The Kieran McAnulty Paper Company
The silly argument that social housing assets cancel social housing debt
Labour MP Kieran McAnulty has pushed back against concerns about Kāinga Ora’s mounting debt. He has argued that, while the agency's debt has increased by $10 billion in the past six years, its assets have grown by $25 billion over the same period. In other words, the increase in debt is justified and balanced by a corresponding growth in assets.
Not having a plan to get in the black
Do you remember that episode of the US version of The Office where Michael Scott, after leaving Dunder Mifflin, starts his own paper company? The Michael Scott Paper Company quickly gains customers and market share by undercutting prices. This lands his new company a substantial customer base that inflicts real damage on his old firm.
However, the company’s financial planner soon points to a problem. Low prices and a fixed-cost pricing model mean they are losing money on every sale. This means they cannot afford essential services (like a delivery person). It also means that the rapidly expanding business will go under in a month.
So despite building a formidable customer base, Michael’s financial model is unsustainable.
Assets are only valuable to the extent they create value
In the same way, the accumulation of assets by Kāinga Ora only offsets debt to the extent that those assets can provide positive yields over time and can be sustainably and affordably maintained. Merely increasing the number of housing units does not automatically equate to financial health where the costs of maintaining these assets and servicing the associated debt outweigh the benefits.
This goes double when you can’t sell the assets down if needed. Is Kieran McAnulty saying that the Kāinga Ora houses should be seen as a form of security for Kāinga Ora debt? Would he flog them off to satisfy creditors if access to credit tightens?
The yields from these assets are social benefits, not financial returns
We know that Kāinga Ora’s assets, namely social housing units, are not intended to provide financial returns. Social housing is inherently a cost centre, designed to offer affordable housing to those in need rather than generate profit. So while the increase in assets is necessary for social welfare, it does not translate into a financial counterbalance to the growing debt.
This means being more and not less careful about debt
Social housing being a cost centre does not excuse disregard for financial considerations. Resources will always be finite, and prudent financial management is essential to ensure sustainability. Without assets that can be easily sold or operations that can be easily downscaled, Kāinga Ora can’t just point to its inventory as justification for ongoing borrowing.
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