This paper, released by the Minister of State Services, contains (with some exceptions as marked) the decisions made by Cabinet on the consolidation of regulatory and dispute resolution services concerned with housing and building. Published SSC website 30 June 2004.

Executive Summary

1 This paper arises from a review of agencies with housing and building-related responsibilities. This review has included consideration of the future placement of the Building Industry Authority and the Weathertight Homes Resolution Service.

2 The key problem identified is the fragmentation of the regulatory and dispute resolution services, relevant to housing, amongst a range of departments. Consequently it is difficult to develop policy capability around these functions, there are difficulties with operations informing policy, and, in general, the regulatory and dispute resolution side of housing does not influence overall housing policy as well as it could.

3 Options for addressing the issue of regulatory fragmentation have been canvassed. The option of disestablishing the Ministry of Housing was rejected as likely to worsen the problem. The option of aggregating all housing related functions, including those performed by Housing New Zealand Corporation (HNZC), into a single large department has also been considered. It is rejected as likely to involve high costs and risks whereas the benefits of such a move can largely be captured by means of a more limited consolidation of housing-related regulatory and dispute resolution functions. Such a consolidation is proposed by folding a range of regulatory and dispute resolution services into an expanded and renamed Ministry of Housing.

4 The need to further develop collaborative arrangements between the new Department and HNZC is also noted and ways of achieving this have been agreed between the respective chief executives of the two agencies.

Proposal

5 We propose that in future a single department:

  • carry out the present functions of the Ministry of Housing;
  • perform the functions currently associated with administration of the Weathertight Homes Resolution Services Act 2002;
  • be responsible for administration of the new Building Act (including absorbing the functions and personnel of the Building Industry Authority) and the occupational licensing regulation associated with the building and housing sector;
  • administer the Retirement Villages legislation currently administered by the Ministry of Social Development and Ministry of Economic Development;
  • perform a range of other functions including regulation of housing standards, administration of the legislation relating to the fencing of swimming pools (currently with the Department of Internal Affairs), Electrical Workers Licensing; and
  • provide policy advice in relation to the above dispute resolution and regulatory responsibilities.

6 We propose that this be accomplished by moving the relevant functions from the Ministry of Economic Development (MED), Department of Internal Affairs (DIA), and Ministry of Social Development (MSD), into the existing Ministry of Housing which will be renamed the Department of Building and Housing.

Background

7 Arrangements for central government involvement in housing include:

  • The Ministry of Housing which administers, and advises on, the regulation of the residential tenancy market, provides mediation services, and is also responsible for monitoring the performance of HNZC;
  • HNZC which provides housing and housing related services, advises government on strategic policy, and participates in wider government initiatives;
  • MSD which administers the accommodation supplement, advises government (jointly with HNZC) on this; and also administers the legislation relating to Retirement Villages;
  • The Building Industry Authority (BIA) which manages the system of building controls;
  • MED which advises on the regulation of building;
  • DIA which administers the Weathertight Homes Resolution Services Act 2002; and
  • other related functions carried out in departments including the Ministry of Health which is responsible for the regulation of plumbers, gasfitters, and drainlayers and also administers the Health Act 1956 which, in part, deals the condition and use of dwellings.

8 The current system has strengths including:

  • positive collaboration of agencies around the draft New Zealand Housing Strategy;
  • the Ministry of Housing's clear focus on the residential rental sector of the housing market and its regulation;
  • policy informing operations in the interventions which HNZC is directly involved in and this range of interventions is expanding;
  • the statutory corporation form of HNZC, with a strategic policy function, has provided a workable means of balancing social and business objectives;
  • the arrangements between the Ministries of Housing and Justice for support of the Tenancy Tribunal that provide appropriate separation between the support services for an adjudicatory function and the policy and regulatory functions relating to these; and
  • the separation between the Building Industry Authority and Weathertight Homes Resolution Service in different agencies.

9 In the review of the future role and functions of the Ministry of Housing it was noted that all options for the future role of the Ministry had implications for other agencies. For this reason a wider review has taken place to look at how housing agencies can become more effective in relation to Government's social and economic outcomes. This wider review has included consideration of:

  • the future location of the functions currently performed by the BIA [POL Min (03)6/6]; and
  • the future location of responsibility for the Weathertight Homes Resolution Services Act 2002 [CBC Min (02) 10/9].

