STATE ADVANCES CORPORATION OF NEW ZEALAND REPORT AND ACCOUNTS FOR THE YEAR ENDED 31st MARCH, 1948

Appendix to the Journals of the House of Representatives, 1948 Session I, B-13

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1948 NEW ZEALAND

STATE ADVANCES CORPORATION OF NEW ZEALAND REPORT AND ACCOUNTS FOR THE YEAR ENDED 31st MARCH, 1948

Laid before both Houses of the General Assembly of New Zealand pursuant to Subsection (2) of Section 43 of the State Advances Corporation Act, 1934-35, and Subsection (2) of Section 42 of the State Advances Corporation Act, 1936.

The Right Hon. the Minister of Finance, Wellington. We have pleasure in submitting the Balance-sheet and Revenue Accounts for the year ended 31st March, 1948, together with a report on the administration for the year, in accordance with the provisions of subsection (1) of section 43 of the State Advances Corporation Act, 1934-35. PART I.—GENERAL A review of the year's operations discloses that 19,958 applications for loans under various headings were dealt with, as against a total of 22,676 for the preceding year, or a reduction of 2,718. It is true to say, however, that the handling of these applications, in itself a formidable task, has meant another year of constant and heavy pressure for all concerned, particularly having regard to the fact that the administration of loans granted during recent years is adding a cumulative burden which the administration machinery must take care of. The following table may be of interest as illustrating the number of applications received for the past two years under classified headings ;

Year. Urban. Rural. Tools of Trade. Furniture. Business. Miscellaneous. Total. 1947 1948 8,678 7,150 2,485 1,696 210 283 8,602 8,411 2,636 2,392 65 26 22,676 19,958

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It will be seen that the main falling off is in the urban and farm loan applications. In the report covering the 1947 operations it was suggested that the peak of rehabilitation lending had then been reached, and this is borne out by the figures now available. The demand for loan finance is nevertheless still heavy, but indications are that, with the passing of the years since general demobilization, the downward trend of applications from ex-servicemen will continue until a basic level is reached. The figures quoted include applications from civilians and from ex-servicemen not immediately eligible for rehabilitation assistance, and cover, therefore, the whole of the activities of the Corporation in the categories as listed. The Board has continued its policy of conserving capital funds to meet the loan requirements of ex-servicemen, and consequently there has been no extension of the existing lending facilities to civilians, loans to whom are, in the main, restricted to those requiring special loans to erect dwellings, and to those whose requirements can be met within the normal lending margins. The operations of section 51 of the Servicemen's Settlement and Land Sales Act, 1943, has had the intended effect of reserving all economic farm units for ex-servicemen, and consequently applications from civilians for finance to purchase farms have been almost negligible. Capital repayments from existing borrowers have provided a substantial reserve for rehabilitation loan purposes, but in addition it has been necessary during the year to obtain from Treasury, in accordance with arrangements made with the Government, additional capital moneys totalling £6,700,000. The Board anticipates that approximately £7,000,000 will be similarly required for the ensuing year. With the exception of a prolonged dry summer in the lower portion of the North Island and the northern part of the South Island, the year generally has been a good one from a climatic point of view, and farming returns so far available indicate that our rural mortgagors have had a successful season. Many have far exceeded budgetary receipts, and with stability of prices for farm products the successful rehabilitation of the great majority should be assured. Technical assistance and advice from the field staff of the Corporation has been readily availed of and has in no small measure helped to overcome the inevitable difficulties that arise from time to time, especially during the initial establishment period. With 61,687 loan accounts representing investments of Corporation funds and 54,156 rehabilitation, housing, rental, and other agency loan accounts under administration at 31st March, 1948, the year has been a very busy one, and when it is realized that no fewer than 1,250,000 receipts were issued during the twelve months, covering an inflow of cash totalling nearly £10,250,000, it will be apparent that the work involved could not be handled expeditiously without an efficient and competent staff using modern business methods. It is worth recording, too, that no less than ninety-one thousand cheques were issued during the year, involving an outflow of cash of approximately £20,750,000. These figures indicate the sheer volume of the transactions with which the staff have to deal, and it is right to say in this regard that the bulk of the transactions cannot be classified in the " routine " class. The accounts are on a fully mechanized basis, and the Board has, in accordance with its traditional policy, continued to keep abreast of developments in this field. It will, as occasion requires, introduce mechanical aids best suited to its needs and calculated to assist in extending an even more expeditious service to the public.

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Reference has already been made to the number of loan applications received during the year, and we now submit statistics showing the total numbers and amounts of loans actually authorized. Corresponding figures for the year 1947 are shown in brackets—

Statistics for Year ended 31st March, 1948

A more complete understanding of the importance of the Corporation's part in assisting in the development of the Dominion will be obtained from the following statistics showing firstly, the number of applications received in the past year and the loans authorized for farms and dwellings and secondly, the aggregate for tke period of its operations from 1935 to 1948.

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Classification. Loans authorized. Number. Amount. Farms kStock Houses Industrial Business Furniture Tools of trade Miscellaneous Totals 1,149 (1.806) 53 (117) 5,998 (7,334) 3 (-) 1,344 (1,661) 7,954 (8,131) 187 (169) 56 (118) £ £ 5,299,741 (7,439,782) 55,353 (101,908) 7,209,120 (8,772,521) 75,500 (—) 996,878 (1,137,119) 729,058 (754,509) 5,401 (6,297) 15,647 (30,077) 16,744 (19,336) 14,386,698 (18,242,213)

Applications received. Loans authorized. Number. Amount. Number. Amount. During year ended 31st March, 1948— Farms Residential 1,696 7,150 £ 7,062,000 8,735,000 1,149 5,998 £ 5,300,000 7,209,000 8,846 15,797,000 7,147 12,509,000 During period 1935 to 1948— Farms Residential 17,091 49,935 £ 46,324,000 50,667,000 9,852 37,356 £ 27,921,000 37,659,000 67,026 96,991,000 47,208 65,580,000

