State paid $3k a week for ‘uninhabitable’ houses

A Newsroom investigation reveals a Ministry of Social Development initiative to provide emergency housing made the housing crisis worse and enriched a small set of landlords and real estate agents

A former Harcourts property manager in South Auckland has blown the whistle on an emergency housing scheme where a group of landlords were paid up to $3000 a week by the taxpayer for “marginal to uninhabitable” private rentals.

When the landlords ran out of houses they turned to real estate agents who procured vacant properties – allegedly without the consent of the people who actually owned them.

The Ministry of Social Development has admitted the scheme made the rental crisis worse – as people took rental properties off the market and used them instead to rent out to MSD to earn thousands more.

At one point, properties were advertised for sale with a guaranteed weekly income stream of more than $1000 a week – better than what AirBnB could offer.

The scheme was nationwide, but most of the homes involved were situated in Auckland.

When the country moved to Level 1, MSD shut it down but inadvertently caused “chaos” in South Auckland with landlords kicking families out of houses almost overnight.

The $3000 per week money maker 

Most people know the Emergency Accommodation scheme put people in motels and hotels at market rates of over $120 per night for every room rented.

What they don’t know is from 2018 – within this current term of government – the Ministry of Social Development extended this scheme to include private homes.

The catch is that MSD continued to pay the same motel room rates to landlords for every room in the house they would rent.

A three-bedroom house rented out at a “hotel” rate of up to $150 per room per night could bring in $3000 per week in areas of the country where median rent for those was $550. The rent was capped at the $3000 mark.

MSD did not visit the properties to check if they met basic living standards.

Once a provider joined the Emergency Housing scheme through providing a motel or hotel, it could then rent out extra rooms or houses into the scheme – and the status of those would not be checked.

Mangere East Family Services social worker Alastair Russell said the houses MSD paid penthouse apartment rates for were often “marginal to uninhabitable”.

He was well aware of the scheme because a large number of properties in South Auckland were tied up in it.

“Houses without stoves and ovens [and] houses that were essentially building sites with debris scattered both in and outside the house.

“You’re talking planks of wood with nails sticking out of them. Broken glass. And families with kids that had to go into those houses.

“No one was going in there and checking the places out.”

Landlords knew, agent claims

It seems to have happened with the full knowledge of the ministry.

Harcourts Otahuhu owner Mushtaq Sheikh certainly thought there was little illegitimate about it: “If the Government is paying then it is the Government that is doing a fraud,” he told Newsroom.

His former employee, Vanessa Parker, didn’t share his opinion and blew the whistle on Harcourt’s Otahuhu’s activities to MSD.

 “[the tenant is] like ‘who are you?’ and I said ‘I’m the property manager…I thought this property was vacant?”

She discovered what was going on after starting work at the firm as a property manager and working her way through its rent roll (a list of rental properties she would have to manage).

The list was heavy on vacant properties, but when she visited the houses she discovered tenants at some and mailboxes stuffed with letters from Work and Income (WINZ) at others.

“I turned up there [at one property]…and [the tenant is] like ‘who are you?’ and I said ‘I’m the property manager…I thought this property was vacant?”

“She goes ‘nah this emergency housing…I’m just going to WINZ today to get the $3000’.”  Tenants had to go to MSD to verify they had moved it, so the landlord could get the payment.

As Parker worked her way down the list she discovered many did not meet basic legal requirements and were often missing other things like smoke alarms, stoves and windows.

Another curious thing she found was other properties on Harcourts Otahuhu’s rent roll had been rented out to Zainulabidin (Zain) Syed.

Syed was an unusual tenant because he was a listed provider of motel accommodation to MSD through his company Auckland Astro Residencies.

The motel side of Syed’s business was profiled in a Stuff investigation into emergency housing which described a motel he owned as “a rat hole not worth a dollar”.

Parker alleged there was an arrangement between Harcourts Otahuhu, Syed and other investors to find and buy houses, or simply move MSD clients into properties on the firm’s books.

Tenancy agreements attached to many of the houses Syed and others rented off Harcourts Otahuhu contained subclauses preventing subletting.

She alleged many of the landlords weren’t informed their houses had been sublet to social housing tenants.

