This was a panel on this topic facilitated by Steven Moe from Parry Field Lawyers/Seeds podcast at the Community Housing Aotearoa Conference 2024: Growing Together – Sharing Our Knowledge, held in Tāmaki Makaurau, Auckland with:
-
Roy Thompson from New Ground Capital
-
Jamie Newth from Soul Capital
-
Luke Strom from Community Finance
-
Heiko Jonkers from Westpac
You can listen to the episode here or find it at www.theseeds.nz
Steven: We’re going to get underway. It’s really great to be here. I’m the facilitator for this session. My name’s Steven Moe, and I work as a lawyer – actually at one of sponsors here; Parry Field Lawyers. We’re a law firm based in Christchurch, but working across the country.
I also do a podcast called Seeds, which is interviewing inspiring people. So, I’m used to talking with people and asking them questions, and that’s why I’m here today. Now up front, we want to acknowledge that there’s a lot of men on this panel. For various scheduling reasons and other things, we did not have the diversity we wanted, but we’re going to acknowledge it. And we’re going have a really good discussion with everybody who is here today.
We’re looking forward to your questions. I’m going to ask each of our guests to introduce themselves and then briefly state what it is that they’re doing within this sector, particularly thinking about financing.
But before we do that, why are we talking about this? Well, I always try to use a picture and I brought this along today.
Coming up later, we’re going to be having lunch. And if we get hungry, we could use this apple. We could cut it up, put it in a salad. We could maybe, slice it and just eat it raw. We could, if we had time, make some apple cider. There’s a lot of potential in this apple. Isn’t there? A lot of potential to feed people.
But the true potential of this apple is what’s inside. That is- the seeds that you cannot see. The seeds need things. They need warmth. They need soil. They need some nutrients. They need sunlight.
So just having seeds isn’t enough. You have to give them the right conditions. You know where I’m going with this picture right?
Community housing providers; they need conditions in order for what they do to flourish. And one of those key conditions is the money and the finance to allow them to grow and to flourish. That’s the difficult question that we’re going to be focusing in on right here in our discussion: “How can we open up different financing models?” “How can we think about this in a proactive, constructive way?”
Not necessarily get number 8 wire out and fix it because I think that is a broken model. I think sometimes we think we have to reinvent things and create something new. There’s a lot that’s been done overseas that we could learn from as well. So that’s our topic today.
I’m just going to ask each of our guests to introduce themselves. Very briefly, where you’re from and what are some of the things that you’re seeing around financing. I’ll start with you.
Heiko: Thank you, Steven. Well, good morning.
My name is Heiko Jonkers. I work for Westpac Bank. I’ve been in banking for about 20 years. My background is property finance, credit strategy and policy, and I am currently the head of Social and Affordable Housing at Westpac. In terms of what we’re seeing, we’ve seen a real growth in the affordable housing sector.
We’ve seen a real growth in the models and the structures that are available for people to own homes, to afford homes, and we’ve also seen a real growth in the CHP sector in terms of the financing opportunities that are available, so we’re very motivated to be part of that. Obviously, we’ve set up this function at Westpac and are very keen to support the sector to grow.
Roy: Thanks, Heiko. Kia ora everyone.
My name is Roy Thompson. I’m managing director of a company called New Ground Capital. We’re an impact investment firm based here in Auckland. I’m not here representing New Ground today though, I’m here as the investment manager of the Bay of Plenty Housing Equity Fund, which is a collaborative exercise down the Bay of Plenty, making housing happen.
Luke: Kia ora all. My name is Luke Strom. I’m the chief operating officer and general counsel at both Community Finance and Positive Capital. What we do, in a nutshell, is we are a manager of various impact investment platforms. But at the heart of what we do is trying to answer a question that is, “how do we connect or build a bridge between need and the means to actually address need” and being on the finance panel, money.
We’ve been around for 5 years and have just launched a new initiative called the “Community, Housing Funding Agency”. That was announced on Monday night and launched and it’s built on the learnings and the scar tissue that we’ve gained over the last 5 years in this space and also building on the proven sort of international precedent of how to actually create scale and investment into, community housing sector. There’ll be more coming out about that over the next sort of weeks. Happy to talk in more depth in this session as well about that initiative.
