Annual Report 2009/10 - Housing New Zealand

Housing New Zealand Corporation Annual Report 2009/10Annual Report2009/10

National Office Wellington28 Grey Street, WellingtonPO Box 2628, Wellington 6140Phone: 04 439 3000Fax: 04 472 5752Email: info@hnzc.co.nzwww.hnzc.co.nzISSN: 1176 0966© Housing New Zealand Corporation 2010

ContentsPart One: Overview 3Foreword: Board Chair 4Chief Executive’s overview 6pagePart Two: Outcome Contribution 9Introduction 10Outcome One: Where the Corporation has a significant influence, people will have access to decent,affordable housing 15Outcome Two: Where the Corporation has a significant influence, people will live in safe,inclusive communities 33Priorities for the future 41Part Three: Managing the Corporation 43Organisational health and capability 44Corporate governance 48Part Four: Statement of Service Performance 53Statement of Responsibility 54Audit Report – Housing New Zealand Corporation and Group 55Statement of Service Performance 57Output Class 1: Advisory Services 57Output Class 2: State House Tenancies 59Output Class 3: Policy Advice 62Output Class 4: Financial Assistance – Housing 64Output Class 5: Property Management Agency Services 68Intermediate Outputs: Housing Portfolio (Corporation) 70Appropriations 77housing new zealand corporation | annual report 2009/101

Part Five: Financial StatementsHousing New Zealand Corporation financial statements 81Financial Highlights for 2009/10 82Balance Sheet 84Income Statement 85Statement of Changes in Equity 86Cash Flow Statement 87Notes to the Financial Statements 88Housing Agency Account financial statements 133Statement of Responsibility 133Balance Sheet 134Income Statement 135Statement of Changes in Equity 136Cash Flow Statement 137Notes to the Financial Statements 138Audit Report – Housing Agency Account 146The Annual Report of Housing New Zealand Corporation for the year ended 30 June 2010 is presented to the House of Representatives inaccordance with section 42 of the Housing Corporation Act 1974 (as amended) and Part V of the Public Finance Act 1989 (as in force beforethe commencement of the Crown Entities Act 2004) and section 152 of the Crown Entities Act 2004. It includes:• the financial statements of Housing New Zealand Corporation and its subsidiaries, in accordance with section 41 of the Public FinanceAct 1989 (as in force before the commencement of the Crown Entities Act 2004)• the financial statements for the Housing Agency Account, in accordance with section 34 of the Housing Act 1955• a report on the administration of Housing New Zealand Corporation for the year ended 30 June 2010.2housing new zealand corporation | annual report 2009/10

Part oneOverviewForeword: Board Chair 4Chief Executive’s overview 6pagehousing new zealand corporation | annual report 2009/10 3

Foreword: Board ChairThe Corporation has continued to help New Zealanders in their timeof housing need, while reviewing how it can make its resources gofurther and meet the challenges of the future.During 2009/10, state housing and tenancymanagement services were provided for over200,000 people. Customer satisfaction has beenmaintained, and in some cases improved, despitea tough economic environment and rising demandin some parts of the country.Service enhancements have been made across theorganisation. An Options and Advice Service fornew customers, piloted last year, has been rolledout nationally. The Corporation has launched newhome ownership products, and improved others.A Customer Service Strategy has been launched, andenhancements made to the contact centre service.The year has seen important strides taken in improvingthe quality of state housing. A large programme ofupgrades to state homes was completed, providingmuch needed job opportunities for several thousandpeople. A new property survey was introduced toimprove information about the condition of statehomes, enabling the Corporation to make betterinvestment decisions.These are achievements to be celebrated for theimpacts they have made on the lives of some ofNew Zealand’s most vulnerable families. As onetenant said of the Northcote redevelopment projectin Auckland, where 44 new homes were built:“We now live in healthy, warm and sustainablehomes, which is great for our kids. Our childrennow walk 10 feet tall.”But while the Corporation has been grapplingwith the demands of the present, it has also madesignificant progress defining the organisation itneeds to be in the future to help more people: anorganisation with a sharper focus on its core business– housing those with high and complex needs, fortheir time of need.Over the next 10 years, social housing in New Zealandfaces real challenges. Some of these challenges are alegacy of past decisions, some reflect societal changes,and some will result from future population trends.One thing is clear – we need to start making changesto address them, and we need to start now.In 2009, the Board, supported by the Chief Executive,began reviewing the strategic direction of theCorporation, looking at ways to achieve, over time,a sustainable social housing system with the abilityto meet changing demand in the long term.The result is a new strategic direction that sets outthe pathway for what the Corporation will do withinits business to address the challenges of the future.The outcome of discussions with Ministers and otherstakeholders about this change of direction isreflected in the 2010–13 Statement of Intent.The Minister of Housing also recognised the challengesfaced by the social housing sector, including theCorporation, and established the HousingShareholders’ Advisory Group (HSAG) to undertake asector-wide review of the provision of social housingin New Zealand, and make recommendations forchange. The Advisory group has produced a reportwith recommendations and is now working on thesewith stakeholders. The Corporation will continue todeliver its strategic direction and incorporate anychanges agreed with Ministers.The Corporation’s purpose is still to help those whoneed it most, but we recognise that to help morepeople, we must make better decisions aboutwho we help, how we help and how long we help.We need the right homes in the right place and inthe right condition.4housing new zealand corporation | annual report 2009/10

1 | OverviewWe need to look for innovation in our business thatbetter targets and tailors our work, delivers bettervalue for money, brings us closer to our customersand integrates our work with that of others. Thefoundations of that transformational change werelaid this year.It was also a year of change for the Board, with fourBoard members finishing their term in December2009. I would like to thank Jo Brosnahan, Sandra Lee,Tony Paine and Garry Wilson for the contributionthey have made to the Corporation.The success of the Corporation depends on thecommitment of the Board and staff. With the supportof the new Board, the Chief Executive and staff, I amconfident the Corporation can meet the challengesahead and continue its proud legacy of service toNew Zealanders.Patrick N Sneddenchairhousing new zealand corporation | annual report 2009/10 5

Chief Executive’s overviewWe have met almost all of our performance targets for 2009/10,delivered greater value for money, enhanced operational performance,and sharpened our focus on our core business as part of our journeyof continuous improvement.Providing state housing and tenancy services is ourcore role. We are here to help house people in thegreatest need. For some time now, demand for ourservices has exceeded our ability to supply. Whilewe provide housing for 200,000 people, there areanother 4,637 applicants on the waiting list withhigh housing need. Meeting the demand for socialhousing is an ongoing challenge, as there are morepeople asking for state housing than we are ableto provide.To help deal with the high level of demand andprovide a better service for customers who walkthrough our door, the Corporation started theOptions and Advice Service. On a day-to-day basis,staff are in contact with our customers throughthis service, providing information about housingsolutions appropriate to their needs. By 30 June 2010,the Options and Advice Service was available fromall 43 neighbourhood units, with 14,799 customersalready benefiting from the service.The year was one of forward thinking, reviewing thechallenges facing the organisation over the longerterm and engaging with the Board, the Minister ofHousing, Cabinet Ministers, and other stakeholderson how these might be addressed.Our challenges include:• a growing demand for housing, particularlyfor people with high and complex needs• our current housing portfolio does not matchdemand growth and the changing needs ofour customers• we are unable to address the growth in demandalone; we need a collaborative joined-upapproach across government, social andcommercial housing• building our capability and improvingperformance if we are to meet demand• achieving our economic and social objectiveswithin a capital-constrained environment.In order to address these challenges, we have to thinkand operate differently, making new decisions fortoday’s and tomorrow’s needs.We started this journey of change by developingand improving our services and making a significantcontribution to the outcomes identified in the2009/10 Statement of Intent.• Outcome One: Where the Corporation has asignificant influence, people will have accessto decent, affordable housing.• Outcome Two: Where the Corporation has asignificant influence, people will live in safe,inclusive communities.Full details are set out in Parts Two and Three of thisAnnual Report.We developed the concept of a housing pathwayapproach. This approach allows the Corporation tobetter understand housing needs in New Zealandacross different market continua, moving fromemergency housing through to unassisted homeownership, with state housing an important partof the continuum. This approach maximises bothapplicant and tenant outcomes and the Corporation’sability to house those in greatest need. We alsoundertook significant work to better understandcustomer need and how we could tailor services tomeet current and future demand.This work supported a review of the Corporation’smedium-term strategic direction resulting in:• changing how we operate, strengthening ourcustomer focus, and providing housing for thosemost in need for the duration of their need• implementing new outcomes and associatedmedium-term operating performance indicatorsto provide a more balanced overview of ourperformance, as set out in the 2010–13 Statementof Intent.6housing new zealand corporation | annual report 2009/10

1 | OverviewAs part of this journey of change, we also adopteda new Asset Management Strategy. The strategywill help set the direction of the Corporation’s assetportfolio management planning activities and assistbetter long-term funding decisions. The aim of thestrategy is to take a more outcome-focused approachwith sufficient flexibility to enable the Corporationto progressively reconfigure the portfolio to bettermeet demand.The Corporation will be looking to take advantageof partnering options in order to minimise capitalrequirements and development risks for the Crown.This will require a change in the level of asset activitycurrently being undertaken by the Corporation anda new way of working, including leveraging with theprivate sector. Particularly in high-demand areas, theCorporation will be concentrating on unlocking landvalue in its portfolio and providing the largestnumbers of new houses.The challenges identified have been acknowledged inthe Housing Shareholders’ Advisory Group report, andmany of their recommendations align with our newstrategic direction outlined in the 2010–13 Statementof Intent. The Corporation endorses the report’sview that ensuring every New Zealander has decent,affordable housing will require the public, private andnon-government sectors, and iwi to all work together.Through our improved strategic planning process wewill build on our achievements in 2009–10, deliver onthe commitments we have made for 2010–11 and beresponsive to any further decisions by Governmentarising from the report and officials’ advice.I am proud of our achievements over the last year.The dedication and commitment of the people whowork for the Corporation have enabled us to achievesignificant results in a year characterised by reviewand change.Dr Lesley McTurkchief executivehousing new zealand corporation | annual report 2009/10 7

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Part twoOutcome contributionIntroduction 10Outcome One: Where the Corporation has a significant influence,people will have access to decent, affordable housing 15Outcome Two: Where the Corporation has a significant influence,people will live in safe, inclusive communities 33Priorities for the future 41pagehousing new zealand corporation | annual report 2009/10 9

IntroductionThe Annual Report reports on the Corporation’sprogress against the 2009/10 Statement of Intent.The Statement of Intent was developed to giveeffect to the Crown’s social objectives by providinghousing and services related to housing to helpenable the two outcomes below. The Corporationidentified a set of outcome indicators to measureprogress against the two outcomes.To achieve the two outcomes, the Corporationfocused on six priority areas for 2009/10. Thissection (Part Two) of the Annual Report covers theCorporation’s progress against the two outcomes.The Corporation also focused on improving its valuefor money and organisational health and capability.The results are summarised in Part Three.The outputs and performance information forthe year ending 30 June 2010 are summarised inPart Four.our outcomes (refer to part two)Outcome One: Where the Corporation has a significant influence,people will have access to decent, affordable housingOutcome Two: Where the Corporation has asignificant influence, people will live in safe,inclusive communitiesour priorities (refer to part two)Upgrading statehousing stock to adecent standardDeveloping ahousing Optionsand Advice ServiceImproving housingaffordability forlow- to middleincomeearnersExpanding socialhousing optionsFacilitatingimprovement incommunities wherestate housingdominatesimproving value for money (refer to part three)maintaining and developing organisation health and capability (refer to part three)our outputs to achieve our priorities (refer to part four)Intermediateoutputs – HousingportfolioAdvisory servicesState housetenanciesPolicy adviceFinancial assistance– housingPolicy adviceFinancial assistance– housingAdvisory servicesState housetenanciesFinancial assistance– housingPropertymanagementAdvisory servicesPropertymanagementMeasuring progress against our outcomesThe Corporation identified a set of outcomeindicators to track trends towards achieving theoutcomes. The indicators are influenced by theactions of the Corporation, the actions of otheragencies and the socioeconomic environment.The outcome tables on pages 26 and 39 show theindicator, scope of the indicator, rationale, baselinemeasure, result and analysis. During 2009/10 theCorporation revised its Outcomes Framework toprovide a more balanced overview of itsperformance. The Framework is summarised onpage 41. As a result, new outcomes and associatedmedium-term operating performance indicatorswere developed to enable the Board and Ministersto assess the Corporation’s outcome contributionover time. These are included in the 2010–2013Statement of Intent. As a consequence, the resultsagainst the 2010–2013 outcome indicators will differto the ones reported in this 2009/10 Annual Report.10housing new zealand corporation | annual report 2009/10

Assessing housing needThe Corporation supplies almost 5 percent ofhousing in New Zealand through directly providingfamilies with a house for an affordable rent. Thishelps about 69,000 households who may not beable to sustain a tenancy in the private sectorbecause of low income, poor health or disability,or the need for modified housing.The Corporation provides landlord services,including maintenance and inspections to itstenants, while offering a responsive service totenants and applicants, where there is the possibilityof homelessness and other adverse consequence.The Social Allocation System is the process theCorporation uses to assess an applicant’s eligibilityfor state housing and subsequent waiting listpriority. Once housed, tenants are charged anincome-related rent subsidised by the governmentand administered by the Corporation.social allocation systemPoints are awarded under the Social Allocation Systemon each of five criteria:• Affordability of current accommodation.• Adequacy (quality) of current accommodation.• Suitability (number of bedrooms) of currentaccommodation.• Ability to access private sector accommodation(funds for bond, discrimination issues).• Sustainability (factors mostly relating to the personalneeds, capabilities and social functioning of theapplicants).Applicants are assigned to an overall waiting list –priority A (at risk), B (serious housing need),C (moderate need) and D (low need) – and areranked within each priority.income-related rentOnce an applicant is housed, the Corporation sets arent based on the tenant’s income. This is called anincome-related rent. Income-related rents are set at25 percent of assessable income for state house tenantson low incomes.A tenant’s income is classified as ‘low’ if the tenant issingle without dependent children and their incomeis less than the single ‘living alone’ rate of New ZealandSuperannuation (after tax). In the case of othertenants, an income less than the ‘married couple’rate of New Zealand Superannuation (after tax) isconsidered a ‘low’ income.Above this level of income, the rent is increased by50 cents for every additional dollar in net income untilthe market rent is reached (the rent the house wouldattract if let on the open market). Rent payable isadjusted whenever income or other relevantcircumstances change.The income-related rent is the difference betweenthe rent charged and the assessed market rent for theproperty. Market rents for Corporation properties areset annually based on Quotable Value valuations andadjusted by the Corporation for factors such as aspect,and parking. The subsidy amount is paid to theCorporation by the Crown through Vote Housing asa payment for services in respect of each tenantedhousing unit.2 | Outcome Contributionhousing new zealand corporation | annual report 2009/10 11

introduction continuedKey strategies to achieve our outcomesThe Corporation developed key strategies to helpachieve our strategic priorities. These strategiesfocus the Corporation on areas where there is acurrent need and deliver the most improvementin housing and housing-related outcomes.Auckland Housing StrategyThe Auckland region is New Zealand’s largestmetropolitan area and plays a central role in thenational economy. Population growth and housingdemand are forecast to increase faster in Aucklandthan in the rest of New Zealand. Auckland representsa significant and growing part of our business, with45 percent of state houses in the Auckland regionand applicants for state housing making up aroundhalf of the total national waiting list.The Auckland Housing Strategy outlines how theCorporation will operate in the region over the next20 years. Strong relationships with central and localgovernment, community housing organisationsand iwi are critical to the success of this strategy.Establishing a collaborative relationship with thenew Auckland Council is an immediate priority.The key Corporation initiatives in the Aucklandregion during the 2009/10 year include:• upgrades as part of the Jobs and Growth fiscalstimulus programme – the living conditions ofpeople occupying 12,000 state homes wereimproved through the Upgrades programme.Over the year, an average of 680 additionalpeople were employed through Jobs and Growth• new acquisitions and modernisations –approximately 370 (gross) properties were addedacross Auckland, including nearly 300 new builds• homelessness taskforce – the Corporation is amember of the inter-agency Auckland HomelessSteering Group, which includes the AucklandCity Council, the Auckland City Mission and otherstakeholder groups. In November 2009, thisgroup signed a memorandum of understandingto address street homelessness in AucklandCentral Business District.Māori Strategic PlanThe Corporation has created its Māori Strategic PlanTe Au Roa to help improve the housing outcomesof Māori. Over the last three years the Corporationhas given effect to the plan through a Māoriwork programme. During 2009/10, the majorachievements for the Māori work programme include:• completing the Effective Service Delivery to MāoriAssessment 2010 Report to assess a selectednumber of the Corporation’s products andservices including the housing Options andAdvice Service, the revised Welcome Home FirstSteps provider programme, Kāinga Whenua loanand the Housing Innovation Fund – MāoriDemonstration Partnerships• completing five Māori DemonstrationPartnership agreements with iwi includingfour capital projects and a strategic partnershipwith Tainui-Waikato, as well as approving grantsto support six organisations develop theirhousing proposals• launching Kāinga Whenua – an extension ofthe Welcome Home Loan to include lendingfor multiple-owned Māori land• tendering the provision of services for interculturalcommunications training to be pilotedover the 2010/11 year as part of the CustomerExcellence training programme• working closely with the Office of TreatySettlements in the continued provision ofstate housing as part of the right of firstrefusal process.In December 2009, the Minister of Māori Affairs andthe Minister of Housing agreed to the Corporationand Te Puni Kōkiri undertaking a joint workprogramme with the aim of increasing Māori homeownership. Work on the project is scheduled to startin the new financial year and will include:• identifying and targeting households forassistance• developing home ownership education,including a joint publicity campaign andcommunications strategy• developing pre- and post-home purchasewhānau support• planning and scoping medium-term activities,such as exploring other options for financinghome ownership.12housing new zealand corporation | annual report 2009/10

Housing PathwaysThe housing pathways approach provides aframework for how the Corporation relates to,and engages with, applicants, tenants andcommunities. The housing pathways approachallows the Corporation to better understandhousing needs in New Zealand across differentmarket segments and effectively provide services,from providing emergency housing to assistingpeople into independent home ownership. Thisapproach maximises both applicant and tenantoutcomes, and the Corporation’s ability to housethose in the greatest need.The framework is now embedded into the way theCorporation operates. In 2009/10, the Corporationbegan identifying and implementing interventionssuch as the full roll-out of the Housing Options andAdvice Service to provide customers with betterinformation about their housing options and helpthem access a range of housing solutions. TheCorporation has also:• completed a regional initiatives review whichreviewed and evaluated various initiativesdeveloped at a regional level and consideredtheir possible national application to reinforcethe housing pathways approach• implemented the Tenant Home Ownershipprogramme to allow tenants to be able tobuy their state houses• undertaken research such as the housingpathways longitudinal study to assist inbuilding an evidence base about how thevariation in housing pathways and lifecircumstances influence outcomes for ourapplicants and tenants• implemented a customer segmentationframework to help identify current and futurecustomer segments, profiles and needs andbetter target its products and services.Housing Strategy for Pacific PeoplesThe Corporation recognises that Pacific peoplesare an important segment of the population andrequire a specific response to improve housingoutcomes. On 1 October 2009, Orama Nui – theHousing Strategy for Pacific Peoples was launched.The strategy includes supporting Pacific peoplesinto home ownership, developing and implementingeducation programmes to prepare Pacific peoplesfor home ownership, and engaging in partnershipswith Pacific communities to develop housinginitiatives.In addition to ensuring a Pacific focus to corebusiness activity during 2009/10, the Corporation:• seconded a staff member to the Ministry ofPacific Island Affairs to scope the key issuesfacing Pacific peoples in achieving homeownership and recommend a range of activitiesto promote and develop home ownershipinitiatives with Pacific communities and keyhousing stakeholders• delivered a series of Pacific home ownershipworkshops targeting Pacific leaders (keycommunicators with good links into theircommunities) – 55 people attended theworkshops, and evaluation from the workshopswill shape future planning• completed prioritisation of applications for thePacific Capacity Fund with three projectsidentified in Porirua and Auckland for furtherwork and funding – the Capacity Fund supportsprojects designed to improve housing outcomesfor Pacific peoples by supporting communitygroups to build their capability to providehousing or housing services• updated the Pacific Housing Design guidelinesfor inclusion in the Housing Property standardsportfolio.2 | Outcome Contributionhousing new zealand corporation | annual report 2009/10 13

introduction continuedAsset Management StrategyThe Asset Management Strategy provides aframework for the Corporation to manage our rentalhousing to meet social housing needs. In June 2010,the Corporation adopted a new Asset ManagementStrategy under the current policy settings tomanage our asset portfolio on a national basis overthe next 10 years. The strategy provides a baselinefor aligning the Corporation’s assets to meet thegrowing and changing demand for state housing.About two-thirds of the Corporation’s 69,000houses are in the right place and in the rightcondition and are servicing a very real need in thecommunity. However, approximately 27,000 housesof the 69,000 have been identified as being eithermismatched to demand or providing a less thanoptimal economic return.The Corporation’s priority over the next 10 years willbe to focus on 9,000 properties that either do notmeet the property standard conditions or are of thewrong type or in the wrong location. This will raisethe number of total ‘fit for purpose’ properties from42,000 to 52,000, therefore delivering greater valueof the taxpayers’ $15.1 billion asset.This will require a change in the level of asset activitycurrently being undertaken by the Corporation anda new way of working, including leveraging theactivities of the private sector. This is the case inhigh-demand areas where the Corporation will beconcentrating on unlocking land value in its portfolioand providing the largest numbers of new dwellings.The Asset Management Strategy has six goals toguide the Corporation:1. Provide housing to the agreed specifications andstandards – new standards have been developedthat aim to provide decent basic homes. Newproperties will be built to these new standards,and existing properties will be upgraded tomeet these standards over time.2. Achieve cost-effective maintenance of theportfolio – maintenance will be based on thestage that a property has reached in its life cycleand its intended future use. We are currentlysurveying the condition of all Corporationproperties; this information will help us todeliver targeted and cost-effective workprogrammes.3. Reposition our stock to better meet prioritydemand in high-priority areas – we willreposition the portfolio to better meet demandand to realise value that is tied up in poorlyperforming stock.4. Reduce areas of high concentration of statehousing to improve community outcomes – wewill work to reduce the number of properties wehave in areas where there are currently highconcentrations of state housing. We will activelywork with local government and other housingproviders, including the private sector, to achievethis outcome.5. Optimise the value of the portfolio – this willinclude selling those properties where we havea poor return and making sure that we have theright houses in the right place to meet demand.We may also lease more properties where itmakes economic sense to do so.6. Develop a robust asset funding strategy – theaims of the Asset Management Strategy can bedelivered from funding currently available to theCorporation. Ensuring that this is sustainablewill involve the use of effective decision-makingtools to prioritise work on the portfolio.14housing new zealand corporation | annual report 2009/10

outcome 1Where the Corporation has a significant influence,people will have access to decent, affordable housingkey achievements• Highest priority applicants were housed, on average,within 10 days.• A total of 25,567 upgrade interventions to state houseswere undertaken, with about 30 percent of thehousing portfolio having had some form of upgradein the preceding two years.• The Housing Options and Advice Service was rolledout nationally in all 43 neighbourhood units, providingcustomers with access to a wider suite of public andprivate sector housing options.• Since September 2009, 22 tenants have become homeowners, buying their existing state house and freeingup $4.591 million for new homes in areas of need.• 4,942 participated in the Welcome Home First Stepseducation programme.• Completion of civil works and infrastructure for thefirst 80 dwellings in stage 1 of the Buckley Precinctdevelopment in Hobsonville.IntroductionThis outcome is about improving housing choicesfor applicants and tenants, including access toother housing options and services. It reflects theCorporation’s role of providing state housing to thosein greatest need and improving opportunities foraffordable home ownership. These opportunitiesinclude providing assistance for first-home buyers,developing a number of programmes to improveaccess and knowledge about finance and homeownership and supporting other social housingproviders.The Corporation manages over 69,000 houses acrossNew Zealand valued at $15.12 billion. The focus for2009/10 was on improving the portfolio by upgradinghouses to a modest but modern level of amenity.The Corporation developed a number of keypriorities to help achieve this outcome. Theseinclude:• improving housing affordability for low- tomiddle-income earners• upgrading state housing stock to a decentstandard• developing a Housing Options and Advice Service.The outputs through which each of these prioritieshave been achieved are discussed in further detail inPart Four: Statement of Service Performance.Priority: Improving housing affordabilityfor low- to middle-income earnersHome ownership is an important aspiration formany people; however, achieving home ownershipis a challenge for many New Zealanders. This priorityrecognises the contribution the Corporation hasmade in creating opportunities for affordable homeownership, including delivering Crown-fundedprogrammes and tailored housing assistance,and providing strategic and operational policyadvice to support the Government’s affordablehousing agenda.Gateway Housing initiativeThe Corporation completed its operational policy,procedures and systems to progress the GatewayHousing initiative, which involves the provision ofCorporation and Crown-owned land to first-homebuyers directly and to community housingorganisations. In November 2009, Cabinet agreedthat Gateway Housing would be offered as a secondmortgage with a 10-year subsidy period. Locations ofavailable sites have been sent to communityhousing organisations, with a request to advise theCorporation of their interest in accessing Gatewaybefore that land is valued. Gateway Housingopportunities will be available from October 2010in Hobsonville, Auckland and other areas.Hobsonville developmentThe Hobsonville Land Company Limited is a whollyownedsubsidiary of the Corporation. The companyis utilising existing Crown-owned land, inconjunction with private sector partnerships, tocreate an integrated community that will includeaffordable housing. The site covers about 167hectares of land, which includes education areas,existing and future marine industry and compatiblemixed-use areas retained by the New ZealandDefence Force. It is planned to include over 3,000quality new homes, extensive reserves, parks andopen spaces for community use. To date, 111 hectaresof land have been acquired by the Housing AgencyAccount for the Hobsonville Land Company Limitedto manage the development.For 2009/10, all planned milestones were met forthe Hobsonville development, including:• acquisition of the first 10.2 hectare tranche ofNew Zealand Defence Force off-base housingland area2 | Outcome Contributionhousing new zealand corporation | annual report 2009/10 15

outcome one continued• completion of civil works and infrastructure forthe first 80 dwellings in stage 1 of the BuckleyPrecinct development• finalisation of sale and purchase agreementswith four building companies for the deliveryof the first dwellings in the Buckley Precinct.The Corporation will continue to work with theDepartment of Building and Housing and theTreasury on reviewing the future options for theHobsonville development.Extending the reach of Welcome Home LoansThe Welcome Home First Steps home ownershipeducation programme provides information tofirst-time home buyers on the difference betweenowning and renting a home, financial budgeting,home maintenance and the process required tobuy a home. A total of 4,942 benefited from theprogramme in 2009/10. From 2010/11 onwards,the Corporation will measure the percentage ofprogramme participants who purchase a homewithin 12 months.The Welcome Home Loan scheme is a Crown-fundedprogramme that provides insurance to lenders whooffer home loans to first-home buyers on modestincomes. No deposit is required for a loan under$200,000; a 15 percent deposit is required for a loanup to $280,000.The Minister of Housing extended the loan amountthat could be borrowed in selected areas from$280,000 to $350,000, with a 15 percent deposit.The Minister also agreed to transfer an additional$3.15 million from the Shared Equity appropriationto the Welcome Home Loan insurance scheme.This kept the Welcome Home Loan scheme alignedwith market conditions, subsequently promotingaccessibility to more first-home buyers. As a result,the Corporation insured a total of 1,776 WelcomeHome Loans, 626 over the Statement of Intenttarget in 2009/10.KiwiSaver to support home ownershipThe Government is offering KiwiSaver (theGovernment’s voluntary work-based savingsinitiative) as a way to help people save for a depositon a home. People who contribute a minimum of2 percent of their income to KiwiSaver, or anapproved alternative superannuation scheme, maybe entitled to a first-home deposit subsidy from theGovernment through the Corporation. The subsidywill assist first-home buyers, and previous homeowners who are in a similar financial positionto first-home buyers, who are able to sustain acommercial mortgage but face difficulties savingfor a deposit.In 2009/10, the Corporation implemented operationalpolicies, systems and processes allowing people toaccess the KiwiSaver deposit subsidy. The first-homewithdrawal became available from July 2010.Members who have contributed to the scheme formore than three years will be eligible to withdrawsome or all of their savings to contribute towardsbuying a first home.Tenant Home OwnershipThe Minister of Housing announced in June 2009that some Corporation tenants who qualify formortgage assistance will have an opportunity topurchase their state house. The Tenant HomeOwnership programme recognises that manyfamilies in state houses aspire to achieve homeownership. The programme provides a pathwayfrom state housing to home ownership, as a tenant’scircumstances improve, offering benefits including:• encouraging tenants into home ownership• freeing up capital for new homes in areasof need• keeping households connected to theircommunities• introducing home ownership into areas wherestate housing dominates.The Corporation received around 2,000 applicationsfrom interested tenants. By the end of June 2010,22 Corporation homes had been sold to tenants,with annual proceeds totalling $4.591 million.A further five agreements for sale and purchaseremained unsettled, and 16 further tenants hadprovided some evidence of being able to securepre-approval finance and were working towardsthe goal of trying to buy their homes. The saleswere in Hastings, Whangarei, Rotorua, Christchurch,Wellington, Palmerston North, Dunedin, Patea,Wanganui, Te Kuiti, Auckland, Foxton and Napier.16housing new zealand corporation | annual report 2009/10

tenant home ownershipA long-term dream of home ownership came true forHastings couple Michaela and Jamie, and what’s evenbetter is that they have bought the state rental homethey’ve lived in for the past five years.Their purchase in January 2010 was New Zealand’s firstsale of a state house to a tenant since the scheme waslaunched in 2009.“Michaela and Jamie approached us in September lastyear,” recalls Andrew Cairns, Housing Services Manager,Hawke’s Bay. “We were able to give advice and pointthem in the right direction for making their dreambecome a reality.”What appealed to Michaela and Jamie was the verysmall deposit needed for their home, through theWelcome Home Loan. Housing New Zealand acts asthe lender’s mortgage insurer, which reduces the riskto the bank and helps them to lend to people withlittle or no deposit.“Everything clicked into place for the family. The purchaseprice was affordable, they met the bank’s lendingcriteria and the Welcome Home Loan got them inwith a minimal deposit. They are just delighted withthe outcome,” says Andrew.Housing on multiple-owned Māori landThe Corporation is working in partnership withKiwibank as the sole lender for the Kāinga Whenualoan product, to approve and provide home loans,which are insured by the Corporation. The KāingaWhenua loan product is intended to help individualsand households build on Māori land, when they maynot qualify for a commercial mortgage because theland is held in multiple ownership. In February 2010,the Welcome Home Loan products were alsoextended to allow borrowing to build, purchase orrelocate a house on multiple-owned Māori land. OneKāinga Whenua loan has settled, and two other loanapplications have been pre-approved.The Rural Housing ProgrammeThe Corporation has continued to implement theRural Housing Programme, which aims to improvesubstandard rural housing, making homes safer andhealthier places in which to live. The Rural HousingProgramme is a needs-based programme. The mainrural housing areas are Northland, East Coast and theEastern Bay of Plenty (NECBOP). The client base hasbeen largely Māori, with an estimate of approximately85 percent of households identifying as being Māori.The programme has made a major difference in Māoricommunities with many of the service providersbeing iwi or Māori organisations.Budget 2009 provided $7 million in 2009/10 and$5 million in 2010/11 in operating appropriation forthe programme. In 2009/10, 237 dwellings wererepaired, 269 households were assisted withinfrastructure upgrades, 11 service provision contractswere entered into with community organisationsand 4,923 households were provided with fire safetyeducation and smoke alarm installations.Working with Department of Building andHousing to identify housing solutionsThe Corporation is working with the Departmentof Building and Housing to identify housing supplyissues and develop proposals to improve housingaffordability, supply and urban development. During2009/10, the Corporation provided advice to theMinister of Housing and Government in thefollowing areas:• The development of the Gateway Housinginitiative, which is designed to enablecommunity organisations and first-home buyersto access Crown or Corporation land for houseconstruction, with payment for the land deferredfor a number of years.• A strategy for growing the provision ofaffordable housing through community housingorganisations, which was prepared jointly withthe Department of Building and Housing. Thestrategy proposes a vision for growing the sectorand a work programme, which is beingprogressed in light of the recommendations ofthe Housing Shareholders’ Advisory Group.• The design of the Housing Innovation Fund (HIF)which received funding through Budget 2010.The HIF provides funds for communityorganisations to build or purchase new housingunits for affordable rental or home ownership.• Changes to the design of the Welcome HomeLoan scheme to increase the loan caps in higherpriced areas.• The development of the new Kāinga Whenuaproduct, which is designed to enable Māori toaccess loans to build or purchase a house onmultiple-owned Māori land.• Ongoing advice on the Tamaki TransformationProject.• Ongoing advice on the Hobsonville development.2 | Outcome Contributionhousing new zealand corporation | annual report 2009/10 17

outcome one continuedPriority: Upgrading the state housing stockThe Corporation faces a number of challenges indeveloping the housing portfolio to match currentand future demand in an environment of tightlyconstrained resources. The current distribution,concentration and standard of our housing portfoliodoes not match demand growth and the changingneeds of our customers. The scale of changerequired is significant and will take time to achieve.A key focus for 2009/10 was on improving theCorporation’s housing portfolio by upgrading statehouses to a modest but modern level of amenity.This priority relates to the Corporation’s role inmanaging the overall state housing portfolio.Accelerating the upgrade of the housing stockwith an emphasis on insulation, ventilationand energy efficiencyMany state houses require significant upgradingto reflect a modest but reasonably current standardso that homes are suitable for modern-day living.The state housing portfolio is the Government’ssecond largest asset and comprises more than69,000 houses across New Zealand, valued at$15.12 billion. The current portfolio of houses stillrequires approximately a further $1.7 billion 1 inupgrading expenditure to raise the amenities toa decent standard.Accelerated investment in upgrading an ageingportfolio is critical to the Corporation providingwarm, well-ventilated, energy-efficient homes thatmeet the Corporation’s stewardship obligationswhile also providing work opportunities in thehousing sector.The Corporation started the year with ambitiousupgrade plans for 2009/10 and has achieved them.This has resulted in a higher level of tenantsatisfaction with Corporation houses – overallsatisfaction with the house and property they livein increased to 67 percent compared with 64 percentin 2008/09, and overall satisfaction with the standardthe Corporation maintains their home to increasedto 58 percent (2008/09: 55 percent).Delivering on the Jobs and Growth programmeThe additional allocation of $124.5 million in theGovernment’s Jobs and Growth fiscal stimuluspackage helped progress the Corporation’s upgradeprogramme and Healthy Housing interventions.Through the Jobs and Growth programme, theCorporation delivered 8,754 upgrades against arevised target of 8,750 upgrades, and 702 HealthyHousing interventions against a target of 700 forthe 2009/10 year.The Corporation’s original upgrade target was8,150 interventions against a budget of $85 million;however, during the course of the year, theCorporation identified cost savings of approximately$10 million. Responsible Ministers agreed that$6 million could be retained, enabling theCorporation to complete 604 additional upgrades.The Jobs and Growth programme also provided theeconomy with an important boost. During any onemonth, the Corporation engaged an average of1,528 people to support the Jobs and Growthprogramme around New Zealand.By the end of 2009/10, about 30 percent of thehousing portfolio had some form of upgrade inthe preceding two years. This has enabled theCorporation to reduce, but not eliminate, thetotal upgrade backlog.Improving heating and ventilationSince the inception of the Energy Efficiency Retrofitsprogramme in 2001, the Corporation has insulatedapproximately 30,826 homes, improving the internalenvironment of older properties and assisting inreducing energy usage. The programme providesenergy-efficient features to provide drier, warmer,healthier homes that are cheaper to heat andhealthier to live in while reducing greenhouse gasemissions. Retrofits vary by property, but mayinclude ceiling and underfloor insulation, hot watercylinder wraps and pipe lagging, and draughtstopping. The Corporation’s long-term strategy isto insulate all homes prior to 1978. Table 1 highlightsthe number of retrofits completed since 2001.1 Based on Corporation estimates of costs to meet legislativecompliance ($135 million), costs to provide amenities expectedin a modern house ($620 million) and costs to improve amenitycondition to an acceptable level of service ($902 million).18housing new zealand corporation | annual report 2009/10