The owner of Harcourts Otahuhu says landlords knew their houses were being sublet. Photo: Lynn Grieveson

The owner of Harcourts Otahuhu says landlords knew their houses were being sublet. Photo: Lynn Grieveson

While Syed would reportedly receive $2000-3000 a week from MSD he would still pass the regular amount of rent back to the landlords themselves.

Syed’s activities weren’t limited to Harcourts Otahuhu’s properties. Property firm Barfoot and Thompson took Syed to the tenancy tribunal for subletting one of their houses as emergency housing without permission in 2018.

According to the decision, Syed rented the house for 16 weeks. He was paid $60,800 by MSD, but paid Barfoot and Thompson $8000 in rent.

Sheikh has denied Harcourts Otahuhu ever let out property to social housing tenants without the consent of landlords.

“[They knew] because they were getting more rent.”

However, one owner who wished to remain anonymous, told Newsroom he definitely did not consent to Syed or Harcourts subletting his house to a social housing tenant.

Arguing his case, the landlord said a restriction against subletting a property was in both the tenancy agreement with Syed and a separate portfolio management contract he had with Harcourts Otahuhu.

And he maintained he did not receive a higher level of rent or anything close to the $3000 a week in rent Syed likely received from MSD.

‘I can’t see anything wrong with it’

Millions are likely to have been spent on landlords, property agents, and houses for an an initiative that ran for two years.

Sheikh said he had nothing to do with the arrangements between Syed and his company and said a former property manager, Sid Sharma, had set those up.

“I don’t know the details because my property managers are dealing with it.

“I think he [Syed] had a contract with social housing and he was looking for houses to rent because when his accommodation was full then he was using the other rented accommodation.”

Parker said she went to Sheikh with what she had discovered around the large number of vacant properties on his company’s rent roll and he dismissed her for raising the issue.

“This has resulted in fewer of these properties being available for private rental, which is why we changed our approach.”

Sheikh denied he fired her for that reason, but wouldn’t explain why he had dismissed her after she complained about how these houses were being handled.

“Vanessa can tell you anything because I let her go….she was fired.

“There were a lot of reasons [for firing her]..but that’s definitely wrong, whatever she told you.”

He did agree Parker raised this issue with him, and claimed he personally checked if the landlords had consented.

“She brought all the files to me and the landlords knew about it, so we dealt with it and then when they finished their contract they finished. I can’t see anything wrong with it.”

Parker has struggled to find work as a property manager without a reference from her previous employer and even had to go through MSD’s systems herself at one stage.

The ministry’s general manager of housing, Karen Hocking, admitted it ended up being so profitable for landlords that they took cheap rental properties off the market in South Auckland and started renting them to MSD for $2000-$3000 a week.

“Over time, we recognised that some property managers were withdrawing properties from the rental market to offer them as short-term emergency accommodation attracting a higher weekly rate.

“This has resulted in fewer of these properties being available for private rental, which is why we changed our approach.”

‘They never really checked’

Silverfern property services director Zubeen Andaz is one of those who managed houses within the scheme and received thousands of dollars per week from each tenant for her troubles.

Her company managed a motel used for emergency housing and then started renting out houses too.

MSD never checked the condition of her properties. Once you were a registered provider you could also add as many properties as you wanted into the mix.

“To be honest they never checked anything at all. They just give us a call and say ‘have you got any vacancies available?’.”

She said emergency housing providers like her were approached by real estate agents, rather than the other way around:

“I had a few approaching me from Ray White, a few from LJ Hooker, coming to me and telling me to operate them for them

“I said ‘nah’. The reason is those houses could be used for tenancies for these families.

If she did take on a property from a real estate agent who approached her, the house had to be “livable” and there had to be a good reason why it couldn’t be rented through the normal rental market.(The example she gave was a property waiting for a subdivision consent).

Andaz had heard the accusations against Harcourts Otahuhu before and said she stayed away from them because of it.

She claims to have ended her friendship with Rosemeen Mohammed – an agent at Harcourts Otahuhu – because she didn’t want to be tainted by the allegations swirling around the firm.

They were allegations she wasn’t able to confirm, but felt strongly about.

“Harcourts [allegedly] tell their landlord it’s $550 rental. They take it and they run it on emergency housing [without consent]. This is not me.

