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Operating Supplement

The Operating Supplement is one of the ways HUD provides funding to Kāinga Ora – Homes and Communities and Community Housing Providers (CHPs) to build more public housing places.

The Operating Supplement is an additional subsidy for registered Community Housing Providers (CHPs) that are contracted to build new public housing places, to enable more new build housing supply.

Operating Supplement is generally set as a percentage of market rent for the duration of the contract between HUD and the CHP, paid from when the new public housing place is tenanted.

Changes to Operating Supplement cap

We have generally applied a cap to the amount of Operating Supplement a provider can receive. The cap has increased to 100 percent of market rent in regional centres and smaller areas that typically experience lower rents, to encourage new supply in priority areas.

This will enable the delivery of new supply public housing in a range of locations that might otherwise not have been financially viable due to low market rents.

In main urban centres (Auckland, Hamilton, Tauranga, Wellington and Christchurch), the Operating Supplement cap will remain at 90 percent of market rent.

The change will be applied to all new developments that will deliver places from 1 July 2022.

Early-stage payments of the Operating Supplement

We are bringing forward up to $55.525 million of Operating Supplement from Budget 2020 to offer CHPs payments of the Operating Supplement in the early stages of the development process for new public housing developments that will be delivered between July 2022 and 30 June 2024.

This change allows up to 50 percent of the funding that would usually be paid out to providers over the length of their contract to be paid in the development and construction stage of a new build project.

This change has been made to enable new developments to progress that would otherwise not go ahead, for example, where a CHP has a portion of the development capital required for a new build development but needs a top-up.

We expect that early-stage Operating Supplement payments will be of particular interest to newer or smaller CHPs who might lack access to the capital required for a build-to-own development.

Accessing early-stage funding

We have developed a set of criteria for CHPs to access early-stage payments. However, we encourage CHPs to continue to work with us on all new development opportunities. We will assess proposals on a case-by-case basis.

We will consider making early-stage payments of the Operating Supplement to CHPs, where:

  • they own or have access to land for development,
  • the developments are in places where Kāinga Ora has a limited presence or development pipeline,
  • they have an opportunity to provide bespoke housing solutions that meet the needs of individuals, families and whānau, and
  • they are proposing innovative models for delivery
  • the development is build-to-own (as opposed to build-to-lease), or contribute to a growth in the CHP’s asset base, and
  • all other funding sources have been explored by the CHP (such as bank finance and other sources of Crown support).

For more detailed information about requirements for accessing early-stage funding and how it works please contact your Business Development Manager or your Relationship Manager.

Published: August 17, 2021

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