The ACT government overestimated how much money it would make from selling public housing on Northbourne Avenue and in the city, Auditor-General Maxine Cooper has reported, questioning the government's financial analysis of its public housing replacement program.
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Dr Cooper's audit of the public housing renewal program, in which 1363 tenants are being moved, highlights the shifting numbers used by the government to justify the program.
It also highlights the extent to which the sale of public housing and the mass removal of tenants from Northbourne Avenue was driven by the tram project.
In mid-2014, Cabinet was told the sale of public housing would generate revenue for the budget and help pay for light rail by "maximising commercial and residential potential of the Capital Metro corridor, increasing the patronage and viability of light rail".
"Many of the significant redevelopment opportunities along the Capital Metro corridor are in fact ACT government assets," Cabinet was told.
"The redevelopment of these public and non‐public housing assets will reinforce the government's policy objective to focus urban intensification along major public transport routes and provide the financing necessary to begin construction of light rail between Gungahlin and the city.
"Furthermore, increasing the density in this corridor will increase the population in the patronage catchment of Capital Metro, which will ultimately underpin the viability of the project."
The government had two goes at assessing the financial impact of moving tenants, comparing the cost of the status quo (including a major refurbishment) with the cost of the move.
The first financial analysis in 2015 said keeping the existing public housing would cost $182 million over 40 years, whereas selling and rebuilding elsewhere would have a positive impact, to the tune of $25 million. With a $206 million difference between the two figures, the sale was judged a financial positive.
Dr Cooper took issue with a couple of aspects of the analysis, including a decision to add 30 per cent to the values of the blocks of public housing being sold. She commissioned a consultant to redo the analysis, which found both options would cost the government, although the sell and rebuild option would still be $101 million better than the status quo.
When Dr Cooper investigated why the government had inflated by 30 per cent the amount it would get from selling land, she was told it was done after advice from the Land Development Agency that government land prices had been an average of at least 30 per cent higher than reserve prices.
Dr Cooper said that advice should have been used for a sensitivity analysis of the property valuations, which were done by Colliers in 2014, not to change the sales figures - especially as Colliers had also highlighted the risk of flooding the market if the blocks were sold in a tight timeframe to meet a mid 2019 deadline.
The Northbourne precinct is expected to yield 3500 apartments. Colliers advised that demand for apartments and townhouses was 2000-2200 a year, but at that point, in late 2014, there were already 7000-7500 being developed, and Woden, Molonglo and Belconnen were "in major oversupply".
Dr Cooper said the government's land values were "overly optimistic, as sales revenue achieved to date has in general been lower than predicted in the original financial model".
Three precincts have sold:
- Dickson on Northbourne, including the Dickson Flats, Karuah and the visitor centre, which sold to Johnny Roso for $37 million plus GST. The business case expected $34 million from the Karuah Flats alone.
- The Currong and Allawah blocks, which sold to SHL for $47 million. The business cases expected $50 million.
- The Lyneham on Northbourne site, including Owen Flats and the Lyneham and De Burgh flats, which sold to SHL for $42 million. The government had expected $36 million.
In November 2016, the government re-did its financial analysis comparing selling with the status quo, in light of the lower prices.
It had to knock $94 million off the sell option because of lower prices.
But it cut the value of sites under the status quo option by 20 per cent because it said the heritage values of the sites would impact their value in future. And it increased the value of the replacement housing within 800 metres of the Northbourne corridor and in town centres by 20 per cent because of the likelihood that the government would change the Territory Plan allowing higher density development. It assumed 30 per cent of replacement public housing would be in these zones.
Dr Cooper said other than its instruction to the consultant to alter the financial model in November 2016, the government provided no evidence to support the two changes to its financial model. Together, the changes added $44 million to the benefits of the sell option. It government also added $23 million to the refurbishment costs under the status quo option.
And as a result, the benefit of the public housing program was judged to be essentially the same as the first analysis in 2014, at $219 million, despite the lower sales results.