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In the following table is shown the total number of loan accounts under all headings being administered at 31st March, 1947, with the number of loans repaid and new accounts opened during the year, the resulting balance being the number under administration as at 31st March, 1948 Number of loan accounts as at 31st March, 1947 .. .. 80,245 Less repaid during the year .. .. .. 8,237 72,008 Add new loan accounts opened during the year .. .. 16,771 Number of loans accounts as at 31st March, 1948 .. .. 88,779 We also place on record herewith the details of investments and other assets (including the Housing Account assets referred to later in this report) being administered by the Corporation at the end of the year : Assets Administered by Corporation Number of Principal Accounts. Investment. Mortgage investments— £ Urban .. ... .. .. .. 40,780 31,395,829 Rural .. .. .. .. .. 19,307 31,109,415 Loans to local authorities .. .. .. 1,600 4,407,066 Housing Account — Dwellings let .. .. .. .. 25,721 37,985,322 Dwellings sold .. .. .. .. 189 105,800 Loans to local authorities .. .. .. 91 974,052 Loans to employers .. .. .. 6 15,195 Rural Housing Act: Loans to local authorities .. 41 134,376 Advances under Rehabilitation Act, 1941 Furniture, tools of trade, business, and miscellaneous .. .. .. .. 26,946 3,224,270 Interest-free supplementary loans .. .. .. 1,291,345 Other principal agencies— Agriculture Emergency Powers Act, 1934 .. 8 22,179 Farmers' Loans Emergency Regulations 1940 .. 172 64,834 Public Works Department hutments rented to farmers .. .. .. .. 281 65,317 Rural Housing Emergency Scheme, 1944 .. 259 28,057 Total .. .. 115,401 £110,823,057 It will be noted that, for the first time in the history of the Corporation, the total capital investment in respect of mortgages and other accounts under administration is in excess of £110,000,000, and there seems to be little question but that the Corporation is the largest institution of its type in the British Commonwealth, and it will play an ever-increasing part in the economic structure of the Dominion. Its responsibilities are correspondingly great and may be classed as twofold —firstly, it is responsible to the Government for the administration and control of assets which represent very substantial public funds, and, secondly, it has a responsibility to its borrowers and other clients who look to a national institution such as the Corporation for a measure of advice and guidance not only in the matter of their initial borrowing project, but also in their day-to-day problems of finance while they continue to be clients of the institution.

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This is in some small measure reflected in the table given below, which, in accordance with the procedure adopted in previous reports records the amounts that have been written off (as irrecoverable losses) through the operations of the Mortgagors' and Lessees' ( Rehabilitation Act, 1936, or otherwise, for the past year and since the Corporation commenced to function. Losses in respect of rehabilitation loans, to the extent that they are attributable to normal lending limits having been exceeded, are not a charge against the Corporation's reserves, but are recoverable from War Expenses Account. These losses are not included in the figures below, but are recorded separately in the section " Rehabilitation Agency General."

These figures might well be studied, because they do indicate an extremely low loss ratio in respect of loans granted since the Corporation was established. It would not be fair merely to contrast the figure of £6,252 15s. M. in respect of such loans with the very large sum of £2,827,163 lis. 2d. written off in respect of loans granted prior to 1935, because other factors intervene which did have the effect of increasing substantially the loss ratio in respect of such loans. There was the aftermath of the 1931-35 slump, the operation of the Mortgagors' and Lessees' Rehabilitation Act, 1936, and so on, but the Board is convinced that one of the reasons for the' large disparity between the loss ratio in respect of loans granted in the two different periods lies in the fact that one of the first duties of the Board when it was appointed was the recruitment of a competent field staff to report on loan applications received and generally to act in a liaison capacity with' clients. Evidence is not lacking that the substantial loss ratio in respect of loans granted prior to 1935 was due in a considerable measure to the fact that the then State Advances Office had to rely for its field reports on reporting officers with whom it had no direct contact whatever. In the report of the previous year comment was made on the duties and s responsibilities of the field officers of the Corporation, and it is well that the comments made in that report should be read and studied in the light of financial trends evidenced\ in the aforegoing table. Interest Rate and Loan Terms The interest rate for loans granted to other than ex-servicemen has been maintained at per cent. This rate has been in force since the inception of the Corporation in 1935 and is competitive, fair to the borrower, and provides a barely sufficient margin to cover administration costs and tax requirements. Although preference is given to ex-service-men in all the Corporation's lending activities, ample funds are available to meet the needs

Losses Written Off in Respect of — Amounts written off. For Year ended 31st March, 1948. Total from 1935 to 1948. Loans approved prior to 1935— Farms Residential New Corporation loans since 1935 — Farm Residential .. .. .. .. £ s. d. 25,080 18 0 5,676 15 9 £ s. d. 2,311,310 11 11 515,852 19 3 30,757 13 9 2,827,163 11 2 £ s. d. 38 1 2 £ s. d. 5,866 19 1 385 16 3 38 1 2 6,252 15 4

