The Auditor-General's inquiry into the Ministry of Social Development's (MSD) funding of private rentals for emergency housing has found it didn't monitor the quality of accommodation and couldn't show it was receiving value for money.
From November 2017 to June 2020, MSD paid more than $37 million to private landlords and property management companies in Auckland, the report says. Before this, the Emergency Housing Special Needs Grant was only paid for motels and other commercial accommodation, so funding private rental properties in this way was a change in practice.
Auditor-General John Ryan says the decision to fund private rentals for emergency housing began as an innovative and pragmatic response, but this new approach raised issues that MSD didn't respond to at the time. He says its planning and assessment process was limited and it didn't give formal guidance to its staff about how to make decisions to fund private rental properties or the price to pay.
"Ministry staff said that there was a pressing need to find somewhere for the people to stay. This meant that suppliers were often able to determine the rate because they knew that few options were available. As a result, the Ministry paid more than the long-term market rate for private rental properties," the report says.
"This meant that there was a risk that properties would be removed from the long-term rental market in favour of the higher payments offered through emergency housing grants. For example, a long-term lease for a house used for transitional housing at a rental of $1400 a week was not renewed. Instead, it was used as emergency housing at a rental of $3900 a week."
The report says while MSD believes that, overall, the amount it paid for private rental properties was no more than it would have paid if those families had been placed in motels, "it was not possible for the Ministry to demonstrate that the private rental accommodation it funded as emergency housing provided value for money".
"Paying the same amounts for different 'products' is not the same as ensuring value for money."
Ryan says this approach may have been acceptable for the short-term but could've been adapted as time went on.
"We expected to see a more planned and strategic response to the situation, including guidance to staff, as the practice and costs of providing emergency housing in this way increased."
He says MSD didn't analyse what a fair rental rate was, such as comparing the market rates of weekly rental options for fully furnished houses or similar. MSD had price guidance for what a reasonable payment for commercial premises was but didn't have something similar for short-term furnished private rental properties.
The report also says MSD said it aimed to fund emergency housing that was warm, dry, and safe, but it had no way of checking that the private rental properties it was paying for met these expectations.
"The only mechanism that the Ministry said it had for ensuring that accommodation was suitable was by responding to complaints from people living there. The Ministry received numerous complaints about the quality of some of the houses that it placed people in," the report says.
"We were also told about dwellings with building debris; that did not have cooking facilities, furnishings, or bedding; and that did not have appropriate consents from Auckland Council. These could have been isolated incidents, but it is not possible to know their extent because the Ministry did not record and retain the addresses of the homes it housed people in, set standards for the properties it used, or have a process to check whether those properties met its expectations."
MSD also didn't keep an accurate record of the complaints it received.
"In our view, although there was evidence that service delivery staff responded to some individual complaints, the Ministry should have had mechanisms to ensure that it was clear what quality of housing should be supplied for the price it was paying. It should also have had controls to ensure that quality housing was being delivered."
MSD wrote to suppliers in September 2019 outlining several points on having accommodation that was warm, dry, and safe. It asked providers to ensure homes complied with the Residential Tenancies Act 1986 and to provide accommodation with chattels, such as a heater, bedding, and linen, and to make properties available for inspection.
The Ministry also considered setting up service-level agreements with suppliers at the time and it started asking them to give evidence they had the authorisation to rent out their property as emergency housing.
"Having an agreement with suppliers outlining these expectations and obligations, and requiring authorisation, are all matters that the Ministry may have considered earlier in the process to help ensure that recipients of emergency housing grants received the quality of accommodation that the Ministry expected," the report says.
"In effect, the Ministry had a high-trust model with suppliers. When a public organisation is spending public money with a degree of trust that it will be put to certain use, it is important that the organisation is clear on the standards it expects. It is also important that it can verify whether those funds are being used as expected and what they are providing.
"In this instance, we saw agreements to pay suppliers an agreed amount to provide accommodation, and little more than that. The Ministry had no way of knowing what standard of accommodation was being provided (and, in many instances, where that accommodation was) and whether it met the needs of those being housed."
The report says having an agreement with suppliers outlining expectations and obligations, and requiring authorisation, are things MSD could've considered earlier to ensure people receiving emergency housing grants got the quality of accommodation the Ministry expected.
"A system that relies on some of the most vulnerable in our community to make complaints is clearly inadequate. In my view, this is not enough to ensure that the Ministry met its aim of funding warm, dry, and safe emergency accommodation through emergency housing grants."
MSD has ended its practice of paying for private rental properties. The Auditor-General's report says it continues to fund emergency housing and has said it's working on improvements to the system.
The National Party's housing spokesperson, Nicola Willis, says the inquiry reveals "a shocking waste of taxpayer funds" and raises questions about the financial control MSD is exercising.
"The Minister for Social Development [Carmel Sepuloni] must explain who will be held accountable for this shocking mismanagement. She must assure taxpayers of what has changed at MSD to strengthen the systems, processes and oversight controlling the use of taxpayer funds," Willis says.
"The Minister must make it clear that the wasteful, sloppy approach revealed in this report is completely unacceptable from a government agency. There must be consequences for failures of this magnitude."
She says taxpayers need confidence these mistakes won't be repeated but adds there is an "ongoing reason for concern".
"Emergency housing has exploded under Labour. Today, the Government continues to spend around $1 million a day on emergency accommodation for more than 8000 New Zealanders. How can taxpayers have any confidence this represents good value for money when it's being overseen by the same agency that created the mess revealed in this inquiry?" she says.
"What plans does the Government have in place to ensure the mistakes revealed in this report aren't repeated when New Zealand reconnects with the world and motels once again fill up?
"The Government must ensure value for its use of taxpayer money. This inquiry shows it has fallen very short of that standard. The Minister must now step up and ensure this can never happen again."
Sepuloni says MSD stopped the practice at the end of June 2020.
"Their intention was good, but had unintended consequences. I'm glad MSD stopped the practice, and it certainly gives them something to reflect on."