Jamie: Kia ora koutou Jamie toku ingoa. I’m the founder of Soul Capital. We’ve been working for about 10 years now to try and agitate the ecosystem for impact investing, to not just prove points deal by deal, although I’ll talk about that in a sec, but prove a model that we can do finance a little bit better across the spectrum, across assets. So currently, we’re deploying a $75,000,000 multi asset, Impact First Fund, with certain, priority communities and impact themes, which I’ll get into. But the opportunity, the mandate, and the privilege that we’ve got, being multi asset is we’re not mandated to invest into a particular type of asset like real estate housing or venture capital or debt. But our impact themes compel us to do so.
When we started the fund called “Te Pai ki te Rangi”, we didn’t want to do housing because we didn’t have enough money. We still don’t. But we looked at the themes that we had to invest for, which is increasing equity, social inclusion, and environmental regeneration. And to prioritize impact for Māori, Pasifika, rainbow, disability, migrant communities.
And we said, and I quote, “s**t, we have to do housing”. Sorry, I’m going to be that panellist that swears, aren’t I? That found ourselves doing housing but we made the realization that we don’t have enough capital to do housing at scale. So, we have to try and do it differently and try and be as innovative as possible with the things that are underinvested, in that have still have deep impact, that can be scaled or replicated.
And so, what that does mean as well, and there’s a number of partners in the room which is really cool to see, is that we will to use our flexibility to align to the impact and the needs of the partner of the community. We’ll provide debt finance if that’s the right instrument. We’ll own the homes if that’s the right instrument, and so on and so on.
We’re relatively small in the scheme of things, but we’ve got power through our flexibility, I think, and going deep on the impact side. All the finance questions go there, and then the fluffy bunny stuff can come down this end.
Steven: Great. Thanks so much. So, you can see we’ve got a lot of experience on this panel. A lot of people who’ve been involved in financing. I’m just curious from each of you, since you’ve been involved in looking at projects and thinking about which ones get the finance, for some people out here, they’re at an early stage. They’re just setting up their CHP or they’re looking to develop a project or they’ve got amazing ambitions and plans.
What would you say would be one of the key challenges that a CHP would face when they come to finance, that you’ve seen in your observations that maybe you wish that they knew before they got into a conversation? Who would like to start with that one?
Roy: Yeah, I think the big issue for me is equity, you know, I mean we’re an equity shop so I make no apologies for that, but I think the whole sector actually is, to a certain extent, missing the point around equity. There’s a lot of focus at the moment on debt, a lot of focus from the government, from HUD, from different parts of the sector around getting debt available for the community housing and Māori housing sectors.
Debt is not really the problem in my humble view. As anyone knows who’s bought a house, you have to have the equity first. If you’ve got the equity it’s relatively easy to find debt. If you don’t have the equity, you’ll never get the debt. And the same thing applies for CHPs.
What we see all around the country now are CHPs that are at their debt limits. They don’t have any additional sources of equity capital, and as far as I can tell, there’s no real plan to raise equity into the sector. Kiwi saver schemes should be an obvious source of equity for affordable housing around New Zealand, they’re not stepping up yet. And we’re not doing enough as a sector to basically take away their excuses I would say. It’s one of the reasons that I’m so excited about the Bay of Plenty Housing Equity Fund because I think it is a model where you can bring different parties, different investor groups together, to channel much needed equity into a wide variety of housing projects. And once you’ve done that, you can get the debt.
Heiko: I’ll come at it a little bit from the debt side. Before you can finance something particularly from the bank’s perspective, it has to be financeable.
And what I’ve seen an awful lot of and really how I learned my trade in affordable housing is, I had a lot of opportunities come to me around particularly shared equity and leasehold. But I found that a lot of the contracts had been self-developed or developed with a very well-intended lawyer but they had worked very hard, for example, to secure the bank, but they’d forgotten to think about the family. There are certain things that banks will kind of revile from, if the family’s not safe in the agreement, then we simply won’t support it.
So, I spent a lot of time, I guess, shaping schemes and we have some schemes or scheme forms of arrangement, that that we give out for free that are based on the New Zealand Housing Foundation model or the Queensland Lakes Community Housing Trust model, that we’re very fond of, and really go down that road of protecting the family first. So, my message to CHP is if you’re thinking about setting up a scheme, come and see the bank as soon as you can.