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of civilians who qualify for special loans for the erection of dwellings and also those whose requirements can be met within the normal lending limits of two-thirds of theassessed value of the security offered. From time to time suggestions are made that •interest rates and the lending margin should be reduced. It is, however, obvious that money alone will not build houses, and the provision of cheap finance, which could not be related in any way to the rate at which either the Corporation or the Government could borrow from genuine savings of the people, would merely create a greater demand for labour and goods already in short supply and would assuredly cause building: costs to harden further against the very people a more liberal lending policy would be intended to assist. It is essential that lending policy should always be co-ordinated with the national economy, and any factors which would have the effect of increasing consumer demand —i.e., for labour, materials, or completed houses —without at the same time increasing production of those materials in short supply should be eliminated. Any other course would imperil the stabilization policy which is concerned just as much with houses and materials for houses as it is with any other necessity of life such as the food and clothing of the people. Ex-servicemen immediately eligible for rehabilitation benefits continue to enjoy the lower rate of 3 per cent., reduced to 2 per cent, for the first year, for house and farm loans and 4 per cent., reduced to 2 per cent, for the first year for business loans. Rural Intermediate Credit (Stock) Loans In terms of the Eural Intermediate Credit Amendment Act, 1946, the Rural Intermediate Credit system established by the Rural Intermediate Credit Act, 1927, was amalgamated with the Corporation's other lending operations. During the past year facilities continued to be available for farmers who desired to obtain short-term finance principally on the security of their farming stock and chattels, and applications for loans were received both from farmers applying direct to the Corporation and from those who sought their requirements through co-operative Rural Intermediate Credit Associations operating in accordance with the provisions of the legislation. As in recent years, the demands for accommodation were not extensive, owing to the favourable conditions generally which primary producers are enjoying, but during the year 64 loans, aggregating £82,727, were granted to farmers who applied direct to the Corporation, the applicants being mainly ex-servicemen of the recent war who were eligible for rehabilitation assistance, and 30 loans, totalling £21,392, were granted to farmers who applied through associations, no rehabilitation lending being involved under this heading. At the end of the year the total amount outstanding under current loans granted direct to farmers was £132,752 in respect of 216 loans, and, in addition, the sum of £46,630 was outstanding in respect of 206 loans granted through associations. The total loans outstanding were consequently 422 for the aggregate amount of £179,382.. Rehabilitation Agency : General The Rehabilitation Loans Committee and (under delegated authority) the variousDistrict Executive Committees are charged by the Rehabilitation Board with the responsibility of considering all loan applications from eligible ex-servicemen. These lending authorities, in turn, look to the Corporation's administrative and field staffs to obtain and assemble the necessary data to enable a correct decision to be made. It will be readily apparent that these investigations must be exhaustive and thorough, and this is particularly so where business loan applications are concerned. Not only must the physical assets being purchased represent full value for the price asked, but, where available, past accounts records must be analysed to ensure that the average turnover is such as to indicate that the ex-serviceman will have a reasonable prospect of being successful and that his rehabilitation on a permanent basis may be assured. Each application,.

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whether for business, farm, or dwelling, carries its own problems, and it is therefore pleasing to note that by far the great majority of ex-servicemen assisted to date are proving successful and are rapidly becoming firmly established. The relatively. few failures that have occurred have been due mainly to the personal element, either the borrower being temperamentally unsuited to the particular venture or revealing poor managerial capacity rather than to the proposition itself being economically unsound. The table hereunder shows the aggregate numbers of loans and amounts authorized from June, 1941 (the inception of rehabilitation policy), to 31st March, 1948. As a record of substantial and successful rehabilitation it requires little elaboration : Type of Loan. Number. Amount. £ Tools of trade .. .. .. 1,188 38,806 Furniture .. .. .. .. 28,429 2,613,360 Business .. .. .. .. 5,940 3,650,719 Farms .. .. .. .. 4,716 19,237,489 Houses .. .. .. .. 20,194 23,752,605 Miscellaneous .. .. .. 312 67,980 Stock (R.1.C.) .. .. .. 350 296,301 Totals .. .. 61,129 £49,657,260 Included in the amount shown above is the sum of £1,742,587, representing the total authorized by way of supplementary interest-free loans to 31st March, 1948. As indicated in previous reports, no interest or principal repayments are required in respect of these loans whilst the ex-serviceman borrower remains the owner occupant of the property. Ex-servicemen have entered into almost every phase of business life from taxi transport to inter-colonial freight shipping, from bootmaking to hotel ownership. In a necessarily condensed form the following table shows, under classified headings, the various types of business loans authorized : Classification of Business Loans Number. TotaL Number. Total. £ £ Butchery .. .. .. 142 115,815 Taxi, service car, and transGrocery and general store .. 445 356,801 port .. .. 794 446,227 Bakery, dairy,refreshment-rooms 302 202,454 Carrier and mail contractor 953 672,030 Milk-round .. .. .. 172 128,916 Hairdresser and tobacconist 83 37,655 Building trades .. .. 437 225,385 Bootmaker .. .. 128 38,869 Mechanical repairs .. .. 296 178,351 . Painter and paperhanger.. 144 44,927 Manufacturing business .. 209 140,438 Launch and fishing gear .. 81 50,598 Stationery and fancy goods .. 85 60,825 Agricultural contractor .. 348 249,033 Eggs, poultry, &c. .. ..40 25,668 Chemist .. .. 24 25,130 Professional equipment .. 656 290,704 Miscellaneous .. .. 435 264,870 Radio dealer and electrician .. 136 70,048 1 Hotel and guest-house .. 30 25,975 Total to 31st March, 1948 5,940 £3,650,719 All loans are granted on terms providing for reasonable repayments over a number of years determined by the Rehabilitation Loans Committee or the District Executive Committee in relation to the type of asset and the estimated profit-earning capacity of the particular business. In many cases borrowers have found it possible to increase their instalments, thus reducing the loan term and clearing their liability in a shorter period than that originally fixed. On the other hand, through temporary setbacks due to ill health, shortage of Supplies, or some other factor outside the borrower's control, it has been necessary in some cases to ease the rate of repayment. Such cases are considered sympathetically by the Committee concerned, and, where warranted on the facts, appropriate relief is extended.

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As in previous years, a return is appended showing arrears under rehabilitation loans as at 31st March, 1948. In last year's report unfavourable comment was made on the large number of furniture and tools of trade accounts in arrear, and, unfortunately, the position shows no improvement. Since this type of loan carries no interest charge and the principal repayments are modest in amount it is reasonable to expect a very low percentage of accounts in arrear. The reverse, however, appears to be the case, and it would seem that it is because they are interest-free that the borrowers concerned display a lesser sense of responsibility for the repayment obligations they have entered into. When viewed in relation to the average family income there is little justification for such a large percentage being in arrear and recommendations with a view to improvement in the position have been made to the Rehabilitation Board.