Analysis

10 Officials found that the key problem is the fragmentation of the regulatory framework for housing and building-related activities amongst several agencies. This limits the impact which the relevant regulatory and dispute resolution services can have on housing policy. They are spread between the Ministry of Housing, MED, DIA, MSD, and the BIA. Consequently these functions often do not have sufficient policy capability associated with them, and it is difficult for them to participate in wider policy processes. Previous decisions to align policy closely with operations, to ensure that each informs the other, has left regulatory and dispute resolution functions in a marginal position in the policy process.

11 This problem is made particularly significant by the high profile which matters relating to the regulation of housing now have within housing policy and in the draft New Zealand Housing Strategy. In large part this is a result of the 2002 weathertightness issue which led to:

  • the enactment of the Weathertight Homes Resolution Services Act 2002 and the establishment of the WHRS; and
  • a widening of the review of the Building Act 1991, resulting in a Building Bill, now before Parliament, which will significantly enhance the current regulation of building standards and related matters.

12 Consequently the BIA will contribute significantly to outcomes which are now intrinsic to Housing policy as expressed in the current draft New Zealand Housing Strategy.

13 It is important to recognise that the close affinity between housing policy and the regulation of building quality does not mean that the latter should be seen as solely a housing intervention. It is not, and, given that construction activity is roughly split fifty-fifty between housing and other buildings, it is important to recognise that the proposals in this paper have the effect of creating a department whose functions are considerably wider than the regulation of the residential sector and will extend to the regulation of building and construction in general. This is reflected in the proposed name - Department of Building and Housing.

14 Currently the fragmentation of regulatory and dispute resolution services in the sector poses problems including:

  • a Ministry of Housing which, in terms of the New Zealand Housing Strategy, is called upon to perform important operational and policy functions but, because of its small size and limited scale of functions, has difficulty building and retaining the necessary capability;
  • the continuing location of building regulation functions in MED despite lack of fit with the core purpose and direction of the Ministry;
  • a policy/operations split in the weathertightness area where DIA has the operational role while MED is responsible for the policy;
  • a large number of different agencies whose input is relevant to the development and implementation of the New Zealand Housing Strategy; and
  • continuation in DIA of the weathertightness functions which were decided as an initial location only.

15 A similar issue arises in relation to the Retirement Villages Act 2003 which regulates the operation of retirement villages and will require retirement villages to register with the Registrar of Retirement Villages and to appoint a statutory supervisor. MED and MSD (as well as the Office of the Retirement Commissioner) perform roles in relation to this legislation. It is not necessary for two departments to continue to have distinct roles in this area.

Solutions

16 Officials generated a range of possible options for housing and tested them against their capacity to reduce fragmentation and contribute to greater 'forcefulness' of housing within the wider social and economic agendas of the Government. The major options were:

  • full aggregation of housing functions, including HNZC and Ministry of Housing, within a single department;
  • consolidation of all housing functions not carried out by HNZC into a department providing a range of building and housing regulatory and dispute resolution functions; and
  • disestablishment of the Ministry of Housing and allocation of its functions among other departments.

17 Disestablishment of Ministry of Housing was assessed as making the least contribution to developing forcefulness and would pose problems in terms of identifying a suitable other location, or locations, into which its functions could be relocated.

18 The option of full aggregation into a single housing department was closely considered by officials.

19 Full aggregation would place tenancy mediation services in the agency which is the largest landlord in the country. It would also place the regulation of building in the agency which is itself a major builder of homes. Technically it would be possible to manage these conflicts through legal and organisational arrangements however the perception among state tenants, private property investors, and the building industry is more difficult to assess and deal with. Also, some of the legal and organisational means to avoid these conflicts potentially undermine the greater effectiveness sought by Ministers.

20 [Paragraph withheld]

21 HNZC is a large business by any measure ($7.7 billion in assets and $650m in revenues). It is also engaged in some substantial land development work and innovation that pose commercial and operational risks. No core department operates on a similar scale or scope nor are monitoring arrangements for core departments suitable for such an operation. The abolition of the Board, and the potential loss of commercial capability, would pose a risk of some decrease in business performance. Alternative arrangements, such as an Advisory Board, would be required but these would be less effective and would add cost. There would also be implications from the loss of financial and commercial flexibility that comes with departmental status and the Public Finance Act.

22 In addition to the above points the option would have required legislative change prior to proceeding. Officials therefore recommended against full aggregation as it carries risks and costs outweighing the identifiable potential benefits. There were few benefits which could not be captured by a more limited consolidation of a range of regulatory and dispute resolution services into a single department. This realisation led to the current proposal based upon the 'regulatory consolidation'.

