New Bay of Plenty Housing Equity Fund Addresses Critical Housing Needs

The new Bay of Plenty Housing Equity Fund will focus on building housing where it’s most needed, transforming lives while delivering a return to its investors.

Instigated by BayTrust, the Bay of Plenty Housing Equity Fund (BOPHEF) is a collaborative venture between five community organisations: BayTrust, Trust Horizon, Rotorua Trust, TECT and Tauranga City Council. Together, these founding shareholders have committed $45m to the fund to help drive the creation of more housing across the region. The fund aims to leverage its equity dollar for dollar with debt to provide a starting pool of capital close to $100m.

Addressing Housing Needs

The fund will seek to increase the supply of housing types that are being under-delivered in the region by the open market and government, including: affordable homes to buy or rent; elder housing; housing on Māori land; crisis accommodation; public housing; and supported accommodation for people with disabilities.

Significance of Housing Affordability

In December 2023, the Bay of Plenty overtook Auckland as the most expensive place to rent in the country. “Across our region our communities are saying that [housing affordability] is the number one issue they’re experiencing,” says Alastair Rhodes, CEO of Bay Trust and Chair of the Fund. “This [fund] has the ability to have more impact than anything we’ve done in BayTrust’s 30-year history.”

Philanthropic and Institutional Investment

“The amount of funding we need to put into housing dwarfs what central government, local government and philanthropic investors like ourselves can do,” says Rhodes. “One of our main goals in establishing this fund was setting up something which uses philanthropic capital initially to establish a strong track record before looking to attract other investors – utilising professional fund managers – to show that you can invest in residential property in New Zealand and get a good return while having a really positive impact in the community.”

Management and Execution

Two investment fund managers that specialise in commercial impact investing have been engaged to manage the fund – New Ground Capital and Brightlight.

Partnerships and Collaborations

“The fund will supply both capital and delivery expertise to existing community housing organisations,” says Sam Richards, Managing Director of Brightlight. “It will be the catalyst or the enabler to get projects off the ground which otherwise wouldn’t get underway because of a lack of equity. Additionally, it will deliver these outcomes while demonstrating best practice, institutional level investment processes and target commensurate returns in an under invested asset class.”

Roy Thompson, Managing Director of New Ground Capital says “it’s about bridging gaps. Many organisations can go part of the distance on their own but are lacking the resources to get them to the finish line. They may already have a project in mind but no land or not enough capital; they might have identified the land and have some but not all the cash needed to buy and develop it; or – and this is common with smaller iwi – they may own the land but don’t have the cash to build the housing.”

“Housing is the largest asset class in New Zealand with some very attractive investment characteristics, however currently institutional investors have very limited ways to invest into it,” says Rhodes, who hopes KiwiSaver funds will become investors over time. “Offshore pension funds will typically have five percent invested in housing, whereas in New Zealand, the vast majority of KiwiSaver funds don’t have any housing investments.”

Local Government Involvement

Anne Tolley, Commission Chair for Tauranga City Council which invested $10m in the fund says the council does not see itself as a direct deliverer of housing. However, it does recognise that the cost and availability of housing is a significant issue for Tauranga. “Council sold its elder housing portfolio to Kāinga Ora in 2022. We’re committed to investing the proceeds of the elder housing sale in a way that will deliver better housing outcomes for the city.”

Tolley points out that the use of the council’s investment is ring-fenced to Tauranga City so that the community can be assured the sale proceeds of the elder housing portfolio will deliver significant and ongoing benefits for Tauranga.

“We chose the Bay of Plenty Housing Equity Fund as it provides an innovative and collaborative approach to delivering affordable housing for the region. The fund’s aim to invest in affordable housing projects which deliver social outcomes, combined with a return on investment, is exciting because it provides an opportunity for capital to be recycled over time. That means our original investment can grow, allowing us to continue to reinvest while providing ongoing housing benefits for our community.”

“We are also excited about the partnership focus of the fund. The partnership approach means the Fund has access to more capital and can have a bigger impact.”

Investment Strategy and Returns

The fund aims to generate a return of CPI + 4% (pre-tax, net of fees) to its investors via development margins, rental returns and capital growth in the properties.

“When you look at the characteristics of the asset class, it’s a low-risk investment,” says

Rhodes. “We’ve benchmarked our target against what offshore residential property funds return, as well as commercial property in New Zealand, and believe it’s an appropriate risk-adjusted return for the asset class.”

Long Term Vision

Although set up with a 10-year horizon in mind, he envisages the BOPHEF will be a perpetual fund. “Housing is a 50-100 year investment. Ninety percent of this fund is going to generate passive income; the assets will be held long term.” says Rhodes.

“The goal is to deploy the initial $100m of capital, show we can get those returns, and grow the fund to two-, three-, five-hundred million. It would be great to see other regions follow suit and then look at how we could combine to achieve true scale.”

The BOPHEF is actively looking to form partnerships with wholesale investors, joint venture

partners and lenders. If you’re interested visit bophef.info to learn more.