty obligations, including under the Protocol, requires further discussions with iwi to assist the efficient progress of development and to assist Crown and iwi relations; 11 note that the iwi and hapū who have ratified the collective settlement have expressed considerable interest in participating in the Development Programme and that officials are continuing to engage with iwi and hapū to agree common objectives; 12 note that 11 of the 13 iwi or hapū who ratified the collective settlement have not yet settled their individual claim with the Crown and that, unless special arrangements are made, the lack of settlement prevents these iwi from being able to finance any RFR purchases, from participating in any procurement process and from engaging with the Crown regarding the Development Programme; 13 note that Ngāti Whātua has commenced judicial review proceedings scheduled to be heard on 5 October 2015 that challenge the Crown s interpretation of State housing purposes and argues that setting land aside under this purpose negates their right of first refusal; 12

s9(2)(h) 16 note that, in order to ensure that each site can be developed rapidly and that the Government has suitable powers to intervene if the developer breaches its obligations, the Government needs to procure developers with sufficient financial strength that they can access the necessary capital to develop a site without needing a mortgage over the land; 17 direct that the first stage of procurement be an open invitation to all interested developers (including any iwi who may wish to participate) to submit short-form proposals that demonstrate their capability and experience to rapidly develop land for housing and, in particular, their ability to do so without needing to rely on sources of capital that require a mortgage to be registered over the relevant land parcel(s); 18 agree that the first stage of procurement not commit the Crown to providing any particular land opportunities for development; 19 agree that the purpose of the first stage of procurement is to appoint a panel of developers that the Government can call upon to develop specific sites if and when they become available; 20 delegate to the Minister of Finance and the Minister for Building and Housing acting jointly (Joint Ministers) power to approve the content of the procurement documents that initiate the first stage of procurement and to issue them to the development community; 21 note that the first stage of procurement is expected to be complete by the end of August 2015; 22 s9(2)(f)(iv) 13

s9(2)(f)(iv), s9(2)(i) 28 invite the Minister for Building and Housing to report back to the Committee in late August after responses to the first stage of procurement have been received: 28.1. seeking approval for the Development Programme s business case; 28.2. recommending the panel of developers the Government should appoint; 28.3. seeking authority to proceed to the next stage of procurement; and 28.4. advising the agreements reached with iwi. Hon Dr Nick Smith Minister for Building and Housing / / 14

s9(2)(f)(iv) s9(2)(f)(iv) 15