By Hal Pawson

‘[T]he emergence of a domestic market for housing provided by institutional investors … would add to, and improve the quality and diversity of, Australia’s stock of … rental housing’. Backing the case for expanded Build-to-Rent (BTR) housing provision, this was the central conclusion of the first major report from the Commonwealth’s expert advisory body, the National Housing Supply and Affordability Council, back in September 2023.

While Government responses to the Council’s wide-ranging recommendations remain outstanding, Treasury has recently published detailed tax reform proposals that address part of the agenda. These advocate equalising the (overseas investor) Withholding Tax treatment of BTR housing with that for other asset classes, like office blocks and shopping centres. They also propose to bring the depreciation treatment of BTR developments into line with that for serviced apartments.

BTR potential to fulfil housing policy objectives

In my personal view, these are broadly reasonable proposals that could helpfully accelerate the expansion of a housing typology with the potential to fulfil several important housing policy objectives as argued in the Council’s 2023 report:

1. Possible net addition to housing supply – conventional wisdom says will moderate both house prices and rents over time
2. When rental income (not capital gain) is prime landlord motivation, the product is inherently more secure tenure from tenant perspective
3. Multi-unit buildings commissioned for retention in single ownership should incentivise utility, durability and energy efficiency in design and construction
4. Professional and customer-oriented management promised by BTR is potentially beneficial for BTR tenants and perhaps beyond – as ‘positive disrupter’ for private rental housing more broadly.
5. As a new component of the rental market, BTR provision potentially broadens rental housing choice – albeit choice restricted to moderate to high income households
6. Given investor intentions for a long term hold, BTR construction demand promises to moderate housebuilding industry volatility in response to short-lived market downturns.

Inclusion of affordable housing within market BTR developments

The proposal that BTR project eligibility for the new tax arrangements will depend on the inclusion of affordable housing units is also a laudable bid to satisfy another policy objective. The specified nature of the proposed affordable housing to be provided is, though, somewhat modest. It will be targeted to relatively high income households, and its affordable status will expire after 15 years. Even within this limited period, therefore, the measures will make little or no contribution to easing unmet housing need experienced by low income Australians.

Even so, there are questions on whether a BTR project’s associated loss of future revenue (through affordable housing regime compliance) may negate the advantage to a scheme proponent conferred by the tax changes as proposed. In our response to the government consultation on the proposals, we call for the publication of the underlying Treasury modelling to allay such concerns.

If there are well-grounded fears that the net viability impact of the proposed changes may be negligible – or even negative – there could be a case for legislating the introduction of the currently envisaged affordable housing requirement for activation at a future date – e.g. applicable to schemes starting on site five years after the tax change. One argument for this approach would be to support the objective of embedding BTR industry growth during the second half of the 2020s, particularly in support of the National Housing Accord 1.2 million homes new supply target.

But assuming that the net viability impact of the proposed reform package is in fact positive, the package deserves support as it stands. Beyond that, the legislation should also stipulate an independent review after five years to consider scope for strengthening the affordable housing requirement at that stage. This factors in the expectation that, as it becomes established, the sector will begin to overcome the disadvantages of ‘novelty’ which currently continue to dampen investor interest.

The illogicality of piecemeal housing reform

More broadly, though, it seems illogical that a policy seeking to generate (sub-market) affordable housing provision in the course of market housing development is restricted to only a very small niche within overall residential development industry output. It would apply to neither domestically-funded BTR projects, nor – more importantly – to build to sell projects. This seems particularly incongruous when the targeted niche is an industry sector already operating at a competitive disadvantage to other forms of residential development due to other property tax settings not slated for reform (negative gearing, Capital Gains Tax discount, GST).

In attempting to secure a small contribution of sub-market affordable rental housing as a routine spin-off from new market housing development, a more logical approach would be to:

• Expand the scope of such a policy to all new BTS as well as BTR housebuilding projects above a given threshold size – other than in areas with low land value
• Implement the policy via the landuse planning system rather than via the Federal tax system, through arrangements where development approval is conditional on pledged affordable housing contributions (sometimes termed ‘mandatory inclusionary zoning’).

All of this highlights the unsatisfactory nature of progressing housing reform in an unco-ordinated piecemeal manner, an approach certain to further add to regulatory complexity and cost. As already evident at the time of the 2010 Henry Tax Review, and as also exemplified in our Treasury submission, Australia’s existing residential property taxation regime is riddled with illogicalities and inconsistencies. These call for a root and branch review to inform a comprehensive housing reform strategy.