(1) Arrears as at 31st March, 1948, on Farm and Residential Loans

(2) Arrears as at 31st March, 1948, on other Rehabilitation Loan Accounts

Losses written off after realization of securities in respect of loans granted to returned servicemen under the rehabilitation scheme up to the 31st March, 1948, are shown hereunder:— For Year ended 31st March, 1948. Total to Date. Number. Amount. Number. Amount. £ s. d. £ s. d. Farm .. .. ..14 2,235 7 9 33 4,770 8 2 Residential .. .. 1 5 14 5 1 5 14 5 15 £2,241 22 34 £4,776 2 7 £ s. d. £ s. d. Business .. .. ..25 3,782 13 10 52 7,182 5 7 Furniture .. .. ..15 454 3 8 37 1,075 17 5 Tools of trade .. .. 5 17 10 1 12 109 4 3 Miscellaneous .. .. .... .. 1 14 0 0 45 £4,254 7 7 102 £8,381 7 3

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Accounts. Arrears. Percentage in Arrears Number. Principal Outstanding. Number. Amount. to Number of Accounts. Farm Residential 4,285 14,287 £ 15,914,870 16,125,565 156 392 £ 18,728 5,590 3-6 2-7 18,572 32,040,435 548 24,318 2-9

Accounts. Arrears. Percentage in Arrears Number. Principal Outstanding. Number. Amount. to Number of Accounts. Furniture Tools of trade Business Miscellaneous 23,295 334 3,061 176 £ 1,418,594 4,805 1,733,252 45,649 2,371 108 327 28 £ 20,030 902 26,088 367 10-2 32-3 10-7 15-9 26,866 3,202,300 2,834 47,387 10-5

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It will be of interest to record that, while the Corporation still has a very large number of rehabilitation loans on its books, there is nevertheless a considerable number of loans granted under this heading which have in fact already been repaid, and the relative figures (as to number of accounts only) are shown in the following table : Number of Type of loan. Accounts Repaid, 31st March, 1948. Farm .. .. .. .. 76 Residential .. .. .. .. 777 Stock (R.1.C.) 44 Business .. .. .. .. ( 1,745 Furniture .. .. .. .. 2,519 Tools of trade .. .. .. 706 Miscellaneous .. .. .. .. 99 Total .. .. .. 5,966 It should be explained that some of the loans have been repaid as a result of the sale of farms, houses, and businesses by the original borrowers, who for various reasons have found it necessary to change their employment or the location of their place of residence. The properties thus sold have in most cases been acquired by other ex-servicemen, to whom new loans have been granted. Preservation and Protection of Timber Treatment of Timber. —As part of its policy of providing long-term finance for the erection of buildings, the Corporation requires that such buildings be constructed with high-grade durable materials. Heart grades of native timbers have been difficult to obtain in recent years, and, with the likelihood in the future of further reduced supplies and an increased use of exotics, the Corporation has actively encouraged the development of preservation methods to enable the acceptance of the lower grades of timber with confidence. Up to the present most of the preservative treatment has been by the kiln-drying and dipping process. In addition to other advantages the kiln drying ensures that the timber is sterile prior to treatment, and the subsequent dipping process offers a desirable measure of protection against subsequent attack by insect, fungi, or other wood-destroying organisms. The method is, however, not ideal, partly because of the expert and close supervision necessary, and partly because of the technical difficulties encountered. Particular care has also to, be taken to ensure that the only chemicals used are harmless to persons operating the dipping-plants or to users of the timber, and that the painting and other essential requirements of timber are not affected. The great advantage of the dipping process is that wherever proper kiln-drying facilities are available, it can be initiated quickly and economically without the installation of expensive plant. The amount of timber treated by this method is considerable, and up to the present approximately 5,000,000 super, feet of low-grade timbers, otherwise unsuitable, have been made available for building purposes. More recently pressure-impregnation methods of treatment have been instituted in New Zealand. Commercially operated plants have been installed in Auckland and Christchurch, while plants in other centres are contemplated. A considerable proportion of the non-durable grades of timber being used in the State rental houses and in Corporation securities is already being treated in these plants. To date approximately 2,500,000 super, feet of these timbers have been pressure treated. These are mainly native timbers such as rimu, matai, and tawa, but approximately one-quarter of the total is exotics, mainly pinus radiata. The Board confidently anticipates that the extended use of pressure-impregnation methods will largely solve the problems involved in the use of the lower grade timbers.

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Termites Act, 1940.—Under the Termites Act, 1940, the Corporation has certain administrative and technical responsibilities for the detection and control of nonindigenous termites, several species of which have become established to some extent in various parts of New Zealand. One means of the introduction of termites into this country is in the hardwoods which are regularly arriving from overseas, and, by arrangement, the State Forest Service has assumed the responsibility for the inspection of all hardwoods imported, together with the isolation and treatment of any infested timbers found. Up till 1947 eight local authorities had been declared local authorities to which the Act applied. In one of these, the Waikohu County, the known active colonies have been destroyed and the order declaring that it should be a local authority to which the Act applied was revoked in 1946. During the past year one additional local body, the Waipa County, has also been brought under the provisions of the Act, mainly as a result of active infestations being found near Cambridge. These local bodies are responsible for the inspection within their boundaries of buildings, poles, stumps, and other timber likely to be attacked. The number of properties inspected and the number of infestations recorded up to 31st March, 1948, is as follows :

Staffing difficulties have prevented this inspection work proceeding as expeditiously as is desirable and, except for the Auckland City Council, which has displayed commendable energy, and possibly the New Plymouth Borough, in which the infestations may now have been destroyed, there is a good deal of leeway to be made up. With the possibility of more Inspectors being secured in the near future it is hoped to secure some improvement in the coming year. The proportion of inspected properties infested is not high, as will be gathered from the following table indicating the incidence reported as a result of the inspections carried out by the Auckland City Council up to 31st March, 1947 :

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Local Bodies. Properties inspected, including Re-inspections: Total as at 31st March, 1948. Properties in which Infestations found: Total as at 31st March, 1948. Auckland City Council New Plymouth Borough Council Onehunga Borough Council Mount Albert Borough Council One Tree Hill Borough Council Mount Eden Borough Council .. Mount Roskill Road Board 16,276 1,304 1,231 569 1,040 337 699 323 23 111 4 2 2 23 21,456 488

Location of Activity. Active. Inactive. Total. Utility poles, &c. 15 90 105 Building properties, &c. .. 40 121 161 Total v. 55 211 266