AucklandCanterbury andNelson/Marlborough4+ beds3 beds0–2 beds-6,000 -4,000 -2,000 0 2,000 4,000 6,000 8,000 10,000 12,000Table 1: Energy efficiency retrofits35,000source: HNZC Asset Management Strategyfor 2007 to 2010, 30 June 20072 | Outcome Contribution30,000AucklandRest of thecountryTotalaccumulating total volume25,00020,00015,00010,000Volume ofretrofits5,000201002001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10yearThe Corporation estimates a further 7,500 housesare still to be insulated. The Corporation estimatesit will complete these in 2013.Research undertaken by the Wellington School ofMedicine in 2007 identified that “insulating existinghouses led to a significantly warmer, drier indoorenvironment and resulted in improved self-ratedhealth, self-reported wheezing, days off school andwork, and visits to general practitioners as well as atrend for fewer hospital admissions for respiratoryconditions.”During 2009/10, the Corporation funded7,242 energy efficiency retrofits, with a further1,175 funded by appropriation; this was againsttargets of 6,125 and 1,175 respectively. Energyefficientheater installations undertaken in 2009/10and funded by the Corporation totalled 3,768, with1,341 funded by appropriation; this was againsttargets of 2,350 and 1,150 2 respectively. Savings wereidentified early in the programme, and as a result,the Corporation undertook 1,117 additional energyefficiency retrofits and 1,609 additional heaterinstallations.Delivering additional stock, particularly inhigh-need areas such as AucklandThe Government has made a commitment to growthe overall size of the state housing portfolio toachieve the goal of a net increase of 1,550 dwellingsover four years by 2011/12. In 2009/10, theCorporation delivered 316 net additions to thehousing portfolio through the leasing, buy-in ornew build programmes.Of the 316 net additions to the Corporation’s housingportfolio, 263 were in Auckland.2 Post publication of the 2009/10 Statement of Intent, this targetwas revised from 875 to 1,150, as the Corporation estimated itcould deliver more interventions within the budget.housing new zealand corporation | annual report 2009/10 19

outcome one continuedTable 2: Net increase in housing stock in Auckland (includes leases)NEW ZEALANDAUCKLAND REGIONHNZC stock Stock increase HNZC stock Stock increase2007/08 68,644 516 29,861 2502008/09 69,173 529 30,152 2912009/10 69,489 316 30,415 263The Corporation has also committed to deliveringadditional stock in high-need areas such asAuckland where demand is expected to grow at ahigher rate than the rest of New Zealand. While45 percent of the Corporation’s housing stock is inthe Auckland region, almost 60 percent of priorityapplicants (As and Bs) on the Corporation’s waitinglist are in the Auckland region. Table 3 shows thenumber of priority applicants compared with thehousing stock.Table 3: Relative demand by region for Corporation housingREGIONA AND B PRIORITYAPPLICANTSHOUSING STOCK*HOUSES PER A AND BPRIORITY APPLICANTTURNOVER OF TENANTSAs at30 June2009As at30 June2010As at30 June2009As at30 June2010As at30 June2009As at30 June2010 2008/09 2009/10Auckland 2,477 2,729 30,152 30,415 12.2 11.1 11.2 10.5Northern and Central 910 867 18,385 18,159 20.3 20.9 16.3 15.7Southern 810 1,041 19,045 19,323 23.5 18.6 14.1 12.6*Excludes Community Group Housing propertiesBy the end of year, the Corporation had allocatedand housed applicants across four largedevelopments in Auckland: Greys Avenue, PatienceWay, Swanson Road, Northcote (Miranda Ruahineand Southern Tonar Block) – all in all, around150 new homes have been created in thesedevelopments alone. A further 60 new units havebeen provided in Atawhai Lane, St Lukes.Sixty-six new homes at Ladies Mile, Ellerslie, replaced38 old and outdated former Auckland City Councilpensioner units. In Aranui Road, Mt Wellington,a further development saw nine old and outdatedmulti-units replaced with 20 brand new homesranging in size from two to six bedrooms. Threeexisting Corporation properties were upgraded andmoved to new locations within the redevelopmentarea. The Corporation was able to fill thedevelopments within two weeks of handover.Better utilising state housesThe Corporation needs the right types of houseswhere they can do the greatest good. The state builtlarge numbers of three-bedroom houses at thesame time in the same locations in the 1950s and60s for low-income workers and families. The natureand location of demand has changed significantlysince then. Demand is projected to grow and changeeven further in the future in terms of levels of need,location and house size.20housing new zealand corporation | annual report 2009/10

Table 4: Oversupply of homes 3Oversupply of three-bedroom houses – more very large and small homes needed2007 HNZC housing supply versus forecast high needs demand by 20172 | Outcome ContributionOversupply – need to reduceUndersupply – need to increaseNew ZealandAucklandCanterbury andNelson/Marlborough4+ beds3 beds0–2 beds-6,000 -4,000 -2,000 0 2,000 4,000 6,000 8,000 10,000 12,000source: HNZC Asset Management Strategyfor 2007 to 2010, 30 June 20072009 2010There is a core mismatch between the portfoliomake-up and current and emerging customer need.There is an oversupply of three-bedroom familyhomes, against customer need for one- andtwo-bedroom homes. In some provincial areas, thisis exacerbated by overall low demand, which meansthat high-priority35,000customers may be allocated homeswith more bedrooms than they need. In most cases,the mismatch is only 30,000one extra bedroom over thebest match. However, it does mean that againsta target of 80 percent 25,000 for 2009/10, 74 percent ofAuckland properties provided the best match to tenantsin terms of the number 20,000 of bedrooms required.Rest of thecountry Overcrowding, as measured by the need for morebedrooms, has remained 15,000 relatively constantTotalbetween 2004 and 2008 as shown in the outcomemeasure information10,000on page 28.accumulating total volumeLettings are actively 5,000 reviewed on a regular basis toensure the best match possible, balancing stockavailability and priority 0 customer needs. TheCorporation has undertaken work looking at how tobetter align the portfolio with customer need, andthis will be considered through asset managementand tenancy management policy settings.Introducing a new property surveyIn December 2009, the Corporation began a newproperty survey that will provide improvedinformation about the quality of state houses andenable us to make better investment decisions.Using the new Amenity Provisioning and ConditionAssessment Survey (APCAS), 23,000 Corporationproperties will be inspected each year. Inspectionsare being carried out across the country, and surveytargets have been met for the year. All CommunityGroup Housing properties have been inspected aswell. New reports are being developed to supportanalysis (including repair/replacement costs andcompliance) and will start to become available instages from mid-September 2010.Setting high-level amenity and conditionstandards for the portfolioThe Corporation also developed Property QualityVolume ofStandards (previously referred to as the Decent retrofitsHome Standards) that set high-level amenity andcondition standards for the portfolio. The PropertyQuality Standards define the amenity to be providedwithin houses and in the portfolio (the provisioningstandard), and the acceptable level of performance2006/07and conditionyearrequired of the amenities (thecondition standard). The Board has endorsed thehigh-level provisioning and condition standards, andthe standards have been discussed with the Treasuryand the Department of Building and Housing. It isenvisaged to have an agreement document signedby the Ministers of Housing, Finance, and Buildingand Construction.2001/02 2002/03 2003/04 2004/05 2005/062007/08 2008/09 2009/103 Minister of Housing’s speech to the Christchurch Housing Forum,5 August 2010.housing new zealand corporation | annual report 2009/10 21

outcome one continuedPriority: Developing a housing Optionsand Advice ServiceThe Corporation’s core role is to provide statehousing and housing services to those in thegreatest need. The Corporation’s contact withtenants and applicants also provides an opportunityto link them with agencies and services they mayotherwise not be aware of or consider contacting.During 2009/10, the Corporation rolled out a newhousing Options and Advice Service to supportimproved outcomes for those seeking homes. TheOptions and Advice Service means customers aregiven information about the private rental market,home ownership and government assistanceavailable to help them sustain their current housingsituation. This priority relates to the Corporation’srole in providing housing services to those ingreatest need.options and adviceFrom the Onehunga Neighbourhood UnitDuring an Options and Advice presentation, a solomother with four children mentioned that she wasliving in a small garage close to a busy road.The Housing New Zealand housing advisor recognisedthat her family was at serious risk and completed aneeds assessment on the spot. The application wasgiven an A priority, and she has now accepted aHousing New Zealand property.The housing advisor says the Options and AdviceService helps identify at-risk cases and makes surethey do not slip through the cracks.From the Timaru Neighbourhood UnitA married couple with young children went throughthe Options and Advice Service, and as a result, theynow have a pre-approved loan under the WelcomeHome Loan scheme and are visiting open homes.They are very excited and pleased they came to us.From the Manawatu Neighbourhood UnitOne of our clients moved from her Housing New Zealandproperty to the home of her recently deceased mother.After the move, the will was contested and she suddenlyfound herself needing urgent accommodation.She came to an Options and Advice session anddecided to look for a private rental property. She founda house within two hours and was absolutely thrilledwith the outcome.Delivering an extended advisory serviceThe housing Options and Advice Service wasinitiated in 2009. Under this service, the Corporationgives customers information about their housingoptions and lets them make the choice about whichis best for their circumstances. During 2009/10, theCorporation rolled out the service nationally. It wasrolled out in three waves and, since May 2010, hasbeen available from all 43 neighbourhood units tonew customers and customers seeking a statehouse transfer.As at 30 June 2010, 14,799 customers had attendedinformation sessions, and chose the followingoptions: 4• State housing 10,191 (46 percent)• Private rental 6,806 (31 percent)• Stay where they are 2,167 (11 percent)• Home ownership 301 (1 percent)• No option chosen 2,322 (11 percent).Options and Advice Service – what peoplechose to do with housing optionsState housing 46%Private rental 31%Stay where they are 11%Home ownership 1%No option chosen 11%Overall satisfaction with the service is 63 percent(see Part Four) – lower than that for people who areprovided with a state house (70 percent) but higherthan for those going through the state houseapplication process (51 percent).13,00012,00011,00022housing new zealand corporation | annual report 2009/10umber on the waiting list10,0009,0008,0007,0006,0005,0004,0004 More than one option can be chosen.AucRestcouTota

The Corporation is planning a study to evaluate theoutcomes of Options and Advice customers over atwo-year period. The study will assess the ongoinghousing need of participants, including thesustainability, suitability and quality of privatesector placements. The Corporation is alsoconducting a quarterly telephone survey of Optionsand Advice customers who choose to seek privaterental housing, to help assess the sustainability ofprivate sector placements.Improving customer focus and tenancymanagement servicesThe Corporation’s focus is on New Zealanders withpriority needs being supported in their time of need.The Corporation manages a waiting list that isactively reviewed, and applicants are placed in anappropriate housing solution as quickly as possible,with priority given to those in greatest need.The Corporation allocates state housing accordingState housing 46%to ‘housing need’. Prospective tenants are assessedby the Corporation in accordance Private with rental the Social 31%Allocation System (SAS). Applicants Stay are where assigned they are 11%to a categorised waiting list – priority A (at risk),Home ownership 1%B (serious housing need), C (moderate need) andD (low need) – and are ranked within No option each chosen priority. 11%Those with an urgent housing need have a needsassessment as soon as practicable. Where possible,the assessment is completed immediately. Otherapplicants are assessed within five working days.On average in 2009/10, the Corporation assessedhigh-need applicants within three days. As at30 June 2010, there were 368 A priority householdson a waiting list of 10,396.• Over 2009/10, 96 percent of SAS assessmentswere correct in assessing housing need andmeeting timeliness requirements, against atarget of 95 percent.Oversupply of three-bedroom2007 HNZC housing• A priority applicants were housed within anaverage of 10 days, and B priority applicants Oversupply – need to reduce•within 16 days. 5As at June 2010, there were 4,637 applicants onNew Zealandthe waiting list with high housing need (A andB priority). Of these, 1,199 were state housingtenants needing an urgent transfer, and 3,438were people (and their families) outside of stateAucklandCanterbury andhousing in urgent need of assistance.Nelson/Marlborough• The number of customers assessed as A orB priority on the waiting list has increased over2009/10 – starting the year at 4,197 and ending-6,000 -4,000 -2,000on 4,637. The rise in demand for state housingis largely due to rising need in some sectorsof the population and, in particular, risingunemployment and rising levels of hardshipas a result of the global economic recession.2 | Outcome ContributionTable 5: Waiting list for A and B priority applicants13,00035,00012,00011,00030,000number on the waiting list10,0009,0008,0007,0006,0005,0004,0003,000AucklandRest of thecountryTotalaccumulating total volume25,00020,00015,00010,0002,0005,0001,00002001 2002 2003 2004 2005 2006 2007 2008 2009 201002001/02 2002/03 200year5 Calendar days to house since last confirmed priority assessment.housing new zealand corporation | annual report 2009/10 23

outcome one continuedImproving the management of tenant debtThe Corporation administers the Income-RelatedRent subsidy (IRR), which is provided to vulnerablepeople and families with high and complex needswho require state housing and support. For the yearending 30 June 2010, 92.58 percent of state housetenants (61,623 households) were receiving theIRR at a cost of $529.632 million. The remaining8 percent of tenants are paying market rents.During 2009/10, the Corporation has achieved asignificant reduction in the percentage of rentaldebt to rental income – 3.8 percent compared with5.1 percent for 2008/09 and the 2009/10 standardof less than 8 percent. For example, the Wellington/Hutt Valley region achieved a noticeable reductionin tenant debt and Tenancy Tribunal applications,following a project with the Department of Buildingand Housing and Work and Income to providesupport for customers at risk with large debt.For 2010/11, the Corporation has work underway toredesign and centralise income-related rent debtand management processes to improve efficiencyand release staff to provide high-value customerservices.Improving how we deliver servicesDuring the first half of the year, we re-introduced a24 hour, seven-day-a-week service directly from theNational Call Centre in Porirua. The call centre alsoexpanded its service offering to include WelcomeHome Loan and Welcome Home First Steps enquiries,Tenant Home Ownership, Options and Advice Servicesupport, KiwiSaver, Kāinga Whenua and CommunityGroup Housing information. These changes not onlyincreased the quality of service experience ourcustomers receive but also created some financialsavings for them. Over 2009/10, the Call Centrereceived more than 816,000 calls – an increase ofmore than 15 percent or 100,000 calls on 2008/09.Putting the customer firstIn December 2009, the Corporation launched a newCustomer Services Strategy – Customer First – toimprove the service we provide for our customers.The Corporation’s customer satisfaction surveyswere upgraded to employ the core questions fromthe State Services Commission’s CommonMeasurement Tool and provide better reporting onfindings, as well as giving more customers theopportunity to voice their opinions.The customer satisfaction rating for our coretenancy management services was 70 percent in2009/10 (2008/09: 69 percent). We also introduceda series of new customer satisfaction surveys, whichhave been progressively rolled out during the year.For our tenancy allocation process, the initial resultsshowed 51 percent satisfaction (see Part Four). Thislower response is not surprising since a number ofthose surveyed will have been advised that they areunlikely to get a state house, and more appropriatestandards have been identified for 2010/11.A new Customer Feedback and Service Recoveryframework was also introduced that allowscustomers to provide feedback directly. In May 2010,the Corporation started training in ServiceExcellence and this will be an ongoing focus. It isabout setting clear expectations for the way staffwork and communicating that to customers so theyknow both what we do and how we will do it.The Corporation is looking to reconfigure the servicedelivery model to match changing demand profileand location, including exploring co-locationinitiatives with other agencies. Positive feedback hasalready been received from customers and staffabout the Community Link office in Napier. Withapproximately 25 agencies represented on site, thenew service aims to help customers take charge oftheir own circumstances and to make theexperience of asking for help a positive one.24housing new zealand corporation | annual report 2009/10

Customer segmentation frameworkThe Corporation is working to use its resourcescost-effectively to help meet the growing demandof applicants with priority housing needs. Thisincludes having effective policies and proceduresso that the Corporation houses tenants with highhousing needs for as long as they need it. To besttarget its assistance, the Corporation requires athorough understanding of its current and futurecustomers and the barriers they face to achievinghousing independence.During 2009/10, the Corporation developed acustomer segmentation framework to identifycurrent and future customers, their profiles andneeds. This will play a critical role in developingcustomer-focused strategies that are targetedto their needs and to improving their housingoutcomes. Over the next 12 months, the Corporationis progressing this work to inform the design ofproducts and services, tailor customer delivery,and allow us to work more collaboratively withother partners.Effectiveness of service delivery to MāoriMāori are the largest tenant group of theCorporation, comprising 38 percent 6 of tenantswhile representing 14 percent of New Zealand’spopulation. The majority of Māori live in urbanareas, with almost one-quarter of Māori living inAuckland, specifically South Auckland, West andNorth Auckland, and Central Auckland regionstaken together.Māori have much lower rates of home ownership– 42.5 percent compared with 66.9 percent of thegeneral population, yet home ownership is a strongaspiration for Māori. The Corporation is working toimprove its capability to respond to Māoricustomers. In 2009/10, the Corporation beganto assess the effectiveness of service delivery toMāori of key Corporation products and services.The results from the Effective Service Delivery toMāori Assessment 2010 report provided detailedinformation on the level of service delivery achieved,the effectiveness to Māori in terms of design anddelivery, and, where applicable, results for each ofthe individual products and services assessed.2 | Outcome ContributionA key aspect of the overall assessment and finalreport was the inclusion of recommendations onstandards that will better inform future evaluations/assessments of these products and services and canbe applied to new products or services. Theserecommendations will be used to build on the draftset of standards that were developed for theEffective Service Delivery to Māori AssessmentFramework in 2008/09.6 Māori Housing Trend Report, 2009.housing new zealand corporation | annual report 2009/10 25

outcome one continuedoutcome onewhere the corporation has a significant influence, people will have access to decent, affordable housingindicator rationale baseline 2009/10 resultsHealthiness and safety of housing stockProportion ofCorporation housesmeeting theCorporation’sProperty QualityStandardsScope of indicator:Based on aninventory of assetquality against apredeterminedstandard.Proportion ofhouses meetingthis standardprovides anindication of theCorporation’scontribution toimproving thehealth outcomesof tenants.There is a linkbetween thequality of housingand the health andsafety of tenants.A set of housingrelatedillnesseshas been identifiedwhere there is aproven causal linkbetween illnessand the qualityof housing (forexample, dampnessand prevalenceof mould).Will be available in the second halfof 2009.Outcome trend sought: Increasedproportion of Corporation housesmeeting the Property QualityStandards; reduced proportionfalling into the worst conditioncategory.Source: Corporation administrativedata (Initial Property Survey andCompliance Assessment).In 2009/10, the Corporation’sProperty Quality Standards wereagreed at Board level and werepresented to Treasury and theDepartment of Building andHousing. The Property QualityStandards Design Manual wascompleted in August 2010. It willbe used to design and develop allCorporation houses and leaseproperties from 2010/2011.The Corporation is also working onreplacing the Property ConditionBenchmark with a newbenchmarking tool, the PropertyQuality Index (PQI). The PQI ispopulated with data from our newproperty survey, APCAS. The PQI willbe the basis on which theCorporation will seek agreementwith the Responsible Ministers onan appropriate band for statehousing to sit in – this is, of coursedependent on implementing thenew Property Quality Index.Once the new benchmarking toolis in place, it is expected thatanalysis of this survey will providean indicative baseline of thehouses meeting the PropertyQuality Standards. This informationwill then inform prioritisation ofcurrent and future workprogrammes to upgrade thecondition of Corporation houses.The information is not expectedto be available until the 2010–11reporting year.26housing new zealand corporation | annual report 2009/10

outcome onewhere the corporation has a significant influence, people will have access to decent, affordable housingindicator rationale baseline 2009/10 resultsHealthiness and safety of housing stock continued2 | Outcome ContributionHospitalisationratesScope of indicator:Based on an annualage-standardisedrate per thousandof total contactswith the hospital.This will be refinedto potentiallyavoidable,housing-relatedhospitalisations assoon as the data isavailable.Somehospitalisationsresult fromillnesses, conditionsand injuries thatcan be described ashousing-related.For example, anevaluation of theHealthy Housingprogrammeindicated a37 percentreduction inpotentiallyavoidable,housing-relatedhospitalisationsfollowing theHealthy Housingintervention.Data as at May 2003–June 2005.Tenants: 350 hospitalisation casesper thousand hospital contactsper year.Applicants: 400 hospitalisationcases per thousand hospitalcontacts per year.Other New Zealanders: 200hospitalisation cases per thousandhospital contacts per year.Outcome trend sought: Reducedhospitalisations per thousandhospital contacts for Corporationapplicants and tenants, reducingthe gap with other respondents.Source: University of OtagoWellington School of Medicine andHealth Sciences (Health Impact ofSocial Housing study commissionedby the Corporation).Data from 2004–2008.Tenants: 256 hospitalisation casesper thousand hospital admissionsper year.Applicants: 293 hospitalisationcases per thousand hospitaladmissions per year.Other New Zealanders: 170hospitalisation cases per thousandhospital admissions per year:The data shows a generaldownward trend forhospitalisations. The Corporation’stenants and applicants areexperiencing a bigger decrease(27 percent) in hospitalisationsthan the general population(15 percent decrease). The gapbetween the general New Zealandpopulation and applicants andtenants is closing as a result of thedecreases.However, the data is notspecifically housing-related and soit is difficult to determine whetherdecreases in hospitalisation ratesare a direct result of healthinessand safety of our housing stock.Data relating to potentiallyavoidable hospitalisations is notyet available.Source: University of OtagoWellington School of Medicine andHealth Sciences (Health Impact ofSocial Housing study commissionedby the Corporation).housing new zealand corporation | annual report 2009/10 27

outcome one continuedoutcome onewhere the corporation has a significant influence, people will have access to decent, affordable housingindicator rationale baseline 2009/10 resultsHousing fitHouseholdcrowdingScope of indicator:Based onpercentage ofCorporationapplicant andtenant householdsthat have a one-,two- or morebedroom deficit,calculated usingthe CanadianNationalOccupancyStandard. Can beexpressed basedon householdsor people.Householdcrowding is a majorrisk factor for someinfectious diseasesand may contributeto poorereducationalattainment.Current: Crowding, as measured bythe need for more bedrooms, hasremained relatively constantbetween 2004 and 2007 as follows:CorporationtenantsCorporationapplicantsNZ residentpopulationextrabedroomsrequiredpercentHouseholds At least 1 21.52 or more 6.5Individuals At least 1 36.02 or more 13.0Households At least 1 39.52 or more 18.9Individuals At least 1 47.62 or more 24.0Households At least 1 10.02 or more 3.5Note: ‘Individuals’ refers to people living withinthose households.Outcome trend sought: Reducedincidence of overcrowded applicantand Corporation tenant householdsand individuals, particularly in thetwo- or more bedroom category.Source: University of OtagoWellington School of Medicine andHealth Sciences (Health Impact ofSocial Housing study commissionedby the Corporation) and the Ministryof Social Development Social Report.Current: Crowding, as measured bythe need for more bedrooms, hasremained relatively constantbetween 2004 and 2008 asfollows:CorporationtenantsCorporationapplicantsNZ residentpopulationextrabedroomsrequiredpercentHouseholds At least 1 22.12 or more 6.7Individuals At least 1 37.52 or more 13.6Households At least 1 39.62 or more 19.0Individuals At least 1 47.22 or more 24.0Households At least 1 10.02 or more 3.5Note: ‘Individuals’ refers to people living withinthose households.Household crowding was arelatively common experience inthe households of both housingtenants and applicants, comparedwith other New Zealanders.A bedroom deficit of one or morerooms was experienced by anaverage of 38 percent of tenantsand 47 percent of applicants,compared with 10 percent ofNew Zealanders at the time of the2006 Census. The difference waseven more marked for a two- ormore bedroom deficit, which wasexperienced by 14 percent ofhousing tenants and 24 percent ofhousing applicants, compared with3.5 percent of New Zealanders in2006. The slight increase inhousehold crowding may be aresult of an increase in fertilityrates among Corporation tenantsand the inability to transfer toanother property because ofwaiting list demands.Source: University of OtagoWellington School of Medicine andHealth Sciences (Health Impact ofSocial Housing study commissionedby the Corporation) and the Ministryof Social Development Social Report.28housing new zealand corporation | annual report 2009/10

outcome onewhere the corporation has a significant influence, people will have access to decent, affordable housingindicator rationale baseline 2009/10 resultsHousing fit continued2 | Outcome ContributionMatch betweenCorporationhousing stock typeand householddemandScope of indicator:Indicates the levelof alignmentbetween theCorporation’shousing portfolioand futureapplicant andtenant demand(geographicaldistribution andhouseholdcharacteristics).Matching of houseto householdaffects theappropriateness ofhousing and can bea factor inunder- or overutilisationofhousing stock.Baseline data will be available afterthe completion of theCorporation’s Demand Forecastingproject. The project includes acomprehensive data profiling ofour tenant base, which differssignificantly from the generalpopulation.Outcome trend sought: Improvedmatch between acquisitions andhigh-need applicants, by householdtype and location.Source: Corporation administrativedata.The Corporation’s DemandForecasting project has undertakena detailed applicant and tenantdemographic profiling exerciseincluding the reporting ofhousehold type based on StatisticsNew Zealand definitions and anage cohort analysis of householdcompositional changes over time.This has given the Corporation abetter understanding of the sizeand characteristics of its targetgroups and how these groups willchange over time. The results fromthe project will help theCorporation to better match futurehousehold demand to housingsupply.housing new zealand corporation | annual report 2009/10 29

outcome one continuedoutcome onewhere the corporation has a significant influence, people will have access to decent, affordable housingindicator rationale baseline 2009/10 resultsHousing fit continuedLevel of satisfactionwith CorporationhousesScope of indicator:Quarterlytelephone surveywith tenants,which seeksfeedback on theirlevel of satisfactionwith Corporationhouses.This is a keyindicator of howwell theCorporationachieves theobjective ofproviding goodquality housing.Combined rolling average resultsover four quarters from the TenantSatisfaction Monitor (1,000 eachquarter), National Contact CentreMonitor (300 each quarter) andMaintenance Contractor Monitor(1,200 each quarter).Q: How satisfied are you overallwith the house and property youlive in?Benchmark: 64 percent satisfiedor better.67 percentBetween August 2009 andJuly 2010, 7,025 Corporationtenants were asked, “How satisfiedare you overall with the house andproperty you live in?” Based on ascale of 1–5, 34 percent gave a 5 for‘very satisfied’, and 33 percent gavea 4 for ‘satisfied’. The 67 percentrecorded as a result by theCorporation is based on thecombined 4 and 5 scores. Tenantswho indicated dissatisfaction weremore likely to be long-term tenantswith dependent children. Theprimary driver for dissatisfactionwith the Corporation isdissatisfaction with the standardto which the Corporationmaintains their home. Now thedata has been collated, the surveyresults will be distributed and theCorporation will subsequently planactions to address areas ofdissatisfaction, where possible.30housing new zealand corporation | annual report 2009/10

outcome onewhere the corporation has a significant influence, people will have access to decent, affordable housingindicator rationale baseline 2009/10 resultsHousing fit continued2 | Outcome ContributionLevel of satisfactionwith Corporationhouses continuedQ: How satisfied are you overallwith the standard HousingNew Zealand maintains yourhome to?Benchmark: 55 percent satisfiedor better.Outcome trend sought: Increase intenant satisfaction take up withhouse and property, andmaintenance.Source: Corporation customersatisfaction research.58 percentBetween August 2009 andJuly 2010, 11,954 Corporationtenants were asked, “How satisfiedare you overall with the standardHousing New Zealand maintainsyour home to?” Based on a scale of1–5, 26 percent gave a 5 for ‘verysatisfied’, and 32 percent gave a4 for ‘satisfied’.2,978 Corporation tenants wereasked to rate satisfaction withaspects of their home. Satisfactionscores were highest in response toquestions about the number ofbedrooms (81 percent) and size ofbedrooms (75 percent) and lowestin response to questions aboutpaint and wallpaper (45 percent),damp and mould (51 percent) andfloor coverings (55 percent).Of the 10,759 tenants asked,88 percent said that they hadreceived a maintenance servicefrom the Corporation within thelast two years, with 59 percentreceiving maintenance within thelast three months.Of the 11,954 tenants asked “Howsatisfied were you with the lastrepair or maintenance service toyour home?”, 68 percent indicatedthat they were either satisfied orvery satisfied.Source: Corporation customerresearch programme.housing new zealand corporation | annual report 2009/10 31

outcome one continuedoutcome onewhere the corporation has a significant influence, people will have access to decent, affordable housingindicator rationale baseline 2009/10 resultsHousing fit continuedNumber ofhouseholdsassisted intoaffordable homesScope of indicator:This is a proxy forthe contributionthe Corporationhas made inassisting familiesinto housingappropriate totheir needs.Qualitativeinformation fromthe Corporation’slongitudinal studyof tenants andapplicants willprovide acontextualunderstanding ofthe drivers behindthese satisfactionratings, for example,understanding ifthere arecommunicationissues, unrealisticexpectations orlack of delivery etc.The Corporationassists householdsinto homes directly(state houses) andindirectly throughfinancial andeducationalinitiatives.New state tenancies (achievedthrough the reletting of vacantproperties and acquisition of newstate houses): 7,584 per annum(2008 calendar year).Households assisted into homeownership (including WelcomeHome Loans, Shared EquityScheme): 897 per annum (averagedover three years).Households assisted intonon-Corporation sustainablerenting (for example, throughMangere Integrated CaseManagement Pilot): not collectednationally at present.Outcome trends sought: Increasein households assisted into homeownership and sustainable,non-Corporation renting.Source: Corporation administrativedata.New state tenancies (achievedthrough the reletting of vacantproperties and acquisition of newstate houses): The Corporationhoused 7,273 families in affordable,decent rental houses in 2009(calendar year). This is in additionto those tenants whose housingcircumstances had changed andwere transferred to anotherCorporation rental house moresuited to their changing housingneeds.Households assisted into homeownership (including WelcomeHome Loans, Shared EquityScheme): 1,003 per annum(averaged over three years).The Corporation assisted 1,776households through the WelcomeHome Loan insurance product. Inresponse to the changing housingmarket, in higher priced areas, thelending maximum was increasedto $350,000 in November 2009.The Welcome Home First Stepseducational programmes wereattended by 4,942 people.Households assisted intonon-Corporation renting: From thelaunch of the Options and AdviceService (10 August 2009) to30 June 2010, the Corporationhas assisted 659 householdsinto non-Corporation renting.Source: Corporation administrativedata.32housing new zealand corporation | annual report 2009/10

outcome 2Where the Corporation has a significant influence,people will live in safe, inclusive communitieskey achievements• All targets for Housing Innovation Funding wereexceeded, resulting in nearly $62 million of new socialhousing with 173 new houses throughout New Zealandfor families and individuals in need.• Responsible Ministers were provided with a report onGrowing the Provision of Affordable Housing throughCommunity Housing Organisations.• As part of the Tamaki Transformation programme,40 houses were modernised in the Panmure area.• More than 2,000 families benefited from HealthyHousing solutions.• Four Māori Demonstration Partnership projects havebeen approved that will benefit Māori directly, with44 new properties for Māori to be built.• Community Group Housing provided 15 new unitsin 2009/10, made up of 43 bedrooms.IntroductionThis outcome is focused on the Corporationsupporting the revitalisation of communitiesthrough housing development and specialistservices. It reflects the Corporation’s aspiration ofdeveloping partnerships with the community,government agencies, iwi and local government toimprove social outcomes and increase the supplyand quality of social and affordable housing.New Zealanders today are better educated, healthierand more prosperous than previous generations.The Corporation, however, is landlord to some of thepoorest and most disadvantaged households. Thesehouseholds, particularly in larger urban areas, aregrouped in neighbourhoods that are marked by highlevels of social deprivation.Families and households living in these communitiesoften have low incomes and experience socialexclusion, poor education and poor health. Ingeneral, there is a strong correlation between socialhousing and the geographical locations of highsocial need communities.Continuing hardship for such communities canresult in long-term social polarisation, and antisocialor criminal behaviour. The challenge is to help liftoutcomes for such communities and prevent newareas of deprivation from forming.Because the Corporation has a presence and a role inmany deprived areas, we can have a positive impacton the lives of those in greatest need, beyond thesimple provision of rental housing. Improvingoutcomes beyond housing requires a combinedapproach from government and non-governmentagencies, and support for determined action by thecommunities themselves.The Corporation developed a number of key prioritiesto help achieve these outcomes. These include:• expanding social housing options• facilitating improvement in communities wherestate housing dominates.The outputs for each priority are discussed in furtherdetail in Part Four: Statement of Service Performance.Priority: Expanding social housing optionsThe Corporation is committed to working with iwi,local government and non-government agenciesto increase or develop rental housing and homeownership opportunities. The development of otheroptions in partnership with these sectors contributesto the provision of alternatives to state housing andassists in providing pathways out of social housing.This priority recognises the support the Corporationhas given to social housing through CommunityGroup Housing and the Housing Innovation Fund.It includes supporting other social housing providersto deliver housing services tailored to meet theneeds of their local communities. These providersoffer an alternative to state housing and assistpeople with rental or home ownership products.Community Group HousingThe Corporation’s Community Group Housingprogramme (CGH) provides housing to communitybasedresidential service providers. The providers arefunded or accredited by other government agenciesto provide accommodation for people with physicalor intellectual disabilities, mental illness, youth atrisk, women and children seeking refuge, or crisisand transitional housing. Community Group Housingprovided 15 new units in 2009/10, made up of43 bedrooms.2 | Outcome Contributionhousing new zealand corporation | annual report 2009/10 33

outcome two continuedThere are approximately 5,076 7 units in thecommunity sector. These are made up of:• 45 community housing organisations with4,743 dwellings• 32 community service providers with231 dwellings• 22 iwi providers with 19 dwellings• 59 Māori providers with 83 dwellings.The priority for 2009/10 was supporting high andcomplex needs, properties that were not easilyaccessible on the private market or attractive toinvestors due to the complexity of the requirementsof the intended residents. A comprehensive capitalupgrade programme was completed including majorreconfigurations and energy efficiency retrofits.In 2010/11, we will be reviewing the policies andprocedures for the programme and tailoring anasset plan specific to Community Group Housing.We will also build our relationships withgovernment funders to ensure we are using ourresources to support their strategies. A completeassessment of the CGH portfolio has beenundertaken through the Corporation’s new propertysurvey. This will help us develop a maintenancestrategy and tactical plan for the portfolio.supported community livingProtecting vulnerable babies is at the centre of a newinitiative between Child, Youth and Family, the SalvationArmy and Housing New Zealand.A new supported living service called the Salvation ArmySupported Living Homes has been established in LowerHutt in response to a high need for emergency/transitional accommodation for families in the Hutt Valley.Launched in March 2010, several families have alreadymoved into a community-style housing complex wherethey have their own home and space. They receivesupport and mentoring from people who can help withthe day-to-day challenges of raising great kids.A Housing New Zealand community group houseprovides eight two-bedroom units for families at asignificantly reduced rental.Families pay rent, with a small percentage going toHousing New Zealand and the remainder diverted into asavings account to help the family when they leave theprogramme. When this does occur, Housing New Zealandhelps the families relocate to an area where they can bepart of a positive community environment.One family – a teenage couple with two children aged 19months and seven months – are looking forward to beingindependent with “our own place, learning how to makethe right decisions and being good parents to our children.”Housing Innovation FundThe Housing Innovation Fund (HIF) provides fundingin the form of loans and grants to community-basedorganisations to aid development of social housingassisting low-income New Zealanders. The projectsapproved during 2009/10 demonstrate the successof this partnership approach, with $19.98 millioncoming from the Government and $41.54 millionbeing funded by the private sector.In 2009/10, the Government outlined a new focusfor the Housing Innovation Fund, which aims togrow larger providers and support MāoriDemonstration Partnerships to encourage sectorgrowth and deliver affordable rental housing andaffordable home ownership opportunities to lowandmodest-income New Zealanders.In 2009/10, the Housing Innovation Fund supported18 projects involving loans and grants resulting in$61.4 million of new social housing with 173 newhouses throughout New Zealand for families andindividuals in need. This includes four MāoriDemonstration Partnerships projects.347 Data from the Corporation Stakeholder IAT project (excludesCGH tenants, local government, government agency housing).housing new zealand corporation | annual report 2009/10

Examples of projects approved include:• funding Habitat for Humanity for five projects,worth a total of $1.27 million, which will provide14 new houses for affordable home ownership– three in Tauranga, three in the Manawatu,three in Porirua, near Wellington, four in Nelsonand one in Kaiapoi, near Christchurch• awarding the Queenstown Lakes CommunityHousing Trust with $1 million from the HousingInnovation Fund for an $8.80 million project toprovide 20 new properties in Queenstown foraffordable home ownership• awarding the Nelson Tasman Housing Trust with$1.30 million for a $2.61 million project to providenine new properties in Nelson for rental to lowtomoderate-income people.Investigating ways to grow the communityhousing sectorThe Corporation is investigating ways to grow thecommunity housing sector to meet priority housingneeds. The Corporation held engagement workshopswith key community housing organisations andother stakeholders in Auckland and Wellington toidentify stakeholder interests and issues, to improvethe Corporation’s knowledge of community housingorganisations, and to focus on ‘what works’ insupporting community housing organisations.A report to the Ministers of Housing and Finance onGrowing the Provision of Affordable Housing throughCommunity Housing Organisations, jointly preparedby the Corporation and the Department of Buildingand Housing, was submitted to the Minister on30 June 2010. The report recommends Ministersagree to a medium-term vision for the strategy, andidentifies a range of further work that Ministerscould commission as part of the work programmearising out of the Housing Shareholders’ AdvisoryGroup report.During 2010/11, the Corporation will continue toencourage increased investment in affordablehousing by iwi, private sector and non-governmentproviders through partnerships. This will contributeto the supply of affordable rental accommodationand improve home ownership opportunities forfirst-home buyers.Māori Demonstration PartnershipsThe purpose of the Māori DemonstrationPartnerships is to create traction in building housingand to increase the stock of good quality housing,primarily on multiple-owned Māori land as well asto work with Māori land trusts and iwi authoritieswho are in a position to provide equity and otherforms of security to develop sustainable andaffordable housing. The partnerships can also assistin addressing housing issues in isolated areas wherethere are ongoing supply and quality issues,alongside projects in urban areas.Of the $20 million allocated for the 2009/10Housing Innovation Fund, the Government set aside$5 million for Māori Demonstration Partnerships.This is the first year that Māori organisations havebeen specifically targeted for funding through theHousing Innovation Fund. Four projects have beenapproved that will benefit Māori directly, with44 new properties being built in Northland,Tauranga and Whakatāne. These include:• Te Rūnanga o Te Rarawa provided with$1.55 million from the Housing InnovationFund for a $2.30 million project to establish anextended whānau living environment of eightdwellings for low- to middle-income whānau,on general land in Ahipara, Northland• Mangatawa-Papamoa Blocks Incorporatedprovided with $2.17 million for a $5.38 millionproject to build 10 two-bedroom units forkaumātua housing on Māori freehold landin Tauranga• Te Rūnanga o Ngāti Awa provided with$1.03 million for a $5.89 million project to build10 two-bedroom units for kaumātua housingand five three-bedroom houses for homeownership on Māori freehold land in Whakatāne• Ngāti Hine Health Trust provided with $800,000for a $1.60 million project to build 10 newproperties for kaumātua housing and homeownership in Moerewa, Northland.Another four groups have received capacity-andcapability-building support from the HousingInnovation Fund to develop their projects, includingthe development of a strategic relationship betweenthe Corporation and Waikato Tainui. Changes to thecriteria and processes of the Housing InnovationFund have been made for 2010/11. The Corporation iscurrently managing the application process for2010/11 funding.2 | Outcome Contributionhousing new zealand corporation | annual report 2009/10 35

outcome two continuedSupporting other social housing providersThe Corporation is working with local governmentand non-government agencies to increase or developrental housing and home ownership opportunities.Over a 10-year period commenced July 2008, theGovernment will provide a grant of $220 million(with Wellington City Council contributing for afurther 10 years) to assist in the upgrading of theWellington City Council’s housing portfolio. Thefunding is managed under a Deed of Grant enteredinto between the Corporation, Crown and the Council.The Corporation’s role is to monitor progress, on aquarterly basis, against the programme of work setout in the Deed of Grant. The work programme is ontrack financially, is meeting milestones and is beingdelivered in accordance with the Deed of Grant. Thefirst complex, Te Ara Hou in Newtown, is complete.Construction work is underway at another twocomplexes: Hanson Court and Central Park.Construction work is scheduled to commence withinsix months at two other complexes: Regent Park andNewtown Park. Of the remaining complexesscheduled for capital works in the first 10 years,three are at the developed design stage (prior todetailed design), and the remaining four propertieswill commence preliminary design work over thenext three years.Priority: Facilitating improvement incommunities where state housingdominatesA large proportion of state housing is concentratedin certain areas of Auckland and Wellington. Becauseof the Corporation’s current and historical presencein these areas, it has a role in showing leadership inwhole-of-government efforts to address thedeprivation. As a social landlord and governmentagency, the Corporation is committed to improvingareas of deprivation by promoting communitydevelopment and facilitating improvement incommunities where state housing dominates.The priority recognises the headway the Corporationhas made in partnering with community agenciesand other government agencies to revitalise areaswith high concentrations of state housing and socialneed through housing redevelopments. This includesfacilitating a concerted approach across agencies toaddress deprivation and legacy issues while workingto develop mixed-tenure communities.Transforming TamakiThe Tamaki Transformation Programme is an urbanrenewal project encompassing the east Aucklandsuburbs of Panmure, Point England and Glen Innes(Tamaki). Tamaki currently faces challenges as acommunity. It has high levels of socioeconomicdisadvantage and concentrated and degraded statehousing – the Corporation owns 56 percent of thelocal residential housing stock, representing166 hectares of land in the area.The programme is being delivered in partnershipwith other government agencies, the private sector,non-government agencies and the local community.Over the next 20 years the programme aims toachieve ambitious improvements in housing,infrastructure, social services and economicperformance goals for Tamaki.The Corporation’s key contributions to the programmeare through the programme’s housing workstream.This workstream is focused on the redevelopmentand reconfiguration of state housing assets(dwellings and land) in the Tamaki area over theprogramme’s two-year foundation period and beyond.The Corporation’s foundation period initiatives haveprogressed according to plan and include:• the Kings Road Redevelopment for Older Peoplein Panmure – currently progressing through anotified resource consent process. Constructionis expected to commence in October 2010 andtake one year to complete• 40 houses modernised during 2009/10 inPanmure – a further 80 properties have beenprogrammed for delivery in the following twoyears to June 2012.Community RenewalThe Corporation has implemented the CommunityRenewal programme since 2001 in areas of veryhigh deprivation and high concentrations of statehousing. Community Renewal programme projectsare delivered in partnership with governmentagencies, local authorities and the community.Community development involves working withcommunities to help them do the things thatimprove the lives of the people in the community.The Corporation is not a community developmentagency but rather a housing agency promotingcommunity development in the context offacilitating improvement in communities wherestate housing dominates.36housing new zealand corporation | annual report 2009/10