“All my landlords knew this is running on emergency housing. This is the rental, we gave them higher rental, and said if there’s any damages you be prepared for it, but we will do what we can.”

“We put the [emergency housing] houses fully furnished, water, electricity, inclusive, just like how we run it on Airbnb.”

She defended the extra amount of money her company and the landlords who owned those properties were paid to manage those houses. It was justified by the amount of damage wrought during those short-term stays.

“They [MSD] just take the families out without letting us know. We go there: the TV, the fridge, the couches, the beds, everything’s gone.”

The rumour mill and pressure on the scheme was growing towards the end of last year. Not only were people like Parker and Russell raising questions about it, but so were some landlords.

Andaz said landlords also came to her with complaints about Harcourts Otahuhu.

They claimed the agents had rented out their houses as emergency social housing without their consent and only discovered as much when they found their houses trashed.

Covid opportunity turns into chaos

From March this year Covid-19 had created a surplus of available motel accommodation and MSD was able to consider moving people – out of the rental properties about which they had received an avalanche of complaints – and back into motels.

The move wouldn’t save any money, but it would cut-off the effects the scheme was having on both the purchase and rental of properties in deprived areas like South Auckland.

Parker and Andaz both said property advertisements and real estate agents were promoting emergency housing as a viable income stream for properties they were putting on the market.

The ministry decided to cut the cord in May. They told landlords they wouldn’t receive subsidies after June 30.

Almost as soon as the country moved to Level 1, families in these houses started receiving messages from their landlords to move out.

Russell described the situation it created as “chaos” when he spoke to Newsroom in June.

He and other social workers scrambled to find new motels for these families and to check they were suitable. New accommodation needed to be found for 100 households.

“People are just stressed and panicking that they’re going to be homeless at the end of the month.

“As the funding is being pulled, landlords are telling people they have got to be out of there today, tomorrow, pulling days out of thin air and just saying ‘you’re out of here’.

MSD regional commissioner Mark Goldsmith said the ministry had suggested landlords consider renting those properties out to beneficiaries for longer periods of time at the end of last year, before ending the scheme,

“In November 2019, we communicated our concerns to the landlords and property managers involved.

“We encouraged them to consider offering their properties to our clients on a long-term basis, noting the support MSD could offer to facilitate this.”

Nobody wins

Almost nobody seems to have been made better off through this course of events – other than some of the landlords involved.

Parker lost her job and has had trouble finding another in property management after her bust-up with the owner of Harcourts Otahuhu.

Landlords who didn’t consent suffered property damage, without the compensation to pay for it.

And families tied up with the scheme have spent two years being moved from house to house – unable to settle down.

Emergency housing grants were provided on the basis families wouldn’t stay in those houses for long. They were sometimes swapped out once a week.

Worse, despite the top dollar MSD was paying, none of these houses had the kind of wraparound services many of these families needed.

Minister of Social Development Carmel Sepuloni has declined an interview request. Photo by Lynn Grieveson

Minister of Social Development Carmel Sepuloni has declined an interview request. Photo by Lynn Grieveson

Sense Partners economist Shamubeel Eaqub said families in this position were badly in need of those services and money directed to families through this scheme could have been better spent any number of different ways.

“Government is very good at doing this stuff at the margin, but they won’t actually stump up and support the community housing sector which is actually much better capable of providing housing to people who are in emergency need of housing.

“Because the people who are in emergency housing don’t just need a house they need a whole bunch of wraparound services as well.

“While we’re spending millions of dollars on putting people up in motels, that longer-term stuff has been very slow to come through – and the quickest and fastest way would have been through the community housing sector.”

Minister of Social Development Carmel Sepuloni declined an interview request on the grounds she was still waiting for a briefing on it.

When Newsroom asked Sepuloni about the scheme on August 10 she also appeared to have no knowledge of it. We received a similar response when an earlier query was made to her office, in June.

Last week her office provided a 52-word statement, two days after she was reminded of the issue.

““This is an operational matter for the ministry. However I have requested a briefing on the issue from MSD.

“Where there are vulnerable families and whānau that require emergency accommodation and assistance, I expect MSD to be doing what they can to support people to access the support they are eligible for.”

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