Proposal

23 We propose that in future a single department:

  • carry out the present functions of the Ministry of Housing;
  • perform the functions currently associated with administration of the Weathertight Homes Resolution Services Act 2002;
  • be responsible for administration of the new Building Act (including absorbing the functions and personnel of the Building Industry Authority) and the occupational licensing regulation associated with the building and housing sector;
  • administer the Retirement Villages legislation currently administered by the Ministry of Social Development and Ministry of Economic Development;
  • perform a range of other functions including regulation of housing standards, administration of the legislation relating to the fencing of swimming pools (currently with the Department of Internal Affairs), Electrical Workers Licensing; and
  • provide policy advice in relation to the above dispute resolution and regulatory responsibilities.

24 This proposal would retain HNZC in its current form including leadership of the New Zealand Housing Strategy (though responsibility for housing standards would transfer to the department). With the consolidation of regulatory and dispute resolution functions there would be two major agencies in housing with distinct but complementary roles:

  • a department formed on the basis of the existing Ministry of Housing, with a brief extending beyond housing to regulation of building, and with a leadership role for regulatory policy related to the efficiency and effectiveness of the housing and building markets; and
  • HNZC with a leadership role in the development and provision of housing system interventions (excluding regulatory and income support interventions) with associated policy capability.

25 Each of these would need sufficient policy capability to perform their roles effectively and this would entail policy capability above the level of simple operational policy. It is envisaged that Ministers may turn to either agency, or both, for advice on strategic issues affecting their respective areas of expertise. This highlights the need for both HNZC and the new ministry to collaborate closely together.

26 Consequently the respective chief executives of the Ministry of Housing and HNZC have taken steps to ensure that collaborative arrangements are further developed by explicitly defining their roles and relationships to avoid duplication of functions and advice to Ministers, including in relation to the New Zealand Housing Strategy Programme of Action. A document recording these arrangements is attached as an appendix.

Implementation

27 The transfers of function proposed are of two kinds: transfer of functions from a Crown Entity (the BIA which is to be dissolved) to a department, and transfer of functions between departments. Matters relating to the transfer of BIA functions to a department are to be handled by operation of the new Building Act (the Building Bill is currently before Parliament).

28 The Building Act, when it comes into force, will:

  • dissolve the BIA and transfer its functions and accountabilities to the chief executive of a government department (recommended to be a new department formed by folding additional functions into a renamed Ministry of Housing);
  • provide for the chief executive of the department responsible for the Building Act to make offers of equivalent employment to all existing BIA staff and, consequently, manage the possibility of any action for 'technical redundancy' by those who may turn down the offer of continued employment; and
  • transfer all liabilities and assets of the BIA to the Crown.

29 [Material withheld] Such a transfer can be achieved by Order in Council and it is proposed that joint Ministers be authorised to instruct Parliamentary counsel to draft the necessary Order in Council at an appropriate point.

30 There will need to be further detailed work, involving the Treasury, DIA, and MED, to establish from where these residual issues could be best managed and how.

31 The relevant provisions of the State Sector Act will be used to:

  • by Order in Council change the name of the Ministry of Housing to the Department of Building and Housing; and
  • by Order in Council limit compensation for technical redundancy of affected employees by providing that sections 30E to 30G of the State Sector Act 1988 apply to the transfer of functions from the relevant departments to the new department. This will limit the entitlement to redundancy compensation where the chief executive of the renamed Department offers existing staff, including MED building policy staff and WHRS staff, continued employment in equivalent positions, locations, and terms and conditions of employment as formerly enjoyed. Following the transfer of functions sections 30H to 30J and 30L of the State Sector Act 1988 will change references to Departments and Chief Executives in contracts, enactments and other documents to those of the new department and responsible Chief Executive.

32 Simultaneously MED will agree, with its own staff and with the CE of the Department, arrangements for seconding staff with expertise for a period to help develop capability in the new Department.

33 It is considered that all existing staff of Ministry of Housing, WHRS and BIA, will be needed in the new operation. Accordingly offers of continuing employment will be made to all employees currently employed in BIA, MED, and DIA whose roles are being transferred between agencies either by operation of the Building Act or of the State Sector Act. The potential for claims in respect of 'technical redundancy' will be limited by application of the relevant provisions of the Building Act and State Sector Act.

34 [Paragraph withheld]

Timing

35 Transfer of responsibility for the Building Act out of MED is relatively straightforward given the amount of preparation done already, the commitment of MED to assisting the transition, and the indications of broad industry support for the move. It is therefore considered that this could occur soon after the enactment of the new Building Act -November 2004 if the legislation is in force on that date.