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It will be noted that the analysis in the above table shows that some 266 infestations were under observation as at 31st March, 1947, and subject to inspection and control measures. Of these, 211 were inactive and only 55 active. Nevertheless, the importance of the work is to be measured not so much by the number of infestations being dealt with as by the necessity for ensuring that each infestation is controlled, and, if possible, eliminated, before it becomes the centre of an extensive outbreak. During the year a Termites School of Instruction was conducted by the Corporation at Cambridge. This was attended by Inspectors from the local bodies adjacent to the Waipa County, and as a result of the subsequent examinations five officers secured certificates as Inspectors under the Act. . Staff This report would not be complete without some reference to the co-operation that the Board has received from its administrative officers and staff, both office and field. The standard is high and has, in no small measure, contributed to a year of successful administration. Pressure has been heavy and will continue to be so for some time yet, but the Board is confident that, with the able assistance of a keen and efficient staff, it can cope with whatever demands are made upon it. In its capacity as agent for the Behabilitation Board the Corporation has accepted the responsibility not only for the provision of finance on a basis that will enable ex-servicemen to establish themselves successfully, but also for ensuring that all the help and advice so necessary to these men in their early years of settlement is readily available. Upon the establishment of the Corporation in 1935 the Board enunciated a policy of recruiting and training a competent field organization. This policy was put into effect, and, as a result, the Corporation had available a nucleus of experienced field officers to withstand the impact of rehabilitation and to develop and train additional staff necessary to cope with the large increase in loan applications. In addition to this the Corporation provided an advisory service to exservicemen, the great majority of whom were just commencing their chosen careers. It is not only in the rural field of activity that the Board's policy has proved its value. In the urban field also an efficient team of Property Supervisors conversant with building methods and trends in modern construction was available to advise ex-servicemen, to suggest improvements in plans and designs and to help them generally in their building problems. It needs no emphasis that the success of the Corporation must in a large measure be bound up with the success of its clients, and it is only by close co-operation between the Corporation and its clientele through an efficient field organization that the success of both can be assured. The Board wishes to stress this aspect, because it is one which has been a guiding principle with the Board from the time it commenced to function. The wisdom of this policy has been amply proved not only by the exceptionally small losses of capital that have been incurred since the Corporation was first established, but also by the success that has attended the rehabilitation scheme generally through an organization able and willing to function from the moment the Government proclaimed its policy and created legislation. Balance-sheet Mortgage investments have continued to increase in volume during the year, principally due to loans under the rehabilitation scheme on farms and dwellings. The increase for the year has amounted to almost £7,000,000 being a rise from £55,333,501 in 1946-47 to £62,261,350 for the year 1947-48. It will be appreciated that existing mortgages are being steadily reduced each year by the payment of instalments of principal, and lump-sum repayments of principal in many cases, and for the year under

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review approximately £4,000,000 was repaid in this way. When allowance is made for this the actual amount paid out during the year under the heading of " New Loans " approximated £11,000,000. There is a corresponding increase on the Liabilities side of the balance-sheet in that the item " Stock and Debentures " has increased by £6,700,000, this amount being additional loan-moneys raised to meet the calls for new advances to clients. Revenue Accounts The expanding scale of lending operations has meant in its turn an increase in interest earned on mortgages and current accounts, and for the year under review this increase amounts to £288,240, while interest payable on loans raised by the Corporation also shows a corresponding increase of £185,405. Gross profit transferred to Profit and Loss Account was £570,792, as compared with £502,517 for the preceding year. Management expenses including administration costs in connection with rehabilitation advances for business, tools of trade, and furniture loans have shown an increase of £14,916, and it is worth recording that, as in past years, the Corporation has continued to meet, without any claim on other Government funds, the total cost of administering the rehabilitation loans under the category mentioned above. This year the charge under this heading amounts to £87,735, as against £83,733 during the preceding year. Had this amount been recovered from the appropriate departmental account, the balance of profit payable to the Treasury would have been increased. A change has been made this year in the matter of provision for reserves. In the past the provision for reserves has been made in the Profit and Loss Account, but this year the charge has been carried down to Profit and Loss Appropriation Account, which accounts for the fact that the net profit for 1947-48 is shown at £165,353, as compared with £74,394 for 1946-47. However, the important point is that, after making full provision for taxation and reserves, the balance in the Profit and Loss Appropriation Account available for payment to Treasury is £15,934 for 1947-48, as compared with £8,394 for 1946-47. A. D. Park, Chairman of Directors. T. N. Smallwood, Deputy Chairman of Directors. B. C. Ashwin ") D. Barnes R. G. Macmorran J

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Dr- £ Gr. £ Interest on stock and debentures .. .. ..1,839,546 Interest on mortgages and current accounts .. .. 2,045,908 Interest on General Reserve Fund investments— Interest concessions on rehabilitation advances : Paid from Payable on State's contribution .. .. .. 104,437 War Expenses Account .. .. .. .. 366,390 Credited to General .. .. .. 69,290 Interest on Government and local- body securities .. .. 171,767 Gross profit transferred to Profit and Loss Account .. 570,792 £2,584,065 £2,584,065 Profit and Loss Account Dr - £ Gr. £ £ Management expenses .. .. .. .. .. 308,318 Gross profit transferred from Interest Account .. .. 570,792 Administration of rehabilitation advances from War Expenses Rentals: Properties acquired .. .. .. 1,112 Account (business, tools of trade, furniture, and miscellaneous Less miscellaneous expenses thereon .. . 512 loans) .. .. .. .. .. .. 87,735 600 Earthquake-damage insurance .. .. .. .. 9,986 Net profit, transferred to Appropriation Account .. .. 165,353 £571,392 . £571,392 Profit and Loss Appropriation Account Dr - £ Gr. £ Provision for taxation .. .. .. .. .. 95,000 Net profit, transferred from Profit and Loss Account .. 165,353 General Reserve Fund (on account of taxation on Reserve Fund accretions) .. .. .. .. .. .. 34,381 Reserve for Losses— New Business .. .. .. 20,038 Balance: Profits payable to Treasury .. .. 15,934 £165,353 £165,353