We’re here to help you. We don’t charge for the service. We would obviously love you to be our customer, but we are here to provide a service for you, and it’s probably the only time in your lives that you’ll hear a banker say to you, my service to you is free. And we can help you set your scheme up. We can make it so that it is ready to be financed and put you on a sound footing for the future.
Luke: I guess my comments sort of build on that as well. We see a number of projects that come to us that sometimes don’t stack up over the long time. I think that HUD processed a lot of the applications on a case by case or project by project, basis. And sometimes those projects don’t fit well for the CHP overall. I think the message I would say is come talk to us early.
While you’re building your applications come talk to us. We’re a specialist in financing in this sector, we’ve seen lots and lots of applications. We can provide assistance to that. We’re not there just to provide the debt. We’re there to actually, help the boat go further and faster.
On the on the equity point, I agree that that there’s constraints on the balance sheets of a lot of the CHPs, and there needs to be equity products that are coming into it, whether it’s through the crown or through others. But I think there’s a big role to play in the debt that it actually comes through at cheaper rates. I think that a lot of the providers of debt in this space are providing it at higher rates than what it needs to be. And, I think as an asset class the community housing sector, should be getting better rates.
So that’s what we do. We we’re a lower cost provider of financing into that sector.
Jamie: Maybe just a quick comment. This doesn’t just apply to CHPs, it applies to community organizations generally.
We get a lot of people knocking on our door asking for concessionary debt without a commensurate uplift and additionality, or reason to justify that. Basically, they see an impact investor and think, cool, that will be cheaper than the bank. And that may be true.
We have that flexibility but there needs to be, for us to be take a concessionary position, it needs to unlock some outsized social environmental impact. So, come with that argument, with that case as well. It probably applies to everyone. We always joke that if we were willing to just do this whole fund at concession, this concessionary debt, we’d have it done in about 3 or 4 months, because, you know, that’s easy. Our job is not meant to be easy. It’s meant to be changing systems.
Luke: Yeah. I totally agree with that. I think there is concessionary debt that’s out there. There are foundations that that are willing to make those investments, but it’s a small number.
If we are going to tackle that wait list, we’re talking about billions and billions and billions of dollars. And that money isn’t in the foundations. It’s the fund managers. There’s circa $300 billion of funds under management in New Zealand alone. And to create something which those funds can flow into, it needs to stack up.
Steven: Yeah. Thank you so much. And you just said billions, not millions, right? Sometimes we forget that there is actually money out there.
It’s about how do we tell a story to tap into it so that we can get the funding. And just picking up on what you’re saying, Jamie as well, it’s all about story, right? It’s all about “who are we helping?” “How do we convey that beyond the numbers.” It’s actually the storytelling piece that I think sometimes we forget. Because often we’re so bound up in the work that we’re doing. Of course, we know the great work that’s being done. But a funder, a bank, or someone, isn’t going to know immediately. So being willing to share a bit of that story.
I’m really curious about innovation and new green shoots that we might be seeing. I’m curious if the four of you, if you’re seeing any innovation or if, in your own organizations, what are you doing, or what are you seeing in terms of innovation? Because at the moment we are due to the ways we’ve done things. How do we innovate? How do we change things up to move forward?
I’m going to start with you, Luke, because you just announced this fund on Monday night. I should have said at the start that I’m the chair of Community Finance, so I actually know community finance really well. So, I am curious to hear from you. Can you explain maybe what that innovation actually is? And then the others be really curious to hear, you know, green shoots. What are we seeing out there?
Luke: So, as I mentioned before, we started 5 years ago and the way that we structured a lot of the transactions where we worked, on a deal by deal basis for, the community housing providers. And that that was, appropriate to start with as the fund managers needed to get comfortable with the, borrowers and the CHP borrowers that we’re working with. But what we found was that, it was a little bit clunky and hard for the fund managers to work with that because they, what fund managers want is, scale and predictability, transactions to be vanilla. They, I think a lot of fund managers are hardwired to say no to anything that is, out of their norm.
As I mentioned, we’ve sort of have a lot of scar tissue and a lot of learnings over the last 5 years and, looked at what was happening, overseas. And some of the models are I mean, in continental Europe, they’ve they were up and running before I was born. And they’ve had almost no failures of any of the CHPs there. The government guarantees which support the bonds have never been called upon. And so there’s proven international models and, so it isn’t so much innovation.