36 The transfer of the WHRS raises some important issues. [Sentence withheld] Also, work will need to be done to communicate the benefits of the new department to WHRS stakeholders. Maintaining the ongoing credibility of the WHRS is essential. Ensuring operational separation between dispute resolution and regulatory functions within the new department will be important and will ensure an appropriate level of independence.

37 The proposed date for the transfer of the WHRS into the new Department is 1 April 2005. [Material withheld] Currently the proposed schedule of transfers is:

 

Stage 1

 

Nov 2004

Building control functions from MED and BIA including Architects, Chartered Professional Engineers, and Associate Engineers Occupational Regulation

Building dispute policy functions from MED and Ministry of Consumer Affairs

Construction Contracts Act from MED

   

Stage 2

 

Feb 2005

Baseline housing standards work from HNZC

   

April 2005

Weathertight Homes Resolution Services Act 2002 from DIA

Weathertight Homes Resolution Service

Retirement Villages Act from MSD

   

Feb 2006

Electrical Workers Licensing Operations from MED

Fencing of Swimming Pools Act from DIA;

   

38 It should be noted that not all housing and building-related regulatory functions are captured in this change. However, the measures proposed in this paper will provide a platform and the inclusion of further roles and functions [material withheld] may be considered at a later date.

39 It is proposed that implementation be overseen by an officials group made up of the relevant agencies and chaired by the State Services Commission. The officials' committee will report to the Ministers of Housing, State Services, Finance, Internal Affairs, and Commerce.

Fiscal Implications

40 The transfer of functions from the Ministry of Economic Development, Department of Internal Affairs, and Building Industry Authority to the new Department of Building and Housing will largely involve fiscally neutral transfers between Votes Economic, Industry and Regional Development, Energy, Commerce and Internal Affairs and Vote Housing.

41 There will, in addition, be a need for the following additional one-off capital and ongoing operating funding to cover restructuring and implementation costs in Vote Housing:

 

$ million

2004/05

2005/06

2006/07

2007/08 & Outyears

GST

Total Operating

0.934

0.187

0.187

0.187

Incl.

Total Capital

0.315

-

-

-

N/a

Treasury comment

42 The Building Bill is currently working through the Parliamentary legislative process (priority 2) and expected to be enacted around September 2004. Upon enactment, the Building Industry Authority (60 staff) will be disestablished and its functions transferred to a department. Deferring the transfer of functions until the 2005 Budget would require delaying the passage of the Building Bill.

43 While the transfer of functions will be fiscally neutral for the Crown, there will also be restructuring and implementation costs involved. The proposed 'recipient' department - namely the current Ministry of Housing - is relatively small (150 staff) and cannot realistically meet these restructuring and implementation costs through reprioritisation of existing departmental baselines without putting its operations at risk.

44 As both the conditions of (i) not able to defer until the 2005 Budget and (ii) not able to be funded through reprioritisation of baselines are met, this paper complies with the requirements of CO (02) 17. Note that the restructuring and implementation costs assume the transfer of functions in addition to those of the BIA (most notably the WHRS, currently located in the Department of Internal Affairs, plus a small number of policy staff in the Ministry of Economic Development). However, the non-scalable nature of most of these restructuring and implementation costs means that even if transfer of these other functions were to be deferred until the 2005 Budget, the reduction in costs would be relatively small. There would also be a risk of cost duplication resulting in higher aggregate restructuring and implementation costs in the long run.

Human Rights

45 The proposals in this paper do not have implications for human rights.

Implications for Maori

46 The proposals in this paper do not have implications for Māori specifically

Gender Implications

47 There are no gender-specific implications of the proposals in this paper.

Regulatory Impact and Compliance Cost Statement

48 No regulatory impact or compliance costs statement is required.

Publicity

49 It is proposed that the Ministers of State Services and Housing announce the decisions arising from this paper, at a time to be determined, in consultation with other relevant Ministers.

Consultation

50 The Ministry of Housing, Housing New Zealand Corporation, Ministry of Economic Development, Building Industry Authority, Department of Internal Affairs, Treasury, Ministry of Social Development, Ministry of Justice, and Ministry of Health have been consulted on this paper.

51 The PSA has been consulted and provided with a copy of this paper. The PSA supports the aim to reduce fragmentation of public services. However, they question whether the focus on regulatory consolidation, rather than on bringing together the broader range of functions performed by the Ministry of Housing and HNZC, will achieve the broader objectives of the housing strategy in the future. The PSA also questions the capability of the new department to deal with the extended brief beyond residential regulatory matters.