Kevenue Accounts for the Yeah ended 31st march, 1948 Interest Account

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Balance-sheet as at 31st March, 1948 Liabilities £ Assets £ Authorized capital .. .. .. .. .. 1,000,000 Mortgages and accrued interest .. .. .. .. 62,261,350 £ Securities in course of realization .. .. •• 113,531 Stock and debentures .. .. .. 58,522, 590 Advances on current account and accrued interest .. .. 432, 327 Accrued interest .. .. .. 304, 229 Government and local- body securities and accrued interest .. 4,867, 965 58,826,819 Office furniture, equipment, and motor-vehicles, at cost, less General Reserve, including (a) £2,753,164 repayable to the depreciation .. .. .. .. .. 41,028 State under section 35 of the State Advances Corporation Act, Current assets— £ 1934-35; (&) contribution from War Expenses Account of Sundry debtors .. .. .. .. 99,000 £650,397 in respect of rehabilitation advances .. .. 4,753,336 Lodgments in transit, cash in bank and on hand .. 292,519 Specific reserves— 391,519 Reserve for losses— £ Ex-State .. .. .. .. 2,345,176 New business .. .. .. 340,000 Investment Fluctuation Reserve .. 120,000 2,805,176 Provision for taxation .. .. .. .. .. 130,147 Sundry creditors .. .. .. .. .. 471,871 Liability to the Crown— Surplus for year .. .. .. 15,934 Interest payable on State's contribution to General Reserve .. .. .. .. .. 104,437 120,371 £68,107,720 £68,107,720 W. Gr. Dent, 8.C0m., F.R.A.N.Z., Chief Accountant. A. D. Park, F.1.A.N.Z., F.R.A.N.Z. ) M , T. N. Smallwood I iVlauagmg - Uirectors -

In accordance with the provisions of the State Advances Corporation Act, 1936, we report that we have obtained all the information and explanations we have required in respect of the accounts of the Corporation examined by us and in respect of the above Balance-sheet, which, in our opinion, is properly drawn up so as to exhibit a true and correct view of the state of the Corporation's affairs according to the best of our information and the explanations given to us and as shown by the books of the Corporation. Wellington, N.Z., 21st May, 1948. R. C. Burgess, F.P.A.N.Z. } . Gr. D. Stewart, F.P.A.N.Z. i Auailors -

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PART H.—HOUSING ACCOUNT The duties and responsibilities of tlie Corporation under the Housing Act, 1919, and amendments and other legislation related to housing have greatly increased both as regards the provision of loan finance and the administration of the housing units erected by the Government for letting. The report hereunder provides a brief summary of the •activities with which the Corporation is concerned : \ Rural Housing The Rural Housing Act, 1939, is still in operation, although we regret to record that the revival of interest on the part of local authorities and the farming community which was noted in the report for the preceding year has not been maintained to the extent which the Board would like. The special provisions under which farmers are enabled to raise finance through the County Councils, even though their properties may already be subject to mortgage, are liberal in operation, in that loans may be granted to County •Councils by the Corporation at 3 per cent, interest, and the farmers may borrow at 3£ per cent, from County Councils, if they are operating under the scheme. The Corporation will, however, continue to play its part in an endeavour to popularize this scheme still further so that housing conditions in rural areas may be improved as far as possible. Urban Housing The Corporation is concerned with various phases of house-building in urban areas for letting purposes as more particularly detailed hereunder : {a) New State Rental Houses. —In this field the Corporation is responsible for administration and maintenance of dwellings after completion by the Housing Construction Department. For the year under review the number of houses delivered to the Corporation has again increased, and it is anticipated that there will be a still further increase for the following year. For the current year 2,715 new units were handed over, as compared with 2,392 units in the preceding year, while the total of new units completed and under administration by the Corporation as at the 31st March, 1948, reached the substantial total of 25,226. The administration of this scheme throws a considerable burden of work upon the Corporation in that it is responsible not only for supervision and maintenance of the dwellings after completion, but also for the selection of tenants, the completion of tenancy agreements, the handling of the numerous unsatisfied applications involving correspondence with and investigation of the circumstances of applicants, and other incidental duties. The very substantial volume of applications received for tenancies of State rental houses has continued to create a problem of administration which has not become any easier of solution as time has gone on. At the 31st March, 1948, the number of unsatisfied applications on hand totalled 52,186, and of these, 14,137 were from eligible ex-servicemen. It will be noted that there has been a slight reduction in the total of applications on hand as compared with the previous year. This does not necessarily mean that there has been a falling off in applications received during the year, but it is indicative of the fact that the Corporation has endeavoured to review all applications and to " purge " the lists as far as practicable on account of the fact that the circumstances of many applicants have substantially changed since their applications were first lodged, and many indeed have solved their own housing ■difficulties. Nevertheless, the sum total of applications is still very large. During the year the Government decided to set up independent committees in selected localities to deal with the task of allocating houses as they are completed to those applicants who, in the opinion of the committee, were most deserving of immediate assistance. The committees are now functioning, and have in the main relieved the officers of the Corporation of a burden of criticism which was inevitable, having regard to the problem involved. It is no easy matter to decide upon an order of priority amongst the large volume of applications which will do justice to all the families concerned.