Community development enhances theneighbourhood as a whole and reduces vandalismand other crime. The Corporation also links with othergovernment and non-government agencies, at littlecost to the Corporation, with benefits to all tenantsand other local residents. On bigger projects, thecost of community development activities representsless than 1 percent of the total project expenditure.There are six Community Renewal programmesunderway: Eastern Porirua (Wellington), Enderley(Hamilton), Otangarei (Whangarei), Wiri, Papakuraand Northcote (Auckland). In 2009/10 a number ofinitiatives were progressed with benefits for thecommunity. Six projects were undertaken and95 percent of planned community developmentmilestones were achieved for each project.Some highlights include:• Otangarei, Whangarei–– A new Community House was opened inAugust 2009. A new Police base also opened50 metres away in a Corporation unit. Bothfacilities have improved the service offered tothe residents and strongly contributed toimproved community perceptions of safety.–– A very successful men’s network based in thecommunity house was initiated by theCorporation. The Mana Tane network meetsevery month for breakfast and attracts over25 people every time. It is designed tostrengthen community relations and bringneighbours together.• Wiri, South Auckland–– Life Games Project – the Corporationpartnered with residents and a local trust toprovide neighbourhood children access tocomputers and educational games.• Porirua–– Street Makeover 2009 was held in Porirua.The makeover area included 60 households– 41 of these were Housing New ZealandCorporation properties. Four governmentagencies, the Corporation’s ManaNeighbourhood Unit and other Corporationteams, the Porirua City Council and 13non-governmental organisations (NGOs) andcharitable trusts worked with Eastern PoriruaCommunity Renewal in planning andcarrying out this makeover with a high levelof resident cooperation.walking tallIn June 2010, the Minister of Housing announced thecompletion of 44 new homes in Northcote, Auckland. The$15.4 million redevelopment was part of the NorthcoteCommunity Renewal project. It involved removing 15 oldhouses in 2008/09 to make way for the 44 new homes,which range in size from two to six bedrooms.As one tenant said of the redevelopment project,“the community is incredibly proud about what hasbeen achieved in Northcote. We now live in healthy,warm and sustainable homes, which is great for ourkids. Our children now walk 10 feet tall!”Healthy HousingThe Healthy Housing programme is an exampleof successful cross-agency collaboration. TheCorporation works in partnership with the Ministryof Health to improve housing conditions incommunities where health risks are high. The jointinitiative aims to:• reduce the risk of diseases associated withcrowding• improve the condition of state housing inspecific areas.The Corporation has been implementing theHealthy Housing programme in Central Auckland,South Auckland and the Hutt Valley to improvethe Corporation’s housing in communities withhealth risks.More than 2,000 families benefited from HealthyHousing solutions in 2009/10 – double the numberfor any single previous year. The Corporationreceived great motivation halfway through the yearwhen the Healthy Housing team won theAustralasian Housing Institute New Zealand awardfor Leading Team Practice.2 | Outcome Contributionhousing new zealand corporation | annual report 2009/10 37

outcome two continuedReinforcing community obligation forstate house tenantsThe Corporation is responsible for housing thosemost in need. As a social landlord, it has anobligation to the wider community to ensure thattenants meet their responsibilities under theResidential Tenancies Act by not disturbing thecomfort and privacy of their neighbours.The Corporation developed an Encouraging GoodNeighbour Behaviour policy to manage tenancies ina firm, fair and consistent way. All new tenants areinformed on what is expected of them in terms oftheir property and about being a good neighbour.The Corporation emphasises to tenants thepotential consequences of unacceptable behaviour.The seriousness of the antisocial behaviourdetermines the Corporation’s response. Responsesrange from meeting with the tenant to addressthe problem, through to formal actions such asapplying to the Tenancy Tribunal and/or issuing a90-day notice.The Corporation has also made improvementsaround investigating tenants who are suspected ofdefrauding the Corporation.In 2009/10, the Corporation issued 38 90-day noticesas a result of antisocial behaviour by tenants, and 5690-day notices as a result of investigations intotenants who provided false or misleading information.One hundred and eighteen properties were freedup as a result of the investigations and more than$4.8 million in debt has been identified for recovery.encouraging good neighbour behaviour policyThe Encouraging Good Neighbour Behaviour policycouldn’t have come at a better time for staff at theNorthcote Neighbourhood Unit. “A year ago, we had18 cases of crime and serious antisocial behaviour,”says Farhaz Rehman, Tenancy Manager.With a high concentration of state housing in the area,Farhaz and fellow Tenancy Manager Sheree Peti hadfew options to deal with the ongoing issues. Fastforward a year, and the Encouraging Good NeighbourBehaviour policy provides Farhaz and Sheree with toolsto change behaviour.“There’s now a clear process to follow, and we’ve gota lot more tools to help deal with issues. Tenantsunderstand that if they don’t change their behaviour,there are consequences,” says Sheree.“The incident diary is a great tool for complainants totake responsibility for gathering facts, and any tenantissues and needs are highlighted early on.“I recently signed up a single mum who was havingtrouble looking after her kids, so I suggested she attenda local parenting course. She was grateful for the advice,and the course has helped her manage her kids’behaviour,” says Sheree.Other key elements of the policy that make it sosuccessful are working closely with other agencies,support groups and the Police to build opencommunication lines with local residents.38housing new zealand corporation | annual report 2009/10

outcome twowhere the corporation has a significant influence, people will live in safe, inclusive communitiesindicator rationale baseline 2009/10 resultsSocial cohesion2 | Outcome ContributionSocialconnectedness inour tenantcommunitiesScope of indicator:Quarterlytelephone surveywith tenants,which seeksfeedback on theirperceptions oftheir socialconnectedness.Socialconnectedness isan important goal(Social Reportrefers) in creatingan inclusive societywhere people areable to accessinformation andsupport.Q: Rolling average over fourquarters from Tenant SatisfactionMonitor (1,000 each quarter).How satisfied are you thatyour neighbourhood is aneighbourhood where youand your family feel part ofthe community?Benchmark: 74 percent satisfied orbetter.Quality of Life Survey 2006 and2008 combined.6.8 percent of Corporation tenants(n=368) and 3.44 percent of allother respondents (n=15,332) ratedthemselves as having a very lowsocial connectednessOutcome trend sought: Increasedtenant satisfaction with community;decrease in tenants with very lowsocial connectedness.75 percentBetween August 2009 andJuly 2010, 8,959 Corporationtenants were asked, “How satisfiedare you that your neighbourhoodis a neighbourhood where youand your family feel part of thecommunity?” Based on a scale of1–5, 33 percent gave a 5 for ‘verysatisfied’, and 42 percent gavea 4 for ‘satisfied’. Tenants whoindicated dissatisfaction weremore likely to be single parentsand tenants living in SouthAuckland. Now the data has beencollated, the survey results will bedistributed and the Corporationwill subsequently plan actions toaddress areas of dissatisfaction,where possible.Source: Corporation CustomerResearch Programme.Source: Corporation TenantSatisfaction Monitor and Qualityof Life Survey.housing new zealand corporation | annual report 2009/10 39

outcome two continuedoutcome twowhere the corporation has a significant influence, people will live in safe, inclusive communitiesindicator rationale baseline 2009/10 resultsSafety from crimePerception ofsafety in ourtenantcommunitiesScope of indicator:Quarterlytelephone surveywith tenants,which seeksfeedback on theirperceptions of theirsafety in ourcommunities.The Corporationcan influence theperception ofsafety incommunities bycommunityrenewal, urbanplanning and goodneighbour policies.Q: Is your neighbourhood a safeplace for you and your family tolive in?Benchmark: 73 percent agreeor strongly agree.Outcome trend sought: Increasedtenant rating of neighbourhoodas a safe place to live.Source: Corporation TenantSatisfaction Monitor.74 percentBetween August 2009 andJuly 2010, 8,959 Corporationtenants were asked, “Is yourneighbourhood a safe place foryou and your family to live in?”Based on a scale of 1–5, 37 percentgave a 5 for ‘very satisfied’, and37 percent gave a 4 for ‘satisfied’.The 74 percent recorded resultby the Corporation is based on thecombined 4 and 5 scores. Tenantswho indicated dissatisfaction weremore likely to be tenants withdependent children and living inEast and South Auckland. Now thedata has been collated, the surveyresults will be distributed and theCorporation will subsequently planactions to address areas ofdissatisfaction, where possible.Source: Corporation customerresearch programme.40housing new zealand corporation | annual report 2009/10

Priorities for the futureThe Government’s vision for the social housing sector is to provide the right housing in the right place andat the right time to those most in need, for as long as the need exists, and to achieve these outcomes in themost cost-effective manner.During 2009/10, the Minister of Housing and Minister of Finance agreed a set of social objectives at thesector level and for the Corporation, which were included in the 2010 Letter of Expectations. As part ofdeveloping the 2010–13 Statement of Intent, the Corporation updated the Outcome Framework to supportthe Government’s social objectives and provide a more balanced overview of the performance of theCorporation. The 2010–13 Statement of Intent sets out in more detail what will be done to achieve theseoutcomes and provides an updated set of performance measures to demonstrate success.2 | Outcome ContributionOutcomes Frameworkcrown social objectives for the housing sectorHousing AssistanceAssistance is available to thosemost in need for the durationof their need, and is deliveredin a cost-effective manner.Access to HousingNew Zealanders have accessto housing that meets their needsand is affordable.Investment in Affordable HousingCreate a suitable businessenvironment for investment inaffordable housing by providers,including not-for-profit organisations.crown objectives for the corporationHousing AssistanceProvide cost-effective statehousing and associatedservices (as agreed withMinisters) to those mostin need, for the durationof their need.Access to HousingAssist low-income and/orvulnerable individualsand families to makethe right housing choicesand work with otheragencies to transitionlow-priority tenants intoalternative housing.Investment inAffordable HousingFacilitate the developmentof alternative providersof affordable housing,including not-for-profitorganisations.Financial ObjectiveOperate in abusinesslike manner withgood financial andasset stewardship toeffectively manage theCrown’s investment.New Zealanders with priorityhousing needs are supportedin their time of need.outcomesNew Zealanders in need arehelped along their pathwaytowards housing independence.The Crown’s resources aremanaged in the most efficientand effective manner.intermediate outcomesPeople withpriority needsare supported bycommunityhousingproviders.People withpriority needsare supportedby state housingin their timeof need.People who cansustain otherhousing optionsachieve housingindependence.Rental and homeownershipopportunitiesare increasedthroughalternativeproviders.Achieve the rightbalance betweenthe Crown’ssocial andfinancialobjectives.A housingportfolio that isfit for purpose bytype andlocation.housing new zealand corporation | annual report 2009/10 41

42housing new zealand corporation | annual report 2009/10

Part threeManaging the CorporationOrganisational health and capability 44Corporate governance 48housing new zealand corporation | annual report 2009/10 43

Organisational health and capabilitykey achievements• A strategic plan was developed to set out the longertermcontext and direction for the organisation overthe next five years.• Development of a Performance MeasurementFramework to monitor performance and progressagainst the strategic plan.• The Board approved a business case for an EnterpriseTransformation Programme (ETP) to redesign keyprocesses and provide staff with the tools andtechnology to deliver customer-focused services.The Corporation’s goal is to be a proactive, resultsfocusedand high-performing organisation. TheCorporation is undergoing a programme of changeto achieve its vision and outcomes and to build aculture of performance excellence.Increasing value for moneyIn 2009, as part of a longer-term PerformanceImprovement Plan, the Board led a review to identifyhow the Corporation could best use its assets andresources to provide housing for vulnerableNew Zealanders and meet their needs into the future.That review provided the basis for engagement withMinisters on the Government’s expectations, thedevelopment of the Corporation’s strategic responseand the development of the 2010–13 Statementof Intent.During 2009/10, the Corporation also worked withthe Department of Building and Housing and theTreasury to:• review the Corporation’s balance sheet structureand dividend policy• develop a new asset management strategy• develop appropriate efficiency and effectivenessindicators.The results of this work are incorporated into the2010–13 Statement of Intent. The Statement ofIntent document has a sharper focus on theCorporation’s core business and includes a revisedset of high-level performance measures that willhelp the Corporation better demonstrate progressover the medium term.New Zealanders expect the Corporation to strive forexcellence, deliver exceptional customer service andprovide value for money. The value-for-moneyprinciple has been incorporated into the Corporation’sbusiness and operations, and we will be looking tomake further efficiency gains over the medium term.In Budget 2009, line-by-line reviews identifiedsavings of approximately $70 million over threeyears, while subsequent baseline updates identifiedfurther savings in appropriations. We have alsoreduced non-appropriated expenditure. Savings ofapproximately $5 million were made in 2009/10through implementing a new travel policy, reviewingcommunications costs, and closely managingcontractors and vacancies.For the 2010/11 budget, the Corporation has includedtargeted additional savings of approximately$25.7 million. These savings will be driven bychanges to the way we manage our vacant upgradeand house painting processes, reducing expenditureon professional services and consultants, savings inprocurement through re-negotiating contracts, andcontinually focusing on managing within theestablished headcount cap.Performance ExcellenceThe Corporation has chosen Performance Excellenceas its continuous improvement framework. Theframework is based on the New Zealand BusinessExcellence Foundation model, which is aligned toand calibrated with the proven Baldrige Criteria.We are using Performance Excellence to improveour strategies, business practices and stakeholderrelatedperformance, and to benchmark ourselvesagainst worldwide best practice.In 2008–09, an initial baseline assessment of theCorporation’s performance was undertaken. Thebaseline review highlighted key areas to improveperformance and produced a roadmap ofimprovement actions. During 2009/10, we createda number of internal workstreams to develop anddeploy these actions including:• Undertaking a strategic review exercise anddeveloping an internal document StrategicPlan (2010–15), setting out the longer-termcontext and direction for the organisationover the next five years. We also updatedour strategic planning framework, whichsets out our strategic and annual businessplanning processes.44housing new zealand corporation | annual report 2009/10

• Developing a Customer SegmentationFramework which provides a comprehensive andenduring view of the Corporation’s current andfuture customer segments and informs thedesign and delivery of our products and services.The next 12 months will see the frameworkrefined further, and the Corporation begin touse the information to guide decision making.• Completing a Provider Framework that identifiesthe providers that the Corporation is workingwith now, and may work with in the future.These are providers who may be able to help usto meet the changing needs of customers andthe wider social housing market.• Developing a single-enduring PerformanceMeasurement Framework to monitorperformance and progress against the strategicplan. The Framework will be deployed in 2010–11.• Establishing the appropriate processes andstructures to oversee the deployment,management and delivery of the strategic planand vision, and to enable effective changemanagement in the Corporation. As a result theCorporation will be establishing a PortfolioOffice in 2010–11.Corporation staffIn 2008, the Government set expectations for publicsector agencies concerning the size of the coregovernment administration. It wanted to ensurethat priority was given to frontline services thatdirectly benefit New Zealanders. The baseline for theCorporation was established in December 2008 at1,244 full-time equivalents (FTEs).As at 30 June 2010, the Corporation employed1,118 full-time equivalent employees, 126 below theDecember 2008 cap. The Corporation had 75 percentof its employees providing frontline services, withthe remaining 25 percent delivering shared servicesto support frontline staff. The Corporation’sunplanned staff turnover for 2009/10 was 11 percent,slightly lower than the 2008/09 result of 12 percent.Table 6: Full-time equivalent employeesby business group as at 30 June 2010business grouppeoplefull-timeequivalentsCustomer Delivery 697 682Asset Portfolio 126 125Governance and Assurance 80 76Hobsonville Land Company 7 6ETP project 31 31Redevelopment 8 8Chief Executive 11 11Corporate Services 114 111Organisational Developmentand Performance28 28Sector and Stakeholder 41 40Total 1,143 1,118Māori and Pacific peoplesThe Corporation staff includes 18 percentNew Zealand Māori and 14 percent Pacific peoples.Of those, 90 percent of Māori and 85 percent ofPacific peoples are in frontline positions. Thisensures the Corporation provides strong support,representation and customer service delivery toPacific peoples and Māori tenants, who make upa significant proportion of the Corporation’scustomer base.PeopleThe Corporation’s people development strategyfocused on the delivery of specific training tosupport core service delivery, leadershipdevelopment to increase management capability,performance management and planning, and actionplanning to improve employee engagement.Significant emphasis was placed on developing theStrategic Plan and a Performance MeasurementFramework for monitoring overall businessperformance. The Performance MeasurementFramework has a specific focus on workforce andleadership development to enable the Corporationto become a proactive, results-focused and highperformingorganisation.3 | Managing the CorporationThe people development strategy seeks to achievetwo outcomes:• Staff with the right skills in the right place atthe right time.• An organisational culture that supports highstaff engagement and performance.housing new zealand corporation | annual report 2009/10 45

organisational health and capability continuedBuild leadershipA number of managers across the organisation haveaccessed programmes run through the LeadershipDevelopment Centre. Specific change leadershiptraining has been piloted internally and will be acore focus in 2010/11 to support the delivery of thestrategic plan.Develop skillsDuring 2009/10, the Corporation delivered staffdevelopment programmes specific to theGovernment’s focus on frontline service and servicechanges. All frontline staff received training in theOptions and Advice Service to provide housingapplicants with information and support abouthousing options available to them. EncouragingGood Neighbour Behaviour policy training wasprovided to specific frontline staff. This policy isaimed at encouraging tenants to act as goodneighbours, while addressing antisocial behaviour.Customer Feedback training on managing customercomplaints was provided, and National CallCentre staff received training on the KiwiSaverhousing options.A customer service training programme wasimplemented in June as part of an overall strategyto promote a customer-centric culture within theCorporation and develop staff customer serviceskills. Managers at all levels received information onthe strategic plan and discussed the implicationsand expectations this placed on them in the future.Senior leaders met quarterly to focus on strategy,organisational challenges and programmes.To support the implementation of the new strategicplan, the Corporation is introducing an updatedperformance management and capabilitydevelopment process. An online performancemanagement process has been established for2010/11 and will help ensure performance objectivesand development plans are directly linked to thegoals and strategies of the Corporation.Foster a support cultureIn June 2008, the Corporation conducted itsfirst employee engagement survey, using theinternationally recognised Gallup survey tool toestablish a baseline measure for the organisation.The survey has been endorsed by the State ServicesCommission and allows the Corporation to assesswhere it is currently positioned and benchmarkprogress against other social agencies in thepublic sector.The Corporation undertook a follow-up survey inJune 2009 and again in May/June 2010. In the 2010survey, 86 percent of eligible employees participated.The Corporation grand mean score was 3.73 out of 5,showing a small improvement over 3.69 in 2009.Teams where effective action planning occurredshowed an increase in employee engagementscores. While the Corporation was good at sharingthe results with employees, it did not consistentlyfollow through on action planning. This will be afocus for 2010/11.A longer-term target is that, by 2012, the Corporationwill be positioned at or above the 75th percentile ofNew Zealand state sector organisations.Health, safety and securityThe Corporation has adopted a Health, Safety andSecurity Management System Framework that isaligned to national and international standards.Safety awareness is being raised throughout theCorporation through active employee participationand ongoing internal communications. This hasresulted in a significant improvement in reportinglevels of incidents and the sharing of lessons learnt.There were 10 lost-time injuries reported during thequarter ending 30 June 2010, which resulted in28 days’ lost time.The Corporation has undertaken a number ofinitiatives to improve health, safety and security.• A three-year programme to upgrade security ofneighbourhood units is in its second year. Theupgrades will improve safety in customer-facingcontact areas.• A new system to protect frontline staff –the Customer Risk Register – went live inDecember 2009. It has been designed to helpkeep staff and contractors safe from workplacehazards, such as customers who may haveshown unsafe behaviour towards them in thepast. A Job Safety Analysis hazard managementpilot programme was implemented in theWellington region. This risk-based approach tosafety provides the means to manage hazardsposed by customers who are listed on theCustomer Risk Register.• Civil Defence capability has been enhancednationally with a focus on ‘at risk’ regions.• Behaviour-based driver training is being providedto employees who routinely use company cars aspart of their role.46housing new zealand corporation | annual report 2009/10

Information systems and technologyInformation systems and technology arefundamental to the Corporation providing efficientand effective services to its customers. As such, theavailability of information systems is critical inenabling Corporation staff to do their work.The Corporation’s computer systems are overduefor replacement and require redevelopment. TheCorporation’s tenant record system and assetmanagement system are both almost 20 years oldand need to be replaced to provide betterperformance and ensure that service delivery is notcompromised. The Corporation is acting to reducethe risk of current business processes and computersystems constraining a more customer-focused,flexible and effective delivery approach.The Enterprise Transformation Programme (ETP) seeksto automate, eliminate or centralise cumbersomemanual processes that are an inefficient use of stafftime. The programme will give staff the opportunityand technology they need to be fully mobile – to bein communities in front of customers and workingwith those most in need of help. Other improvements,including an enterprise data warehouse, will deliverbetter customer service, increased support forfrontline staff, improved business information,increased responsiveness to customers’ changingneeds, and reduced costs and risk.ETP will identify and implement necessary changesto business processes and procure the integratedsoftware to support this change. The Corporation’sBoard approved the ETP Business Case on 25 March2010, and detailed design work and commercialnegotiations are now underway. The project is beingmonitored externally through the State ServicesCommission Gateway Review Process.Enterprise Data WarehouseThe Corporation began implementation of theEnterprise Data Warehouse (EDW) in 2005 toimprove the Corporations’s information and businessintelligence capability. The EDW project will providea single comprehensive view of data and enable theCorporation to provide accurate and consistentmanagement information. The EDW has improveddata quality issues that existed in our operationalsource systems, and now provides the baselinedata on which the new ETP will be based. During2009–10, the EDW project saw the completion ofsubject data, such as asset and tenancy informationtransitioning into business as usual operations.Further business intelligence capability and reportsare planned to be added to the data warehousein 2010/11.Risk managementThe Corporation has adopted a ‘risk smart’ culturethat includes the early identification and analysis ofrisks to inform risk-response decisions. Part of theCorporation’s planning and risk reporting approachis to provide for early warning of potential adverseoutcomes.A consistent approach for assessing the likelihoodand consequences of risk events occurring has beendeveloped. The Corporation’s processes for achievingits risk management culture include the Board’s riskmanagement policy, the documented degree of riskthe Board will tolerate in pursuit of delivering thestrategic priorities, and risk advisory servicesprovided by Internal Audit.The Executive reports on risk to the Board on aquarterly basis, most recently in May 2010.3 | Managing the Corporationhousing new zealand corporation | annual report 2009/10 47

Corporate governanceIntroductionThe Corporation’s governance framework is based ontwo key pieces of legislation. The first of these is theHousing Corporation Act 1974, which effectivelycreated the Corporation. The Housing Corporation Act1974 requires us to be responsible for giving effect tothe Crown’s social objectives by providing housingand housing-related services in a businesslikemanner. Under the Crown Entities Act 2004, theCorporation is listed as a Crown agent, and thisrequires us to give effect to Government policies.The Housing New Zealand CorporationBoardThe Corporation is governed by a Board that isresponsible for managing the Corporation accordingto its legal mandate. The Board is made up of sevennon-executive members, who are appointed for upto three years with the possibility of furtherreappointment.Three new Board members were appointed on21 January 2010 for a term of three years:Adrienne Young-Cooper, Amos Forrester andJeff Staniland. Adrienne Young-Cooper replacesLope Ginnen as Deputy Chair, who has beenreappointed and will remain on the Board as amember for 12 months. Existing member Colin Dalehas also been reappointed for a period of two years,with outgoing members Sandra Lee, Jo Brosnahan,Tony Paine and Garry Wilson completing their termsin December 2009.Pat Snedden chairPat also chairs the Auckland DistrictHealth Board and the QualityImprovement Committee responsiblefor quality and safety in hospitals aswell as being a director of WatercareServices, a wastewater and watercompany for Auckland.Adrienne Young-Cooperdeputy chairAdrienne is a professional directorof a number of organisations andbusinesses and a qualified townplanner. She currently sits on theboards of Maritime New Zealand,Solid Energy New Zealand Ltd,Auckland Regional TransportAuthority and several other counciland community organisations.Jeff StanilandJeff Staniland has over 20 years’experience in banking, finance andcorporate management and iscurrently Chief Executive for SkylineEnterprises, Queenstown. He is adirector of NPR Brands Limited and atrustee of Mt Peel Homestead Trust.Greg HintonGreg currently acts as both anexecutive and non-executivedirector of listed and privatecompanies. He is a formerchartered accountant whospecialised in property andcompany restructuring.Lope GinnenLope is a barrister, specialisingin family law, particularly as alawyer for children. She is amember of the Counties ManukauDistrict Health Board and ischair of Brainwave Trust.Amos ForresterWith ten years experience inhousing at an operational level,Amos previously worked for twentyyears in the private sector infinance and management roles.Colin Dale cnzm. JP.A former long serving city managerof Manukau City Council, Colin isvery involved with community basedorganisations concerned with health,education, settlement services andsport and recreation. Colin hasbeen involved as an advisor inthe establishment of the newAuckland Council.48housing new zealand corporation | annual report 2009/10

Structure and organisationHousing New Zealand Corporation BoardAssuranceCommitteeGovernance andAssuranceAssetPortfolioPropertyCommitteeSector andStakeholderMāori CapabilityCommitteeChief ExecutiveOfficerOrganisationDevelopment andPerformanceAppointmentsand RemunerationCommitteeCorporateServicesRedevelopment(vacant)Hobsonville LandCompany BoardCustomerDelivery3 | Managing the CorporationBoard meetings for 2009/10namenumber of board meetingsattendedPatrick Snedden (Chair) 11Adrienne Young-Cooper (Deputy Chair) – appointed January 2010 6Amos Forrester – appointed January 2010 6Jeff Staniland – appointed January 2010 6Lope Ginnen 12Greg Hinton 10Colin Dale 12Sandra Lee – term completed December 2009 6Jo Brosnahan – term completed December 2009 5Tony Paine – term completed December 2009 6Garry Wilson – term completed December 2009 5housing new zealand corporation | annual report 2009/10 49

corporate governance continuedRole of Board sub-committeesThe Corporation is further supported by four Board sub-committees made up of existing Board memberswho operate under Board-approved charters. The Board Chair does not chair any Board sub-committees.The following is a summary of roles and responsibilities for each sub-committee:sub-committeeAssurance Committee• Effectively manages financial risks• Provides reliable management and financial reporting• Ensures compliance with laws and regulations• Appropriately identifies, analyses, evaluates, treats and reports risks thatthreaten the achievement of objectives• Effectively manages reputational risk recognising, in particular, issues specificto public sector scrutiny• Ensures programmes, plans and objectives are achieved• Ensures quality and continuous improvement are fostered in the Corporation’scontrol processes• Effectively manages material litigation• Maintains an effective and efficient internal and external auditProperty Committee• Ensures the development of a sound strategic direction for the configurationand suitability of present and future housing stock owned or controlled by theCorporation• Ensures the development of sound policies, strategies and business plans inrespect of all matters relating to the provision of the Corporation’s housing stock• Reviews and approves proposals recommended by the Corporation’smanagement in respect of all matters relating to HNZC Group housing stockMāori Capability Committee• Develops Māori capability appropriate to Corporation needs and programmes• Builds appropriate Board-level relationships with iwi and other Māori leadershipto complement operational activities• Oversees and supports the Corporation’s strategic framework for theCorporation’s Māori capability work• Reviews progress across operational achievements and effectiveness of Māoricapability workAppointments and Remuneration Committee• Determines and recommends to the Board the remuneration, and reviews theperformance, of the Chief Executive• Reviews the remuneration of the senior executives• Ensures there is good succession planning and management development atsenior executive levels• Receives and recommends to the Board the general remuneration policyframework applied by the CorporationmembershipLope Ginnen (Chair)Adrienne Young-CooperAmos ForresterPat Snedden (Chair)(ex-officio)Adrienne Young-CooperGreg HintonColin DaleAmos ForresterPat Snedden (ex-officio)Amos ForresterAdrienne Young-CooperColin DaleJeff StanilandPat Snedden (ex-officio)Pat SneddenAdrienne Young-Cooper50housing new zealand corporation | annual report 2009/10

AccountabilityOn an annual basis, the Minister of Housingprovides the Corporation with a letter outliningGovernment’s expectations. This guides thedevelopment of the Statement of Intent, which istabled in Parliament. The Statement of Intent setsout what the Corporation intends to deliver. It is oneof the primary sources by which Parliament and theMinister are able to hold the Corporation to account.The Minister’s formal line of accountability with theCorporation is through the Board. The Board selects,appoints and monitors the performance of the ChiefExecutive. The Chief Executive is responsible to theBoard for the efficient and effective running of theCorporation.Financial delegationThe Corporation operates a financial delegationsframework that allows individuals to carry out theirrole and function. This framework provides a checkand balance to ensure that transactions of anexceptional nature, or that are deemed to exceed alevel of risk, are first approved by someone with theappropriate expertise, authority and experience.The Board of Directors delegates levels of authorityto the Chief Executive and Corporation managers.Conflicts of interestThe Crown Entities and Companies Acts require amechanism for the full disclosure of potential,perceived and actual conflicts of interest. A conflictof interest register is maintained and can beinspected by Board members. Conflicts of interestare a standing agenda item for all monthly Boardmeetings.Conflict of interest processes also exist forCorporation employees and contractors.RemunerationRemuneration for Board members is set inaccordance with the rates established byGovernment.Induction and developmentAll newly appointed Board members are providedwith training and guidance on their duties,responsibilities and key Corporation policies andprocedures.Risk managementThe Corporation recognises that risk managementis integral to good corporate governanceand management. The Corporation has a riskmanagement framework and is working to developa culture where risk management is integrated withall other business processes. Risk managementactivities include identifying new and emergingrisks, quarterly reporting on risks to the Board andMinister, and quarterly progress reports on theimplementation of agreed risk treatment plans.The Corporation has developed a Risk ManagementPlan to incorporate best practices across theCorporation. The plan helps progress the Corporationtowards:• having a risk-smart culture, where risks areidentified, analysed, evaluated and monitored ina balanced way• operating in an environment of few surprises,with risk-reporting systems that provide earlywarnings and the opportunity to manage andmitigate risks.Internal auditThe effective operation of the internal auditfunction is an integral part of the Corporation’sgovernance framework. It provides independent,objective assurance and consulting servicesdesigned to add value and improve theorganisation’s operations.The Corporation takes a systematic, disciplinedapproach when evaluating and improving its riskmanagement, control and governance processesto ensure:• risks that threaten the achievement of objectivesare appropriately identified, analysed, evaluated,treated and reported• interaction with various governance groupsoccurs as required3 | Managing the Corporationhousing new zealand corporation | annual report 2009/10 51

corporate governance continued• financial, managerial and operationalinformation is accurate, reliable and timely• employees’ actions comply with policies,standards, procedures and applicable laws andregulations• resources are acquired economically, usedefficiently and protected adequately• programmes, plans and objectives are achieved• quality and continuous improvements arefostered in the Corporation’s control processes• significant legislative or regulatory issuesimpacting the organisation are recognised andaddressed properly.Executive TeamAs at 30 June 2010, the Executive Team comprisessix general managers and the Chief Executive,Lesley McTurk. The Corporation is recruiting for afurther Executive Team position of General ManagerRedevelopment, which is currently vacant.Customer DeliveryThe Customer Delivery group is led by the ChiefOperating Officer Stephen McArthur who hasoverall responsibility for the delivery of servicesto Corporation customers. Three regionally focusedteams deliver core tenancy management andadvisory services through 43 neighbourhood unitsaround New Zealand. The Community Renewaland Healthy Housing programmes work withcommunity-based organisations, iwi, local councils,individuals and communities to deliver housinginterventions with a focus on building healthycommunities.The group’s title indicates the customer focusthe Corporation has across all its operations andservice delivery.Sector and StakeholderThe General Manager Sector and Stakeholder isKathy Clement. Sector and Stakeholder is a newfunction that recognises the need for strategicleadership in the social housing market. Workingwith partners and customers in developing productsand services to meet their needs, and forecasting,planning and influencing where appropriate are keyfunctions. The group also provides communicationsand marketing support to the Corporation.Governance and AssuranceGeneral Manager Lisa Tipping leads the Governanceand Assurance group. Governance and Assurancemaintains independence from the other functionsto provide the Corporation with a well-managedsingle channel for engagement with Ministers andcentral agencies. It also provides policy advice to theMinister. Other functions with a similar need forindependence remain grouped here, such as legalservices, assurance, investigations and the Boardsecretariat.Asset PortfolioThe Asset Portfolio group is led by General ManagerKevin Mara and comprises three business teams:the strategic asset planning team, the programmeacquisition and development team, and the assetmanagement team. The Asset Portfolio functionmaintains its focus on the strategic assetmanagement process to deliver portfolioperformance that supports the Corporation’ssocial and commercial outcomes.Organisational Development and PerformanceOrganisational Development and Performanceis led by General Manager Philippa Jones. TheOrganisational Development and Performancefunction expands and aligns the Corporation’sstrategic planning, capability development, businessimprovement and performance measurement. Thegroup works with the Chief Executive and theleadership team to build and maintain a culturethat delivers on the Corporation’s mission,demonstrates the values, and achieves the strategicobjectives by aligning structure, systems, processes,staffing and people management.Corporate ServicesThe Corporate Services group is led by GeneralManager Roy Baker and comprises a number ofsupport teams across a mix of disciplines includinginformation systems, information technology,management information, finance, procurement,treasury and credit, and financial services.52housing new zealand corporation | annual report 2009/10

Part fourStatement ofService PerformancepageStatement of Responsibility 54Audit Report – Housing New Zealand Corporation and Group 55Statement of Service Performance 57Output Class 1: Advisory Services 57Output Class 2: State House Tenancies 59Output Class 3: Policy Advice 62Output Class 4: Financial Assistance – Housing 64Output Class 5: Property Management Agency Services 68Intermediate Outputs: Housing Portfolio (Corporation) 70Appropriations 77housing new zealand corporation | annual report 2009/10 53

Statement of Responsibilityhousing new zealand corporation and subsidiariesStatement of Responsibility for the year ended 30 June 2010The Board is pleased to present the financial statements and Statement of Service Performanceof Housing New Zealand Corporation for the year ended 30 June 2010.(a) The Board is responsible for preparing the consolidated financial statements and Statementof Service Performance and for the judgements used therein.(b) The Board is responsible for establishing and maintaining a system of internal control to providereasonable assurance as to the integrity and reliability of financial reporting.(c) In the opinion of the Board, the financial statements and Statement of Service Performancefor the year ended 30 June 2010 fairly reflect the financial position and financial performanceof Housing New Zealand Corporation at that date.For and on behalf of the Board.Patrick N SneddenchairAdrienne Young-Cooperdeputy chair30 September 2010 30 September 201054housing new zealand corporation | annual report 2009/10