Recommendations

52 It is recommended that the Committee:

    •  

      9.1 perform the functions currently associated with administration of the Weathertight Homes Resolution Services Act 2002;

      9.2 be responsible for administration of the new Building Act (including absorbing the functions and personnel of the Building Industry Authority) and the occupational licensing regulation associated with the building and housing sector;

      9.3 administer the Retirement Villages legislation currently administered by the Ministry of Social Development and Ministry of Economic Development;

      9.4 perform a range of other functions including regulation of housing standards, administration of the legislation relating to the fencing of swimming pools (currently with the Department of Internal Affairs), Electrical Workers Licensing, and;

      9.5 provide policy advice in relation to the above dispute resolution and regulatory responsibilities;

1 note that a review has been carried out of the configuration of agencies and functions in housing;

2 note that this review has examined ways of increasing the effectiveness of housing as a participant in policy formation and implementation;

3 note that this review has included consideration of the future placement of the Building Industry Authority (BIA) and Weathertight Homes Resolution Service (WHRS);

4 note that the key problem identified is the fragmentation of regulatory and dispute resolution functions amongst a range of departments;

5 note that a range of structural options have been considered including disestablishment of the Ministry of Housing and aggregation of all housing-related functions into a single large department;

6 note that aggregation of all housing agencies into a single large department is not favoured as the costs and risk would be high and the benefits can be captured by more limited structural change;

7 note that a consolidation of regulatory and dispute resolution functions into a single department provides the best means of addressing the major problem identified;

8 note that an assessment has been carried out of the relative merits of consolidation within MED, as against an expanded stand-alone and re-named Ministry of Housing, and that this has concluded that a stand-alone department is the preferable option;

9 agree that in future a single department carry out the present functions of the Ministry of Housing and;

10 agree that this be achieved by folding the range of regulatory and dispute resolution functions into an expanded and renamed Ministry of Housing;

11 agree that the Ministry of Housing be renamed the Department of Building and Housing;

12 note that the Building Bill, once enacted, will provide for the dissolution of the Building Industry Authority and the transfer of its functions, assets and liabilities to the Crown;

13 [withheld]

14 agree that the Ministers of Housing and State Services at the appropriate time instruct Parliamentary Counsel to prepare Orders in Council to implement the decisions on changing the name of the Ministry of Housing, limited technical redundancy, [material withheld], as proposed in this paper;

15 note that all existing staff staff of the BIA and WHRS will be offered continued employment when the relevant functions transfer;

16 note that a date of 30 November 2004 is considered practicable for administration of the Building legislation to transfer from MED and for the BIA functions to transfer;

17 note that transferring responsibility for the Weathertight Homes Resolution Services Act 2002, and the associated WHRS out of DIA, will take longer to prepare, that the current working date for transfer is 1 April 2005;

18 [withheld]

19 agree that the State Services Commission will chair an officials' committee made up of the affected agencies, to oversee the implementation of the proposals in this paper, and will report to Ministers of Housing, State Services, Finance, Internal Affairs, and Commerce;

20 note that most of the transfer of functions will occur via fiscally neutral adjustments between Votes Economic, Industry and Regional Development, Energy, Commerce, Internal Affairs and Vote Housing, but that the restructuring and implementation process will also involve some unavoidable one-off capital and ongoing operating costs in Vote Housing;

21 approve the following changes to appropriations to provide for the restructuring and implementation costs associated with the transfer of functions, with a corresponding impact on the operating balance and debt:

 

           
 

$m - increase/(decrease)

 

Vote Housing

2004/05

2005/06

2006/07

2007/08 & Outyears

GST

Departmental Output Class:

Policy, Purchase and Monitoring Advice

(funded by revenue Crown)

0.934

0.187

0.187

0.187

Incl.

Capital Contributions to the Department:
Capital Investment

0.315

-

-

-

N/a

Total Operating

0.934

0.187

0.187

0.187

 

Total Capital

0.315

-

-

-

 

22 agree that the changes to appropriations for 2004/05 above be included in the 2004/05 Supplementary Estimates and that, in the interim, these expenses be met from Imprest Supply;

23 agree that relevant Ministers be delegated authority to make the necessary changes to baselines to give effect to the transfer of functions through the baseline update process; and

24 note that a need to further develop collaborative arrangements between the Ministry of Housing and Housing New Zealand Corporation has been identified and that the respective chief executives have put in place more formalised understandings to clarify their respective roles including in relation to the New Zealand Housing Strategy Programme of Action and this is attached as an appendix.

 

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