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(b) Old Rental Houses. —The Corporation lias 1,149 houses under its control which were erected prior to 1935 or have been acquired for housing purposes. These houses are let to tenants in a similar manner to that operating for new houses. The Corporation has continued to purchase, as opportunity offers, houses which are suitable for occupation by large families or have other features which are suited to the needs of other types of applicants. In addition, the Corporation also continues to co-operate with the Public Service Commission in the operation of a Housing Bureau established at the office of the Commission. This Bureau has rendered considerable assistance to public servants on transfer, either in the direction of exchange of tenancies between officers transferred to or from the various towns throughout the Dominion, or in selected cases the Corporation has been able to make finance available to enable some officers to acquire suitable properties. (c) Transit Housing.—The Transit Housing scheme previously established as a means of providing temporary accommodation for families who have an urgent need for better housing, but who are not immediately in line for the allocation of a permanent tenancy, continues to operate through local authorities with Government assistance, and transit housing camps have been established in many places throughout the Dominion. These schemes have made a worth-while contribution in easing the housing situation, and, on the whole, the schemes are working satisfactorily. It is worth recording that as at the 31st March, 1948, nearly 800 transit units were occupied by families. In general, it can be said that the aim is to place selected tenants in these temporary quarters and make provision for permanent tenancies in the order of priority to which the applicants would normally be entitled, but there are some few cases where the local authority has decided to take full responsibility for the selection of tenants for the transit camps, and in such cases the provision of permanent tenancies is arranged on a different basis. As at the 31st March, 1948, the number of applicants who were first allocated tenancies in transit camps, and who were subsequently allotted permanent accommodation, approximated 950. (d) Allocation of State Rental Houses to Ex-servicemen. —It is still Government policy to set aside not less than 50 per cent, of all permanent housing units which become available for letting to eligible ex-servicemen. The selection of ex-servicemen tenants is the responsibility of the local Rehabilitation Committees in the various towns and cities where State houses are available. Future Requirements Although, for reasons already stated, there has not been an increase in the number of unsatisfied applications for the year under review, it is true to say that the applications still on record represent a very formidable total, but there is no reason to suppose that the housing condition of all these applicants is totally unsatisfactory. . In past years, when considering future housing requirements, it has been suggested that if it were possible to have 25,000 new units provided over a short period of years this would have the effect of overcoming in a very large measure the difficulties, which are now being experienced by so many families who have not been able to make provision for housing from their own resources. There does not appear to be any reason why this figure should be revised at this stage, although it would not be right to give the impression that there is a shortage only of 25,000 houses, but the provision of this number would certainly go a long way towards relieving the pressure caused, by those families whose living conditions cannot be regarded as being in accord with modern requirements. It is pleasing to record that many more houses are being built by private individuals, and this will, in itself, result in releasing for occupation by other families existing accommodation which, if not ideal, will nevertheless, in the long run, assist in meeting the most urgent needs.

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Loans to Local Authorities for Housing Schemes A worth-while contribution towards the solution of the housing problem is being made by some urban local authorities who are taking advantage of loans made by the Corporation from the Housing Account, and it is hoped that this facility may be more widely availed of as the years go by. Loans to local authorities for this purpose bear interest at 3 per cent, and are repayable over terms approved by the Local Government Loans Board, having regard to the life of the asset being created. Housing for Timber-workers The housing scheme introduced by Part 111 of the Finance Act (No. 2), 1946, has been actively operated during the past year. Subject to the conditions set out in the legislation, the scheme enables the provision to sawmillers of houses, situated adjacent to milling operations, the houses being so constructed as to be transferable as the need arises, for occupation by timber-workers at moderate rentals. The sawmiller is required to maintain and insure the units, and to pay to the Housing Account an amount equal to the rental payable by employees. Full ownership of the units passes to the sawmiller at the end of twenty years. Apart from the rentals payable by the timber-workers, the scheme is primarily financed by means of a levy on all timber (indigenous and exotic) milled in New Zealand, the industry thus being responsible for the ultimate financial success of the scheme. The scheme is administered by the Corporation, with the assistance of the State Forest Service and the Timber Production Advisory Committee, the Housing Construction Department being responsible for the letting of contracts for construction of the houses. Up to 31st March, 1948, a total of 386 units (comprising 228 three-bedroom units and 158 two-bedroom units) had been approved by the Board in respect of applications by seventy sawmillers, and there are indications that activity under the scheme will be maintained and probably increased. It may be said, therefore, that the scheme is a valuable contribution towards the objective of facilitating, in the national interest, the greater production of timber for housing purposes, and in the provision of improved housing for the workers in the industry. Revenue Account and Balance-sheet In the tabulated Revenue and Expenditure Account a profit for the year is shown on the following classes of account: — £ (1) Properties Sold under Agreement for Sale and Purchase .. .. 1,655 (2) Advances to Local Authorities for Urban Housing .. .. 14,357 (3) Advances to Employers .. .. .. .. .. 178 (4) Advances to Local Authorities under Rural Housing Act, 1939 .. 1,919 These profits however were more than offset by losses on (5) Rented Properties (Old) .. .. .. .. .. 1,033 and (6) Rented Properties (New) .. .. .. ... .. 116,224 The latter account, which comprises dwellings, flats, shops, and garages erected under the Government's new housing scheme, calls for special comment. The rentals receivable for 1947-48 amounted to £1,662,003, as compared with £1,479,662 in 1946-47. Included in the charges against this revenue are the following provisions based on the average expenditure, which it is estimated will be incurred during the life of a dwelling — depreciation at a rate sufficient to write off the construction cost in sixty years; insurance premiums for credit to the Housing Insurance Reserve at the average rate

2—813

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chargeable on these types of dwellings by tariff insurance companies; interest on the capital cost; maintenance at 1J per cent, on the cost of improvements ; losses and vacant tenancies at 5 per cent, of the gross rental. Though losses by way of bad debts and vacancies have been very light to date, the latter charge is considered prudent and necessary from a long-term point of view. The expenses of management which amount to £132,186 for the year cover an extensive volume of work over and above the services normally rendered by a collecting agency, the principal aspects being the recording, control, and investigation of applications for tenancies, arranging exchanges of tenancies throughout New Zealand, legal services in respect of the 25,000 houses let, and, finally, the technical and clerical work in respect of maintenance. The volume of this latter class of work may be gauged from the fact that during 1947-48 over 48,000 repair jobs were let. The excess of charges over revenue from the new State rental units resulted in a working loss of £116,224 in 1947-48, as compared with the loss of £58,833 incurred in 1946-47. The increased rate of loss is directly related to .the steady increase in building costs over recent years which has resulted in higher charges per unit for interest, depreciation, insurance, and maintenance, and the quantum of loss will tend to increase as more houses are built at present prices. In the Profit and Loss Account, to which the balances of the subsidiary revenue and expenditure accounts were transferred, the debit balance of £23,255 carried forward from 1946-47 was increased to £123,582 as at 31st March, 1948. In terms of section 35 of the Housing Act, 1919, the following statement is submitted: — £ (1) Payments received during the year ended 31st March, 1948 .. 1,933,150 (2) Amount of arrears in respect of rentals (old and new houses) and instalments under agreements for sale and purchase as at 31st March, 1948 .. .. .. .. .. 10,217 Further statistical information in respect of the new State housing scheme is summarized below: — (а) Number of new housing units let up to 31st March, 1948 .. 25,226 (б) Book value of new housing units as at 31st March, 1948 .. £37,229,125 (c) Total amount of rent receivable on all new housing units from 31st March, 1937, to 31st March, 1948 .. .. .. .. £9,403,349 (d) Amount of rent in arrear at 31st March, 1948, in respect of new housing units .. .. .. .. .. .. £6,145 (e) Total amount of rent in respect of new housing units written off from 1937 to 1948 .. .. .. .. .. £4,745 Viewed in relation to the capital investment and rental receivable, losses of rent and arrears are gratifyingly low. The care taken by tenants in the maintenance of dwellings and grounds is also worthy of special mention. A. D. Park, Chairman of Directors. T. N. Smallwood, Deputy Chairman of Directors. B. C. Ashwin D. Barnes [^Directors. R. G. Macmorran j