Audit Reporthousing new zealand corporation and groupTO THE READERS OFHOUSING NEW ZEALAND CORPORATION AND GROUP’SFINANCIAL STATEMENTS AND STATEMENT OF SERVICE PERFORMANCEFOR THE YEAR ENDED 30 JUNE 2010The Auditor-General is the auditor of Housing New Zealand Corporation (the “Corporation”) and group.The Auditor-General has appointed me, Stuart Mutch, using the staff and resources of Ernst & Young, to carryout the audit on her behalf. The audit covers the financial statements and statement of service performanceincluded in the annual report of the Corporation and group for the year ended 30 June 2010.Unqualified opinionIn our opinion:• The financial statements of the Corporation and group on pages 84 to 132:>> comply with generally accepted accounting practice in New Zealand; and>> fairly reflect:–– the Corporation and group’s financial position as at 30 June 2010; and–– the results of operations and cash flows for the year ended on that date.• The statement of service performance of the Corporation and group on pages 57 to 80:>> complies with generally accepted accounting practice in New Zealand; and>> fairly reflects for each class of outputs:–– standards of delivery performance achieved, as compared with the forecast standards outlined in thestatement of forecast service performance adopted at the start of the financial year; and–– actual revenue earned and output expenses incurred, as compared with the forecast revenues andoutput expenses outlined in the statement of forecast service performance adopted at the start ofthe financial year.The audit was completed on 30 September and is the date at which our opinion is expressed.The basis of our opinion is explained below. In addition, we outline the responsibilities of the Board and theAuditor, and explain our independence.4 | Statement of Service PerformanceBasis of opinionWe carried out the audit in accordance with the Auditor-General’s Auditing Standards, which incorporate theNew Zealand Auditing Standards.We planned and performed the audit to obtain all the information and explanations we considered necessaryin order to obtain reasonable assurance that the financial statements and statement of service performancedid not have material misstatements, whether caused by fraud or error.Material misstatements are differences or omissions of amounts and disclosures that would affect a reader’soverall understanding of the financial statements and statement of service performance. If we had foundmaterial misstatements that were not corrected, we would have referred to them in our opinion.The audit involved performing procedures to test the information presented in the financial statements andstatement of service performance. We assessed the results of those procedures in forming our opinion.housing new zealand corporation | annual report 2009/10 55

audit report – housing new zealand corporation and group continuedAudit procedures generally include:• determining whether significant financial and management controls are working and can be relied onto produce complete and accurate data;• verifying samples of transactions and account balances;• performing analyses to identify anomalies in the reported data;• reviewing significant estimates and judgements made by the Board;• confirming year-end balances;• determining whether accounting policies are appropriate and consistently applied; and• determining whether all financial statement and statement of service performance disclosures are adequate.We did not examine every transaction, nor do we guarantee complete accuracy of the financial statementsand statement of service performance.We evaluated the overall adequacy of the presentation of information in the financial statements andstatement of service performance. We obtained all the information and explanations we required to supportour opinion above.Responsibilities of the Board and the AuditorThe Board is responsible for preparing the financial statements and statement of service performance inaccordance with generally accepted accounting practice in New Zealand. The financial statements must fairlyreflect the financial position of the Corporation and group as at 30 June 2010 and the results of operationsand cash flows for the year ended on that date. The statement of service performance must fairly reflect, foreach class of outputs, the Corporation and group’s standards of delivery performance achieved and revenueearned and expenses incurred, as compared with the forecast standards, revenue and expenses adopted atthe start of the financial year. The Board’s responsibilities arise from the Crown Entities Act 2004 and theHousing Corporation Act 1974 (as amended).We are responsible for expressing an independent opinion on the financial statements and statement ofservice performance and reporting that opinion to you. This responsibility arises from section 15 of the PublicAudit Act 2001 and the Crown Entities Act 2004.IndependenceWhen carrying out the audit we followed the independence requirements of the Auditor-General, whichincorporate the independence requirements of the New Zealand Institute of Chartered Accountants.In addition to the audit we have carried out assignments in the areas of reviewing market and income relatedrent setting procedures, providing technical accounting guidance in regards to mortgage insurance andlending products and undertaking a review of the Corporations Crown financial reporting processes, whichare compatible with those independence requirements. Other than the audit and these assignments, we haveno relationship with or interest in the Corporation or any of its subsidiaries.Stuart MutchErnst & YoungOn behalf of the Auditor-GeneralWellington, New Zealand56housing new zealand corporation | annual report 2009/10

Statement of Service PerformanceOutput Class 1: Advisory ServicesdescriptionThe scope of this output class is limited to advisory support for individuals/households, community groups andcommunity housing providers on options available for accessing appropriate housing solutions and sustaining theirexisting housing and on associated housing-related matters including through education services. Advisory supportmay focus on general housing needs, including the specific needs of individuals with mental, physical or sensorydisabilities, developing the capability of community housing providers to undertake housing-related projects andestablishing links between local community members in areas of high social need and appropriate agencies focusedon building stronger communities.Housing solutions may be available through the Corporation, territorial authorities, the private rental market and othercommunity organisations that provide housing and housing-related services.performance informationkey performance indicators1.0 Advisory servicesCustomer satisfaction –customers satisfied withour service1.1 Advisory services – housing optionsTimeliness – time from firstpoint of contact to theprovision of appropriateadvice/optionsperformancestandardAt least70 percentLess than 10days (average)2009/10actual1.2 Advisory services – modified non-Corporation housingPlanned volume – customersrequiring non-Corporationmodified housing that havewritten management plansin placeMore than95 percent1.3 Advisory services – capability buildingPlanned volume – MāoriDemonstration Partnershipswith iwi5–7 iwipartnerships2008/09actual63 percent Newmeasure4 days Newmeasure100 percent Newmeasure5 iwipartnershipagreementscompletedNewmeasurecommentsNot achievedThe 70 percent standard wasproposed in the absence of anyprevious data on this customergroup. It is now clear from theinitial results that the standardwas set unrealistically high ascustomers’ views are inevitablycoloured by not reaching theirprimary goal of obtaining a statehouse. The standard has beenrevised to 60 percent for 2010/11.AchievedAchievedAchieved4 | Statement of Service PerformanceCustomer satisfaction –community group customerssatisfied with our serviceAt least70 percent69 percent NewmeasureNot achievedThe 70 percent target wasproposed in the absence of anyprevious data on this customergroup.housing new zealand corporation | annual report 2009/10 57

statement of service performance continuedperformance informationkey performance indicators1.4 Education servicesPlanned volume – number of:• Participants in WelcomeHome First Stepsprogramme• Rural Housing programmehouseholds provided withfire safety informationperformancestandard2009/10actual2008/09actualcomments4,000–5,000 4,942 5,476 AchievedAt least 4,000 4,923 5,008 AchievedRevenue and output expensestarget($m)actual($m)variance($m)commentsRevenueCrown 2.560 2.261 (0.299)Other 0 0 0Total revenue 2.560 2.261 (0.299)Expenses 6.111 5.349 0.762Net surplus/(deficit) (3.551) (3.088) 0.463Changes to the Welcome Home First Stepscontent were initiated in 2009/10. Thesechanges will be completed in 2010/11, andsome funding from 2009/10 is beingcarried forward for this purpose. This hasreduced both revenue and expenses forthis programme in 2009/10.Expenses were further reduced throughcost savings in Advisory services –housing options.58housing new zealand corporation | annual report 2009/10

Output Class 2: State House TenanciesdescriptionThe scope of this output class is limited to the allocation and management of tenancies with individuals/householdsand community groups. The service includes any actions integrally linked with tenancy management, such as matchingapplicants with available houses, administering the Income-Related Rent Subsidy, undertaking urgent repairs andmaintenance in response to tenants’ requests, debt management and legal actions, and specialised support for tenantswith multiple or complex needs. The output class relates only to properties owned by the Corporation or where theCorporation holds a lease for privately owned properties.performance informationkey performance indicatorsperformancestandard2009/10actual2008/09actualcomments2.1 Tenancy allocationCustomer satisfaction –customers satisfied withour serviceAccuracy (individuals/households) – confirmedassessment decisions meetthe criteriaTimeliness – time to houseat-risk (priority A) applicantsonce the priority assessmentis confirmedAt least70 percentAt least95 percentWithin 25 days(average)51 percent Newmeasure96 percent 95 percent Achieved10 days(average)NewmeasureNot achievedThe 70 percent standard wasproposed in the absence of anyprevious data on this customergroup. It is now clear from theinitial results that the standardwas set unrealistically high ascustomers’ views are inevitablycoloured by not reaching theirprimary goal of obtaining a statehouse.Achieved4 | Statement of Service PerformanceUtilisation –• Properties allocated bestmatch bedrooms available• Housing stock availablefor lettingAt least80 percent1 percentor less74 percent Newmeasure0.8 percent NewmeasureNot achievedThere is a mismatch between themakeup of the portfolio andcurrent and emerging customerneed, which means high-prioritycustomers may be allocated homeswith more bedrooms than theyneed. The issue is recognised andbeing considered through assetmanagement and tenancymanagement policy settings.Achievedhousing new zealand corporation | annual report 2009/10 59

statement of service performance continuedperformance informationkey performance indicatorsperformancestandard2009/10actual2008/09actualcomments2.2 Tenancy managementCustomer satisfaction –tenants satisfied with theCorporation’s serviceAccuracy –• Correct income-related rentassessments (for tenantswith verified income)• Rent relief for communitygroups meets criteriaDebt management(Corporation) – rental debtas a percentage of monthlyrental incomeAt least70 percentAt least95 percentAt least95 percentLess than8 percent70 percent 69 percent Achieved96 percent 96 percent Achieved100 percent NewmeasureAchieved3.8 percent 5.1 percent AchievedDebt management (Crown) –percentage of income-relatedrent debt under recoveryactionAt least75 percent83 percent NewmeasureAchievedPlanned volume –Healthy Housing• Joint assessmentsundertaken (by theCorporation and publichealth nurse)• Households assisted underthe Healthy Housingprogramme1,900–2,100 2,051 NewmeasureAchieved––general1,250–1,350 1,388 1,007 Achieved––Jobs and Growth fiscal 650–750 702 NewAchievedstimulus package 8 measure608 In February 2009, Cabinet agreed to bring forward infrastructure spending (CAB Min (09) 3/3 refers). Additional funding was provided in2008/09 in the following areas: $20.0 million for building new houses to add to the state housing stock, $3.0 million for the HealthyHousing programme and $10.0 million for upgrading the existing housing stock. Additional funding was provided for 2009/10 in thefollowing areas: $85.0 million for upgrading existing state housing stock and $6.5 million for the Healthy Housing programme.housing new zealand corporation | annual report 2009/10

performance informationkey performance indicatorsperformancestandard2009/10actual2008/09actualcommentsPlanned volume –community group tenanciesassisted with rent relief700–750 676 713 Not achievedThe Corporation did not have toprovide the level of rent supportexpected. This was primarily due tocommunity group provider incomeeligibility issues as well as providersreviewing their services andvacating tenancies. The reductionin demand resulted in a $0.7 millionsaving, part of which was appliedto offset a shortfall in the SharedEquity operating appropriation,and the remainder was returnedto the Crown.2.3 Specialised tenant supportVolume – tenants withidentified specialised supportneeds have writtenmanagement plans in placeAt least95 percentRevenue and output expensesRevenuetarget($m)99 percent Newmeasureactual($m)variance($m)Crown 537.951 554.503 16.552Other 382.739 392.153 9.414commentsAchievedThe favourable variance in revenue(Crown and other) is attributed to higherthan forecast growth in rental incomeboth from the Crown and tenant.4 | Statement of Service PerformanceTotal revenue 920.690 946.656 25.966Expenses 825.530 823.619 1.911Net surplus/(deficit) 95.160 123.037 27.877housing new zealand corporation | annual report 2009/10 61

statement of service performance continuedOutput Class 3: Policy AdvicedescriptionThe scope of this output class is limited to policy advice to the Minister of Housing on housing policy and issues relatedto housing, covering:• the impact of changes in economic conditions on the housing market and the behaviour of market participants• progress of the sector in implementing government housing strategies• financial assistance for housing and home ownership assistance products, including deposit assistance andco-ownership, to support access to home ownership• social housing provided by the Crown, generally through the Corporation, and through territorial authorities and thenot-for-profit sector• demand-side assistance through financial support for all tenures (boarders, tenants and home owners).Policy advice includes ministerial services to support the Minister in meeting the responsibilities of office.performance informationkey performance indicatorsperformancestandard2009/10actual2008/09actualcomments3.1 Policy adviceQuality –• Level of satisfactionassessed quarterly by theMinister• Demonstrated throughindependent assessmentRated asmeeting andfrequentlyexceedingexpectations(4)Average ratingof papers byNZIER at least7.5 (on a 1–10scale)3.7 out of apossible 5Newmeasure6.85 NewmeasureNot achievedThe Corporation had a stretchtarget to meet and frequentlyexceed Ministerial expectationsof policy advice. This standard wasnot met for the third quarterresults. However, the Minister didindicate that his expectations weremet and he appreciated the advicebeing of a good standard withintight timeframes.Not achieved. The Corporation hada stretch target of 7.5, which wasnot met. However, this year’s resultwas a slight improvement on the2008/09 result of 6.7, and theCorporation will use the feedbackfrom NZIER to generateimprovements.Timeliness – the rolling policywork programme deliveredwith:• Timeframes agreed withthe Minister met• Any extensions negotiatedwell before the requireddatesAt least95 percentAt least95 percent95 percent Newmeasure95 percent NewmeasureAchievedAchieved62housing new zealand corporation | annual report 2009/10

performance informationkey performance indicatorsperformancestandard2009/10actual2008/09actualcomments• Gateway Housing initiative– development of anapproach for developingpublic land for first-homebuyers directly or inpartnership withcommunity housingorganisationsCompleted byOctober 2009Adevelopmentapproach forGatewayHousing wascompleted inOctober2009 andwas agreedby theMinister in2010NewmeasureAchieved3.2 Ministerial supportQuality – acceptance rate onfirst draft responsesTimeliness – timeframes setin legislation, by Cabinet orotherwise agreed with theMinister metAt least95 percentAt least95 percentRevenue and output expensesRevenuetarget($m)99.7 percent Newmeasure98.9 percent Newmeasureactual($m)variance($m)Crown 2.640 2.575 (0.065)Other 0 0.127 0.127commentsAchievedAchievedRevenue other reflects income received bythe Centre for Housing Research Aotearoa,New Zealand for an inter-agency researchproject.4 | Statement of Service PerformanceTotal revenue 2.640 2.702 0.062Expenses 11.707 11.326 0.381Net surplus/(deficit) (9.067) (8.624) 0.443housing new zealand corporation | annual report 2009/10 63

statement of service performance continuedOutput Class 4: Financial Assistance – HousingdescriptionThe scope of this output class is limited to the management of financial products that assist individuals/householdsand community housing providers to purchase houses and maintain houses that they own. Loans and grants issuedmay be in the Crown’s name or in the Corporation’s name for different financial products.performance informationkey performance indicatorsperformancestandard2009/10actual2008/09actualcomments4.1 Loans and grantsAccuracy – loans and grantsissued meet the eligibilitycriteria (Corporation andCrown loans)At least98 percent100 percent NewmeasureAchievedPlanned volume –Corporation loans• Suspensory loans approvedfor essential repairs inNorthland, East Coast andeastern Bay of Plenty• Suspensory loans approvedfor essential repairs in RuralHousing roll-out areas• Households assisted withinfrastructure repairs inNorthland, East Coast andeastern Bay of Plenty• Rural Housing loans –dwellings repaired175–190 200 246 Achieved30–40 37 64 Achieved30–40 269 160 AchievedIn the eastern Bay of Plenty, theCorporation worked in partnershipwith the Ministry of Health to funda number of water treatment andwater supply projects that haveassisted large numbers ofhouseholds. This has resulted in asignificantly larger number ofhouseholds being assisted thaninitially estimated.205–230 237 310 AchievedPlanned volume –Crown loans – HousingInnovation Fund• Units providedAt least 120 173 88 AchievedThe Corporation was able toachieve a leveraged (contribution)of 32 percent for Crown fundingcompared with 48 percent theprevious year. With a totalinvestment of $61.4 million, moreprojects could be funded, resultingin more units being able to be built.64housing new zealand corporation | annual report 2009/10

performance informationkey performance indicatorsperformancestandard2009/10actual2008/09actualcomments• Bedrooms provided240–400 479 Newmeasure• Substantial grants to Māoriorganisations approved5–15 9 grantswith a totalvalue of$2.7 millionwereapprovedNewmeasureAchievedAs a result of achieving higher unitnumbers, there were morebedrooms delivered.AchievedTimeliness (monitoring) –• Suspensory loans andgrants – annualconfirmation sought fromborrowers that conditionsare met• Loans (community housingproviders) – annual reviewthat conditions of loancontinue to be met, iscompletedAt least95 percentAt least95 percent87 percent Newmeasure95 percent NewmeasureNot achievedThe Corporation completed allfinancial reviews relating to thismeasure, but due to resourcingissues in 2009/10, a number ofannual confirmations sought fromborrowers that conditions are metdid not occur. The Corporation isnow fully resourced, and all annualconfirmations will be undertakenin the 2010/11 year.Achieved4 | Statement of Service PerformanceWellington City Council loan– monitoring reports to theMinister on the Council’sprogress against theprogramme of work set outin the Deed of GrantQuarterly– meeting theMinister’sexpectationsQuarterlyreportsprovided bythe end ofthe secondmonth aftereach quarterNewmeasureAchievedQuarterly reporting and annualreview confirmed that the projectis being delivered in accordancewith the Deed of Grant with allagreed milestones being met (refercontextual information below).Debt management(Corporation) – total arrearsas a proportion of the totalloan portfolio1.2 percentor less0.2 percent NewmeasureAchieved4.2 Co-ownership arrangementsAccuracy – new SharedEquity scheme loans issuedmeet eligibility criteria100 percent 100 percent 100 percent Achievedhousing new zealand corporation | annual report 2009/10 65

statement of service performance continuedperformance informationkey performance indicatorsperformancestandard2009/10actual2008/09actualcomments4.3 Mortgage repayment assuranceClaims management –• Percentage of loans issuedby provider banks meeteligibility criteriaAt least98 percent98 percent NewmeasureAchieved• Claims from provider bankssettled consistent withagreementsAt least98 percent100 percent NewmeasureAchievedPlanned volume – new loanswith mortgage repaymentassurance arrangementsunderwrittenAt least 1,150 1,776 1,156 AchievedDuring 2009/10, Ministers agreedto transfer an additional$3.15 million from the SharedEquity appropriation to WelcomeHome Loans but the standard wasnot changed. Internally, a revisedtarget of 1,700 loans wasestablished, and this was achieved.Debt management – thefund is managed effectivelywithin liability provisionAt least98 percent100 percent NewmeasureAchievedcontextual information – wellington city council loanOver the 10 years from 2008/09, the Government is providing a grant of $220 million to assist in the upgrade ofWellington City Council’s housing portfolio. This is to support the Council in managing its social housing over the next30 years. The funding is managed under a Deed of Grant entered into between the Crown, Housing New ZealandCorporation and the Council. The Corporation’s role is to monitor progress against the programme of work set out in theDeed of Grant and arrange payment to the Council.estimateddemand2009/10actualcommentsThe Corporation’s monitoringreports will address thecouncil’s performance inrelation to the majormilestones in theprogramme of work set,including:• one complex underconstructionTe Ara HouTwocomplexesunderconstructionThe Te Ara Hou flats began construction on20 July 2009, and practical completion for the maincontract works was achieved on 28 June 2010.The main contract works for Hanson Court beganconstruction on 20 April 2010. The constructionis being undertaken in three phases, with thepractical completion date for full constructionof works programmed for September 2012.66housing new zealand corporation | annual report 2009/10

estimateddemand2009/10actualcomments• design and consent phasesfor other complexes startedNinecomplexesAchievedThe design and construction phases for the othercomplexes are ongoing, with Te Ara Hou completed,Hanson Court under construction and theremaining complexes either in the preliminary,detailed or developed design phase. Two complexesare due to begin construction within the first6 months of the 2010/11 financial year.Review of initial workprogramme prepared underthe Deed of GrantReported insecond quarterreportProvided tothe Minister on15 March 2010The annual review of the work programme wasprovided to the Minister on 15 March 2010confirming that the project is being delivered inaccordance with the Deed of Grant with all agreedmilestones being met.Financial limits – payment ofinstalments consistent withthe terms of the deed ofgrant (WCC)Wellington City Council –financial limits – newCorporation grants providedwithin appropriation limitsRevenue and output expensesRevenueAll All Achieved$13.5 million $13.5 milliontarget($m)actual($m)variance($m)Crown 33.957 33.304 (0.653)Other 4.268 1.574 (2.694)Total revenue 38.225 34.878 (3.347)Expenses 44.678 42.458 2.220Net surplus/(deficit) (6.453) (7.580) (1.127)commentsCrown and other revenue has reduced dueto a change in the accounting treatmentfor Mortgage Insurance Schemepremiums. 9This reduction in revenue has been offsetby the transfer of $8.7 million in capitalappropriated for the Housing InnovationFund to an operating appropriation for theprovision of grants, which is included inCrown revenue.Total expenses reflects the treatment ofpremiums in advance for the MortgageInsurance Scheme and the additionalcosts from the Housing Innovation Fund.4 | Statement of Service Performance9 Previously, these premiums were recognised in full, and to the extent they represented revenue in advance, they were then transferred tothe balance sheet. In accordance with International Financial Reporting Standards, the revenue in advance is now taken directly to thebalance sheet.housing new zealand corporation | annual report 2009/10 67

statement of service performance continuedOutput Class 5: Property Management Agency ServicesdescriptionThe scope of this output class is limited to property management and development services on behalf of the Crownin relation to land and buildings that have been transferred to direct Crown control, accounted for within the Crown’sHousing Agency Account. The services are provided under the specific authority and requirements set out in the HousingAct 1955 and the Housing Agency Accountability Agreement between the Corporation and the Minister of Housing.performance informationkey performance indicatorsperformancestandard2009/10actual2008/09actualcomments5.1 Adding to the housing portfolio (Crown)Location and configuration ofnew land – new landacquired is suitable forhousing purposes, consistentwith asset categories 2 and 3of the Housing AgencyAccount AccountabilityAgreementAllNo activity in2009/10NewmeasureNo activity in 2009/105.2 Management of existing properties (Crown)Investment in plannedmaintenance – consistentwith planned maintenanceprogrammeAll All NewmeasureAchievedHousing quality – housesmaintained consistent withthe Corporation’sspecifications andmaintenance standardsAt least88 percent ofportfolios willhave nine orfewer defects93 percent NewmeasureAchievedRent management –benchmark rents consistentwith market rentsUpdatedquarterlyUpdatedNewmeasureAchieved5.3 Upgrade of existing properties (Crown)Investment in upgrades –upgrades of existing CrownhousesNilNo activity in2009/10NewmeasureNo activity in 2009/105.4 Divestment of properties (Crown)Disposals –• Revenue to the Crown fromthe sale of Crown land• Established legal issuesarising from completeddivestments (from thecurrent or previous years)NilNilNo activity in2009/10No activity in2009/10NewmeasureNewmeasureNo activity in 2009/10No activity in 2009/1068housing new zealand corporation | annual report 2009/10

performance informationkey performance indicatorsperformancestandard2009/10actual2008/09actualcomments5.5 Housing development projects (Crown)Major milestones completed– development projectsmanaged in accordance withthe work programme in theHousing Agency AccountAccountability Agreement:• Development plan for theWeymouth site in AucklandformulatedMilestonesachievedOn holdNewmeasureBy 30 June 2010 On hold NewmeasureNot achievedOn hold pending Ministerialdecisions on Housing AgencyAccount funding.Not achievedA high-level preliminarydevelopment plan has beenpartially completed. All furtherwork is on hold pending Ministerialdecisions on funding for this project.5.6 Housing development project – Hobsonville (Crown)Major milestones –Hobsonville developmentproject managed inaccordance with the workprogramme in the HousingAgency AccountAccountability Agreement:• Civil works andinfrastructure in place –Stages 1A–1B• New Zealand Defence Forceland – acquisition of thefirst tranche completed• Sale and purchaseagreements (Stages 1A–1B)finalisedMilestonesachieved30–40dwelling sitesBy 30 June 201030–40dwelling sitesMilestonesachieved80 dwellingsitesFirst tranche10.2 hectarescompleted30 June 201080 dwellingsitesNewmeasureNewmeasureNewmeasureNewmeasureAchievedAchievedAchievedAchieved4 | Statement of Service PerformanceRevenue and output expensestarget($m)actual($m)variance($m)commentsRevenueCrown 0 0 0Other 1.212 1.413 0.201The increase in revenue Crown andassociated expenses relates to a carryforwardof funds from 2008/09 approvedby Ministers.Total revenue 1.212 1.413 0.201Expenses 1.212 1.325 (0.113)Net surplus/(deficit) 0 0.088 0.088housing new zealand corporation | annual report 2009/10 69

Intermediate Outputs:Housing Portfolio (Corporation)Providing houses of an adequate standard is an intermediate output relating to the final Output Class 2:State House Tenancies. The following further describes the activities taken under each intermediatesub‐output followed by a table of measures for each sub-output.adding to the housing portfolio (corporation)Adding new houses to the existing property portfolio involves purchasing existing houses (including from new housingdevelopments), building new houses, leasing privately owned houses and purchasing land for building houses in theshort to medium term.performance informationkey performanceindicatorsperformancestandard2009/10 actual2008/09actualcommentsAdding to the housing portfolio (Corporation)Net additions to the statehousing portfolio (excludingleased units) – new housesavailable for tenants:• By 30 June 2010including:––State housingacquisitions(Crown funded)––Community GroupHousing acquisitions(Crown funded)118–148 units 271 units Newmeasure30 units($9.0 million)9–13 units($5.8 million)30 units($10.188 million) 10 Newmeasure11 units 11($5.8 million)NewmeasureAchievedA risk mitigation strategywas implemented to covera shortfall in lease programmedeliveries, which entailedacquiring an additional136 properties through abuy-in programme.AchievedAchievedNet additions to the statehousing portfolio (leasedunits only)• By 30 June 2010127–157 units 45 units NewmeasureNot achievedThe Corporation exited 32leases at Pepperwood Mews inJune 2010 and rescheduled thedelivery of 51 unit leases at HillStreet to 2010/11 as theCorporation is not yet satisfiedthat the development meetsrequirements.7010 Includes $1.188 million in funding for the fiscal stimulus programme carried forward from the 2008/09 financial year.11 Four additional Community Group Housing acquisitions were funded by the Corporation and are included in the 271 net additions above.housing new zealand corporation | annual report 2009/10

performance informationkey performanceindicatorsperformancestandard2009/10 actual2008/09actualcommentsAuckland Pensioner Housing 66 units 12 82 units Newmeasure$8.0 million $13.417 million 13 NewmeasureAchievedIn addition to the successfulcompletion of Ladies Mile inMay 2010, 16 units (Ngaiocomplex) originally scheduledfor delivery in the 2008/09financial year were deliveredin September 2009.AchievedThe final project in theAuckland Pensioner Housingprogramme was completedin May 2010.Location and configurationof new houses – new landholdings will be in areasidentified in the AssetManagement Strategy ashigh-demand localitiesAt least95 percent91 percent NewmeasureNot achievedDuring the year, a total of 40properties were purchased orleased in areas identified ashaving low demand. However,the purchases are consistentwith the Corporation’slong-term Asset ManagementStrategy to reconfigure theportfolio and do not reflect thefact the Corporation reducedsurplus housing in lowdemandlocalities such asManawatu, Taranaki, Wairarapaand Southern where thesepurchases were made.4 | Statement of Service PerformanceHousing quality – newhouses will meet theCorporation’s specifications,design guides and genericdesign briefs beforebecoming available fortenantsAt least95 percent100 percent NewmeasureAchieved12 The 2009/10 Statement of Intent included this measure in ‘Upgrading existing houses (Corporation)’ when it should have been included in‘Adding to the housing portfolio (Corporation)’. Locating this measure in ‘Adding to the housing portfolio (Corporation)’ more correctlyreflects that 66 Ladies Mile units are additions to the portfolio and not upgrades of properties currently standing. These 66 units formpart of the net additions to the portfolio for 2009/10.13 Includes $3.622 million carried forward from the 2008/09 financial year in addition to the opening appropriations of $8.0 million.The Corporation funded the balance of $1,795 million internally.housing new zealand corporation | annual report 2009/10 71

intermediate outputs: housing portfolio (corporation) continuedmanaging existing houses (corporation)Managing the existing portfolio of houses owned by the Corporation to maintain its current amenity value includesmeeting routine/ongoing holding costs, meeting legislative requirements, undertaking planned maintenanceprogrammes and setting (and reviewing) market rents. Management of the existing portfolio includes the ongoingmanagement of leased houses and meeting the Corporation’s obligations under lease agreements.Managing existing houses is undertaken up to the point where a decision is made to divest or change the status orconfiguration of specific assets, at which time management of the asset transfers to ‘Upgrading existing houses(Corporation)’, ‘Divesting properties (Corporation)’ or ‘Housing redevelopment projects (Corporation).’performance informationkey performance indicatorsperformancestandard2009/10actual2008/09actualcommentsManaging existing houses (Corporation)Investment in plannedmaintenance – plannedmaintenance programme$135–$145million$135.769millionNewmeasureAchieved19,200–20,800units28,190 units NewmeasureAchievedThe average cost of plannedmaintenance per property was lessthan originally anticipated. As aconsequence, the Corporation wasable to deliver plannedmaintenance over a larger numberof properties.Housing quality – housesmaintained consistent withthe Corporation’sspecifications andmaintenance standardsAt least88 percent ofportfolio willhave nine orfewer defects88 percent NewmeasureAchievedRent management –benchmark rents consistentwith market rentsUpdatedquarterlyUpdatedNewmeasureAchieved72housing new zealand corporation | annual report 2009/10

upgrading existing houses (corporation)The upgrade of individual housing assets to improve the amenity value of Corporation houses to a level that is suitablefor social housing, for both current and future tenants, includes altering existing Corporation houses by, for example,changing the number of bedrooms to better meet need, and upgrading internal service areas such as living areas,kitchens, bathrooms, toilets and laundries to provide improved amenity.Upgrades are undertaken up to the point where the housing assets become available for allocation or existing tenanciesare restored to uninterrupted occupation, at which time management of the asset transfers to ‘Managing existinghouses (Corporation)’.performance informationkey performance indicatorsperformancestandard2009/10actual2008/09actualcommentsUpgrading existing houses (Corporation)Energy efficiency retrofits• General6,000–6,250 7,242 Newmeasure• Retrofits to properties(funded by appropriation)Energy efficiency heaterinstallations1,100–1,250 1,175 Newmeasure800–950 1,341 NewmeasureAchievedThe original programme wasto deliver 6,125 propertiesfunded by the Corporation and1,175 properties funded byappropriation. The average retrofitper property cost was less thanthe original budget. As a result,the Corporation undertook anadditional 1,117 retrofits.AchievedAchievedDue to savings achieved, theCorporation delivered additionalheater installations.4 | Statement of Service PerformanceEnergy efficiency retrofitsand heater installations• General$21.5–25.5million• Retrofits to properties andheater installations (fundedby appropriation)$23.369millionNewmeasure$6.5 million $6.5 million NewmeasureAchievedAchievedhousing new zealand corporation | annual report 2009/10 73

intermediate outputs: housing portfolio (corporation) continuedperformance informationkey performance indicatorsperformancestandard2009/10actual2008/09actualcommentsUpgrades:• Healthy Housing –households assisted• Jobs and Growth fiscalstimulus package –Healthy Housing• Jobs and Growth fiscalstimulus package –operating• Jobs and Growth fiscalstimulus package – capitalUpgrades:• Healthy Housing––Appropriation andMinistry of Healthfunding––Jobs and Growth fiscalstimulus package• Upgrades:––Jobs and Growth fiscalstimulus package –operating––Jobs and Growth fiscalstimulus package –capital1,250–1,350 1,388 Newmeasure650–750 702 Newmeasure1,800–2,000 1,918 Newmeasure6,000–6,500 6,836 Newmeasure$15 million $14.863millionNewmeasure$6.5 million $6.5 million Newmeasure$20 million $21.883million$65 million $59.115millionNewmeasureNewmeasureAchievedAchievedAchievedAchievedThe average intervention cost waslower than expected, resulting inforecast savings of $10 million.Responsible Ministers agreed inApril 2010 that, of these savings,$6 million could be retained, andthese were used in completing604 additional upgrades.AchievedAchievedAchievedThe Corporation contributed$1.883 million from its internalresources in addition to the$20 million appropriation.Refer to the explanation in thevolume section above.74housing new zealand corporation | annual report 2009/10

performance informationkey performance indicatorsperformancestandard2009/10actual2008/09actualcommentsUpgrades under way –milestones specified forupgrade projects metAt least90 percent100 percent NewmeasureAchievedHousing quality – upgradework consistent withCorporation specifications,design guides and genericdesign briefsAt least95 percent100 percent NewmeasureAchieveddivesting properties (corporation)Divesting properties involves preparing existing properties for divestment, including through sale and demolition.This includes taking all actions necessary to meet the statutory obligations that the Corporation has with respect to thedisposal of surplus properties. Divestment begins at the point that a property is available for divestment and includesfulfilling all holding and maintenance obligations and meeting all related costs until the sale or demolition is concluded.performance informationkey performance indicatorsDivesting properties (Corporation)performancestandard2009/10actualDivestments consistent withAsset Management Strategywork programme:• Revenue-generating sales $28–32 million $33.485million• Non-revenue-generatingdisposals (demolitions)2008/09actualNewmeasure159–179 units 171 units Newmeasure85–95 units 88 units NewmeasurecommentsAchievedAchievedAchieved4 | Statement of Service Performancehousing new zealand corporation | annual report 2009/10 75

intermediate outputs: housing portfolio (corporation) continuedhousing redevelopment projects (corporation)Housing redevelopment projects involve delivering new or upgraded houses, developing infrastructure and managingthe impact on the community. Housing redevelopment projects are medium- to long-term projects that have a focusbeyond housing and involve other central government agencies, territorial authorities, private sector entities, nongovernmentorganisations and local communities in undertaking comprehensive redevelopment of geographicallydefined areas.Housing redevelopment projects involve adding new properties through combinations of:• purchasing houses to be included in a redevelopment project• upgrading existing houses• divesting unsuitable or otherwise surplus houses• demolishing existing houses in preparation for redevelopment• developing the infrastructure to support new sites.Redevelopment projects also require active engagement with members of local communities to clarify needs, gain andretain support for the projects and build the capacity to sustain strong communities.performance informationkey performance indicatorsperformancestandard2009/10actual2008/09actualcommentsHousing redevelopment projects (Corporation)Redevelopment projectsunder way –• Projects – general110–140 units 120 units Newmeasure• Community Renewalprogramme – upgrades andredevelopments410–450housesMilestones completed orproperties available –• McLennanResourceconsentapplicationslodged• Tamaki––Strategic acquisitionscompleted435 houses NewmeasureResourceconsentapplicationslodged16 June 2009Newmeasure5 9 Newmeasure––Properties refurbished 40 40 NewmeasureAchievedAchievedAchievedAchievedWhen the opportunity arose, theCorporation acquired additionalstrategically located properties toconsolidate existing parcels andfacilitate the ongoing developmentof the Tamaki TransformationProgramme.AchievedHousing quality – newproperties meet Corporationspecifications, design guidesand generic design briefsAt least95 percent100 percent NewmeasureAchieved76housing new zealand corporation | annual report 2009/10