By Hal Pawson and Vivienne Milligan

In just four years since the advent of COVID-19, Australia’s house prices have climbed by a dizzying 50%. Defying orthodox expectations that property inflation would be quelled by rising interest rates, that upward trend has continued even since the RBA’s monetary tightening phase began in mid-2022, with prices up by 12% in that period alone.

And, with advertised rents also climbing by an extraordinary 50%, nationally, since March 2020 -vastly exceeding contemporary wage growth – it has become harder to contest the widespread claims that Australia is experiencing ‘housing crisis’.

But while dramatic in themselves, these are only the latest symptoms of a chronically under-performing housing system that increasingly weighs on Australia’s economic as well as social well-being. Young adult home ownership has been trending down for decades, while homelessness and rental stress have surged since the millennium.

In part, these developments reflect a deeply-embedded tradition of official complacency and neglect, as well as mistaken political choices. But, as we argue in a newly-published article, they also attest to a failure of policymaking due to a long-term degeneration in housing system governance and policymaking, bedevilled by the Commonwealth-state divide.

Clearly apparent since the late 1990s, this trajectory has seen a weakening sense of national direction on housing, increasing fragmentation of responsibilities and declining bureaucratic capacity. Over a longer timescale, the post-war era has seen Canberra’s explicit attention to housing being, at best, episodic. At worst, the direction of travel has represented a ‘long term abrogation of responsibility and narrowing of the [housing] policy agenda’.

Refuting the familiar excuses for Commonwealth inaction, especially a lack of constitutional license, we contend that national strategic leadership is essential to the fundamental policy re-set required.

Housing-related powers in the Australian Constitution

Despite the importance of the issue and its rising popular and electoral salience, a meaningful national housing policy or plan has been absent in Australia since the post-war reconstruction schemes of the Curtin Government in the 1940s. A central factor here is the status and positioning of housing within the governance and institutions of the Australian Federation.

True, Australia’s Constitution (Section 51) designates no powers to legislate on housing or urban issues, as such. Rather, the nation’s founding charter is conventionally understood as delegating housing and urban-related decision making to state governments. Nevertheless, the Commonwealth has regularly legislated on housing using the Constitution’s external affairs power or by agreement with the states and territories.

Moreover, there is in fact a range of constitutionally-prescribed Commonwealth policy responsibilities that hugely affect the housing system. Most importantly these include banking (e.g. housing finance regulation), taxation (including property-associated income tax settings), social security (e.g. housing-related transfer payments) and immigration (a crucial component of housing demand).

In other words, under a holistic conception of ‘housing policy’, many of the key levers are held at the national level, and not by the states.

And, as increasingly recognised, housing system outcomes can have damaging implications for the economy as well as for population well-being and social cohesion – all important objectives for Australia as a nation. Such concerns can hardly be dismissed as irrelevant to federal administrative obligations.

Even from a narrow ‘cost to government’ perspective, the Commonwealth cannot afford to disown an interest in the functioning of the housing system as seen under the Coalition governments of the 2010s. On the current trajectory of falling home ownership, for example, future budgetary challenges will arise in relation to outlays for rent assistance and for age pension expenditure, as Australia’s comparatively low age pension payment rate becomes hard to sustain in the face of more pensioners exposed to rising rents in retirement.

Therefore, on several levels, the Commonwealth’s Constitutional responsibilities and self-interest create rational imperatives for a proactive national government interest in housing.

The case for a national strategic approach in housing

Importantly, housing functions as a complex, inter-connected system in which multiple factors affect both demand and supply. Housing policy therefore extends well beyond those government departments with ‘housing’ in their name.

Without treating housing as a system, policy interventions are unlikely to be effective. Micro-measures targeted on select aspects of that system are liable to have minimal or even counter-productive impacts. Therefore, we argue that housing logically demands a strategic (rather than an incremental, reactive or piecemeal) policymaking approach.

Most state and territory governments have, over recent years, issued documents with ‘housing strategy’ in their title or strapline. Unfortunately, though, these often fail to fulfil basic criteria for strategic utility which, we would argue, must include (a) analysis of problems to be tackled, (b) clear and measurable goals, (c) identified actions to achieve goals, and (d) a costed and resourced action plan.

Further, with key housing policy levers held by the Commonwealth, state-level ‘housing strategies’ are inherently highly constrained in their potency. This only goes to emphasise the rational case for a meaningful national housing strategy, not least as an overarching framework for state-specific plans.

