The Government allowed Housing New Zealand to borrow billions of dollars to build new state houses despite advice from Treasury that such debt would be expensive and risky.

In May, the Government announced it would be building 6400 new state homes over four years.

The funding for this came principally from $2.9b Housing New Zealand was allowed to borrow independently, instead of through regular Government borrowing. Just $234m of new money was allocated to the crown agency.

AARON WOOD/STUFF New figures from MSD show a quarter of eligible families are waiting over 150 days for public housing.

Documents released by Treasury on Thursday reveal the agency repeatedly warned the Government against allowing HNZ to borrow money this way in the lead-up to the Budget, suggesting instead that the money should come out of normal Crown debt.

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* Budget 2018: Government promises 6400 new state and social houses

This money would have likely come with cheaper interest rates but would vastly increase the amount of core crown debt. That would likely stop the Government achieve its key Budget Responsibility Rules target of getting core crown debt below 20 per cent of GDP in five years.

The advice echoed similar words given by Treasury when the National-led Government decided to allow Housing New Zealand to borrow over $1b in the last Budget.

In a February briefing, Treasury analysts wrote that borrowing directly through the crown would save $11 million per year. This was based on a plan to borrow $1.75b instead of $2.9b. A later analysis estimated an additional $3m-$6m in annual interest costs for every $1b borrowed by Housing New Zealand.

Treasury analysts said letting independent agencies borrow money of their own accord made sense with properly independent state-owned enterprises like Solid Energy, but not bodies that delivered "essential services" and would obviously be bailed out by the Government if something went wrong like Housing New Zealand.

"This is because failure to deliver these services will be unacceptable to the public and Ministers (and rightly so), meaning that further public funding will be made available to continue service provision should it become necessary," the analysts wrote in a February paper.

In essence, overseas credit rating agencies would not see this debt as separate from Crown debt given the agency delivered such a core service, and thus would just factor it into their decisions about New Zealand anyway.

Because of this it risked the credibility of the Government's Budget Responsibility Rules - as it was essentially a loophole through them.

"Decentralised borrowing could undermine the fiscal management approach, weakening fiscal control, the ability to manage total levels of debt to prudent levels, the prioritisation process that the Budget applies to spending proposals and the credibility of the fiscal strategy," the analysts wrote.

Treasury analysts did acknowledge that with New Zealand's sterling credit rating real harm to our international reputation was unlikely.

Housing New Zealand argued that borrowing the money themselves would give them both flexibility and discipline.

It's understood the agency were keen to have the power to sign multi-year contracts and not have to go through rigorous budget processes every year to keep a strong build programme up.

A spokeswoman for Finance Minister Grant Robertson responded: "This Coalition Government receives a range of advice, including from the Treasury. We consider it all and make our decisions based on our policy agenda and priorities."

The wait-list of eligible housing waiting for public housing has continued to grow, and was at 8704 as of the end of June, double what it was two years prior.

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