AppropriationsThe following section sets out the Corporation’s appropriations from the Crown and explains how thoseappropriations align with its five strategic priorities and intermediate outcomes.Table 5 details the Corporation’s operating appropriations from the Crown and shows actual draw-downsagainst appropriations.Table 6 details the Corporation’s capital appropriations from the Crown and shows actual draw-downsagainst appropriations.Table 5: Operating appropriations 2009/10corporation’s output classesoutput expensessoitarget/actualtotal($000)advisoryservicesstatehousetenanciespolicyadvicefinancialassistance– housingpropertymanagementagency servicesnon-departmental output expensesContracted housing support servicesWelcome Home FirstSteps home ownershipeducationRural HousingTarget 2,400 2,400Actual 1,994 1,994Target 7,000 160 6,840Actual 6,719 267 6,452Housing Foundation 15 Actual 350 14 350Target 0 0Total contracted housing– support servicesHNZC housing support servicesHousing Innovation Fund– administrationHousing Innovation Fund– Māori DemonstrationPartnershipsWelcome Home LoanNon-weathertighthomes financialassistanceHealthy HousingTarget 9,400 2,560 0 0 6,840 0Actual 9,063 2,261 0 0 6,802 0Target 1,100 1,100Actual 1,100 1,100Target 500 500Actual 500 500Target 8,423 8,423Actual 7,961 14 7,961Target 70 70Actual 1 1Target 1,418 1,418Actual 1,418 1,418KiwiSaver housingTarget 782 782establishment 16 Actual 86 15 86deposit subsidy –Total HNZC housingsupport servicesTarget 12,293 0 1,418 0 10,875 0Actual 11,066 0 1,418 0 9,648 04 | Statement of Service PerformanceHNZC state house upgradesBringing forwardinfrastructure spending– upgradesTotal HNZC state houseupgradesTarget 20,000 20,000Actual 20,000 20,000Target 20,000 0 20,000 0 0 0Actual 20,000 0 20,000 0 0 014 While the Crown paid the Corporation 7.961 million in premiums and administration costs, only $0.940 million was recognised as revenue.The balance was treated as premiums in advance and taken directly to the unearned premium provision in the balance sheet.15 This funding was made available during the year (reprioritised from the funding provided for the Shared Equity pilot and no longerrequired for that purpose).16 The original appropriation for the implementation of the KiwiSaver housing deposit subsidy was reforecast during the year and savings of$0.450 million returned to the Crown. The underexpenditure reported at year end was due to additional savings generated through lowerthan anticipated costs and operational efficiencies.housing new zealand corporation | annual report 2009/10 77

appropriations continuedcorporation’s output classesoutput expensessoitarget/actualtotal($000)advisoryservicesstatehousetenanciespolicyadvicefinancialassistance– housingpropertymanagementagency servicesHousing policy advicePolicy advice andresearch and evaluationMinisterial supportKiwiSaver jointevaluation strategyTotal housing policyadviceTotal non-departmentaloutput expensesTarget 2,254 2,254Actual 2,254 2,254Target 300 300Actual 300 300Target 86 86Actual 21 21Target 2,640 0 0 2,640 0 0Actual 2,575 0 0 2,575 0 0Target 44,333 2,560 21,418 2,640 17,715 0Actual 42,704 2,261 21,418 2,575 16,450 0Non-departmental benefits and other unrequited expensesHousing assistanceCommunity-Owned RuralRental Housing Loansinterest subsidySold Loans interestsubsidyHousing Innovation Fundinterest subsidySpecial Housing ActionZone interest subsidyTotal housing assistanceIncome-Related Rent SubsidyIncome-Related RentSubsidyTotal Income-RelatedRent SubsidyTotal non-departmentalbenefits and otherunrequited expensesTarget 900 900Actual 301 301Target 200 200Actual 6 6Target 1,292 1,292Actual 33 17 33Target 350 350Actual 261 261Target 2,742 0 0 0 2,742 0Actual 601 0 0 0 601 0Target 540,291 540,291Actual 529,632 18 529,632Target 540,291 0 540,291 0 0 0Actual 529,632 0 529,632 0 0 0Target 543,033 0 540,291 0 2,742 0Actual 530,233 0 529,632 0 601 0Non-departmental other expensesCommunity Housing Rent Relief programmeCommunity HousingRent Relief programmeTotal CommunityHousing Rent ReliefprogrammeTarget 4,500 4,500Actual 3,764 3,764Target 4,500 0 4,500 0 0 0Actual 3,764 0 3,764 0 0 0Housing Innovation Fund grantsHousing Innovation FundTarget 0 0Actual 6,000 19 6,00017 The remaining interest subsidy appropriated in relation to the Housing Innovation Fund loan portfolio was returned to the Crown assavings in the 2009 October baseline update.18 The underexpenditure reflects lower growth in market rents than was forecast in determining the appropriation for the Estimates ofAppropriation. The appropriation was subsequently reduced as part of the reforecasting for the baseline updates during the year.19 In Budget 2010, it was expected that the Housing Innovation Fund would be delivered by the Crown rather than the Corporation andtargets for this programme were therefore not required in the 2009/10 Statement of Intent. Subsequently, it was agreed that thisprogramme would continue to be delivered by the Corporation and funding was provided accordingly.78housing new zealand corporation | annual report 2009/10

corporation’s output classesoutput expensessoitarget/actualtotal($000)advisoryservicesstatehousetenanciespolicyadvicefinancialassistance– housingpropertymanagementagency servicesHousing Innovation Fund Target 0 0– Māori developmentpartnershipActual 2,700 19 2,700Total Housing Innovation Target 0 0 0 0 0 0Fund grantsActual 8,700 0 0 0 8,700 0Wellington City Council social housing assistanceWellington City Councilsocial housing assistanceTotal Wellington CityCouncil social housingassistanceTotal non-departmentalother expensesTotal operatingappropriationsTarget 13,500 13,500Actual 13,500 13,500Target 13,500 0 0 0 13,500 0Actual 13,500 0 0 0 13,500 0Target 18,000 0 4,500 0 13,500 0Actual 25,964 0 3,764 0 22,200 0Target 605,366 2,560 566,209 2,640 33,957 0Actual 598,901 2,261 554,814 2,575 39,251 0Table 6: Capital appropriations 2009/10output expensessoitarget/actualtotal($000)Non-departmental capital expenditureadvisoryservicescorporation’s output classesstatehousetenanciesAcquisition and improvement of Housing New Zealand Corporation state housesState housingacquisitionsState housingacquisitions – fiscalstimulusBringing forwardinfrastructure spending– upgradesAuckland pensionerhousing reconfigurationand developmentHealthy HousingBringing forwardinfrastructure spending– Healthy HousingEnergy efficient retrofitsCommunity Housingstandard acquisitionsTotal acquisition andimprovement of HousingNew ZealandCorporation state housesTarget 9,000 9,000Actual 9,000 9,000Target 0 0Actual 1,188 20 1,188Target 65,000 65,000Actual 59,115 21 59,115Target 8,000 8,000Actual 11,622 22 11,622Target 15,000 15,000Actual 14,863 14,863Target 6,500 6,500policyadvicefinancialassistance– housingpropertymanagementagency servicesActual 6,500 6,500Target 6,500 6,500Actual 6,500 6,500Target 5,800 5,800Actual 5,800 5,800Target 115,800 0 115,800 0 0 0Actual 114,588 0 114,588 0 0 04 | Statement of Service Performance20 The actual expenditure reflects funding carried forward from 2008/09 in the 2009 October baseline update.21 The average intervention cost was lower than expected, resulting in forecast savings of $10 million. Responsible Ministers agreed inApril 2010 that, of these savings, $6 million could be retained, and these were used in completing 604 additional upgrades.22 The actual expenditure reflects funding carried forward from 2008/09 in the 2009 October baseline update.housing new zealand corporation | annual report 2009/10 79

appropriations continuedcorporation’s output classesoutput expensessoitarget/actualtotal($000)advisoryservicesstatehousetenanciespolicyadvicefinancialassistance– housingpropertymanagementagency servicesCapital injections to Housing New Zealand Corporation for housing activitiesCapital injections toTarget 620 620Housing New ZealandCorporation for housingactivitiesActual 508 508Total capital injections to Target 620 0 0 0 620 0Housing New ZealandCorporation for housingactivitiesActual 508 0 0 0 508 0Loans to support home ownershipTarget 6,000 6,000Shared Equity scheme Actual 439 23 439Total loans to supporthome ownershipTarget 6,000 0 0 0 6,000 0Actual 439 0 0 0 439 0Loans to support social and affordable housingTarget 0 0Housing Innovation Fund Actual 8,340 19 8,340Housing Innovation Fund Target 0 0– Māori DemonstrationPartnershipsActual 2,850 19 2,850Total loans to support Target 0 0 0 0 0 0social and affordablehousingActual 11,190 0 0 0 11,190 0Refinancing of Housing New Zealand Corporation and Housing New Zealand Limited debtRefinancing of Housing Target 234,642 234,642New Zealand Corporationand HousingNew Zealand Limited debt Actual 234,642 234,642Total refinancing ofTarget 234,642 0 234,642 0 0 0Housing New ZealandCorporation and HousingNew Zealand Limited debt Actual 234,642 0 234,642 0 0 0Total capitalTarget 357,062 0 350,442 0 6,620 0appropriationsActual 361,367 0 349,230 0 12,137 019 In Budget 2010, it was expected that the Housing Innovation Fund would be delivered by the Crown rather than the Corporation andtargets for this programme were therefore not required in the 2009/10 Statement of Intent. Subsequently, it was agreed that thisprogramme would continue to be delivered by the Corporation and funding was provided accordingly.23 The actual expenditure reflects the lower than forecast demand in the final year of the two year pilot. During the year savingsof $5.3 million were reprioritised to increase funding for other programmes or returned as savings to the Crown.80housing new zealand corporation | annual report 2009/10

Part fiveFinancial StatementspageHousing New Zealand Corporation Financial Statements 81Financial Highlights for 2009/10 82Balance Sheet 84Income Statement 85Statement of Changes in Equity 86Cash Flow Statement 87Notes to the Financial Statements 88Housing Agency Account Financial Statements 133Statement of Responsibility 133Balance Sheet 134Income Statement 135Statement of Changes in Equity 136Cash Flow Statement 137Notes to the Financial Statements 138Audit Report – Housing Agency Account 146housing new zealand corporation | annual report 2009/10 81

housing new zealand corporationFinancial Highlights for 2009/10In 2009/10, the Corporation had an operating deficit after tax of $675 million. This included a one-off increasein tax expense of $800 million due to the change in deductibility of depreciation on rental properties.Revaluation of the property portfolio resulted in an increased total value of $15.1 billion.Where our revenue comes fromRental income is the primary source of incomefor the Corporation. Other key sources of revenueare Crown appropriations and interest income.In 2009/10, the Corporation received $988 millionin total income consisting of:• $917 million in rental income• $57 million in Crown appropriationsInterest, realised gainsand other income 1%Rental income fromtenants 39%• $14 million in interest, realised gains andother income.Repairs andmaintenance 20%Rates 12%Depreciation andamortisation 17%Interest costs 11%Rental income fromIncome-Related RentSubsidy 54%Crown appropriations 6%Personnel 9%Third-party rental leases6%Asset impairmentexpense 2%Other expenses 8%Grants 4%The Crown(tax/dividend) 11%Where our revenue goes$m350300250200150100500Repairs andmaintenance 20%Depreciation andamortisation 17%2006/07Rates 12%2007/08 2008/09Interest costs 11%2009/10Personnel 9%Other expenses 8%Costs are incurred by the Corporation to maintain,manage, develop and provide housing servicesand facilities in accordance with the Statement75of Intent.60In 2009/10, the Corporation spent $884 millionin operating expenditure as follows:45• $212 million on repairs and maintenance• $172 million of depreciation30• $114 million on rates15• $113 million on interest expense0• $85 million on personnel costs• $62 million on third-party rental leases$m2004/05 2005/06 2006/07 2007/08 2008/09 2009/10Third-party rental leases6%Asset impairmentexpense 2%Grants 4%The Crown(tax/dividend) 11%• $36 million on grants• $90 million on other direct and indirectexpenses.There was a net operating surplus of $104 millionavailable for tax and/or dividend to the Crown.756082$m45housing new zealand corporation | annual report 2009/1030150

ed gainsme 1%fromRepairs andmaintenance 20%Rates 12%Depreciation andamortisation 17%Interest costs 11%fromd Rentriations 6%Personnel 9%Third-party rental leases6%Other expenses 8%Grants 4%Asset impairmentThe CrownHNZC financial performance trendexpense 2%(tax/dividend) 11%The net surplus after tax for the current financial year was $66 million which has grown significantly overthe last five years (the $66 million excludes the tax adjustment related to the change in treatment ofdepreciation on rental properties and change in tax rate).756008/09 2009/10$m4530150Interest, realised gainsand other income 1%Rental income fromtenants 39%Rental income fromIncome-Related Rent2004/05 2005/06Subsidy 54%2006/07 2007/08 2008/09 2009/10Crown appropriations 6%Purchase of rental properties and capital improvementsThe Corporation spent an amount of $265 million (net of receipts for disposals) on asset purchase andimprovements in 2009/10. Managed properties (including leased properties) increased by 316 units.Repairs andmaintenance 20%Rates 12%Personnel 9%Third-party rental leases6%Asset impairmentexpense 2%350300250756020045$m150$m301005002006/07 2007/08 2008/09 2009/101505 | Financial Statements2004/05 2005/06 2housing new zealand corporation | annual report 2009/10 83

housing new zealand corporationBalance SheetAS AT 30 JUNE 2010NOTESGROUPACTUAL2010$mGROUPACTUAL2009$mBUDGETUNAUDITED2010$mPARENTACTUAL2010$mPARENTACTUAL2009$mAssetsCurrent assetsCash and cash equivalents 19 87 133 146 80 125Mortgage advances 5(a) 9 2 3 9 2Receivables and prepayments 6 12 22 43 13 43Available-for-sale investments 7 49 27 27 49 27Properties intended for sale 8 14 6 5 1 -Total current assets 171 190 224 152 197Non-current assetsProperty, plant and equipment 9 15,167 14,593 14,054 459 448Properties under development 10 12 32 11 - -Mortgage advances 5(a) 55 64 57 55 64Investments in subsidiary companies 7 - - - 3,523 3,447Available-for-sale financial assets 11 1 1 - 1 1Interest rate derivatives 20(a) 3 10 - 1 2Intangible assets 12 34 21 25 19 8Total non-current assets 15,272 14,721 14,147 4,058 3,970Total assets 15,443 14,911 14,371 4,210 4,167LiabilitiesCurrent liabilitiesRent in advance 17 14 8 2 1Accounts payables and other liabilities 13 102 119 116 19 21Income tax 16(b) 13 7 13 (42) (37)Loans 21(a) 161 235 235 111 39Provisions 14 11 1 3 10 1Employee entitlements 15 6 6 7 6 6Interest rate derivatives 20(b) 29 39 4 2 1Total current liabilities 339 421 386 108 32Non-current liabilitiesLoans 21(b) 1,670 1,574 1,612 203 269Deferred tax liability 16(c) 1,792 1,073 1,031 58 (3)Interest rate derivatives 20(c) 80 48 121 3 2Mortgage Insurance Scheme unearnedpremium reserve 17 27 16 16 27 16Provisions 14 6 8 7 6 8Employee entitlements 15 1 1 - 1 1Total non-current liabilities 3,576 2,720 2,787 298 293Total liabilities 3,915 3,141 3,173 406 325Net assets 11,528 11,770 11,198 3,804 3,842EquityEquity attributable to the parent 3,761 3,656 3,713 3,761 3,656Retained earnings (771) 5 12 (78) 70Revaluation reserve 8,614 8,162 7,560 124 117Hedging reserve (76) (53) (87) (3) (1)Total equity 11,528 11,770 11,198 3,804 3,842For and on behalf of the Board, who authorised the issue of the financial statements on 30 September 2010.Patrick N SneddenAdrienne Young-Cooperchairdeputy chair30 September 2010 30 September 2010The above statement should be read in conjunction with the accompanying notes.84housing new zealand corporation | annual report 2009/10

housing new zealand corporationIncome StatementFOR THE YEAR ENDED 30 JUNE 2010NOTESGROUPACTUAL2010$mGROUPACTUAL2009$mBUDGETUNAUDITED2010$mPARENTACTUAL2010$mPARENTACTUAL2009$mRevenueRental income from tenants 384 376 381 16 16Rental income from Income-Related Rent Subsidy 529 507 512 - -Rent Relief Fund income 4 4 4 4 4Interest income 23(a) 8 12 6 8 12Crown appropriation income 23(b) 57 45 57 57 45Other income 23(c) 5 6 5 175 162Realised gains/(losses) on asset sales 23(d) 1 2 - 2 (1)Total operating revenue 988 952 965 262 238ExpensesRepairs and maintenance 212 217 215 8 9Rates 114 109 115 3 3Third-party rental leases 62 59 63 9 8Depreciation and amortisation 24(a) 172 178 172 6 6Personnel 24(b) 85 86 90 84 85Interest costs 23(a) 113 124 120 11 20Asset impairment expense 24(f) 8 8 - 3 8Grants 24(d) 36 50 24 36 50Other expenses 24(c) 82 77 90 61 52Total operating expenses 884 908 889 221 241Operating surplus/(deficit) before tax 104 44 76 41 (3)Removal of tax depreciation on buildings 800 - - 55 -Effect of company tax rate change (59) - - (4) -Other income tax expense/(benefit) 38 12 30 8 (8)Income tax expense/(benefit) 16(a) 779 12 30 59 (8)Net surplus/(deficit) after tax (675) 32 46 (18) 5Other Comprehensive incomeRevaluation reserve gains/(losses) 483 (644) (240) 11 (30)Hedging reserve gains/(losses) (28) (109) 27 (2) (4)Income tax on items of other comprehensiveincome 5 128 (7) (2) 6Other comprehensive income net of tax 460 (625) (220) 7 (28)Total comprehensive income net of tax (215) (593) (174) (11) (23)The above statement should be read in conjunction with the accompanying notes.5 | Financial Statementshousing new zealand corporation | annual report 2009/10 85

housing new zealand corporationStatement of Changes in EquityAS AT 30 JUNE 2010GROUPACTUAL2010$mGROUPACTUAL2009$mBUDGETUNAUDITED2010$mPARENTACTUAL2010$mPARENTACTUAL2009$mTotal equity at 1 July 11,770 12,296 11,349 3,842 3,798Revaluation of property, plant and equipmentRevaluation reserve gains/(losses) 483 (644) (240) 11 (30)Deferred tax property, plant and equipment revaluations (73) 96 1 (2) 5Impact of tax rate change from 30% to 28% 72 - - - -Financial assets at fair value through othercomprehensive incomeHedging reserve gains/(losses) (28) (109) 27 (2) (4)Deferred tax on financial assets 8 32 (8) - 1Impact of tax rate change from 30% to 28% (2) - - - -Net surplus/(deficit) for the year (675) 32 46 (18) 5Total comprehensive income for the period (215) (593) (174) (11) (23)Contributions from and distributions to the CrownEquityCapital contributions from the Crown 105 69 43 105 69Payment of dividends to the Crown (132) (2) (20) (132) (2)Total contributions from and distributions to the Crown (27) 67 23 (27) 67Total changes in equity (242) (526) (151) (38) 44Total equity at 30 June 11,528 11,770 11,198 3,804 3,842Equity attributable to the CrownOpening balance 3,656 3,587 3,670 3,656 3,587Contributions from the Crown 105 69 43 105 69Closing equity attributable to the Crown 3,761 3,656 3,713 3,761 3,656Retained earningsOpening retained earnings 5 (77) (14) 70 63Net surplus/(deficit) for the year (675) 32 46 (18) 5Transfers from hedging reserve 1 - - - -Net transfers from asset revaluation reserve on disposal 30 52 - 2 4Annual distribution (132) (2) (20) (132) (2)Closing retained earnings (771) 5 12 (78) 70Revaluation reserveOpening revaluation reserve 8,162 8,762 7,799 117 146Asset revaluations – property, plant and equipment 483 (644) (240) 11 (30)Deferred tax property, plant and equipment (73) 96 1 (2) 5Impact of tax rate change from 30% to 28% 72 - - - -Net transfers from asset revaluation reserve on disposal (30) (52) - (2) (4)Closing revaluation reserve 8,614 8,162 7,560 124 117Hedging reserveOpening hedging reserve (53) 24 (106) (1) 2Fair value gains/(losses) (28) (109) 27 (2) (4)Hedging reserve deferred tax 8 32 (8) - 1Impact of tax rate change from 30% to 28% (2) - - - -Transfers to retained earnings (1) - - - -Closing hedging reserve (76) (53) (87) (3) (1)Total equity at 30 June 11,528 11,770 11,198 3,804 3,842The above statement should be read in conjunction with the accompanying notes.86housing new zealand corporation | annual report 2009/10

housing new zealand corporationCash Flow StatementFOR THE YEAR ENDED 30 JUNE 2010NOTESGROUPACTUAL2010$mGROUPACTUAL2009$mBUDGETUNAUDITED2010$mPARENTACTUAL2010$mPARENTACTUAL2009$mCash flows from/used in operating activitiesRent receipts – tenants 384 375 379 16 16Rent receipts – Income-Related Rent Subsidy 527 507 512 - -Rent Relief Fund income 4 4 4 4 4Other receipts from Crown 59 46 53 59 44Mortgage Insurance Scheme (MIS) income 12 7 8 12 7Interest received from customers and investments 8 12 6 8 12Other receipts 3 2 7 141 132Payments to suppliers and employees (563) (574) (584) (182) (190)Income tax paid (49) (34) (56) (5) (34)Interest paid (113) (127) (120) (12) (22)Net cash flows from operating activities 26 272 218 209 41 (31)Cash flows from/used in Investing activitiesSale of rental properties and management assets 33 53 30 5 4Mortgage and other lending repayments 7 6 50 7 6Dividend received from subsidiaries - - - 31 28Purchase of rental property assets (302) (279) (301) (11) (14)Purchase of management assets (4) (7) - - 7Purchase of intangible assets (19) (6) - (11) (8)Mortgage and other lending (6) (14) - (6) (14)Short term investments (21) (4) (5) (21) (4)Investment in subsidiaries - - - (75) -Repayments to/(advances from)Housing Agency Account (1) 1 - (1) 1Repayments to/(advances from) subsidiaries - - - 18 7Net cash flows from investing activities (313) (250) (226) (64) 13Cash flows from/used in financing activitiesCapital contributions 105 69 43 105 69Crown borrowings 22 14 12 5 6Annual distribution 25 (132) (2) (20) (132) (2)Net cash flows from financing activities (5) 81 35 (22) 73Net cash flows (46) 49 18 (45) 55Opening cash and cash equivalents 133 84 128 125 70Closing cash and cash equivalents 19 87 133 146 80 125The above statement should be read in conjunction with the accompanying notes.5 | Financial Statementshousing new zealand corporation | annual report 2009/10 87

housing new zealand corporationNotes to the Financial StatementsFOR THE YEAR ENDED 30 JUNE 20101 Corporate informationHousing New Zealand Corporation is a Statutory Corporation (Crown-owned entity) operating under theHousing Corporation Act 1974 (as amended). The core business of Housing New Zealand Corporation (theCorporation) and its subsidiaries is to give effect to the Crown’s social objectives by providing housing, andhousing-related services, in a businesslike manner, and to ensure the Minister of Housing receives appropriatepolicy advice, general advice, and information on housing and housing-related services.The financial statements have been prepared in accordance with generally accepted accounting practice inNew Zealand (NZ GAAP) being New Zealand equivalents to International Financial Reporting Standards(NZ IFRS) and the requirements of the Financial Reporting Act 1993, the Crown Entities Act 2004, and theHousing Corporation Act 1974 (as amended).The financial statements for the year ended 30 June 2010 were authorised for issue in accordance with aresolution of the Members on 30 September 2010.The parent and its subsidiaries are public benefit entities (PBEs), defined as “reporting entities whose primaryobjective is to provide goods or services for community or social benefit and where any equity has beenprovided with a view to supporting that primary objective rather than for a financial return to equity holders”.The registered office of the Corporation is at Level 3, 28 Grey Street, Wellington.The Corporation has applied all public benefit entity exemptions available to it.2 Summary of significant accounting policies(a) Basis of preparationThe financial statements have been prepared on a historical cost basis, except for rental properties, freeholdland, derivative financial instruments, actuarially assessed provisions and available-for-sale financial assetsthat are measured at fair value.The financial statements are presented in New Zealand dollars, which is the functional currency of the Group,and all values are rounded to the nearest million dollars ($m).(b) Statement of ComplianceThe financial statements have been prepared in accordance with NZ GAAP. They comply with New Zealandequivalents to International Financial Reporting Standards, and other applicable Financial ReportingStandards, as appropriate for public benefit entities.(c)New accounting standards and interpretations(i) Changes in accounting policy and disclosuresThe accounting policies adopted are consistent with those of the previous financial year except forthe following.The Group has adopted the following new and amended New Zealand equivalents to InternationalFinancial Reporting Standards (NZ IFRS, NZ IAS and NZ IFRIC) for the financial statements for the yearended 30 June 2010.88housing new zealand corporation | annual report 2009/10

When the adoption of the new standard or interpretation is deemed to have an impact on thefinancial statements, its impact is described below:reference title summaryapplicationdateimpact on groupfinancial reportAmendmentsto NZ IFRS 4ProposedAmendments toNZ IFRS 4InsuranceContracts –The Scope ofInsuranceActivities andDifferentialReportingConcessionsSpecifies the scope ofinsurance activities andremoves differentialreporting exemptions.1 January2009The Group is involvedin some insuranceactivities, including theMortgage InsuranceScheme. The adoptionof this amendment hasresulted in additionaldisclosures in the notes.NZ IAS 1(revised)Presentationof FinancialStatements andconsequentialamendmentsto otherNew ZealandAccountingStandardsIntroduces a statement ofcomprehensive income.Other revisions includeimpacts on the presentationof items in the statementof changes in equity, newpresentation requirementsfor restatements orreclassifications of items inthe financial statements,changes in the presentationrequirements for dividendsand changes to the titles ofthe financial statements.1 January2009The revised standardseparates owner andnon-owner changes inequity. The statementof changes in equitydeals only withtransactions relatedto the owner. Allnon-owner equitytransactions areto be included inthe Statement ofComprehensive Income,either in one statementor in two separatestatements. The Grouphas elected to presentone statement.The Group has elected(as per NZ IAS 1) toretain the headings forthe income, balancesheet and cash flowstatements.NZ IAS 39Amendments toNZ IAS 39FinancialInstruments:Recognition andMeasurement–Eligible HedgedItemsThe amendments toNZ IAS 39 clarify how theprinciples underlying hedgeaccounting should beapplied when(i) a one-sided risk ina hedged item and(ii) inflation in a financialhedged item existed orwas likely to exist.1 July 2009 The adoption of thisamendment did nothave any impact on thefinancial position orperformance of thegroup.5 | Financial Statementshousing new zealand corporation | annual report 2009/10 89

housing new zealand corporation | notes to the financial statements continued2 Summary of significant accounting policies continuedreference title summaryapplicationdateimpact on groupfinancial reportAmendmentstoInternationalFinancialReportingStandardsAmendments toIFRS 7The amended IFRS 7requires fair valuemeasurements to bedisclosed by the source ofinputs, using the followingthree-level hierarchy:1 January2009The adoption of thisamendment hasresulted in additionaldisclosures in the notes.• Quoted prices in activemarkets for identicalassets or liabilities(Level 1).• Inputs other than quotedprices included in Level 1that are observable forthe asset or liability, eitherdirectly (as prices) orindirectly (derived fromprices) (Level 2).• Inputs for the asset orliability that are not basedon observable marketdata (unobservableinputs) (Level 3).(ii) Accounting standards and interpretations issued but not effectiveThe NZ IFRS Standards and Interpretations that have recently been issued or amended but are notyet effective and have not been adopted by the Group for the annual reporting period ending30 June 2010 are described below:reference title summaryapplicationdateimpact on groupfinancial reportNZ IFRS 9FinancialInstrumentsThis standard is part ofthe IASB’s project toreplace IAS 39 FinancialInstruments: Recognitionand Measurement.1 January2013The impact of thisstandard on theGroup has yet to bedetermined.NZ IAS 24Related PartyDisclosures(Revised 2009)The amendment simplifiesthe definition of a relatedparty and provides a partialexemption from thedisclosure requirements forpublic benefit entities.1 January2011The Group expectsthese amendmentswill result in additionaldisclosure.Improvementsto NZEquivalentsto IFRSAmendments toIFRS 7The amendmentexplicitly states that onlyexpenditure that results ina recognised asset can beclassified as a cash flowfrom investing activities.1 January2010The Group doesnot expect theseamendments tosignificantly impact onits financial statements.90housing new zealand corporation | annual report 2009/10

The following new accounting standards and interpretations do not apply to the Corporation:• NZ IFRS 2 Amendments to NZ IFRS 2 – Share-based Payment Transactions• NZ IFRS 3 (revised) Business Combinations• NZ IFRIC 14 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and theirInteractions• NZ IFRIC 16 Hedges of a Net Investment in a Foreign Operation• NZ IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments• NZ IAS 27 Consolidation and Separate Financial Statements• NZ IAS 34 Amendments to NZ Equivalent to IAS 34 Interim Financial Reporting – Scope• Improvements to New Zealand Accounting standards arising from the Annual Improvement Project–– NZ IAS 1–– NZ IAS 17–– NZ IAS 36–– NZ IAS 39.(d) Basis of GroupThe Group financial statements comprise the financial statements of Housing New Zealand Corporation andits subsidiaries (the Group) as at 30 June each year.Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to beconsolidated from the date on which control is transferred out of the Group. Subsidiaries have been initiallyincluded in the Group financial statements using the purchase method of accounting, which measures theacquiree’s assets and liabilities at their fair value at acquisition date.The financial statements of subsidiaries are prepared for the same reporting period as the Parent company,using consistent accounting policies.All inter-entity balances and transactions have been eliminated in full.(e) Foreign currency transactionsTransactions in foreign currencies are converted at the New Zealand rate of exchange ruling at thetransaction date.(f) Property, plant and equipmentMotor vehicles, office equipment, furniture and fittings, computer hardware and leasehold improvements arestated at cost less accumulated depreciation and any impairment in value. Depreciation is calculated on astraight-line basis over the estimated useful life of the equipment as follows:Motor vehicles5 yearsOffice equipment5 yearsFurniture and fittings 10 yearsComputer hardware 4 yearsLeasehold improvements the shorter of the period of lease or estimated useful life.5 | Financial StatementsAn item of property, plant or equipment is derecognised upon disposal or when future economic benefits arenot expected to arise from its use. Any gain or loss is included in the net surplus/(deficit) for the year in whichthe item is derecognised. Gain or loss on sale is calculated as the difference between the net disposalproceeds and the carrying amount of the item.housing new zealand corporation | annual report 2009/10 91

housing new zealand corporation | notes to the financial statements continued2 Summary of significant accounting policies continued(g) Rental property land and buildingsHousing for community groups held by Housing New Zealand Corporation, and state housing held byHousing New Zealand Limited is categorised on purchase or construction at cost. Such cost includes the costof repairs and maintenance that are eligible for capitalisation. All other repairs and maintenance cost arerecognised in the net surplus/(deficit) for the year.Each year, rental property, land and buildings are revalued, on a class basis, to fair value.Fair value is determined by reference to market-based evidence and is the amount for which the assets couldbe exchanged between a knowledgeable willing buyer and a knowledgeable willing seller in an arm’s lengthtransaction as at the valuation date.Independent valuations are performed annually to ensure that the carrying amount does not differ materiallyfrom the asset’s fair value at the balance date.Any revaluation surplus is recognised in the asset revaluation reserve in other comprehensive income exceptto the extent that it offsets a previous revaluation deficit for the same asset class that was recognised in thenet surplus/(deficit) for the year. Therefore, the surplus is recognised in the net surplus/(deficit) for the year.Any revaluation deficit is recognised in the net surplus/(deficit) for the year except to the extent that it offsetsa previous revaluation surplus for the same asset class that was recognised in the asset revaluation reserve.Therefore, the deficit is offset to the extent of the credit balance existing in the revaluation reserve for that asset.An item of property is derecognised upon disposal or when no future economic benefits are expected to arisefrom the continued use of this asset. Upon disposal, any revaluation reserve relating to the particular assetbeing sold is transferred to retained earnings. Any gain or loss arising on derecognition of an asset is includedin the net surplus/(deficit) for the year, in the period the item is derecognised. Gain or loss on derecognition iscalculated as the difference between the net disposal proceeds and the carrying amount of the item.Depreciation is calculated on a straight-line basis over the estimated useful life of the building as follows:Rental properties40 years(h) Work in progressConstruction work in progress is recognised at cost. On completion, the property will be held by the sameentity, whereupon it will be accounted for as rental property.(i) Property intended for saleProperty previously held but now being sold as it is no longer required is classified as a property held for sale.This classification is used where the carrying amount of the property will be recovered through sale, theproperty is available for immediate sale in its present condition and sale is highly probable.Property held for sale is recorded at the lower of the carrying amount and fair value less costs to sell. From thetime a property is classified as held for sale, depreciation is no longer charged on the improvements.Where property is held for sale or for development for sale, in the ordinary course of business, it is classifiedas inventory. Such property is recorded at the lower of cost and net realisable value (selling price less coststo complete and sale costs). Any write-downs to net realisable value are expensed in the net surplus/(deficit)for the year.HNZC Property Developments Limited’s (PDL) business is to subdivide large pieces of land where the Groupdoes not intend to retain the resulting titles. PDL will not retain any properties for the long term. As PDLproperty is held for development for sale, in the ordinary course of business, it is classified as inventory.( j) Borrowing costsBorrowing costs are recognised as an expense in the period in which they are incurred.92housing new zealand corporation | annual report 2009/10

(k) Intangible assetsThe Group has computer software, which is a non monetary asset without physical substance, and thereforeis classified as an intangible asset. Intangible assets include software that has been externally purchased aswell as software that has been internally developed. Software is developed to meet Board-approved changesand improvements to the Corporation’s way of working, structures, processes, products and systems.Computer software is capitalised at cost, and the capitalised cost is amortised over a four to seven-yearperiod. Following initial recognition, it is carried at cost less any accumulated amortisation and anyaccumulated impairment losses. The amortisation is taken to the net surplus/(deficit) for the year.Computer software is tested for impairment where an indicator of impairment exists. Useful lives are alsoexamined on an annual basis and adjustments, where applicable, are made on a prospective basis.Gains or losses arising from derecognition of computer software are recognised in the net surplus/(deficit)for the year when the asset is derecognised. They are measured as the difference between the net disposalproceeds and the carrying amount of the asset.(l) ImpairmentAll assets, except for assets held at fair value through the net surplus/(deficit) for the year, are assessed forimpairment at least annually.Where there are indicators of impairment for those assets, the asset’s recoverable amount will be determined.Where the recoverable amount is lower than the carrying amount, an impairment loss will be recognised, andthe asset written down to the recoverable amount.Revaluations of property are performed annually to ensure that, generally, property is not carried at anamount materially below its recoverable amount. However, where there are specific indicators of impairmentduring the financial year, a property will be assessed for impairment. An impairment loss is recognised firstagainst the revaluation reserve for that property, and then the portion of the loss greater than the assetrevaluation reserve is recognised as an expense in the net surplus/(deficit) for the year, in the period it arises.Any gain or loss arising on disposal of the asset calculated is included in the net surplus/(deficit) in the yearthe item is disposed of. Gain or loss arising on disposal is calculated as the difference between the netdisposal proceeds and the carrying amount of the item.The recoverable amount of corporate assets and finite-life intangible assets are reviewed for impairment whenevents or changes in circumstances indicate the carrying value may not be recoverable. For an asset that doesnot generate independent cash inflows, the recoverable amount is determined for the cash-generating unit towhich the asset belongs. If any such indication exists and where the carrying values exceed the estimatedrecoverable amount, the asset or cash-generating units are written down to their recoverable amount.The recoverable amount of corporate assets and finite-life intangible assets is the greater of fair value lesscosts to sell and value in use.In assessing value in use the estimated future cash flows are discounted to their present value using a pre-taxdiscount rate that reflects current market assessments of the time value of money and the risks specific tothe asset. Impairment losses are recognised in the net surplus/(deficit) for the year.5 | Financial Statements(m) InvestmentsAll investments that are classified as available for sale are measured at fair value with any gain or loss beingrecognised through other comprehensive income as required under NZ IAS 39 Financial Instruments:Recognition and Measurement.Current investments are bank registered certificates of deposit that have been set aside to support theprovisions under the Mortgage Insurance Scheme, HIF and sold mortgage loans.The Group and Parent have elected to recognise investments in subsidiaries at cost.housing new zealand corporation | annual report 2009/10 93

housing new zealand corporation | notes to the financial statements continued2 Summary of significant accounting policies continued(n) Shared equityShared Equity Loan scheme loans are classified as an available-for-sale investment. Fair value is determined byreference to market-based evidence. Independent valuations are performed annually to ensure the carryingamount does not differ materially from the asset’s fair value at the balance sheet date.Under the Shared Equity scheme, the home buyer can opt to repay the loan early. The loan is adjusted on dayone to reflect the prepayment option in the form of impairment in the balance sheet and a grant expense inthe net surplus/(deficit) for the year.Reversals in fair value are recognised in net surplus/(deficit) for the year to the extent of previousimpairments. Fair value movements above the amount advanced are recognised in other comprehensiveincome. Upon repayment, any fair value gains recognised through other comprehensive income are recordedin the net surplus/(deficit) for the year.(o) Mortgages and housing-related lendingMortgage advances are classified as loans and receivables at amortised costs and are stated at amountsoutstanding net of provisions made on advances considered doubtful for collection, ensuring mortgageadvances’ carrying values do not exceed their recoverable amount.The mortgage provision reflects an amount considered adequate to provide for incurred losses based on thebest information available at balance date, for loans identified as having particular risk, where security isconsidered inadequate.(p) Trade and other receivablesReceivables are recognised and carried at original invoice amount less an allowance for any uncollectibleamounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable.Bad debts are written off when identified.(q) Cash and cash equivalentsCash and cash equivalents are defined as cash on hand and short-term liquid investments with originalmaturities up to 90 days, held specifically for working capital purposes.(r) Interest-bearing borrowingsAll borrowings are initially recognised at cost, being the fair value of the consideration received net of issuecosts associated with the borrowing.After initial recognition, interest-bearing borrowings, with the exception of those detailed separately below,are subsequently measured at amortised cost using the effective interest rate method. Amortised cost iscalculated by taking into account any issue costs, and any discount or premium on settlement.Gains and losses are recognised in the net surplus/(deficit) in the year when the liabilities are derecognised.Gains and losses are recognised on an ongoing basis.(s) Mortgage insurance liabilitiesInsurance contract liabilities are recognised when entered into and a premium is charged.The Mortgage Insurance Scheme unearned premium reserve represents the unrealised amount of premiumreceived. It is determined by apportioning premiums received over the relevant periods of risk underwritten,based on actuarially assessed risk factors. The provision for claims is based on the actuarial assessment of thepresent value of the estimated cost of future claims, in excess of unearned premium reserve. Any estimate offuture monetary amounts is in nominal dollars, and no inflationary increases have been built in.The outstanding claims liability (OCL) represents the liability for claims incurred at reporting date. These mayinclude those claims incurred but not yet reported (IBNR). It can take a significant period of time before theultimate claims cost can be established with certainty. The liability is determined at reporting date using arange of actuarial valuation techniques. Any liability is derecognised when the contract expires, is dischargedor is cancelled. This liability is discounted for the time value of money.94housing new zealand corporation | annual report 2009/10