It is actually just realizing that there are models out there, that can just be, implemented here, to really lower the cost of finance for, for this sector. So that is what the Community Housing Funding Agency does. It effectively pools and borrow pools and aggregates the borrowing needs of the CHPs, that we work with. We we’ve set up a separate, fund, which is backed by a number of generous, foundations and philanthropists who have effectively provided or privately provided credit enhancement for, this system, so that, it is attractive to fund managers and it can investing into this sector can just be a normal part of, of fund managers fixed interest portfolio. So we will have our first, anchor bond issuance, out of out of the new agency in around March next year.
And we’re currently looking, at probably a pipeline of about a 100 million for that, with a March issuance. And then, and then having sort of a regular cadence of bond issuances, to the to the fund managers. And that that those issuances effectively create the pool of money which, can be lent to, community housing providers at scale.
Heiko: I might speak a little bit on the homeownership side. So we think about the fact that homeownership rates are flagging, fewer and fewer people can afford a home. And if you are the 1st home buyer, you’re getting older as well. So some of the innovation that we’ve seen in the banking sector is – how do we change that equation of buying a house? And I know that the shared equity models and the leasehold models have been around for a while, but for the banking sector, initially, they were quite challenging because we’re used to dealing with 1 borrower, 1 property. So the innovation internally was to think about what are the real risks of those transactions and, do we really need to be as worried about them as we do?
Another thing that we’ve done internally is we were the 1st bank and I think are still the only bank who fund prefabricated homes in factory. So I don’t know how many people are familiar with the property law act, but if a house is not situated on the land, the bank can’t secure it. So if it’s being built in factory, there’s no security. I’m a previous equipment financier by trade and I said to myself, well, I can fund the truck that delivers the house. I can fund the land the house is built on.
I can fund the inventory, therefore I can fund the house. So we convinced the bank that we could do that and created a program to make that make that happen. In the leasehold space, this is an area that that Westpac is particularly good at. Leasehold is not that well known or well accepted in New Zealand, partly because a lot of the models are not that kind to the lessee. The lessee has no certainty.
They’re basically they have invest in a tenancy that gives them not great rights. Queenstown Lakes Community Housing Trust did an excellent job of developing a much more lessee friendly model. We took that a step further and said, well, how can we how can we change that up and really, work together with iwi Māori to lend on, Māori land. And we have a very successful program where we have our funding houses on a leasehold basis in partnership with Iwi, to get, whanau into homes, and that’s something that that WSPAC is particularly proud of. So what I’m trying to highlight there is that don’t think that banks are places that that don’t innovate and just say no to things.
We’re very open and very eager to understand what the models are out there, and we’ll work very hard to make those models work.
Roy: I’m going to speak to a couple of slides here just to help explain the Bay of Plenty Fund because it is a little bit different. So this is a homegrown, Bay of Plenty, model.
As you can see on the screen there, these are the parties that came together to catalyse the funds. So we’re in the process of deploying, an initial 100,000,000 of capital across the Bay of Plenty, into a wide range of, different housing forms, tenures, and these are the parties that have helped, make it happen. So they came together, 3 years ago, with this idea of pulling their capital to help achieve scale, in the housing, initiatives that that were, underway. And I hope you can see this, and I wanted to just talk very quickly on this because, when you think about, the groups that are involved there so for instance, Rotorua Trust as an example, obviously based in Rotorua. They’re really focused on their local area.
So they don’t necessarily want to see their money being, deployed in Tauranga, as an example. And the same thing applies for, most of those organisations that you can see, on the screen. Even New Zealand Green Investment Finance, whilst they’re not worried about the geography, they are worried about the carbon element. So they’ve given us a, home start rating that we have to achieve before we can draw down their capital. So what we’ve been able to do, is construct a, a template, if you like, or a model that allows us to blend all the different requirements of these different investors, both geographic and in, Green Investment Finance’s case, carbon related, into a model that allows us to have one pool of capital that we’re deploying, in a consistent disciplined way, whilst also meeting all the individual investor targets.
And the other thing I was just going to mention here is, as you can see, we are working right across the housing spectrum. So we’re able to deploy this 100,000,000 across, combination of elder housing, papakainga, affordable rentals. There’s some open market rental housing in there, etcetera, etcetera. And that’s necessary in order to create a blended and it’s sufficient to attract the capital in the first place, whilst achieving the social impact outcomes that we’ve been tasked to, to achieve by the fund. Talk I’ll talk a little a little bit about one of our investments as a bit of a case study.