A key role for such a document could be to specify national housing policy objectives that – it would be hoped – command wide support and build consensus. We suggest aiming to facilitate a system in which:

1. The market functions more smoothly; housing stock is used more efficiently

2. The energy and environmental performance of the housing stock is enhanced

3. Housing tax settings are transitioned towards tenure-neutrality

4. A more diverse range of housing forms enhances consumer choice

5. Historically rising levels of housing affordability stress and homelessness are reversed.

Prospects under the Albanese Government

In its first two years of existence, the Albanese Government has rolled out a wide-ranging array of housing initiatives. Rebuking her Coalition predecessors, Housing Minister Julie Collins has explicitly owned the role of national policy leadership. Potentially the most significant aspect of this could be the national housing and homelessness plan pledged as part of the ALP’s 2022 election platform.

On the up-side, this is envisaged by the Minister as setting out ‘a 10-year national vision [that] will consider the full spectrum of housing and homelessness challenges, from homelessness to home ownership’.

On the down-side, though, the Plan’s sluggish and low-profile development so far highlights its modest standing among official priorities. Beyond this, the mistaken delegation of Plan development to the Department of Social Services instead of Housing Australia has become glaringly evident in the platitudinous ‘issues paper’ published in 2023 as the declared foundation for the project, and in the similarly anodyne summary of consultation responses issued earlier this year.

It is expected that the Plan will be published shortly. It may be that the best that can be hoped for is that the document can be treated as a provisional output; a stepping-stone to a more substantive and ambitious effort to be produced in the next term of government.

Albeit with some discontinuities, the past 75 years have seen the opposite of a trajectory towards a national housing policy. That must be reversed. While recent decades have seen immense economic, social and demographic changes, the vast bulk of Australia’s key housing system settings (e.g. on tax and social security) have remained essentially frozen since the last century, and devolution of housing policymaking to the states and territories has failed. A fundamental overhaul is well overdue.

The case that a national housing policy is ruled out by the Australian Constitution is overstated. In delivering some of its key constitutionally-assigned responsibilities, the Commonwealth is heavily invested in the effective operation of the housing system over which it – and not the states – in fact wields greatest influence.

Only through a nationally-co-ordinated approach can Australia begin to redress the damaging social and economic impacts of housing stress and inequality that are continuing to grow.

‘Towards a national housing policy for the 2020s’ by Hal Pawson and Vivienne Milligan is a published as a (free to download) chapter in the newly-released book ‘Australian Urban Policy: Prospects and Pathways’, edited by Rob Freestone, Bill Randolph and Wendy Steele (ANU Press)

This story was first published in John Menadue’s Pearls and Irritations. Read the original story here.

By Hal Pawson

With this week’s announcements from the Coalition and Australian Greens, the contours of next year’s election housing debate have begun to take shape. It’s pretty clear that, as in four of the past six national polls, this policy area will be a flashpoint of the coming contest.

While not laying out any policy measures, as such, Peter Dutton’s creation of a new position ‘Shadow Assistant Minister for Home Ownership’ suggests the Coalition will once again concentrate on first home buyer assistance, probably to the exclusion of other housing challenges.

This would keep faith with the general stance of previous Coalition governments that rental stress, social housing and homelessness are of no direct federal concern. And that, similarly, the lack of any constitutional obligation absolves the Commonwealth from shouldering any national housing leadership role.

We can also expect that the new Shadow Minister will redouble the Opposition’s commitment to boost first home buyers’ prospects through ‘unlocking super’ for this purpose, as proposed by Scott Morrison in the 2022 campaign. This plan envisaged enabling mortgage downpayment contributions from superannuation accounts through withdrawals of up to $50,000 – an upper limit that might now be increased.

While this is only one among several competing ‘super for housing’ proposals, the associated risks to retirement income are sure to prompt heated exchanges ahead of next year’s poll.

The Greens housing plan

Meanwhile, elsewhere in Canberra, the Australian Greens party upped the housing stakes with its far-reaching blueprint to tackle the national affordability challenge. This would see a newly-created federal department commissioning 360,000 homes over five years; 70 per cent for rent at administratively-set prices, and 30 per cent for sale at ‘just over the cost of construction’.

To say that the program’s overall scale of ambition puts the Albanese Government’s housing initiatives in the shade would be quite an understatement. The annual new housing output envisaged would equate to around 43 per cent of Australia’s total housing output as recorded over the past 12 months.

Considering existing supply chain and workforce stresses in the construction sector, this would clearly call for a solid plan to boost industry capacity – and, alongside that, to bolster the capacity of state and local government land-use planning departments.

In principle, though, large-scale government-commissioned housebuilding for sale and rent is not unknown in Australia. State governments indeed participated as major players in the housing system of the 1940s, 50s and 60s; building homes for cost-price sale as well as for rent. Such development contributed 16 per cent of all housebuilding during this period. Over the past decade by contrast, public and community housing construction has been running at under 2 per cent.