At each reporting date, the Group reviews its unexpired risk and a liability adequacy test is performed, as laidout under NZ IFRS 4 Appendix D, to determine whether there is any overall excess of expected claims over theunearned premium liabilities. If these estimates show that the carrying amount of the unearned premiums isinadequate, the deficiency is recognised in the net surplus/(deficit) for the year by establishing a provision forliability adequacy.The Group holds, at all times, available-for-sale short-term investments, equivalent to the total of theMortgage Insurance Scheme provision, to meet any claims under the scheme.(t) ProvisionsProvisions are recognised when the Group has a present obligation (legal or constructive) as a result of a pastevent, it is probable that an outflow of resources embodying economic benefits will be required to settle theobligation, and a reliable estimate can be made of the amount of the obligation.Provisions are measured at the present value of management’s best estimate of the expenditure required tosettle the present obligation at the reporting date. The discount rate used to determine the present valuereflects current market assessments of the time value of money and the risks specific to the liability.The expense relating to any provision is presented in the net surplus/(deficit) for the year.(u) LeasesLeases where the lessee retains substantially all the risks and benefits of ownership of the asset are classifiedas operating leases. All of the Group’s leases are operating leases.Lease payments under operating leases are recognised as an expense on a straight-line basis over thelease term.(v) RevenueRevenue is recognised to the extent that it is probable that the economic benefits will flow to the Group andthe revenue can be reliably measured.Crown operating appropriationsThe Group receives revenue from the Crown as operating appropriations. Crown appropriation revenue isreceived to subsidise third-party revenue to bring it to market value (for example, rent, insurance premiumand interest subsidies), to pay for services provided to the Crown (for example, policy advice, Governmentrelations, research and evaluation), or to reimburse the Group for expenses incurred by operating variousprogrammes (for example, home ownership education courses). All Crown appropriation revenue isrecognised as it is earned. Where relevant, the policy for Crown appropriation revenue is included in theaccounting policy for its revenue item below.Rental incomeRental income, including rental income from the Crown (Income-Related Rent Subsidy) is recognised on astraight-line basis over the lease term.Mortgage insurance incomeThe premium income realised and the movement in outstanding claims liability during the year arerecognised in the net surplus/(deficit) for the year. Premiums, including premium subsidies from the Crown,are realised over the estimated period of the contract in accordance with the pattern of the incidence of riskexpected under the contract, which is an estimate when the premium is earned.5 | Financial StatementsInterest incomeInterest revenue on mortgages, including interest subsidies from the Crown, and short-term investments isrecognised as the interest accrues (using the effective interest rate method, which is the rate that exactlydiscounts estimated future cash receipts through the expected life of the financial instrument) to the netcarrying amount of the financial asset.housing new zealand corporation | annual report 2009/10 95

housing new zealand corporation | notes to the financial statements continued2 Summary of significant accounting policies continuedManagement feesThe Group receives management fees, on a cost recovery basis, from the Housing Agency Account for managingthe development of land. The Parent receives management fees from subsidiaries for managing theiroperations. Management fees are recognised as income in the period the expenses they relate to are incurred.DividendsThe Parent receives dividends from subsidiaries. Dividends are recognised in the Parent’s net surplus/(deficit)for the year when the shareholders’ right to receive the payment is established.(w) Contingent assetsThe Group has made grants and suspensory loans to third parties, with conditions attached for an agreedperiod. If the conditions are breached, the grant or suspensory loans will be repayable. If conditions have beenbreached, or are likely to be breached, the Group will disclose, but not recognise, a contingent asset, as therewill be a possibility that resources will flow to the Group in the future.(x) Income taxCurrent tax assets and liabilities are measured at the amount expected to be recovered from or paid to thetaxation authority, based on the current period’s taxable income. Deferred income tax is measured on alltemporary differences at the balance date between the tax bases of assets and liabilities and their carryingamounts for financial reporting purposes.Deferred income tax liabilities are amounts of income taxes payable in future periods in respect of taxabletemporary difference, when the carrying amount for financial reporting purposes exceeds its tax base.Deferred income tax assets are amounts of income taxes recoverable in future periods in respect of alldeductible temporary differences, carry-forward of unused tax losses or tax credits. The carrying amount ofdeferred tax assets is reviewed at each balance date and reduced to the extent that it is no longer probablethat sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.The tax rates and tax laws used to compute the amounts are those that are enacted or substantively enactedby the reporting date. Deferred income tax assets and liabilities are measured at the tax rates that areexpected to apply to the year when the asset is realised or the liability is settled.(y) Other taxesThe Group is mainly an exempt supplier in relation to Goods and Services Tax (GST). GST on the majority ofinputs cannot be reclaimed; therefore it is included in expenditure. Receivables and payables are stated withthe amount of GST included.The net amount of GST recoverable from, or payable to, the taxation authority is included as part ofreceivables or payables in the balance sheet.Cash flows are included in the cash flow statement on a gross basis and the GST component of cash flowsarising from investing and financing activities, which is recoverable from, or payable to, the taxation authority,are classified as operating cash flows.Commitments and contingencies are disclosed gross of the amount of GST recoverable from, or payable to,the taxation authority.(z) Derecognition of financial instrumentsThe derecognition of a financial instrument takes place when the Group no longer controls the contractualrights that comprise the financial instrument, which is normally the case when the instrument is sold, or allthe cash flows attributable to the instrument are passed through to an independent third party.96housing new zealand corporation | annual report 2009/10

(aa) Derivative financial instrumentsThe Group uses derivative financial instruments such as interest rate swaps and foreign currency contractsto hedge its risks associated with interest rate and foreign currency fluctuations. Such derivative financialinstruments are stated at fair value.(i) Fair valueThe Corporation carries its interest rate swaps at fair value through net surplus or deficit, unless theyare in a hedge relationship, calculated by discounting the expected future cash flows at prevailinginterest rates. The fair value is based upon using the NZD swap borrowing curve (as reported byThomson Reuters), which is an active market interest rate benchmark.The fair value of derivative financial instruments is determined by referencing to current rates forsimilar instruments with similar maturity profiles, and is calculated as the net discounted estimatedcash flows of the instrument.(ii) Hedge accountingThe Group uses financial instruments such as interest rate swaps to hedge its risks associated withinterest rate fluctuations. Such derivative financial instruments are stated at fair value.For the purposes of hedge accounting, hedges are classified as cash flow hedges where they hedgeexposure to variability or a forecasted transaction.Interest rate swaps that meet the conditions for hedge accounting as cash flow hedges can havethe effective portion of the gain or loss on the hedging instrument recognised directly in othercomprehensive income and the ineffective portion recognised in the net surplus/(deficit).Hedge accounting is discontinued when the hedging instrument expires, or is sold, terminated,exercised, or no longer qualifies for hedge accounting. At that point in time, any cumulative gain orloss on the hedging instrument recognised in the hedging reserve is kept in the reserve until theforecasted transaction occurs.If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised inequity is transferred to the net surplus/(deficit) for the year.For derivatives that do not qualify for hedge accounting, any gains or losses arising from changes infair value are taken direct to the net surplus/(deficit) for the year.(bb) Financial guaranteesWhen the Corporation entered agreements to sell mortgages to Westpac Banking Corporation in 1996, 1998and 1999, the Corporation guaranteed a certain number of those mortgages. The mortgage sale provision isthe actuarially assessed amount likely to be payable under the guarantees. In order to estimate fair value thefollowing assumptions are made:• House price indices are grouped into 11 geographical areas.• It is assumed that household income will keep pace with general market inflation.• A discounted provision is calculated to ensure interest is added, and it will be sufficient to meet expectedfuture payments. The rate of interest used is that obtained by holding New Zealand Government bonds.The carrying value of guarantees approximates fair value as the underlying sold loans and MortgageInsurance Scheme likely defaults are actuarially assessed each year.(cc) Accounts payable and other liabilitiesAccounts payable and other liabilities are carried at amortised cost. Due to their short-term nature, they arenot discounted.They represent liabilities for goods and services provided to the Group prior to the end of the financial yearthat are unpaid and arise when the Group becomes obliged to make future payments in respect of thepurchase of these goods and services.The amounts are unsecured and are usually paid within 30 days of recognition.5 | Financial Statementshousing new zealand corporation | annual report 2009/10 97

housing new zealand corporation | notes to the financial statements continued2 Summary of significant accounting policies continued(dd) Employee benefitsEmployee benefits include wages and salaries (including non monetary benefits such as medical, trauma, lifeand income continuance insurance), annual leave, long-service leave and sick leave. They are measured as theamounts expected to be paid when the liabilities are settled. A present value model is used for calculatinglong service leave and accumulated sick leave in accordance with instructions from the Treasury. Employeebenefits expected to be settled within 12 months of the balance date are recognised as at 30 June. Longservice leave, where entitlements are not vested at balance date, is treated as a non-current liability.(ee) Capital managementThe Corporation’s capital is in equity, which comprises accumulated funds and other reserves. Equity isrepresented by net assets.The Corporation is subject to the financial management and accountability provisions of the generallyaccepted accounting practice in New Zealand (NZ GAAP) being New Zealand equivalents to InternationalFinancial Reporting Standards (NZ IFRS, NZ IAS and NZ IFRIC), and the requirements of the Financial ReportingAct 1993, the Crown Entities Act 2004, and the Housing Corporation Act 1974 (as amended).The Corporation manages its equity as a by-product of prudently managing revenues, expenses, assets,liabilities, investments and general financial dealings to ensure it effectively achieves its objectives andpurpose while remaining a going concern.The Corporation is funded for capital programmes by the Crown, and new capital is drawn down in the ratioof 78 percent equity and 22 percent debt.Detailed information on debt management (including interest rate risk) is contained in note 3. TheCorporation’s capital management was unchanged from 2009 and complied with external requirements.3 Financial risk management objectives and policiesThe Group’s principal financial instruments, other than derivatives, comprise Crown loans, commercial papers,cash and short-term deposits. These financial instruments are used to raise finance for the Group’s operations.The Group’s mortgage portfolio is managed by Westpac Banking Corporation in accordance with a managementagreement. Their processes of mitigating losses to the portfolio are monitored via monthly reports.Derivative transactions consist of New Zealand dollar interest rate swaps, which are used to manage interestrate risk arising from Crown floating rate borrowings.The Group’s other financial instruments are trade debtors and trade creditors arising directly fromGroup operations.The main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk and creditrisk. The Board reviews and agrees policies for managing each of these risks and they are summarised below.Interest rate riskThe Group’s exposure to market risk for changes in interest rates relates primarily to the Group’s long-termdebt obligations.Group policy is to limit the portion of floating rate debt. To achieve this, the Group has entered into interestrate swaps to convert floating rate to fixed rate borrowings.98housing new zealand corporation | annual report 2009/10

Management monitors interest rate levels on an ongoing basis and, when appropriate, will lock in fixed rateswithin Board-approved interest rate risk policy. Forward rate agreements, interest rate swaps and interest rateoptions are instruments available for use. During 2010, interest rate swaps designated to hedge underlyingdebt obligations were the primary financial instrument used.At 30 June 2010, after taking into account the effect of interest rate swaps, approximately 88 percent of theGroup’s borrowings were at a fixed rate of interest (2009: 88 percent).The following sensitivity analysis is based on the interest rate risk exposures in existence at balance sheet date.If interest rates had been 1 percent higher or lower than the year end market rate, the following table sets outmovements in net surplus after tax for the year and equity balance (after tax adjustments) at year end:Interest rate risk sensitivityGROUP GROUP PARENT PARENTNet surplus higher/(lower)Interest rates +1% (2) (2) (1) (1)Interest rates -1% 2 2 1 1Equity higher/(lower)Interest rates +1% 47 43 2 3Interest rates -1% (50) (46) (2) (3)The movements in net surplus are due to changes in interest costs on variable rate debt. The movement inequity is mainly due to changes in the fair value of derivative instruments designated as cash flow hedges.Foreign currency riskThe Group had no foreign currency borrowings during the 2009/10 financial year. Foreign currency tradeinvoices were settled on demand.It is the Group’s policy to mitigate foreign currency risks as they arise and not to enter into forward contractsuntil a firm commitment is in place. The Group does not hedge account for foreign currency risks.2010$m2009$m2010$m2009$mCredit riskCredit risk is the risk that a third party will default on its obligations to the Corporation, causing the Corporationto incur a loss. Due to the timing of its cash inflows and outflows, the Corporation invests surplus cash withBoard-approved counterparties with a specified Standard & Poor’s credit rating. The Corporation’s treasurypolicy limits the amount of credit exposure to any one institution. The Corporation’s maximum credit exposurefor the classes of financial instrument is primarily represented by the carrying amount of cash, deposits andderivative financial assets. There is no collateral held as security against these financial instruments.Further, the Corporation has made commitments to advance new Housing Innovation Fund loans (that areyet to be disbursed) to third parties of $12 million. This class of asset extends the Corporation’s potentialmaximum credit exposure. The Group is not exposed to any material concentration of credit risk as it has asmall number of credit customers and only has Treasury exposure with Board-approved counterparties withspecified Standard & Poor’s credit ratings and the Crown.5 | Financial StatementsIn addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposureto bad debts is not significant.Liquidity riskLiquidity risk is the risk the Group will encounter difficulty in raising funds at short notice to meet its financialcommitments when they are due. The Borrowing Protocol with the Crown allows the Corporation to borrow aprincipal amount up to NZ$150 million for working capital purposes from sources other than the Crown atthe discretion of the Corporation. All the Corporation term debt is obtained from the Crown.housing new zealand corporation | annual report 2009/10 99

housing new zealand corporation | notes to the financial statements continued3 Financial risk management objectives and policies continuedThe Group has a $150 million uncommitted note issuance facility with a group of banks, available to meetshort-term liquidity requirements.The Group has an unsecured bank overdraft facility of $1 million (2009: $1 million) with an interest rate of6.5 percent (2009: 6.5 percent).The Group’s policy is that not more than 25 percent of borrowings should mature in any 12-month period.As at 30 June 2010, 8.8 percent of the Group’s debt will mature in less than one year (2009: 13 percent).Concentration of riskAll $1.831 billion borrowing is held with the Crown, giving rise to a concentration of risk.Ageing of rental debtors and loan arrearsThe tables below detail the ageing and level of rental debtors and loan arrears outstanding as at 30 June 2010.PAST DUEBUT NOTIMPAIRED0–28 DAYSIMPAIRED28 DAYS PLUS TOTAL($m) ($m) ($m)Year ended 30 June 2010Rent 2.8 0.4 3.2Damages 0.3 2.9 3.2Total rental debtors 3.1 3.3 6.4Year ended 30 June 2009Rent 2.6 0.4 3.0Damages 0.3 2.5 2.8Total rental debtors 2.9 2.9 5.860 DAYS 60–90 DAYS90 DAYSPLUS*TOTAL($m) ($m) ($m) ($m)Year ended 30 June 2010Ageing analysis of loan past due not impairedTotal 8 1 1 10Year ended 30 June 2009Ageing analysis of loan past due not impairedTotal 9 2 1 12*Loan arrears that are over 90 days in arrears are reviewed for impairment but are not automatically treated as impaired or provided for.Fair valueThe group uses various methods in estimating the fair value of its financial instruments.The methods comprise:Level 1 – the fair value is calculated using quoted prices in active marketsLevel 2 – the fair value is estimated using inputs other than quoted prices included in Level 1 that areobservable for asset or liability, either directly (as prices) or indirectly (derived from prices)Level 3 – the fair value is estimated using inputs for the asset or liability that are not based on observablemarket data.The fair value of the financial instruments as well as the methods used to estimate the fair value aresummarised in the table on page 101. No Level 3 financial instruments are held at 30 June 2010.100 housing new zealand corporation | annual report 2009/10

YEAR ENDED 30 JUNE 2010QUOTEDMARKETPRICE(LEVEL 1)VALUATIONTECHNIQUE– MARKETOBSERVABLEINPUTS(LEVEL 2)TOTAL($m) ($m) ($m)GroupFinancial assetsInterest rate swaps – 3 3Available-for-sale investments – 49 49Available-for-sale financial assets – 1 1– 53 53Financial liabilitiesInterest rate swaps – 108 108– 108 108ParentFinancial assetsInterest rate swaps – 1 1Available-for-sale investments – 49 49Available-for-sale financial assets – 1 1– 51 51Financial liabilitiesInterest rate swaps – 4 4– 4 4Quoted market price represents the fair value determined on quoted prices on active markets as at reportingdate without any deduction for transaction costs.For financial instruments not quoted in active markets, the Group uses valuation techniques such as presentvalue techniques, comparison to similar market observable prices that exist and other relevant models usedby market participants. These include observable market inputs.Group/Parent financial instruments revalued to fair value have been deemed to be Levels 1 and 2. There are noLevel 3 financial instruments as at 30 June 2010.For all categories of financial assets and liabilities, the carrying value approximates fair value, except for thefollowing:CARRYING AMOUNTFAIR VALUEGroup and ParentFinancial assetsLoans and receivablesMortgages 64 66 50 51Total loans and receivables 64 66 50 512010($m)2009($m)2010($m)2009($m)5 | Financial StatementsGroup and ParentFinancial liabilitiesFinancial liabilities at amortised costCrown loans 1,831 1,809 1,831 1,809Total loans and receivables 1,831 1,809 1,831 1,809housing new zealand corporation | annual report 2009/10 101

housing new zealand corporation | notes to the financial statements continued4 Significant accounting judgements, estimates and assumptionsThe preparation of the financial statements requires management to make judgements, estimates andassumptions that affect the reported amounts in the financial statements. Management continuallyevaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue andexpenses. Management bases its judgements and estimates on historical experience and reasonable currentassumptions, the results of which form the basis of the carrying values for assets and liabilities that are notreadily apparent from other sources.Management has identified the following critical accounting policies, which attract significant judgements,estimates and assumptions. Actual results may differ from these estimates under different assumptions andconditions and may materially affect financial results or the financial position reported in future periods.Further details of the nature of these assumptions and conditions may be found in the relevant notes to thefinancial statements.(a) Impairment of non-financial assetsThe Group assesses impairment of all assets at each reporting date by evaluating conditions specific to theGroup and to the particular asset that may lead to impairment. These include technological, economic andpolitical factors and future expectations. If an impairment trigger exists the recoverable amount of the assetis determined. If no impairment is stated then management do not consider that the triggers for impairmenttesting have been significant enough and as such these assets have not been tested for impairment in thisfinancial period (refer to notes 9, p106 and 12, p109).(b) Actuarial liabilitiesMortgage Insurance Scheme (MIS)The Mortgage Insurance Scheme is assessed six-monthly by an independent actuary to ensure the provisionfor claims is based on the best estimate of the present value of future claims. Key assumptions made as partof this assessment relate to the nature of borrowers and the future patterns of loan repayments and defaultsunder the MIS. The discount rate used in the calculation of the provision for MIS claims was 4.5 percent.The probability of sufficiency and risk margin used is 75 percent (refer to note 17, p114).Westpac Banking Corporation mortgage sale provisionsAs part of the agreements to sell mortgages to Westpac Banking Corporation, the Corporation guaranteed acertain number of those mortgages. The mortgage sale provision is an amount, actuarially assessed, likely tobe payable under that guarantee. The value of the provision depends on various factors, some of which arethe value of the loans expected to default, the number of active mortgages, and the average loan balance todefault and the number of active mortgages and the average loan balance (refer to note 14, p110).(c) Rental propertiesThe Corporation revalues rental properties annually. Fair value is determined by reference to market-basedevidence from independent valuers Quotable Value New Zealand (refer to note 9, p106).(d) DerivativesThe Corporation’s interest rate derivatives are fair valued on a daily basis using current market interest rates(bank bill mid rate, swap pricing curve). There is no additional impairment adjustment on these interest ratederivatives as the Corporation’s counterparties are highly creditworthy (refer to note 20, p117).(e) Long-service leaveEffective from 1 July 2008, all employees are eligible for long-service leave on the following basis:• After 10 years continuous service a staff member is entitled to two weeks’ long-service leave.• After 15 and 20 years’ continuous Corporation service, a staff member is entitled to one week longserviceleave.102 housing new zealand corporation | annual report 2009/10

The Corporation values the long-service leave provision based on economic assumptions advised by theTreasury – discount rate 3.48 percent (2009: 5.75 percent), salary inflation 3.5 percent (2009: 2.75 percent)– and employee leaving probability tables determined with reference to public service leaving statistics(refer to note 15, p111).(f) Classification of assets and liabilities as held for saleThe Group classifies assets and liabilities as held for sale when its carrying amount will be recovered througha sale transaction. The assets and liabilities must be available for immediate sale and the Group must becommitted to selling the asset either through the entering into a contractual sale agreement or theactivation and commitment to a programme to locate a buyer and dispose of the assets and liabilities(refer to note 8, p105).(g) TaxationThe Group’s accounting policy for taxation purposes requires management’s judgement. Judgement is alsorequired in assessing whether deferred tax assets and liabilities are recognised in some areas. Deferred taxassets, including those arising from unrecouped tax losses, capital losses and temporary differences, arerecognised only where they may be recovered, dependent on the generation of sufficient future taxable profits.Assumptions about the generation of future taxable profits depend on management’s estimates of futurecash flows. These include future house prices, rents, housing volumes, operating costs, maintenance costs,rates, capital expenditure and dividends. Judgements are also required about the application of incometax legislation.The judgements and assumptions are subject to risk and uncertainty; hence there is a possibility thatchanges in circumstances will alter expectations, which may impact the amount of deferred tax assets anddeferred tax liabilities recognised on the balance sheet and the amount of other tax losses and temporarydifferences not yet recognised. In such circumstances, some or all of the carrying amounts of recogniseddeferred tax assets and liabilities may require adjustment, resulting in a corresponding credit or charge tothe net surplus/(deficit) for the year.The change in the company tax rate from 30 percent to 28 percent and the removal of building taxdepreciation from 2011/12 were approved by Parliament on 20 May 2010 and therefore were substantiallyenacted as at the reporting date, 30 June 2010.The impact on the removal of building depreciation for tax purposes caused an immediate recognition of alarge deferred tax liability in the current year’s balance sheet and a corresponding large tax expense in thenet surplus/(deficit) for the year. The deferred tax adjustment in relation to the change in tax rate wasrecorded either as a tax expense in the net surplus/(deficit) for the year, or directly in equity reserves,depending on what the tax relates to.The effect on the 2009/10 financial accounts for the Group are detailed in note 16, p112.(h) Recovery of deferred tax assetsDeferred tax assets are recognised for deductible temporary differences as management considers that itis probable that future taxable profits will be available to utilise those temporary differences.5 | Financial Statements(i) Make-good provisionsA provision has been made for the present value of anticipated costs of the future restoration of leasedpremises to their state at the commencement of the Corporation’s lease. The calculation of this provisionrequires assumptions such as the costs of materials, labour, fittings and fixtures. These uncertainties mayresult in future actual expenditure differing from the amounts currently provided. The provision recognisedfor each site is periodically reviewed and updated based on the facts and circumstances available at the time.Changes to the estimated future costs for sites are recognised in the balance sheet by adjusting both theexpense or asset (if applicable) and provision. The related carrying amounts are disclosed in note 14, p110.housing new zealand corporation | annual report 2009/10 103

housing new zealand corporation | notes to the financial statements continued4 Significant accounting judgements, estimates and assumptions continued( j) Estimation of useful lives of assetsThe Corporation reviews the useful lives and residual values of its property, plant and equipment annually.Assessing the appropriateness of useful life and residual value estimates of property, plant and equipmentrequires the Corporation to consider a number of factors such as the physical condition of the asset, expectedperiod of use and expected disposal proceeds from the future sale of the asset.An incorrect estimate of the useful life or residual value will impact the depreciation expense recognisedin the net surplus/(deficit) for the year and the carrying amount of the asset in the balance sheet.Depreciation rates are set out in note 2(f) and amortisation rates are set out in note 2(k) above.Any estimates of future monetary amounts are in nominal dollars and no inflationary increases have beenbuilt in.5 Mortgages(a) Mortgage advancesGROUP GROUP PARENT PARENTNon-current mortgage advances 58 67 58 67Provision for doubtful debts (3) (3) (3) (3)Net non-current mortgage advances 55 64 55 64Current mortgage advances 9 2 9 2Total net mortgage advances 64 66 64 66The maturity period of the mortgages ranges from 1 to 25 years. Borrowers may settle loans at any time.However expected cash flows are as follows:2010($m)GROUP AND PARENTWeightedaverageinterestrate2009($m)2010($m)GROUP AND PARENT2010 2009($m)WeightedaverageinterestrateUp to 1 year 5.50% 9 5.39% 21 to 5 years 5.20% 1 4.70% 17Over 5 years 7.30% 57 6.37% 50Total 7.01% 67 6.01% 69Interest rates on mortgages range from 0–10.2 percent, with an average rate of 7.0 percent.The mortgages on land and improvement assets and deeds are held as security against these loans. For thepurposes of allocating the net mortgage balance between current and non-current, all of the doubtful debtsprovision is assumed to relate to the non-current mortgages.(b) Loan impairment expenseAt 30 June 2010, the Housing Innovation Fund (HIF) advances were impaired to a lower fair value.The impairment was calculated as the difference between the amortised cost of the advances and thepresent value of the estimated future cash flows discounted at the effective interest rate. The impairmentwas recognised in the net surplus/(deficit) for the year.The total HIF impairment advance expense for the current year is $2.0 million (2009: $8 million).2009($m)($m)104 housing new zealand corporation | annual report 2009/10

6 Receivables and prepaymentsGROUP GROUP PARENT PARENTRental debtors 6 6 0 0Provision for doubtful debts (3) (3) 0 0Sub-total 3 3 0 0Prepayments 3 3 1 1Interest receivable 3 3 0 (1)Other receivables 3 13 12 43Receivables and prepayments 12 22 13 437 Investments2010($m)2009($m)2010($m)2009($m)GROUP GROUP PARENT PARENTCurrent investmentsBank registered certificates of deposit 49 27 49 27Current investments are bank registered certificates of deposits that have been set aside to support theprovisions relating to HIF, sold mortgage loans and the Mortgage Insurance Scheme.Non-current investmentsInvestment in subsidiaries 0 0 3,523 3,447Subsidiary companiesAs at 30 June 2010, the subsidiary companies of the Corporation were:2010($m)2009($m)2010($m)2009($m)COMPANY PRINCIPAL ACTIVITY BALANCE DATEOWNERSHIPINTERESTHousing New Zealand LimitedProvision of rental housing andownership of state houses30 June 100%Community Housing LimitedHobsonville Land Company LimitedHousing New Zealand CorporationProperty Developments Limited8 Properties intended for saleHolding company that formerly ownedcommunity housing assets, now part ofHousing New Zealand CorporationManagement company for theHobsonville project30 June 100%30 June 100%Property development 30 June 100%GROUP GROUP PARENT PARENT2010($m)2009($m)2010($m)2009($m)5 | Financial StatementsProperties intended for sale 14 6 1 0At 30 June 2010, properties have been reclassified as intended for sale where the property is vacant andintended to be sold; or commitments for property sales have been made. Property held for sale was valuedunder NZIFRS 5 Assets Held for Sale and Discontinued Operations. The carrying value of these properties is$14 million (2009: $6 million). The total fair value of properties intended for sale, excluding selling and othercosts, for the Group was $14 million (2009: $6 million) and $1 million for the Parent (2009: nil).housing new zealand corporation | annual report 2009/10 105

housing new zealand corporation | notes to the financial statements continued9 Property, plant and equipmentFREEHOLDLANDRENTALPROPERTIESCAPITALWORK INPROGRESSLEASEHOLDIMPROVE-MENTFURNITUREANDFITTINGSOFFICEEQUIPMENTCOMPUTEREQUIPMENTMOTORVEHICLESTOTALPROPERTY,PLANT ANDEQUIPMENT($m) ($m) ($m) ($m) ($m) ($m) ($m) ($m) ($m)GROUPYear ended 30 June 2010At 1 July 2009, net ofaccumulated depreciation 8,237 6,280 60 4 2 1 3 6 14,593Additions 46 250 1 1 1 0 3 1 303Disposals (17) (15) 0 0 0 (1) 0 0 (33)Revaluations 240 244 0 0 0 0 0 0 484Classified as held for sale (3) (5) 0 0 0 0 0 0 (8)Demolished or derecognised 0 (6) 0 0 0 0 0 0 (6)Transfers to fixed assets 1 29 (30) 0 0 0 0 0 0Depreciation charge for the year 0 (160) 0 (2) 0 0 (2) (2) (166)At 30 June 2010, net ofaccumulated depreciation 8,504 6,617 31 3 3 0 4 5 15,167Year ended 30 June 2009At 1 July 2008, net ofaccumulated depreciation 8,526 6,590 37 4 2 1 2 7 15,169Additions 58 194 23 2 0 0 2 2 281Disposals (20) (6) 0 0 0 0 0 (1) (27)Revaluations (324) (320) 0 0 0 0 0 0 (644)Classified as held for sale (3) (3) 0 0 0 0 0 0 (6)Demolished or derecognised 0 (8) 0 0 0 0 0 0 (8)Transfers 0 0 0 0 0 0 0 0 0Depreciation charge for the year 0 (167) 0 (2) 0 0 (1) (2) (172)At 30 June 2009, net ofaccumulated depreciation 8,237 6,280 60 4 2 1 3 6 14,593106 housing new zealand corporation | annual report 2009/10

FREEHOLDLANDRENTALPROPERTIESCAPITALWORK INPROGRESSLEASEHOLDIMPROVE-MENTFURNITUREANDFITTINGSOFFICEEQUIPMENTCOMPUTEREQUIPMENTMOTORVEHICLESTOTALPROPERTY,PLANT ANDEQUIPMENT($m) ($m) ($m) ($m) ($m) ($m) ($m) ($m) ($m)ParentYear ended 30 June 2010At 1 July 2009, net ofaccumulated depreciation 214 230 4 0 0 0 0 0 448Additions 2 7 0 0 0 0 0 0 9Disposals (2) (1) 0 0 0 0 0 0 (3)Revaluations 5 7 0 0 0 0 0 0 12Classified as held for sale (1) 0 0 0 0 0 0 0 (1)Demolished or derecognised 0 0 0 0 0 0 0 0 0Transfers 0 1 (1) 0 0 0 0 0 0Impairment 0 0 0 0 0 0 0 0 0Depreciation charge for the year 0 (6) 0 0 0 0 0 0 (6)At 30 June 2010, net ofaccumulated depreciation 218 238 3 0 0 0 0 0 459Year ended 30 June 2009At 1 July 2008, net ofaccumulated depreciation 227 244 3 0 0 0 0 0 474Additions 3 10 1 0 0 0 0 0 14Disposals (3) 0 0 0 0 0 0 0 (3)Revaluations (13) (18) 0 0 0 0 0 0 (31)Classified as held for sale 0 0 0 0 0 0 0 0 0Demolished or derecognised 0 0 0 0 0 0 0 0 0Transfers 0 0 0 0 0 0 0 0 0Impairment 0 0 0 0 0 0 0 0 0Depreciation charge for the year 0 (6) 0 0 0 0 0 0 (6)At 30 June 2009, net ofaccumulated depreciation 214 230 4 0 0 0 0 0 448ValuationFreehold land and rental properties in the portfolio were revalued as at 30 June 2010 at fair value inaccordance with IAS16 Property, Plant and Equipment. The valuation was performed by Quotable ValueNew Zealand, a company employing registered and qualified valuers, with the principal registered valuerfor the valuation being Kerry Stewart (PG Dip Env Audit, MBA, ANZIV, SNZPI).The total gross amount of the valuation, excluding properties intended for sale, excluding selling and othercosts was $15,117 million for the Group and $455 million for the Parent (2009: $14,495 million for the Groupand $448 million for the Parent).5 | Financial StatementsThe revaluation effect relating to freehold land was an increment of $240 million for the Group and $5 millionfor the Parent (2009: decrease of $324 million for the Group and $13 million for the Parent). The revaluationeffect relating to rental properties was an increment of $244 million for the Group and $7 million for theParent (2009: decrease of $320 million for the Group and $18 million for the Parent).housing new zealand corporation | annual report 2009/10 107

housing new zealand corporation | notes to the financial statements continued9 Property, plant and equipment continuedRights of first refusal for sale of landThe Waikato Raupatu Claims Settlement Act 1995 creates a right of first refusal whereby land held by, or onbehalf of, the Crown or Crown agencies must be offered to the landholding trustees (as defined in the Act)before it is disposed of to any other person. The Waikato-Tainui right of first refusal applies to land held byboth Housing New Zealand Limited and the Corporation. The right of first refusal does not apply in certaincircumstances, including where land is being transferred to another Crown agency or returned to a formerowner under the Public Works Act 1981. The Waikato-Tainui claim area encompasses a large part of theWaikato and would affect approximately 4,802 properties for the Group and 246 for the Parent.In 1999, the Crown and Ngāti Tūrangitukua entered into a Deed of Settlement. As part of that deed,Housing New Zealand Limited agreed to enter into a deed of grant of right of first refusal with NgātiTūrangitukua, whereby specified Housing New Zealand Limited properties must be offered to TūrangitukuaNominees Limited before they are disposed of to any other person. The right of first refusal does not applyin certain circumstances, including where the property is subject to a legal, equitable or statutory obligationto dispose of the property to another person. The 14 specified Housing New Zealand Limited rental propertiesare all in and around Turangi.The Port Nicholson Block (Taranaki Whānui ki te Upoko o Te Ika) Claims Settlement Act 2009 creates asimilar right of first refusal whereby land held by certain Crown bodies (as defined by the Act), including theHousing New Zealand Corporation, must be offered to the Port Nicholson Block Trustees before it is disposedof to any other person. The Settlement Act provides that the Minister of Housing can exempt disposalsof Housing New Zealand Corporation land from the right of first refusal if the disposal is to achieve aGovernment objective in relation to housing. The Port Nicholson Block claim area encompasses most of thecentral Wellington area and affects approximately 2,136 Housing New Zealand Corporation properties.The Crown continues to negotiate Treaty settlements with iwi/hapū in Northland, East Coast and GreaterAuckland where a right of first refusal over Housing New Zealand Corporation land and Crown land is beingdiscussed. The rights of first refusal are likely to be on the same or very similar terms and conditions asearlier settlements.WarrantyThe Crown has provided a warranty in respect of title to the assets transferred to Housing New Zealand Limited,and has indemnified the company against any breach of this warranty. The Crown has also indemnified thecompany against third-party claims that are the result of acts or omissions prior to 1 November 1992 and hasindemnified the directors and officers of the company against any liability consequent on the assets notcomplying with statutory requirements, provided they are taking steps to rectify any non-compliance.10 Properties under developmentGROUP GROUP PARENT PARENTProperties under development 12 32 0 0Properties under development held by Housing New Zealand Corporation’s Property Developments Limitedare recognised as inventory until available for sale. The fair value of the land is $12 million (2009: $18 million)compared with the incurred cost of $17 million (2009: $17 million). The carrying value was impaired by$5 million, which was charged to the net surplus/(deficit) for the year.Inventory was valued under NZ IAS 2 Inventories. The valuation was performed by Quotable Value New Zealand,a company employing registered and qualified valuers, with the principal registered valuer for the valuationbeing Kerry Stewart (PG Dip Env Audit, MBA, ANZIV, SNZPI).2010($m)2009($m)2010($m)2009($m)108 housing new zealand corporation | annual report 2009/10

11 Available-for-sale financial assetsGROUP GROUP PARENT PARENTAvailable-for-sale financial assets 1 1 1 12010($m)2009($m)Available-for-sale financial assets constitute the lending under the Shared Equity scheme.Fair value is determined by independent valuation. The valuation was performed by Quotable ValueNew Zealand, a company employing registered and qualified valuers, with the principal registered valuerfor the valuation being Kerry Stewart (PG Dip Env Audit, MBA, ANZIV, SNZPI).12 Intangible assetsSOFTWAREEXTERNALSOFTWAREINTERNALGROUP2010($m)2009($m)PARENTPROJECTSWORK INPROGRESS TOTAL TOTAL($m) ($m) ($m) ($m) ($m)Year ended 30 June 2010At 1 July 2009, net of accumulated amortisation 2 11 8 21 8Additions 2 5 12 19 12Amortisation (1) (4) (1) (6) (1)At 30 June 2010, net of accumulated amortisation 3 12 19 34 19Year ended 30 June 2009At 1 July 2008, net of accumulated amortisation 2 10 7 19 7Additions 1 5 1 7 1Amortisation (1) (4) 0 (5) 0At 30 June 2009, net of accumulated amortisation 2 11 8 21 8These assets are tested for impairment where an indicator of impairment arises. During the 2009/10 financialyear, an impairment write-down of $1.4 million was charged to the net surplus/(deficit) for the year (2009: nil).External software is purchased from a third party and is usually implemented as an ‘off the shelf’ product.Internal software is generally developed within the Group for specific applications.13 Accounts payable and other liabilitiesGROUP GROUP PARENT PARENTMaintenance accrual 8 13 1 1Interest payable 26 26 2 2Due to the Crown 4 3 4 3Other accounts payable and accruals 64 77 12 15Total accounts payable 102 119 19 212010($m)2009($m)2010($m)2009($m)5 | Financial Statementshousing new zealand corporation | annual report 2009/10 109

housing new zealand corporation | notes to the financial statements continued14 ProvisionsSOLDMORTGAGEPROVISIONSLEASECOMMIT-MENTSPROVISIONSGROUPPARENTHOUSINGINNOVATIONFUNDPROVISIONS TOTAL TOTAL($m) ($m) ($m) ($m) ($m)At 1 July 2009 8 1 0 9 9New provisions 0 0 10 10 10Release of unused amounts (1) 0 0 (1) (1)Utilised (1) 0 0 (1) (2)At 30 June 2010 6 1 10 17 16Current 2010 0 1 10 11 10Non-current 2010 6 0 0 6 6At 30 June 2010 6 1 10 17 16Current 2009 0 1 0 1 1Non-current 2009 8 0 0 8 8At 30 June 2009 8 1 0 9 9Mortgage sale provisionAs part of the agreements to sell mortgages to Westpac Banking Corporation in 1996, 1998 and 1999,the Corporation guaranteed a certain number of mortgages. The mortgage sale provision is an amount,actuarially assessed, likely to be payable under that guarantee. The actuarial assessment was made, as at30 June 2010, by Andrea Gluyas of PricewaterhouseCoopers, a Fellow of the New Zealand Society of Actuariesand of the Institute of Actuaries of Australia. The value of the provision depends on various factors, someof which are the value of loans expected to default, the number of active mortgages, and the average loanbalance. The Corporation’s liability under this guarantee is currently estimated to continue until 2022(being the latest repayment date of the guaranteed mortgages). The maximum combined liability for theCorporation under the insurance is $56 million (2009: $67 million), being the outstanding amount owedunder the guaranteed mortgages.As part of the agreements to sell mortgages to Westpac Banking Corporation in 1996, 1998 and 1999, theCorporation guaranteed a certain number of mortgages. In particular, the Corporation has guaranteed thepurchaser against credit losses under guarantee agreements and specifically for interest rate movementsunder an Interest Rate Adjustment Agreement in respect of the 1998 sale. These indemnities last for as longas the underlying loan remains outstanding. The Crown has indemnified the Corporation for its paymentobligations in respect of these sales up to an agreed capped liability between the Corporation and the Crown.The Corporation’s liability under this guarantee is currently estimated to continue until 2022 (being the latestrepayment date of the guaranteed mortgages).The value of the provision depends on various factors, some of which are the value of loans expected todefault, the number of active mortgages, and the average loan balance. The actuaries have expressedtheir satisfaction as to the nature, sufficiency and accuracy of the data used to determine the outstandingclaims provision.The probability of sufficiency and risk margin used is between 75–85 percent.The total Crown’s exposure is the lower of the remaining outstanding loan balance or the amount of theinsured capped liability between the Corporation and the Crown.110 housing new zealand corporation | annual report 2009/10