Jamie: It may or might be green shoots, but it’s kind of ways in which we’re trying to do things slightly differently. But I want to say that in terms of green shoots, this is really encouraging to have the organizations and the capability of the people like this on the couch. It’s kind of really and many more out here is encouraging, and I’ve kind of seen it as green shoots. I think Roy has made a really good point around that blended model is to get the, weighted average return to a level which can attract, capital was one of the things that we’re going to need to do as arrangers and fund managers and that kind of thing. Since I can see, Conrad sitting at the front here, I’ll talk about, a development we’ve done in, in Whangarei.
And I said, you know, we wanted to try and participate in Impact Housing in a way which is not about scale. It’s about innovation and okay. Well, let’s how do we turn those words into action? And, so it’s not about the finance per se. It’s about trying to innovate the impact and just acknowledging that, and I’m preaching to the choir here.
Right? But housing is a system which is nested within other systems and other, forms of disadvantage, deprivation kind of nested within housing inequities and that kind of thing. So, when we looked at our mandate and what we could do, we realized that, one of the ways we need to play was affordable rental. And, actually, James Stewart, you can take a lot of credit for this strategy.
And so in doing that, we said, well okay – Let’s find an appropriate opportunity. Long story short, we found that. And then we said, well, the core impact of this investment, is, yes, it’s the discounted rent, and it’s the quality home, and it’s the 10 year and blah blah, all those kinds of things. And then that’s just what we see that as our starting point. And then that’s where we need to go in, and I think the green shoots can be a new collaboration.
So we said, well, who’s a CHP or, aligned partner that can do the first layer of property management and tenant management and that kind of thing with the manner that can achieve what we want? That was, Habitat for Humanity. And then we didn’t stop there. We were thinking, well, how do we even have an impact on Habitat? Who have far more credibility, how can we even, bend their resources and capabilities and networks to our agenda.
I don’t know if you knew that, Conrad, that we’re trying to do that to you. And so that in terms of changing the recruitment processes, working with as the anchor community entity, because we’re prioritizing into these homes, such that, the connection, even before anyone’s in our home, is in that place and in that community. And the Marae being the perfect entity for that. That is in terms of recruitment, getting, whanau into those homes, and then Habitat doing that first layer of, let’s call it, wrap around. And then thinking beyond that, what are the other services which are not just, what we could think of in theory, but in practice for the whanau in those homes, what is going to, have that enhance impact for them in terms of their homeownership journey and other life outcomes.
What’s unique about that site is that in one site, we have a lot of KO Homes. Habitat are doing progressive home ownership next door to our affordable rentals. So I think that’s unique in the country of having all those typologies in one place, forming one community. And that’s going to be a challenge for us, Conrad, in terms of how we build a positive community there because I don’t know if KO’s in the room. They don’t have a great reputation for doing that right.
And so, we are the tail that is going to try and wag that dog in terms of how you do community building around the built environment because it’s not just about those homes. Somebody just walked out. That may be KO. So that is kind of the ways in which we’re trying to bring innovation beyond just the finance and the capital because we’ve got that mandate to align to the impact, not just to the to the commercials.
Steven: Thank you for that.
I think it’s really important to focus in on where these green shoots are. Like, how could we do things different? And something you mentioned, Jamie, I was going to highlight as well. We’ve got different people on the couch here sharing their experiences. One of the amazing things about this conference is that there’s such a diverse group of people gathering.
And it’s unusual because I think it’s one of the areas where you can actually collaborate with what you might traditionally say is a competitor. Right? Because there is a greater good. There’s a greater need at heart. So one of the encouragements I think that we can all take is to leave aside money side of things.
How can we collaborate more with other people and other groups? And, yeah, I’m really encouraged by hearing everybody’s journey. Because the other thing is you might look at what somebody else is doing and say, I love that. How could we adapt it to our circumstance or our situation? And I think that the tone of the vibe is – let’s actually make things better.
So, it’s really important. One of the challenges I see, but also the innovation potentials, is that it has the potential to become quite transactional. I’m here for some money… “Can you fill in these forms?” And I think a challenge is how do we remember what we’re actually here for?
Which has been said a couple times at this conference, but it’s the children living in the car. Right? There are deeper things here.