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HOUSING ACCOUNT Tabulated Revenue and Expenditure Account for Year ended 31st March, 1948

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Item. Properties sold under Agreement for Sale and Purchase. Advances under Part Y, Housing Act, 1919 (Local Authorities Urban Housing). Advances under Part III, Housing Act, 1919 (Loans to Employers). Advances to Local Authorities under Rural Housing Act, 1939. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Revenue Interest Rent Expenditure (including allocations to Reserve marked*) Interest Management expenses Depreciation Insurance (including earthquake insurance) Rates Maintenance Losses and vacant tenancies Excess of revenue over expenditure transferred to Profit and Loss Account Excess of expenditure over revenue transferred to Profit and Loss Account Totals £ 1,521 1,092 39 570 1,655 £ 4,877 £ 13,019 243 14,357 £ 27,619 £ 118 16 i78 £ 312 £ 1,917 232 l,9i9 £ 4,068 4,877 4,877 27,619 27,619 312 312 4,068 4,068 Item. Rented Properties (Old) erected prior to 31st March, 1937. Rented Properties (New) erected under New Housing Scheme. Combined Revenue and Expenditure Account. Dr. Cr. Dr. Cr. Dr. Cr. Revenue Interest Rent Expenditure (including allocations to Reserve marked*) Interest Management expenses Depreciation Insurance (including earthquake insurance) Rates Maintenance Losses and vacant tenancies.. Excess of revenue over expenditure, transferred to Profit and Loss Account Excess of expenditure over revenue, transferred to Profit and Loss Account Totals .. £ 11,478 6,115 18,158* 1,996* 12,318 13,958 215 •' £ 63,205 1,033 £ 483,983 132,186 328,213* 93,630* 266,993* 390,122* 83,100* £ 1,662,003 116,224 £ 512,036 139,884 346,371 95,665 279,311 404,080 83,885 £ 36,876 1,725,208 99,148 64,238 64,238 1,778,227 1,778,227 1,861,232 1,861,232

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HOUSING ACCOUNT— continued Profit and Loss Account for the Year ended 31st March, 1948 Dr. & Or. £ Balance, Ist April, 1947.. .. .. • • • • 23,255 Balance, 31st March, 1948 .. .. • • • • 123,582 Administration of Termites Act, 1940 .. .. • • 527 Borer-treatment investigation .. .. .. • • 95 Pre-treatment of timber .. .. .. • • 557 Loss for year (see combined Revenue and Expenditure Account) 99,148 £123,582 £123,582 Balance-sheet as at 31st March, 1948 Liabilities £ • Assets £ £ Loan liability .. .. .. .. •• ..36,556,494- Principal owing under agreements for sale and Sundry creditors— £ purchase 102, Bb2 Tonannv . .. 25,232 Advances under— Rent paid in advance !'. .. ..19,464 Part 111, Housing Act, 1919 (loans to employers) 15,095 Departmental 192,406 Part V, Housing Act, 1919 (local authorities: Miscellaneous .. •• •• •• 7,566 Urban housing) .. .. •• vu'2Bl Timber lew •• •• 99,313 Rural Housing Act, 1939 .. .. 134,^81 343,981 1,226,225 Carried forward 36,900,475 Carried forward .. 1,226,225

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HOUSING ACCOUNT— continued Balance-sheet as at 31st March, 1948— continued £ £ £ Brought forward .. .. .. .. 36,900,475 Brought forward .. .. 1,226,225 Insurance Reserve .. .. .. .. .. 628,239 Instalments of principal overdue.. .. 3,200 Reserves : Rented properties (new), (rates, maintenance, bad Interest receivable— debts, and vacant tenancies) .. .. .. .. 1,952,035 Overdue .. .. .. .. 2,331 Accrued .. .. .. .. 6,956 Recoverable expenditure .. .. 6 1,238,718 Less amount in hand unallocated .. 3,571 1,235,147 Rented properties (old) .. .. .. 908,149 Less Depreciation Reserve .. .. 151,952 756,197 Rented properties (new) .. .. 38,993,252 Less Depreciation Reserve .. .. 1,764, 127 37,229,125 Rent receivable— Overdue .. .. .. .. 38,254 Postponed .. .. .. .. 350 Accrued .. .. .. .. 12,772 51,376 Sundry debtors .. .. .. .. .. 70,399 Cash in hand of S.A.C. . . .. .. .. .. 14,177 Writings-off Suspense .. .. , . .. .. 746 Profit and Loss Account .. .. .. .. 123,582 £39,480,749 £39,480,749

Note.—Dwellings under construction and vacant land are under the control of the Public Works Department, and expenditure in connection therewith is not included in these accounts.

I hereby certify that the Balance-sheet and accompanying accounts have been duly examined and compared with the relative books and documents submitted for audit, and correctly set out the position as disclosed thereby, subject to the above departmental note.—J. P. Rutherford, Controller and Auditor-General. sth October, 1948.

W. G. Dent, 8.C0m., F.R.A.N.Z., Chief Accountant. A. D. Park, F.1.A.N.Z., F.R.A.N.Z.\, T . . , T. N. Smallwood j-Managmg Directors.

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