SOLD MORTGAGESORIGINALSOLDAMOUNTCROWN’SEXPOSUREPROVISIONMADE($m) ($m) ($m)September 1998 196.0 7.1 0.11December 1998 98.0 30.9 5.30November 1999 34.5 4.5 0.301996 portfolio 250.0 13.8 0.37578.5 56.3 6.08To minimise its guarantee obligations under the 1998 sale to Westpac Banking Corporation, the Corporationobtained an indemnity on losses of more than $23.3 million from Raukura Whare Limited (a wholly-ownedsubsidiary of Waikato Raupatu Lands Trust). The Raukura Whare Limited indemnity does not, however, relievethe Corporation of its primary liability to Westpac Banking Corporation under the guarantee. The Trustee ofthe Waikato Raupatu Lands Trust has guaranteed (capped at $20 million) Raukura Whare Limited’s liability tothe Corporation. The maximum liability for the Corporation under the above guarantee is $31 million(2009: $34 million), being the outstanding amount owed under the guaranteed mortgages.Lease commitment provisionsHousing New Zealand has 49 (2009: 40) office leases to meet current office accommodation requirements ofits neighbourhood units and service offices.Over the past 10 years, the Corporation has exited 24 (2009: 28) leased neighbourhood unit offices and a sumof $90,000 (2009: $118,000) has been paid in make-good contributions, surrender fees and actualreinstatement costs.A make-good provision of $1,137,000 (2009: $1,137,000) has therefore been included to meet any liability inrespect of these 49 head leases for neighbourhood unit offices and four national offices.Housing Innovation Fund commitment provisionsHousing New Zealand has commitments to advance a number of Housing Innovation Fund loans andoperating grants to various third parties over the next financial year. The loans have a 25-year term and areadvanced on the basis of an interest-free period for the first 10 years. Once these loans are disbursed, HousingNew Zealand will need to impair these loans, given that their present value will be lower than their face value.In addition, Housing New Zealand has made commitments to make a number of operating grants to variousthird parties as at 30 June 2010 and has therefore made provision for these payments in its accounts.For the year ended 30 June 2010, Housing New Zealand has recognised a total of $10 million in new provisionsto cover both the impairment of loans ($7.0 million) to be advanced and to cover the payment of a number ofoperating grants to various third parties ($3.0 million).15 Employee entitlementsGROUP GROUP PARENT PARENT2010($m)2009($m)2010($m)2009($m)5 | Financial StatementsAccumulated current leave provisions 6 6 6 6Non-current long-service leave provision 1 1 1 1Total employee entitlements 7 7 7 7housing new zealand corporation | annual report 2009/10 111

housing new zealand corporation | notes to the financial statements continued16 Income taxThe major components of income tax expense for the years ended 30 June 2009 and 2010 are:16(a) Income tax expense/(benefit)GROUP GROUP PARENT PARENTIncome statementCurrent income tax 63 44 7 (5)Transfer of tax losses to Housing New Zealand Limited 0 0 0 5Historic tax losses recognised 0 (8) 0 (8)Deferred income tax relating to temporary differences (25) (24) 1 0Change in deductibility of building depreciation 800 0 55 0Change in company tax rate from 30% to 28% (59) 0 (4) 0Income tax expense/(benefit) reported in income statement 779 12 59 (8)Statement of changes in equityDeferred income taxNet change in deferred tax due to revaluation of buildings at 30%(2009: 30%) 73 (96) 2 (5)Net change in deferred tax due to hedged financial derivatives fromDebt Management Office at 30% (2009: 30%) (10) (28) (1) (1)Net change in deferred tax due to hedged financial derivatives fromothers at 30% (2009: 30%) 2 (4) 0 0Change in company tax rate from 30% to 28% (71) 0 0 0Other 1 0 0 0Income tax expense reported in other comprehensive income (5) (128) 1 (6)The reconciliation between the tax expense recognised in the net surplus/(deficit) for the year and taxexpense calculated on pre-tax accounting profit at the statutory rate is:2010($m)2009($m)2010($m)2009($m)GROUP GROUP PARENT PARENTAccounting profit/(loss) before tax from continuing operations 104 44 41 (3)Taxation at the statutory income tax rate of 30% (2009: 30%) 31 13 12 (1)Plus tax effect of:Permanent differencesNon-deductible expenses 7 7 (4) 5Transfer of tax losses to Housing New Zealand Limited 0 0 0 5Historic tax losses recognised 0 (8) 0 (8)Other 0 0 0 (9)Change in deductibility of building depreciation 800 0 55 0Change in company tax rate from 30% to 28% (59) 0 (4) 0Income tax expense/(benefit) reported in income statement 779 12 59 (8)Average effective income tax rate for the Group would have been 36.5 percent for 2010 (2009: 26.7 percent)without the effect of the 2010 Government Fiscal Budget announcement, which effectively removed taxdepreciation on buildings and changed the company tax rate from 30 percent to 28 percent from the2011/12 tax year.2010($m)2009($m)2010($m)2009($m)112 housing new zealand corporation | annual report 2009/10

16(b) Current income tax liabilityGROUP GROUP PARENT PARENTIncome tax – current liabilityOpening balance 7 (3) (37) (3)Current year tax charge to income statement 63 44 7 (5)Transfer of tax losses to Housing New Zealand Limited 0 0 0 5Historic tax losses utilised (8) 0 (8) 0Income tax paid (49) (34) (49) (34)Income tax paid for HNZL subsidiary 0 0 45 0Total income tax – current liability/(asset) 13 7 (42) (37)2010($m)2009($m)2010($m)2009($m)16(c)Deferred income tax liability relates to the following:GROUP GROUP PARENT PARENT2010($m)2009($m)2010($m)2009($m)Deferred tax liabilitiesRental property building revaluations 1,828 1,107 65 12Management assets 1 1 0 0Other 0 3 (1) (1)Gross deferred tax liabilities 1,829 1,111 64 11Deferred tax assetsProvisions – employee entitlements (2) (2) (2) (2)Provisions – other (4) (5) (3) (3)Housing New Zealand Corporation Property Developments Ltddeferred expenditure (1) 0 0 0Financial derivatives (29) (23) (1) (1)Historic tax losses recognised 0 (8) 0 (8)Other (1) 0 0 0Gross deferred tax assets (37) (38) (6) (14)Net deferred tax liability 1,792 1,073 58 (3)The deferred tax liability movements are:GROUP GROUP PARENT PARENTOpening balance 1,073 1,233 (3) 11Rental property building revaluations at 30% 73 (96) 2 (5)Financial derivatives at 30% (8) (32) (1) (1)Historic tax losses utilised (recognised in 2009) 8 (8) 8 (8)Deferred tax on temporary differences at 30% (25) (24) 1 0Change in deductibility of building 800 0 55 0Change in company tax rate from 30% to 28% (129) 0 (4) 0Closing balance 1,792 1,073 58 (3)2010($m)2009($m)2010($m)2009($m)5 | Financial Statementshousing new zealand corporation | annual report 2009/10 113

housing new zealand corporation | notes to the financial statements continued16 Income tax continued16(d) Imputation creditsGROUP GROUP PARENT PARENT2010($m)2009($m)2010($m)2009($m)Imputation credit accountBalance at beginning of the year 255 222 255 222Imputation credits attached to dividends paid during the year (58) (1) (58) (1)Income tax paid/(refunded) for the year 49 34 49 34Balance at end of the year 246 255 246 25517 Mortgage Insurance Scheme unearned premium reserveGROUP GROUP PARENT PARENTBalance at beginning of the year 16 11 16 11Insurance premium receipts 12 7 12 7Insurance claims (2) (1) (2) (1)Recognised insurance premium income for 2009/10 (1) (2) (1) (2)Actuarially assessed increase in premium reserve 2 1 2 1Mortgage Insurance Scheme unearned premium reserve 27 16 27 16The Corporation provides mortgage insurance to 11 commercial lenders. The insurance premium is currentlyset at 3 percent of the loan value, of which 1 percent is paid by the borrower and 2 percent by the Government.The Mortgage Insurance Scheme (MIS) is assessed six-monthly by an independent actuary to ensure that theprovision for claims is based on the best estimate of the present value of future claims.For the year ended 30 June 2010, a revised methodology (to that applied in previous years) has been adoptedfor calculating the present value of future claims. Under the revised methodology, profits are recognisedat the same time as the services underlying the loans are provided and should provide a more consistentand realistic measure of earnings. In the case of the MIS, the service provided is assumed to be the paymentof claims.The unearned premium liabilities established at valuation date are appropriate estimates of the presentvalue of claim payments in future years, plus expected future operating profits.Cases that are under management are reviewed closely and regularly by both the lender and by the HousingNew Zealand Corporation credit team. There is no reinsurance for the Mortgage Insurance Scheme.The actuarial assessment of the provision for the Mortgage Insurance Scheme claims was made on30 June 2010 by John Melville and Janet Lockett, both Fellows of the New Zealand Society of Actuaries.The assessment reports comply with professional standards applicable to actuarial reports on technicalliabilities for general insurance operation and requirements of NZ IFRS 4 Insurance Contracts. The actuarieshave expressed their satisfaction as to the nature, sufficiency and accuracy of the data used to determinethe outstanding claims provisions.The probability of sufficiency and risk margin used is 75 percent. Under Australian APRA regulations,provisions are required to be at a 75 percent probability adequacy level. The Corporation has deemed thatthe Mortgage Insurance Scheme has a similar risk profile and that this adequacy level is appropriate.The Corporation works closely with the lending organisations to pro-actively manage mortgage holders,with the intention to minimise mortgage failure and subsequent insurance claims by the lending institutions.2010($m)2009($m)2010($m)2009($m)114 housing new zealand corporation | annual report 2009/10

The insured underlying loans have a maturity period of between 8 and 25 years. The cash flows relating to theclaims are expected to fall mainly in the first six years of the insured loans; however, there is a degree ofuncertainty as to the exact timing.The present value of the estimated future claims is invested in short-term bank securities in accordance withapproved Housing New Zealand Corporation treasury policies.Sensitivity analysisThe actuarial assessment of the Mortgage Insurance Scheme also included a summary of the sensitivity ofthe valuation results to changes to the valuation assumptions.Key assumptions made as part of this review related to the nature of the borrowers and the future patternsof loan repayments and defaults under the Mortgage Insurance Scheme. The discount rate used in thecalculation of the provision for Mortgage Insurance Scheme claims was 4.5 percent (2009: 4.5 percent).Other quantitative and qualitative assumptions were:• Mortgage interest rate: 8 percent per annum.• Market Value inflation: 2.5 percent per annum.• Capital recovered: 75 percent of the market value at the time of sale.• Sales costs: 10 percent of the market value at the time of sale.• Delay from default to capital recovery: 12 months from the time of default to the time of sale.The table below indicates the effect of making specific changes in the valuation assumptions. In each case, allother assumptions are unchanged from those used in the main valuation.ASSUMPTION CHANGE75% ADEQUACY LIABILITY($m)Standard valuation with no change 26.64Reduced adequacy to best estimate (50%) 23.17Eliminate inflation from market value of loans 40.47Increase default assumptions by 10% 29.13These factors represent the insurance risks faced by the Group.The actuarial assessment of the Liability Adequacy Test (LAT) for the Mortgage Insurance Scheme (MIS) asat 30 June 2010 was $16.75 million. This is the amount that will be sufficient for losses under the MIS loansfor 75 percent of the time, before provision for any future profits.The equity of the Parent $3,804 million (2009: $3,842 million) is considered sufficient to meet the future claimliabilities of the scheme.The Parent, which manages the Mortgage Insurance Scheme, has a long-term credit rating of AAA from creditrating agency Standard & Poor’s.5 | Financial Statementshousing new zealand corporation | annual report 2009/10 115

housing new zealand corporation | notes to the financial statements continued17 Mortgage Insurance Scheme unearned premium reserve continuedClaims history and asset backingThe actual claims under the Mortgage Insurance Scheme have been less than those projected by the actuarialassessment at the 75 percent level.GROUP* PROJECTEDCLAIM LIABILITIESGROUP ACTUALCLAIMSGROUP* PROJECTEDCLAIM LIABILITIESGROUP ACTUALCLAIMS2010($m)2010($m)2009($m)2009($m)*These figures are the same for the Parent.1.8 1.7 1.1 0.918 Categories of financial assets and liabilitiesThe carrying amounts of financial assets and liabilities in each of the categories of financial instruments areas follows:GROUP GROUP PARENT PARENTFinancial AssetsLoans and receivablesReceivables and prepayments 12 19 13 42Bank registered certificates of deposit 80 125 80 125Overnight investments 7 8 0 0Mortgages 64 66 64 66Total loans and receivables 163 218 157 233Financial assets available for sale at fair value through othercomprehensive incomeBank registered certificates of deposit 49 27 49 27Shared Equity loans 1 1 1 1Total financial assets available for sale at fair value throughother comprehensive income 50 28 50 28Financial assets – cash flow hedge relationshipsInterest rate swaps – cash flow hedges 3 10 1 2Total financial assets at fair value through othercomprehensive income 3 10 1 2Financial LiabilitiesFinancial liabilities – cash flow hedge relationshipsInterest rate swaps – cash flow hedges 108 87 4 3Total financial liabilities at fair value through othercomprehensive income 108 87 4 3Financial liabilities measured at amortised costCrown loans – floating interest rate 1,831 1,809 314 308Accounts payable and other liabilities 102 119 19 21Financial guarantees – sold loans 6 8 6 8Total financial liabilities measured at amortised cost 1,939 1,936 339 3372010($m)2009($m)2010($m)2009($m)116 housing new zealand corporation | annual report 2009/10

19 Cash and cash equivalentsGROUP GROUP PARENT PARENTOvernight investments 7 8 0 0Bank registered certificates of deposit 80 125 80 125Total cash and cash equivalents 87 133 80 125Cash and cash equivalents represent cash available for working capital purposes. This earns interest atfloating rates based on daily bank deposit rates. The weighted average effective interest rate for overnightmoney market investments is 2.75 percent (2009: 2.5 percent).The weighted average interest rate on registered certificates of deposit is 3.11 percent (2009: 2.92 percent).Bank registered certificates of deposit are for varying periods of up to six months depending on immediatecash requirements of the Group.20 Interest rate derivativesSet out below are the interest rate derivatives at fair value analysed by current and non-current.2010($m)2009($m)2010($m)2009($m)GROUP GROUP PARENT PARENTInterest rate derivatives – total assets20(a) Interest rate derivatives – non-current assets 3 10 1 2Interest rate derivatives – total assets 3 10 1 2Interest rate derivatives – total liabilities20(b) Interest rate derivatives – current liabilities 29 39 2 120(c) Interest rate derivatives – non-current liabilities 80 48 3 2Interest rate derivatives – total liabilities 109 87 5 32010($m)Interest rate swaps – cash flow hedgesThe Group has interest-bearing borrowings that incur a floating rate of interest.2009($m)2010($m)2009($m)In order to protect against fluctuating interest rates, the Group has entered into interest rate swap contracts,under which it has a right to receive interest at floating rates and to pay interest at fixed rates. At 30 June 2010,after taking into account the effect of interest rate swaps, approximately 88 percent of the Group’s borrowingswere at a fixed rate of interest.5 | Financial Statementshousing new zealand corporation | annual report 2009/10 117

housing new zealand corporation | notes to the financial statements continued21 LoansInterest-bearing borrowingsSet out below is the interest-bearing borrowings analysed by current and non-current.GROUPCARRYING AMOUNT2010($m)2009($m)PARENTCARRYING AMOUNT2010($m)2009($m)21(a) Loans – currentCrown loans – floating interest rate 161 235 111 39Total loans – current 161 235 111 3921(b) Loans – non-currentCrown loans – floating interest rate 1,670 1,574 203 269Total loans – non-current 1,670 1,574 203 26921(a) & 21(b) Total current and non-current 1,831 1,809 314 308Commercial paperThe Group has a Note Issuance Facility Agreement dated 17 December 2009. At 30 June 2010, there was nocommercial paper outstanding (2009: nil). The aggregate principal amount of commercial paper outstandingwill not at any time exceed NZ$150 million. The Group has given a negative pledge that, while any commercialpaper issued under the note issuance facility remains outstanding, it will not, subject to certain exceptions,create or permit to exist any charge or lien over any of its assets.Crown fundingAs at 30 June 2010, $1,831 million (2009: $1,809 million) for the Group and $314 million (2009: $308 million)for the Parent has been borrowed from the Crown with maturity dates ranging from 2010 to 2019.The Group has given a negative pledge that, while any Crown borrowing remains outstanding, it will not,subject to certain exceptions, create or permit to exist any charge or lien over any of its respective assets.During the year ended 30 June 2010, $5,274 (2009: $4,533) was approved by the Crown as a reduction in thedebt to offset write-downs of home suspensory loans during the year.Standby loan facilitythe Group has a $50 million committed standby facility with two banks, which ends in December 2011.This facility can be extended for an additional 364 days with agreement with the banks.Bank overdraft facilityThe Group has an unsecured bank overdraft facility of $1 million (2009: $1 million) with an interest rate of6.5 percent (2009: 6.5 percent).118 housing new zealand corporation | annual report 2009/10

22 Interest rate risk on the carrying value of financial assets and liabilitiesThe following tables set out the carrying amounts, by maturity, of the financial assets and liabilities that areexposed to interest rate risk.YEAR ENDED 30 JUNE 2010INTEREST RATEPER ANNUM AT30 JUNE 2010AFTER HEDGINGTOTAL1 – 2 – 3 – 4– 5YEARS($m) ($m) ($m) ($m) ($m) ($m) ($m)GROUPFinancial assets(excluding derivatives)Overnight investments 2.75% 7 7 0 0 0 0 0Cash and cash equivalents 3.06% 80 80 0 0 0 0 0Mortgages 6.01% 67 9 0 0 1 0 57Receivables 12 12 0 0 0 0 0Available-for-sale investments 3.06% 49 49 0 0 0 0 0Total financial assets(excluding derivatives) 215 157 0 0 1 0 57Financial assetsUndiscounted cash flowsOvernight investments 7 7 0 0 0 0 0Cash and cash equivalents 80 80 0 0 0 0 0Mortgages 129 10 6 6 5 5 97Receivables 12 12 0 0 0 0 0Available-for-sale investments 49 49 0 0 0 0 0Total financial assets 277 158 6 6 5 5 97Financial liabilities(excluding derivatives) exposedto interest rate riskCrown loans – floating interest rate 6.12% 1,831 161 175 151 210 174 960Accounts payable and other liabilities 102 102 0 0 0 0 0Financial guarantees – sold loans 6 6 0 0 0 0 0Total financial liabilities(excluding derivatives) exposedto interest rate risk 1,939 269 175 151 210 174 960Financial liabilitiesUndiscounted cash flowsCrown loans – floating interest rate 2,132 217 227 197 250 206 1,035Accounts payable and other liabilities 102 102 0 0 0 0 0Financial guarantees – sold loans 6 6 0 0 0 0 0Total financial liabilities 2,240 325 227 197 250 206 1,0355 | Financial StatementsFinancial derivativesDiscounted cash flowsTotal fair value of derivatives – assets 3 0 0 0 0 1 2Total fair value of derivatives – liabilities 109 29 29 20 13 8 10Financial derivativesUndiscounted cash flowsTotal fair value of derivatives – assets 3 0 0 0 0 1 2Total fair value of derivatives – liabilities 139 47 31 22 15 10 14housing new zealand corporation | annual report 2009/10 119

housing new zealand corporation | notes to the financial statements continued22 Interest rate risk on the carrying value of financial assets and liabilities continuedYEAR ENDED 30 JUNE 2010INTEREST RATEPER ANNUM AT30 JUNE 2010AFTER HEDGINGTOTAL1 – 2 – 3 – 4– 5YEARS($m) ($m) ($m) ($m) ($m) ($m) ($m)PARENTFinancial assets(excluding derivatives)Cash and cash equivalents 3.06% 80 80 0 0 0 0 0Mortgage advances 6.01% 67 9 0 0 1 0 57Receivables 13 13 0 0 0 0 0Available-for-sale investments 3.06% 49 49 0 0 0 0 0Total financial assets(excluding derivatives) 209 151 0 0 1 0 57Financial assetsUndiscounted cash flowsCash and cash equivalents 80 80 0 0 0 0 0Mortgages 129 10 6 6 5 5 97Receivables 13 13 0 0 0 0 0Available-for-sale investments 49 49 0 0 0 0 0Total financial assets 271 152 6 6 5 5 97Financial liabilities(excluding derivatives) exposedto interest rate riskFinancial liabilities measured atamortised costCrown loans – floating interest rate 4.01% 314 111 16 64 12 55 56Accounts payable and other liabilities 19 19 0 0 0 0 0Financial guarantees – sold loans 6 6 0 0 0 0 0Total financial liabilities(excluding derivatives) 339 136 16 64 12 55 56Financial liabilitiesUndiscounted cash flowsCrown loans – floating interest rate 345 120 21 69 16 57 62Accounts payable and other liabilities 19 19 0 0 0 0 0Financial guarantees – sold loans 6 6 0 0 0 0 0Total financial liabilities 370 145 21 69 16 57 62Financial derivativesDiscounted cash flowsTotal fair value of derivatives – assets 1 0 0 0 0 0 1Total fair value of derivatives – liabilities 4 1 1 1 1 0 0Financial derivativesUndiscounted cash flowsTotal fair value of derivatives – assets 1 0 0 0 0 0 1Total fair value of derivatives – liabilities 6 3 1 1 1 0 0120 housing new zealand corporation | annual report 2009/10

YEAR ENDED 30 JUNE 2009INTEREST RATEPER ANNUM AT30 JUNE 2009AFTER HEDGINGTOTAL1 – 2 – 3 – 4– 5YEARS($m) ($m) ($m) ($m) ($m) ($m) ($m)GROUPFinancial assets(excluding derivatives)Overnight investments 2.5% 8 8 0 0 0 0 0Cash and cash equivalents 2.93% 125 125 0 0 0 0 0Mortgages 6.01% 66 2 3 3 5 6 47Receivables 19 19 0 0 0 0 0Available-for-sale investments 2.93% 27 27 0 0 0 0 0Total financial assets(excluding derivatives) 245 181 3 3 5 6 47Financial assetsUndiscounted cash flowsOvernight investments 8 8 0 0 0 0 0Cash and cash equivalents 125 125 0 0 0 0 0Mortgages 135 11 5 6 6 5 102Receivables 19 19 0 0 0 0 0Available-for-sale investments 27 27 0 0 0 0 0Total financial assets 314 190 5 6 6 5 102Financial liabilitiesmeasured at amortised costCrown loans – floating interest rate 6.3% 1,809 235 161 175 151 210 877Accounts payable and other liabilities 119 119 0 0 0 0 0Financial guarantees – sold loans 8 2 2 1 1 1 1Total financial liabilities(excluding derivatives) exposedto interest rate risk 1,936 356 163 176 152 211 878Financial liabilitiesUndiscounted cash flowsCrown loans – floating interest rate 2,065 284 204 215 185 239 938Accounts payable and other liabilities 119 119 0 0 0 0 0Financial guarantees – sold loans 8 2 2 1 1 1 1Total financial liabilities 2,192 405 206 216 186 240 939Financial derivativesDiscounted cash flowsTotal fair value of derivatives – assets 10 0 0 1 1 2 6Total fair value of derivatives – liabilities 87 39 28 8 3 3 65 | Financial StatementsFinancial derivativesUndiscounted cash flowsTotal fair value of derivatives – assets 14 0 0 1 2 2 9Total fair value of derivatives – liabilities 113 58 30 10 4 3 8housing new zealand corporation | annual report 2009/10 121

housing new zealand corporation | notes to the financial statements continued22 Interest rate risk on the carrying value of financial assets and liabilities continuedYEAR ENDED 30 JUNE 2010INTEREST RATEPER ANNUM AT30 JUNE 2009AFTER HEDGINGTOTAL1 – 2 – 3 – 4– 5YEARS($m) ($m) ($m) ($m) ($m) ($m) ($m)PARENTFinancial assets(excluding derivatives)Cash and cash equivalents 2.93% 125 125 0 0 0 0 0Mortgage advances 6.01% 66 2 3 3 5 6 47Receivables 43 43 0 0 0 0 0Available-for-sale investments 2.93% 27 27 0 0 0 0 0Total financial assets(excluding derivatives) 261 197 3 3 5 6 47Financial assetsUndiscounted cash flowsCash and cash equivalents 125 125 0 0 0 0 0Mortgages 135 11 5 6 6 5 102Receivables 42 42 0 0 0 0 0Available-for-sale investments 27 27 0 0 0 0 0Total financial assets 329 205 5 6 6 5 102Financial liabilities(excluding derivatives) exposedto interest rate riskFinancial liabilities measured atamortised costCrown loans – floating interest rate 4.09% 308 39 111 16 64 12 66Accounts payable and other liabilities 21 21 0 0 0 0 0Financial guarantees – sold loans 8 2 2 1 1 1 1Total financial liabilities(excluding derivatives) 337 62 113 17 65 13 67Financial liabilitiesUndiscounted cash flowsCrown loans – floating interest rate 338 48 118 20 68 14 70Accounts payable and other liabilities 21 21 0 0 0 0 0Financial guarantees – sold loans 8 2 2 1 1 1 1Total financial liabilities 367 71 120 21 69 15 71Financial derivativesDiscounted cash flowsTotal fair value of derivatives – assets 2 0 0 0 0 0 2Total fair value of derivatives – liabilities 3 1 0 0 0 0 2Financial derivativesUndiscounted cash flowsTotal fair value of derivatives – assets 3 0 0 0 0 1 2Total fair value of derivatives – liabilities 6 3 2 0 0 1 0122 housing new zealand corporation | annual report 2009/10

Hedging activitiesAt 30 June 2010, the Group had no foreign exchange contracts or foreign currency debt.Cash flow hedgesAt 30 June 2010, the Group had 146 (2009: 139) interest rate swap agreements, with a notional amount ofNZ$1,613 million (2009: NZ$1,596 million), paying a weighted average fixed rate of interest of 6.54 percent(2009: 6.76 percent) and receiving a variable rate equal to the 90-day bank bill rate. These interest rate swapsare being used to hedge the exposure to changes in the floating rate of the Group’s Crown borrowings andhave been designated as hedging instruments.23 Revenues23(a) Interest (income) and expensesGROUP GROUP PARENT PARENTInterest incomeInterest on temporary investments and bank 5 9 5 9Interest on mortgage advances 3 3 3 3Total interest income 8 12 8 12Interest expenseInterest – long-term borrowing 113 124 11 20Total interest expense 113 124 11 2023(b) Crown appropriation income2010($m)2009($m)2010($m)2009($m)GROUP GROUP PARENT PARENT2010($m)2009($m)2010($m)2009($m)Contracted housing support services 9 2 9 2Housing policy advice 3 3 3 3Housing assistance 1 9 1 9Housing Innovation Fund 9 0 9 0Housing New Zealand Corporation housing support services 2 2 2 2Housing New Zealand Corporation state house upgrades 20 22 20 22Wellington City Council housing grant 13 7 13 7Total Crown appropriation income 57 45 57 45The Corporation received Crown appropriations of $65 million (2009: $50 million) of which $8 million isshown below in note 23(e) for the Mortgage Insurance Scheme.23(c) Other incomeGROUP GROUP PARENT PARENT2010($m)2009($m)2010($m)2009($m)5 | Financial StatementsManagement fees from related parties 1 1 0 0Management fees from subsidiaries 0 0 140 129Dividends from subsidiaries 0 0 31 28Recognised insurance premium on Mortgage Insurance Scheme (MIS)(refer to note 23e) 1 2 1 2Other income 3 3 3 3Total other income 5 6 175 162housing new zealand corporation | annual report 2009/10 123

housing new zealand corporation | notes to the financial statements continued23 Revenues continued23(d) Realised gains/(losses) on asset salesGROUP GROUP PARENT PARENTGain/loss on asset sales 1 2 2 (1)Total realised gains/(losses) on asset sales 1 2 2 (1)23(e) Mortgage Insurance Scheme2010($m)2009($m)2010($m)2009($m)GROUP GROUP PARENT PARENTThird-party premium receipts 4 2 4 2Crown appropriation premium receipts 8 5 8 5Premium revenue deferred (11) (5) (11) (5)Recognised insurance premium revenue 1 2 1 2Claims expense (2) (1) (2) (1)Net surplus/(deficit) for Mortgage Insurance Scheme (1) 1 (1) 124 Expenses24(a) Depreciation and amortisation2010($m)2009($m)2010($m)2009($m)GROUP GROUP PARENT PARENTDepreciation – rental properties 160 168 6 6Depreciation – management assets 6 6 0 0Amortisation of intangible assets 6 4 0 0Total depreciation and amortisation 172 178 6 624(b) Personnel2010($m)2009($m)2010($m)2009($m)GROUP GROUP PARENT PARENTWages and salaries 78 81 77 80Employee benefits 5 3 5 3Other personnel costs 2 2 2 2Total personnel 85 86 84 8524(c) Other expenses2010($m)2009($m)2010($m)2009($m)GROUP GROUP PARENT PARENTTenancy debts written off during the period 2.3 2.4 0.0 0.0Change in the tenancy debt provision 0.1 0.3 0.0 0.0Mortgage bad debts recovered during the period (0.3) (0.3) (0.3) (0.3)Change in the mortgage advances provision 0.1 0.1 0.1 0.1Permanent diminution in asset values 5.6 8.5 0.6 0.4Directors’ fees 0.3 0.4 0.2 0.2Amounts paid to external auditors (refer to note 24e) 0.6 0.6 0.6 0.6Other 73.5 65.1 59.7 51.1Total other expenses 82.2 77.1 60.9 52.12010($m)2009($m)2010($m)2009($m)124 housing new zealand corporation | annual report 2009/10

24(d) GrantsGROUP GROUP PARENT PARENTRural Housing Programme suspensory loans 6.2 10.3 6.2 10.3HIF housing grant 16.2 32.0 16.2 32.0Wellington City Council housing grant 13.5 7.5 13.5 7.5Other 0.5 0.2 0.5 0.2Total grant expenses 36.4 50.0 36.4 50.024(e) Amounts paid to external auditors2010($m)2009($m)2010($m)2009($m)GROUP GROUP PARENT PARENTAmount received or due by Ernst & Young (acting on behalf of theAuditor-General ) for:• auditing the financial report of the entity and any other entityin the Group entity 0.5 0.5 0.5 0.5• other services in relation to the entity and any other entityin the Group entity 0.1 0.1 0.1 0.1Total amounts paid to the auditors 0.6 0.6 0.6 0.624(f) Asset impairment expenses2010($m)2009($m)2010($m)2009($m)GROUP GROUP PARENT PARENTProperty under development assets 5 0 0 0Intangible assets 1 0 1 0Mortgages 2 8 2 8Total asset impairment expenses 8 8 3 825 Annual distribution2010($m)2009($m)2010($m)2009($m)GROUP GROUP PARENT PARENTAnnual distribution 132 2 132 2Under section 40 of the Housing Corporation Act 1974 (the Act), as amended, the Corporation is required topay its annual surplus (operating and capital) to the Crown.2010($m)2009($m)2010($m)2009($m)5 | Financial Statementshousing new zealand corporation | annual report 2009/10 125

housing new zealand corporation | notes to the financial statements continued26 Reconciliation of net profit after tax with cash flows from operating activitiesReconciliation from the net profit after tax to the net cash flows from operations.GROUP GROUP PARENT PARENTNet surplus after tax (675) 32 (18) 5Adjustments for:Depreciation 166 174 6 6Dividend received from subsidiaries 0 0 (31) (28)Intangibles amortisation 6 4 0 0Permanent diminution of asset values 6 10 1 0Asset impairment expense 8 8 3 8Other non-cash items 5 29 4 29(Gain)/loss on asset sales (1) (2) (2) 1Bad debt write off 3 0 0 0Deferred tax recognised 716 (24) 52 0Housing Innovation Fund received in advance 9 0 9 0Lease and mortgage sales provision (1) 0 (1) 0Total income statement items 917 199 41 16Increase/(decrease) in other provisions (1) (1) (1) (1)Increase/(decrease) in tax provisions 21 (8) (34) (8)Increase/(decrease) in mortgage insurance unearned premium reserve 11 5 11 5Increase/(decrease) in rent in advance 2 1 1 0Increase/(decrease) in accounts payable (10) (5) 30 (38)(Increase)/decrease in accounts receivable 7 (5) 11 (10)Total balance sheet movements 30 (13) 18 (52)Net cash from operating activities 272 218 41 (31)27 Commitments and contingenciesOperating lease commitments – the Group as lesseeThe Group has entered into commercial leases on 30 June 2010 where it is not in the best interest of theGroup to purchase these assets.These leases have an average life of between three and six years with renewal terms included in the contracts.Renewals are at the option of the specific entity that holds the lease.2010($m)There are no restrictions placed upon the lessee by entering into these leases.Future minimum rentals payable under non-cancellable operating leases as at 30 June 2010 are as follows:2009($m)2010($m)2009($m)GROUP GROUP PARENT PARENTWithin 1 year 55 62 4 3After 1 year but not more than 5 years 139 156 3 3More than 5 years 53 40 0 0Total 247 258 7 62010($m)2009($m)2010($m)2009($m)126 housing new zealand corporation | annual report 2009/10

(a) Sub-lease receivablesThe Corporation has no sub-leases as at 30 June 2010 (2009: nil).(b) Operating lease commitments – Group as lessorThe Group has entered into property leases for its property portfolio. These properties held under operatingleases are measured under the fair value model in accordance with NZ IAS 16 as they are considered to providea social benefit and are not maintained solely to provide rental income.There are no non-cancellable leases executed by the Group.(c) Capital commitmentsAt 30 June 2010, the Group has capital commitments amounting to $16 million (2009: $79 million) forproperty projects.(d) Lending commitmentsAt 30 June 2010, the Group has lending commitments approved but not yet paid amounting to $12 million(2009: $12 million).(e) ContingenciesThe Corporation is liable to the owners (ANZ National Bank Limited, Ichthus Limited and Westpac BankingCorporation) of mortgages sold by the Corporation during 1992 to 1999 for certain losses they may incurfrom specified limited aspects of their ownerships of those mortgages. The amount of the liability cannotbe estimated.The Corporation has a contingent liability on properties underwritten for the Home Equity Scheme, acommunity-based home ownership programme. The value of the liability at 30 June 2010 is $4.5 million(2009: $3.6 million) with the number of houses in the scheme expanding further this year. In the event ofan actual liability, the Corporation will take the opportunity to use its acquisition budget to discharge theresponsibility, which is expected to have no material effect on the Corporation’s financial position.28 Related party disclosureThe Group financial statements include the financial statements of Housing New Zealand Corporation andthe subsidiaries listed in the following table:(a) SubsidiariesNAMECOUNTRY OFINCORPORATION% EQUITYINTEREST% EQUITYINTERESTINVESTMENT($m)INVESTMENT($m)2010 2009 2010 2009Housing New Zealand Limited New Zealand 100% 100% 3,522 3,447Community Housing Limited New Zealand 100% 100% 0 0Hobsonville Land Company Limited New Zealand 100% 100% 0 0HNZ Property Development Limited New Zealand 100% 100% 0 03,522 3,4475 | Financial StatementsThe New Zealand Government wholly owns the Corporation. The Corporation undertakes many transactionswith statutory corporations, state-owned enterprises and government departments on an arm’s length basis.These transactions are not considered related party transactions requiring disclosure as defined in NZ IAS 24Related Party Disclosures due to the adoption of public benefit entity exemptions.housing new zealand corporation | annual report 2009/10 127

housing new zealand corporation | notes to the financial statements continued28 Related party disclosure continued(b) Key management personnelKey management personnel are defined as senior management of the Corporation and all directors. In 2010seven employees were key management personnel (2009: seven employees).GROUP GROUP PARENT PARENTKey management personnel compensationSalaries and other short-term employee benefits 2,070 1,980 2,070 1,980Termination 63 0 63 0Total key management personnel 2,133 1,980 2,133 1,9802010($m)Termination of $62,500 relates to one person in 2010 (2009, nil and zero personnel).2009($m)2010($m)2009($m)(c)Remuneration details of members of Housing New Zealand Corporationand directors of subsidiariesGROUP GROUP PARENT PARENTPatrick Snedden (Chairperson) 79,900 79,900 49,000 49,000Colin Dale** 24,500 29,033 24,500 29,033Greg Hinton 39,900 39,900 24,500 24,500Lope Ginnen 42,962 46,025 27,562 30,625Adrienne Young-Cooper (appointed Jan 2010) 21,366 0 13,666 0Amos Forrester (appointed Jan 2010) 10,933 0 10,933 0Richard Staniland (appointed Jan 2010) 10,933 0 10,933 0Gary Taylor* 15,400 15,400 0 0Richard Didsbury* 15,400 15,400 0 0Garry Wilson (no longer on Board Jan 2010) 12,250 24,500 12,250 24,500Jo Brosnahan (no longer on Board Jan 2010) 19,950 39,900 12,250 24,500Sandra Lee (no longer on Board Jan 2010) 12,250 28,500 12,250 28,500Tony Paine (no longer on Board Jan 2010) 12,250 24,500 12,250 24,500Total remuneration 317,994 343,058 210,094 235,158*Director of Hobsonville Land Company Limited but not a member of the Corporation during the year**Colin Dale’s remuneration (Group) includes services as a member of the Tamaki Board.Richard Didsbury, Lope Ginnen, Greg Hinton, Patrick Snedden, Gary Taylor and Adrienne Young-Cooper aredirectors of Hobsonville Land Company Limited.2010($m)2009($m)The above table includes all remuneration paid or payable to each director during the year.There have been no payments to committee members appointed by the Board who are not Board directorsduring this financial year.Directors’ insuranceThe Corporation has effected directors’ and officers’ liability and professional indemnity insurance coverduring the financial year in respect of the liability or costs of Board members and employees.The total annual premium for the directors’ and officers’ liability insurance is $45,000 (2009: $45,000).2010($m)2009($m)128 housing new zealand corporation | annual report 2009/10

