Tackling the Bay of Plenty Housing Crisis: New Housing Equity Fund Established

The Bay of Plenty is set to receive a significant boost in its efforts to address the region's housing crisis with the establishment of the Bay of Plenty Housing Equity Fund (BOPHEF). This new initiative, driven by BayTrust, is a collaborative venture involving five community organisations: BayTrust, Trust Horizon, Rotorua Trust, TECT, and Tauranga City Council. Together, these founding shareholders have committed $45 million to the fund, aiming to leverage this equity dollar-for-dollar with debt, creating a starting pool of capital close to $100 million.

Addressing Housing Needs

BOPHEF's primary objective is to increase the supply of housing types that are currently under-delivered by the open market and government. This includes affordable homes for purchase or rent, elder housing, housing on Māori land, crisis accommodation, public housing, and supported accommodation for people with disabilities. In December 2023, the Bay of Plenty overtook Auckland as the most expensive place to rent in New Zealand, highlighting the urgent need for affordable housing solutions in the region.

Philanthropic and Institutional Investment

Alastair Rhodes, CEO of BayTrust and Chair of the Fund, emphasized the potential impact of this initiative. “Our communities are saying that housing affordability is the number one issue they’re experiencing,” Rhodes stated. “This fund has the ability to have more impact than anything we’ve done in BayTrust’s 30-year history.” The fund aims to utilize philanthropic capital initially to establish a strong track record, before attracting other investors, demonstrating that residential property investment in New Zealand can yield good returns while having a positive community impact.

Expert Fund Management

To manage the fund, two investment firms specializing in commercial impact investing have been engaged: New Ground Capital and Brightlight. Sam Richards, Managing Director of Brightlight, explained that the fund will provide both capital and delivery expertise to community housing organizations, acting as a catalyst to get projects off the ground. Roy Thompson, Managing Director of New Ground Capital, noted that the fund's goal is to bridge gaps for organizations that have projects in mind but lack the necessary resources to complete them.

Local Government Support

Tauranga City Council has committed $10 million to the fund. Anne Tolley, Commission Chair for Tauranga City Council, highlighted the council's recognition of housing affordability as a significant issue. The council's investment is ring-fenced to Tauranga City, ensuring that the proceeds of the elder housing portfolio sale will deliver significant benefits for the community. Tolley praised the fund's innovative and collaborative approach to delivering affordable housing and emphasized the potential for capital to be recycled over time, allowing continuous reinvestment.

Investment Strategy and Long Term Vision

BOPHEF aims to generate a return of CPI + 4% (pre-tax, net of fees) for its investors through development margins, rental returns, and capital growth. The fund is designed with a 10 year horizon but is envisioned as a perpetual fund, with 90% of its assets generating passive income. Rhodes hopes that KiwiSaver funds will become investors over time, noting that offshore pension funds typically have a significant portion invested in housing, whereas KiwiSaver funds currently do not.

The ultimate goal is to deploy the initial $100 million of capital, demonstrate successful returns, and grow the fund to several hundred million dollars. Rhodes envisions other regions following suit and combining efforts to achieve true scale in addressing New Zealand's housing challenges.

Conclusion

The Bay of Plenty Housing Equity Fund represents a major step forward in tackling the region's housing crisis. By leveraging collaborative efforts, philanthropic capital, and professional fund management, the fund aims to deliver much-needed affordable housing while providing attractive returns for investors. As the fund takes shape, it offers a promising model for other regions to emulate, potentially transforming the landscape of affordable housing across New Zealand.

Source: NZ Herald - Rotorua Daily Post