Terms and conditions of transactions with related parties• Sales to and purchases from related parties are made in arm’s-length transactions at normal marketprices and normal commercial terms.• Outstanding balances at 30 June 2010 and 2009 are unsecured and settlement occurs in cash.• There have been no guarantees provided or received for any related party receivables.• For the year end 30 June 2010, the Group has not raised any provision for doubtful debts relating toamounts owed by related parties as the payment history has been excellent (2009: nil). This assessmentis undertaken each financial year through examining the financial position of the related party and themarket in which the related party operates. When assessed as required, the Group raises such a provision.29 Remuneration of employees – $100,000 and overGROUP2010GROUP2009PARENT2010PARENT2009EMPLOYEES RECEIVINGCESSATION PAYMENTS2010 2009$100,001–$110,000 34 31 34 31 0 1$110,001–$120,000 31 25 31 25 0 2$120,001–$130,000 16 19 16 19 1 0$130,001–$140,000 23 9 22 8 3 1$140,001–$150,000 12 8 12 8 0 0$150,001–$160,000 8 10 8 10 0 1$160,001–$170,000 9 6 9 6 0 0$170,001–$180,000 7 4 5 2 0 0$180,001–$190,000 2 4 2 4 0 1$190,001–$200,000 1 1 1 1 0 0$200,001–$210,000 0 1 0 1 0 0$210,001–$220,000 0 3 0 3 0 3$220,001–$230,000 1 0 1 0 0 0$230,001–$240,000 0 1 0 1 0 0$240,001–$250,000 0 1 0 1 0 0$250,001–$260,000 1 1 1 1 0 0$260,001–$270,000 0 1 0 1 0 0$270,001–$280,000 0 0 0 0 0 0$280,001–$290,000 1 1 1 1 0 0$290,001–$300,000 1 1 1 1 0 0$300,001–$310,000 0 0 0 0 0 0$310,001–$320,000 0 0 0 0 0 0$320,001–$330,000 1 1 1 0 0 0$330,001–$340,000 1 0 1 0 1 0$340,001–$350,000 1 0 0 0 0 0$350,001–$360,000 0 0 0 0 0 0$360,001–$370,000 0 0 0 0 0 0$370,001–$380,000 0 0 0 0 0 0$380,001–$390,000 0 0 0 0 0 0$390,001–$400,000 0 0 0 0 0 0$400,001–$410,000 0 0 0 0 0 0$410,001–$420,000 1 1 1 1 0 0Total employees 151 129 147 125 5 95 | Financial StatementsDuring the year ended 30 June 2010, 19 (2009: 19) employees received compensation and other benefits inrelation to cessation totalling $404,354 (2009: $330,101).housing new zealand corporation | annual report 2009/10 129

housing new zealand corporation | notes to the financial statements continued30 Events subsequent to balance dateOn 4 September 2010, a major earthquake occurred in the Canterbury region. The Corporation has 6,000properties within this region and these properties are currently being assessed for damage. Due to thenumber of properties to be assessed, the total cost of the damage has yet to be qualified. The Corporationhas material damage earthquake insurance of up to $250 million for property damage including businessinterruption costs (for up to two years), with a policy excess of $10 million. No provision has been madein the financial statements for the year ended 30 June 2010 in relation to this event.31 Budgeted figures(a) 2010 significant variations from budgetThe unaudited budget figures reported in these financial statements are the financial performance targetsincluded in the Corporation’s 2009/2010 Statement of Intent (SOI).(b) Income statementThe Corporation’s overall financial performance for the year ended 30 June 2010 was a $675 million net deficitafter tax compared with a budgeted net surplus after tax of $46 million. The unfavourable variance wasprimarily due to changes in the deductibility of depreciation for tax purposes on rental property and resultedin deferred tax liabilities of $741 million being brought forward and included in the current year’s tax expense.(c) Operating incomeThe key contributors to the positive operating revenue result was as follows:Rental income was $20 million higher than budget due to low growth assumption used in the budget.Average daily rental income grew 3.42 percent for the year. The SOI budget assumed 1.2 percent growth.Interest income was $2 million higher than budget due to higher average cash balances through the yearthan budgeted.Crown appropriated income was $4 million higher than budget mainly due to the receipt of HousingInnovation Fund (HIF) funding that was not included in the budget. It was originally intended that the Crownwould issue HIF grants and loans.(d) Operating expenditureTotal operating expenditure was $5 million above the SOI budget. Variances to the SOI budget are as follows:Repairs and maintenance were $3 million below SOI budget mainly due to lower planned maintenance asthere were delays in tendering work programmes planned for the latter part of the financial year and deferralof some work due to changing contractors for the start of the 2010/11 financial year.Personnel expenses were $5 million below budget mainly due to unfilled vacancies and cost savings in otherpersonnel expenses.Interest costs were $7 million below budget due to lower actual interest rates than budgeted. The budgetedinterest rate was 6.6 percent against an actual of 6.2 percent.Asset impairment expense for the year was $8 million. This included $1.7 million unbudgeted write-downof HIF loans, diminution in value of property assets under construction of $4.9 million and write-down ofintangible assets totalling $1.3 million.Grants were $12 million above the SOI budget. This was due to HIF grants of $14.4 million not being includedin the original budget as it was originally intended that the Crown would issue HIF grants and loans. This waspartially offset by favourable variances in other grants of $2.4 million.130 housing new zealand corporation | annual report 2009/10

Other expenses were $8 million below budget primarily due to the following:• Write offs were $6 million below budget due to the deferral of write offs at Tamaki (related to the TamakiTransformation programme) until the 2010/11 financial year, consent delays relating to a communityrenewal project in Porirua and the average value of properties written down being lower than budgeted.• Mortgage claim expenses were $4 million below budget due to fewer claims than anticipated.• Provision for loan impairment on loans still to be dispersed of $7 million was unbudgeted for.• Consultants were $4 million below budget due to increased focus on cost control in this discretionary area.Tax expense was $749 million above budget due to changes in the deductibility of depreciation for taxpurposes on rental property. Deferred tax liabilities of $741 million have been brought forward and includedin the current year’s tax expense.Note: Grants were included in other expenses in the SOI budget and mortgage insurance premium expensewas netted off other income in the SOI budget. Both have been shown separately in the Annual Report asthe actual results are materially higher than the SOI budgets and therefore shown individually.(e) Balance sheetOverall net assets were $330 million above the SOI budget. This was due to higher than budgeted assetrevaluation, offset by higher deferred tax liability.Current assets were $54 million below budget mainly due to a lower end-of-year cash balance. This wasmainly related to payment of a higher dividend to the Crown than budgeted and higher property additionsthan budgeted.Property, plant and equipment was $1.1 billion higher than budget mainly due to the revaluation of propertyas at 30 June 2010. The budget assumed a decrease in property values, and the 2008/09 valuation was higherthan expected.Intangible assets were $9 million higher than budget due to software additions for the EnterpriseTransformation Programme (ETP) incurred in the 2009/10 financial year.ACTUAL2010($m)BUDGET2010($m)Interest rate derivativesCurrent assets 0 0Non-current assets 3 0Current liabilities (29) (4)Non-current liabilities (80) (121)Total (106) (125)The overall improvement in the fair value of the Corporation’s interest rate derivatives at year end comparedwith the SOI budget was due to a higher level in market long-term interest rates at 30 June 2010, comparedwith rates used in the SOI budget.5 | Financial StatementsAs the Corporation’s interest rate hedges provide a fixed rate of interest on its Crown borrowings, anyincrease in long-term interest rates increases the value of these interest rate hedges.housing new zealand corporation | annual report 2009/10 131

housing new zealand corporation | notes to the financial statements continued31 Budgeted figures continuedCurrent liabilities were $47 million below the SOI budget. This is mainly due to a lower closing balance for thecurrent portion of term loans. The budget assumed a higher portion of loans would be repaid in the currentyear from HIF receipts from the Crown. This was offset by higher current interest rate derivatives (market-based).Non-current liabilities were $789 million higher than the SOI budget. The deferred tax liability was$761 million above budget due to changes in the deductibility in depreciation on buildings for tax purposes.(f) Statement of movements in equityThere was a net $330 million increase in the closing balance of equity compared with the SOI budget.Movements include the following:There was a positive variance between the actual opening balance (1 July 2009) and SOI budget of$421 million as the SOI was finalised prior to 30 June 2009 and assumed a greater devaluation in propertythan actually occurred.The asset revaluation for 2009/10 of rental property resulted in a net $723 million positive variance to budget.Financial assets at fair value through equity accounted for a net negative variance of $40 million againstbudget, due to a drop in market interest rates which affects the Corporation’s interest rate swaps negatively,ie. lowering the value of the Corporation’s interest rate swap portfolio to the market.Net surplus for the year was $721 million below budget with variances in the income statement analysisdetailed above.Net capital movement of $105 million was $62 million better than budget mainly due to the budget assumingthat the HIF loans would be sold to the Crown through a reduction in debt and equity (78:22 split respectively),which did not occur.Payment of dividends to the Crown was $112 million above budget.(g) Cash flow statementClosing cash and cash equivalents for the year of $87 million was $59 million below the Statement of Intentbudget due to the following:Operating activities – exceeded budget by $70 million. This surplus is explained in the income statementvariance analysis above.Investment activities – net cash outflow of $313 million resulted in a negative variance of $87 million to theSOI budget mainly due to zero receipts in mortgage and other lending repayments, which were budgetedat $50 million. This related to a budgeted sale of HIF loans to the Crown that never occurred. Unbudgetedintangible asset additions of $19 million related to ETP. No budget provision was made for ETP as the projectwas pending Board approval. Short-term investments moved by a negative $16 million compared to budget.Financing activities – negative net cash flows of $5 million were $40 million below budget due to a higherdividend paid to the Crown than budgeted. This was offset by $62 million higher capital movement and$10 million higher net Crown debt. Both variances were due to the budgeted assumption that the HIF loanwould be sold back to the Crown during the 2009/10 year.132 housing new zealand corporation | annual report 2009/10

housing agency accountStatement of ResponsibilityStatement of Responsibility for the year ended 30 June 2010The Housing Agency Account is administered by Housing New Zealand Corporation on behalf of the Crown.It does not form part of the Housing New Zealand Corporation Group.The Board of Housing New Zealand Corporation is pleased to present the financial statements of theHousing Agency Account for the year ended 30 June 2010.a) The Board is responsible for the preparation of the financial statements and the judgements used therein.b) The Board is responsible for establishing and maintaining a system of internal control to providereasonable assurance as to the integrity and reliability of financial reporting.c) In the opinion of the Board, the financial statements for the year ended 30 June 2010 fairly reflect thefinancial position and financial performance of the Housing Agency Account at that date.For and on behalf of the Board of Housing New Zealand CorporationPatrick N SneddenchairAdrienne Young-Cooperdeputy chair30 September 2010 30 September 20105 | Financial StatementsHousing Agency Accounthousing new zealand corporation | annual report 2009/10 133

housing agency accountBalance SheetAS AT 30 JUNE 2010NOTES 2010 2009($000) ($000)assetsCurrent assetsCash and cash equivalents 9 2,392 6,433GST recoverable 1,978 63Prepayments and other receivables 9 281 147Land intended for sale 7 8,628 34Total current assets 13,279 6,677Non-current assetsLand under development 3 81,601 81,358Rental properties 5 9,021 9,073Work in progress 4 9,255 9,931Investment properties 6 11,813 -Total non-current assets 111,690 100,362Total assets 124,969 107,039LiabilitiesCurrent liabilitiesAmount due to Housing New Zealand Corporation 9,10 1,207 315Contract deposits 9,7 6,186 6,186Accounts payable and other liabilities 9 190 206Total current liabilities 7,583 6,707Total liabilities 7,583 6,707Net assets 117,386 100,332EquityCrown funds 123,461 107,921Retained earnings (6,075) (7,589)Revaluation reserve - -Total equity 117,386 100,332For and on behalf of the Board, who authorised the issue of the financial statements on 30 September 2010.Patrick N SneddenchairAdrienne Young-Cooperdeputy chair30 September 2010 30 September 2010The above statement should be read in conjunction with the accompanying notes.134 housing new zealand corporation | annual report 2009/10

housing agency accountIncome StatementFOR THE YEAR ENDED 30 JUNE 2010NOTES 2010 2009($000) ($000)RevenueRental income from tenants 981 1,117Interest income 84 22Crown appropriation income 1,200 1,468Fair value gains on investment property 6 2,095 -Gains on sale of land 105 24Total operating revenue 4,465 2,631ExpensesRevaluation loss on rental properties 5 15 357Impairment on work in progress 4 673 -Interest expenses - 5Other expenses 2 2,263 2,442Total operating expenses 2,951 2,804Operating surplus/(deficit) 1,514 (173)Other comprehensive incomeRevaluation of property, plant and equipmentRevaluation gains/(losses) 5 - (520)Other comprehensive income net of tax - (520)Total comprehensive income net of tax 1,514 (693)The above statement should be read in conjunction with the accompanying notes.5 | Financial StatementsHousing Agency Accounthousing new zealand corporation | annual report 2009/10 135

housing agency accountStatement of Changes in EquityFOR THE YEAR ENDED 30 JUNE 2010NOTES 2010 2009($000) ($000)Total equity at 1 July 100,332 97,596Revaluation of property, plant and equipmentRevaluation reserve gains/(losses) - (520)Net surplus/(deficit) for the year 1,514 (173)Total comprehensive income for the period 1,514 (693)Contributions from and distributions to the CrownEquityCapital contributions from the Crown 15,540 3,429Total contributions from and distributions to the Crown 15,540 3,429Total changes in equity 17,054 2,736Total equity at 30 June 117,386 100,332Equity attributable to the CrownOpening balance 107,921 104,492Contributions from the Crown 15,540 3,429Closing equity attributable to the Crown 123,461 107,921Retained earningsOpening retained earnings (7,589) (7,744)Net surplus/(deficit) for the year 1,514 (173)Net transfers from asset revaluation reserve on disposal - 328Closing retained earnings (6,075) (7,589)Revaluation reserveOpening revaluation reserve - 848Asset revaluations – property, plant and equipment 5 - (520)Net transfers from asset revaluation reserve on disposal 5 - (328)Closing revaluation reserve - -Total equity at 30 June 117,386 100,332The above statement should be read in conjunction with the accompanying notes.136 housing new zealand corporation | annual report 2009/10

housing agency accountCash Flow StatementFOR THE YEAR ENDED 30 JUNE 2010NOTES 2010 2009($000) ($000)Cash flows from/used in operating activitiesRental income 981 1,117Crown appropriation income 1,222 1,358Interest received 84 22Payments to suppliers (4,230) (2,647)Interest expense - (5)Net cash flows from operating activities 8 (1,943) (155)Cash flows from/used in investing activitiesContract deposits received - 6,186Sale of assets 419 440Purchase and development of land (18,949) (2,811)Net cash flows from investing activities (18,530) 3,815Cash flows from/used in financing activitiesContributions from the Crown 15,540 3,429Repayments to/(advances from) the Corporation 892 (656)Net cash flows from financing activities 16,432 2,773Net cash flows (4,041) 6,433Opening cash and cash equivalents 6,433 -Closing cash and cash equivalents 2,392 6,433The above statement should be read in conjunction with the accompanying notes.5 | Financial StatementsHousing Agency Accounthousing new zealand corporation | annual report 2009/10 137

housing agency accountNotes to the Financial StatementsFOR THE YEAR ENDED 30 JUNE 20101 Statement of accounting policiesReporting entityThe Housing Agency Account is administered as an agency of the Crown by Housing New Zealand Corporationin terms of the Housing Act 1955 (Housing Act). Under the Housing Act, Housing New Zealand Corporation isempowered to act as the agent of the Crown in carrying out the Crown’s decisions in relation to acquisition,setting apart, and development of land, and the acquisition of assets for state housing purposes.The registered office of Housing New Zealand Corporation (the Corporation) is at Level 3, 28 Grey Street,Wellington.These financial statements have been prepared in accordance with generally accepted accounting practicein New Zealand, as appropriate for public benefit entities and with section 34 of the Housing Act.The Housing Agency Account is a Public Benefit Entity (PBE), which is defined as an entity whose primaryobjective is to provide goods or services for community or social benefit and where any equity has beenprovided with a view to supporting that primary objective rather than for a financial return to equity holders.The Housing Agency Account is not controlled by the Corporation and does not form part of the Corporation’sGroup Financial Statements.Statement of ComplianceThe financial statements comply with generally accepted accounting practice in New Zealand (NZ GAAP),which include New Zealand equivalents to International Financial Reporting Standards (NZ IFRS), asappropriate for public benefit entities.Differential reportingThe Housing Agency Account qualifies for differential reporting as it does not have public accountabilityand is not large. The Housing Agency Account has taken advantage of all available differential reportingexemptions, except that a cash flow statement has been prepared.Measurement basisThe financial statements are presented in New Zealand dollars and all values are rounded to the nearestthousand dollars ($000) unless otherwise stated. The accounting principles for measuring and reportingfinancial performance and financial position on an historical-cost basis have been followed by the entityexcept, under the modified historical cost basis, rental properties and freehold land have been revalued underNZ IAS 16 Accounting for Property, Plant and Equipment, and under the fair value basis, investment propertieshave been revalued under NZ IAS 40 Investment Properties.Specific accounting policiesSpecific accounting policies that materially affect the measurement of financial performance and financialposition have been consistently applied.Land under developmentLand and related developments for eventual resale are stated at the lower of cost and net realisable value,applied on a basis consistent with management’s intended development programme and NZ IAS 2Inventories. Any movements in value are charged to net surplus/(deficit) for the year. Net realisable valueshave been determined by independent registered valuers. Cost is defined as all costs incurred that are directlyrelated to the development of these assets. Net realisable value is the estimated selling price in the ordinarycourse of business less estimated cost of completion and the estimated costs necessary to make the sale.Land intended for saleLand intended for sale is stated at the lower of cost and fair value less costs to sell, applied on a basisconsistent with management’s intended disposal programme. Any decreases in value are charged to netsurplus/(deficit) for the year. Fair values have been determined by independent registered valuers. Cost isdefined as all costs incurred that are directly related to the purchase of these assets.138 housing new zealand corporation | annual report 2009/10

Work in progressLand and related developments for eventual use as state housing stock are valued at cost. Under NZ IAS 16Accounting for Property, Plant and Equipment these developments are annually tested for any impairment.Any decrease in value on an asset class basis is charged to net surplus/(deficit) for the year. Cost is definedas all costs incurred that are directly related to the development of these assets.Rental propertyRental properties are revalued to fair value, determined by reference to their highest and best use, on anannual basis under NZ IAS 16 Accounting for Property, Plant and Equipment.Fair value is determined by reference to market-based evidence, and is the amount for which the assets couldbe exchanged between a knowledgeable willing buyer and a knowledgeable willing seller in an arm’s lengthtransaction as at the valuation date. Independent valuations are performed with sufficient regularity to ensurethat the carrying amount does not differ materially from the asset’s fair value at the balance sheet date.Any revaluation surplus is recognised in the asset revaluation reserve in other comprehensive income exceptto the extent that it offsets a previous revaluation deficit for the same asset that was recognised in netsurplus/(deficit) for the year, therefore the surplus is recognised in net surplus/(deficit) for the year.Any revaluation deficit is recognised in net surplus/(deficit) for the year except to the extent that it offsets aprevious revaluation surplus for the same asset that was recognised in the asset revaluation reserve, thereforethe deficit is offset to the extent of the credit balance existing in the revaluation reserve for that asset.An item of property is derecognised upon disposal or when no future economic benefits are expected to arisefrom the continued use of this asset. Upon disposal, any revaluation reserve relating to the particular assetbeing sold is transferred to retained earnings. Any gain or loss arising on derecognition of an asset is includedin net surplus/(deficit) for the year, in the year the item is derecognised. Gain or loss on derecognition iscalculated as the difference between the net disposal proceeds and the carrying amount of the item.Depreciation is calculated on a straight-line basis over the estimated useful life of the building as follows:Rental properties40 yearsInvestment propertiesInvestment properties are revalued to fair value, determined by reference to their highest and best use,on an annual basis under NZ IAS 40 Investment Property.Fair value is determined by reference to market-based evidence, and is the amount for which the assets couldbe exchanged between a knowledgeable willing buyer and a knowledgeable willing seller at an arm’s lengthtransaction as at the valuation date. Independent valuations are performed with sufficient regularity toensure that the carrying amount does not differ materially from the asset’s fair value at the balance sheetdate. Any transfers to or from investment properties are made when management reviews the purpose/useof these properties. Any movements in value are charged to the net surplus/(deficit) for the year.Cash and cash equivalentsCash and cash equivalents include cash on hand and short-term liquid investments with original maturitiesup to 90 days.5 | Financial StatementsHousing Agency AccountReceivablesReceivables are stated at their estimated realisable value.housing new zealand corporation | annual report 2009/10 139

housing agency account | notes to the financial statements continued1 Statement of accounting policies continuedRevenuesRevenue shown in net surplus/(deficit) for the year comprises the amounts received and receivable by theHousing Agency Account for providing rental properties to customers, for gains on sale of land and buildings,for interest on bank deposits and for costs reimbursed through Crown appropriations. Any non-cash gains inthe fair value of investment properties are recognised as revenue in net surplus/(deficit) for the year. Revenueis recognised to the extent that it is probable that the economic benefits will flow to the Housing AgencyAccount and the revenue can be reliably measured.Income taxThe Housing Agency Account is not liable for taxation, by virtue of section CW 31(2) of the Income Tax Act 2005.Borrowing costsBorrowing costs are recognised as an expense in the period in which they are incurred.Accounts payable and other liabilitiesAccounts payables and other liabilities are carried at amortised cost, and due to their short-term nature theyare not discounted.New accounting standards and interpretations(i) Changes in accounting policy and disclosuresThe accounting policies adopted are consistent with those of the previous financial year except forthe following:The Housing Agency Account has adopted the following new and amended New Zealand equivalents toInternational Financial Reporting Standards (NZ IFRS, NZ IAS and NZ IFRIC) for the financial accounts ended30 June 2010.When the adoption of the new standard or interpretation is deemed to have an impact on the financialstatements, its impact is described below:reference title summaryapplicationdateimpact on haa financial reportNZ IAS 1(revised)Presentation ofFinancialStatements andconsequentialamendmentsto otherNew ZealandAccountingStandardsIntroduces a statement ofcomprehensive income.Other revisions includeimpacts on the presentationof items in the statement ofchanges in equity, newpresentation requirementsfor restatements orreclassifications of items inthe financial statements,changes in the presentationrequirements for dividendsand changes to the titles ofthe financial statements.1 January2009The revised standard separatesowners and non-owner changesin equity. The statement ofchanges in equity deals only withtransactions related to theowners. All non-owner equitytransactions are to be included inthe statement of comprehensiveincome, either in one statementor in two separate statements.HAA has elected to present onestatement.HAA has elected to (as per NZ IAS 1)to retain the headings for theincome, balance sheet and cashflow statements.140 housing new zealand corporation | annual report 2009/10

(ii) Accounting standards and interpretations issued but not yet effectiveThe NZ IFRS Standards and Interpretations that have recently been issued or amended but are not yeteffective and have not been adopted by HAA for the annual reporting period ending 30 June 2010 aredescribed below:reference title summaryapplicationdateimpact on haa financial reportNZ IAS 24Related PartyDisclosures(Revised 2009)The amendment simplifiesthe definition of a relatedparty and provides a partialexemption from thedisclosure requirements forpublic benefit entities.1 January2011HAA expects these amendmentswill result in additionaldisclosure.NZ IFRS 9FinancialInstrumentsThis standard is part of theIASB’s project to replaceIAS 39 Financial Instruments:Recognition andMeasurement.1 January2013The impact of this standard onHAA has yet to be determined.The following new accounting standards and interpretations do not apply to HAA:• NZ IFRS 2 Amendments to NZ IFRS 2 – Share-based Payment Transactions• NZ IFRS 3 (revised) Business Combinations• NZ IFRS 4 Amendments to NZ IFRS 4 – Insurance Contracts• NZ IFRS 7 Amendments to NZ IFRS 7 – Financial Instruments Disclosures• NZ IFRIC 14 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interactions• NZ IFRIC 16 Hedges of a Net Investment in a Foreign Operation• NZ IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments• NZ IAS 27 Consolidation and Separate Financial statements• NZ IAS 34 Amendments to NZ Equivalent to IAS 34 Interim Financial Reporting – Scope• NZ IAS 39 Amendments to NZ IAS 39 – Financial Instruments: Recognition and Measurement• Improvements to New Zealand Accounting standards arising from the Annual Improvement Project –NZ IAS 1; NZ IAS 17; NZ IAS 36; NZ IAS 39.2 Operating expenses2010 2009($000) ($000)Management fee 1,413 1,276Consultants 150 454Depreciation (rental property) 120 119Permanent diminution in asset values - 50Premises security 47 63Property maintenance 85 100Insurance 16 10Rates 213 150Other expenses 219 220Operating expenses 2,263 2,442Audit fees are paid by Housing New Zealand Corporation.5 | Financial StatementsHousing Agency Accounthousing new zealand corporation | annual report 2009/10 141

housing agency account | notes to the financial statements continued3 Land under development2010 2009($000) ($000)Land under development for resale 81,601 81,358Land is held for resale at the lower of cost or net realisable value. The land relates to purchases of land atthe former Hobsonville airbase from the New Zealand Defence Force. The land under development for resalehas been valued as at 30 June 2010 as part of the overall Hobsonville site valuation by Quotable ValueNew Zealand, a company employing registered and qualified valuers with the principal registered valuerfor the valuation being Kerry Stewart (PG Dip Env Audit, MBA, ANZIV, SNZPI). The fair value is $127.9 million(2009: $137.5 million). Land under development is recognised as inventory until available for sale. Inventorywas valued under NZ IAS 2 Inventories.During the year 23 properties at the former Hobsonville airbase were deemed to be investment propertiesas these properties are being retained to be sold at a later date. Costs of $9.7 million were reclassified fromland under development to investment properties. These properties accounted for $10.0 million of the 2009valuation of $137.5 million for land under development.During the year two sections of land with a cost totalling $7.9 million were reclassified as intended for sale.These properties accounted for $13.9 million of the 2009 valuation of $137.5 million for land under development.The table below summarises the reclassifications during 2009/10.MOVEMENTS DURING 2009/10CARRYINGVALUE($000)Land under development for resale – opening balance 1 July 2009 81,358Transferred to investment properties (9,718)Transferred to properties intended for sale (7,884)Purchase of New Zealand Defence Force land 14,000Other development costs for the year 3,845Land under development for resale – closing balance 30 June 2010 81,6014 Work in progress2010 2009($000) ($000)Land under development for state housing – opening balance 1 July 9,931 5,828Additions during the year 3 4,103Transfers to rental properties (6) -Impairment in work in progress (673) -Work in Progress 9,255 9,931Land under development for state housing is held at cost and is impairment tested annually.Land value comprises properties transferred from various sections of the Crown under the Public Works Act 1981.These amounts were previously classified as Land under development for resale in 2009. These propertiesare now reclassified separately as work in progress to reflect that the intention of this land is for statehousing purposes. The cost related to these parcels of land as at 30 June 2010 amounted to $9.9 million(2009: $9.9 million). The parcels of land under development have been valued as at 30 June 2010, by QuotableValue New Zealand, a company employing registered and qualified valuers with the principal registeredvaluer for the valuation being Kerry Stewart (PG Dip Env Audit, MBA, ANZIV, SNZPI).The fair value is $9.255 million (2009: $12.8 million). The carrying value was reduced to this fair value figure of$9.255 million and the $673,000 reduction was charged to net surplus/(deficit) for the year.142 housing new zealand corporation | annual report 2009/10

5 Rental properties2010 2009($000) ($000)Land 4,209 4,240Buildings 4,812 4,833Rental properties 9,021 9,073LANDBUILDINGS($000) ($000)Movements during 2009/10Rental properties – opening balance 1 July 2009 4,240 4,833Additions during the year 50 27Transfer from work in progress - 6Revaluation (81) 66Depreciation for the year - (120)Rental Properties – closing balance 30 June 2010 4,209 4,812Rental properties comprising land and improvements were revalued as at 30 June 2010 at fair value inaccordance with NZ IAS 16 Accounting for Property, Plant and Equipment.The valuation was carried out by an independent valuer, Quotable Value New Zealand, a company employingregistered and qualified valuers with the principal registered valuer for the valuation being Kerry Stewart(PG Dip Env Audit, MBA, ANZIV, SNZPI). The total gross amount of the valuation excluding properties intendedfor sale, and excluding selling and other costs, was $9.0 million (2009: $9.1 million).The revaluation effect relating to rental properties was a decrease of $15,000 (2009: a decrease of $848,000).This decrease of $15,000 was included in net surplus/(deficit) for the year (2009: $520,000 cleared therevaluation reserve and $348,000 was charged to net surplus/(deficit) for the year).6 Investment properties2010 2009($000) ($000)Investment properties 11,813 -During the year 23 properties at the former Hobsonville airbase were deemed to be investment properties asthese properties are being retained to be sold at a later date. Costs of $9.7 million were reclassified from landunder development to investment properties. These properties had a fair value of $10.0 million in 2009, whichwere included as part of land under development in 2009, and were shown at cost. Investment propertiescomprising land and improvements were revalued as at 30 June 2010 at fair value in accordance with NZ IAS 40Investment Properties. The valuation was carried out by Quotable Value New Zealand, a company employingregistered and qualified valuers, with the principal registered valuer for the valuation being Kerry Stewart(PG Dip Env Audit, MBA, ANZIV, SNZPI). The total gross amount of the valuation was $11.8 million.5 | Financial StatementsHousing Agency AccountThe increase of $2.1 million between the $9.7 million cost at 30 June 2009 and $11.8 million fair value at30 June 2010 was included in net surplus/(deficit) for the year in accordance with NZ IAS 40 InvestmentProperties.housing new zealand corporation | annual report 2009/10 143

housing agency account | notes to the financial statements continued7 Land intended for sale2010 2009($000) ($000)Land intended for sale – opening balance 1 July 34 34Additions during the year 710 -Transfers from land under development 7,884 -Land intended for sale 8,628 34Land intended for sale is held at the lower of cost or fair value less costs to sell. Land has been reclassified asland intended for sale where the land is vacant and intended to be sold, or commitments for property saleshave been made. Property held for sale was valued under NZIFRS 5 Assets Held for Sale and DiscontinuedOperations.Land intended for sale was valued as at 30 June 2010 at fair value. The valuation was carried out by QuotableValue New Zealand, a company employing registered and qualified valuers, with the principal registeredvaluer for the valuation being Kerry Stewart (PG Dip Env Audit, MBA, ANZIV, SNZPI). The fair value less costto sell is $18.5 million (2009: $3.5 million).On 30 June 2008, Housing New Zealand Corporation, acting as agent for the Housing Agency Account,and the Ministry of Education reached agreement as to the site for a primary school (land 3.6ha) in theHobsonville development. During the 2008/09 financial year, the Housing Agency Account received$6.2 million in contract deposits from the Ministry of Education. Settlement on the property will occurwhen the associated infrastructure is completed.8 Reconciliation of net surplus with cash flows from operating activities2010 2009($000) ($000)Operating surplus/(deficit) 1,514 (173)Adjustments for:Depreciation 120 119Gain on sale of fixed assets (105) (24)Permanent diminution in asset values - 50Impairment loss on work in progress 673 -Revaluation loss on assets 15 357Fair value gains on investment property (2,095) -Total income statement items (1,392) 502Increase/(decrease) in accounts payable (16) (338)(Increase)/decrease in accounts receivable (2,049) (146)Total balance sheet movements (2,065) (484)Net cash from operating activities (1,943) (155)144 housing new zealand corporation | annual report 2009/10

9 Financial instrumentsLOANS &RECEIVABLESOTHERFINANCIALLIABILITIESTOTAL($000) ($000) ($000)30 June 2010Financial assetsTrade and other receivables 281 - 281Cash at bank 2,392 - 2,392Total financial assets 2,673 - 2,673Financial liabilitiesAdvances from the Corporation - 1,207 1,207Contract deposit - 6,186 6,186Accounts payable and other liabilities - 190 190Total financial liabilities - 7,583 7,58330 June 2009Financial assetsTrade and other receivables 147 - 147Cash at bank 6,433 - 6,433Total financial assets 6,580 - 6,580Financial liabilitiesAdvances from the Corporation - 315 315Contract deposit - 6,186 6,186Accounts payable and other liabilities - 206 206Total financial liabilities - 6,707 6,70710 Transactions with related partiesThe Crown wholly owns the Housing Agency Account. The Housing Agency Account undertakes sometransactions with statutory corporations, state-owned enterprises and government departments on anarm’s-length basis. These transactions are not considered to be related party transactions as defined inNZ IAS 24 Related Party Disclosures.In the year to 30 June 2010 the Corporation provided management services to the Housing Agency Account.A management fee of $1.4 million (2009: $1.3 million) was charged by Hobsonville Land Company Limited forservices relating to the Hobsonville development. No management fee has been charged for other servicesprovided to the Housing Agency Account since this requires Ministerial approval under the Housing AgencyAccountability Agreement.The Housing New Zealand Corporation administers the Housing Agency Account as an agent of the Crownunder the Housing Act 1955. As at 30 June 2010, the total amount owing from the Housing Agency Accountto the Corporation was $1.2 million (2009: $0.3 million). This balance was fully paid on 7 July 2010.5 | Financial StatementsHousing Agency Account11 CommitmentsThe principal development project is the former Hobsonville airbase in Auckland. Hobsonville Land CompanyLimited, a wholly-owned subsidiary of Housing New Zealand Corporation, is master-planning the Crown-ledstaged development of the former airbase into a community of approximately 3000 homes.Hobsonville Land Company Limited and AVJennings Limited signed a partnering Precinct DevelopmentAgreement (PDA) on 10 April 2008, for the first stage development of the former Hobsonville airbase. AComprehensive Development Plan (CDP) for the first precinct (approximately 1,080 dwellings) has receivedconsent orders from the Environment Court and earthworks began during 2009/10.At this stage the Housing Agency Account has no financial commitments regarding the development of thebuildings on its land. The financial commitment lies with the developer. When the development is completethe land and building package will be sold and both parties will take a share of the revenue.housing new zealand corporation | annual report 2009/10 145

Audit Reporthousing agency accountTO THE READERS OFTHE HOUSING AGENCY ACCOUNT’SFINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2010The Auditor-General is the auditor of the Housing Agency Account. The Auditor-General has appointed me,Stuart Mutch, using the staff and resources of Ernst & Young, to carry out the audit of the financialstatements of the Housing Agency Account, on her behalf, for the year ended 30 June 2010.Unqualified opinionIn our opinion the financial statements of the Housing Agency Account on pages 134 to 145:• comply with generally accepted accounting practice in New Zealand; and• fairly reflect:>> the Housing Agency Account’s financial position as at 30 June 2010; and>> the results of its operations and cash flows for the year ended on that date.The audit was completed on 30 September 2010, and is the date at which our opinion is expressed.The basis of our opinion is explained below. In addition, we outline the responsibilities of the Board ofHousing New Zealand Corporation and the Auditor, and explain our independence.Basis of opinionWe carried out the audit in accordance with the Auditor-General’s Auditing Standards, which incorporate theNew Zealand Auditing Standards.We planned and performed the audit to obtain all the information and explanations we considered necessaryin order to obtain reasonable assurance that the financial statements did not have material misstatements,whether caused by fraud or error.Material misstatements are differences or omissions of amounts and disclosures that would affect a reader’soverall understanding of the financial statements. If we had found material misstatements that were notcorrected, we would have referred to them in our opinion.The audit involved performing procedures to test the information presented in the financial statements.We assessed the results of those procedures in forming our opinion.Audit procedures generally include:• determining whether significant financial and management controls are working and can be relied onto produce complete and accurate data;• verifying samples of transactions and account balances;• performing analyses to identify anomalies in the reported data;• reviewing significant estimates and judgements made by the Board of Housing New Zealand Corporation;• confirming year-end balances;• determining whether accounting policies are appropriate and consistently applied; and• determining whether all financial statement disclosures are adequate.146 housing new zealand corporation | annual report 2009/10

We did not examine every transaction, nor do we guarantee complete accuracy of the financial statements.We evaluated the overall adequacy of the presentation of information in the financial statements.We obtained all the information and explanations we required to support our opinion above.Responsibilities of the Board of Housing New Zealand Corporation and the AuditorThe Board of Housing New Zealand Corporation is responsible for preparing the financial statements inaccordance with generally accepted accounting practice in New Zealand. The financial statements must fairlyreflect the financial position of the Housing Agency Account as at 30 June 2010 and the results of itsoperations and cash flows for the year ended on that date. The Board of Housing New Zealand Corporation’sresponsibilities arise from the Housing Act 1955.We are responsible for expressing an independent opinion on the financial statements and reporting thatopinion to you. This responsibility arises from section 15 of the Public Audit Act 2001.IndependenceWhen carrying out the audit we followed the independence requirements of the Auditor-General, whichincorporate the independence requirements of the New Zealand Institute of Chartered Accountants.Other than the audit, we have no relationship with or interests in the Housing Agency Account.Stuart MutchErnst & YoungOn behalf of the Auditor-GeneralWellington, New Zealand5 | Financial StatementsHousing Agency Accounthousing new zealand corporation | annual report 2009/10 147