Funding for the Greens plan would be sourced in part from ‘scrap[ping] the tax handouts for property investors’ says Max Chandler-Mather, Greens Housing Spokesperson, referencing negative gearing and the Capital Gains Tax discount.

Many affordable housing advocates would rightly applaud the principle of equitably re-directing the effective government spending represented by these concessions, within the housing system. But the language here suggests a notably robust approach to tax break reform that could extend far beyond the ‘phasing down’ pathways that may be more politically feasible (or less politically unfeasible).

Based on calculations by the Parliamentary Budget Office, the Greens put the overall net cost of their program at a surprisingly modest $12.5 billion. But part of the explanation seems to be that only a relatively small part of the program is planned to be targeted to low income earners – an objective that calls for substantial subsidies to enable affordability.

Since rental homes are to form 70 per cent of the program that suggests 252,000 units in total – or around 50,000 per year. If a fifth of these are to be ‘allocated towards the bottom 20% of earners’ that suggests a social housing component of 10,000 per year. For comparison, Labor’s Housing Australia Future Fund envisages 4,000 homes annually for five years from 2024-25.

Perhaps by design, this aspect of the Greens plan coincides exactly with a recent estimate of the minimum level of social housing construction needed to simply maintain the current size of the national social housing portfolio, relative to all housing stock.

So this part of the Greens plan would halt, but not reverse, the decline of social housing as a proportion of all housing which has seen the sector shrink from 6 per cent to only around 4 per cent of total occupied dwellings over the past 30 years. Perhaps surprisingly, therefore, the plan would see social housing provision treading water but with no inroads being made into the accumulated backlog of unmet need.

These relatively modest ambitions for this part of the housing system perhaps reflect the electoral constituency of the Australian Greens party, with their parliamentary cadre substantially representing middle income renters in inner urban areas.

These observations might place in question the radicalism of the party’s self image. Equally, though, in reviving the vision of government as an active player in housing production at scale, developing homes that can be sold or rented at a price which does not need to factor in developer profits, the Greens plan refreshingly challenges an orthodoxy of decades.

And Labor…?

It can only be hoped that the level of ambition in the Greens proposals serves as a spur for Labor in its deliberations on a second term housing pitch.

You might well imagine that the logical setting for this would be the Government’s long-awaited National Housing and Homelessness Plan. Unfortunately, though, the signs are that this will prove an extremely underwhelming product.

Although its housing initiatives to date have been relatively small in scale and somewhat disparate, the Albanese Government cannot be criticised for inactivity in this area. What it now needs is a unifying rationale for these measures and a clearly stated declaration that they are to serve as a platform for second term ambition of a substantially higher order.

First published on John Menadue’s Pearls and Irritations. Read the original article here.

Last week’s news of Australian house prices rising to a new record this month is notable, although with significant inflation affecting the country for the past 18 months, that won’t be a new peak in real terms. Even so, a 7.6% since January 2023 means a resumption of real terms price growth. That seems surprising at a time when interest rates have been rising and could rise further, and many recent FHBs are under severe financial pressure as a result.

Latest ABS data shows investor landlords coming back into the market. But first home buyer demand has dropped to the low level seen for most of the past decade and is unlikely to rise again in the near future – especially if prices continue to rise and/or interest rates remain around the current level.

Most famously personified in comments by former prime minister John Howard, Australian governments have historically tended to welcome rising house prices as signifying consumer confidence. Even academic researchers and government analysts have cited house prices as a sign of the regional economic ‘success’.

Nowadays, though, as demonstrated in our 2021 research, most economists in the field would say that rising house prices are not something to celebrate. Not only are they a problem because they lock more young people out of home ownership, but because of their damaging economic effects for Australia as a whole. This is an issue for everyone, not only for those hoping to grab onto the bottom of the property ownership ladder.

As explored in depth as part of City Futures Research Centre work led by Visiting Professor Duncan Maclennan, there are three key issues:

Inequality – disproportionate house price inflation has been a key driver of rising wealth inequality in Australia over recent decades.

People owning property, and people whose parents own property have gained – with the biggest gainers being those with the most expensive homes or the most valuable rental housing portfolios. Young people without home owning parents are increasingly disadvantaged in their chances of ever achieving this status themselves.

Rising inequality is also damaging to economic productivity – so say the OECD, the IMF and many leading economists.

Indebtedness and financial stability: Australia is one of the most mortgage indebted countries in the world. Measured according to mortgage debt to GDP. This makes our economy vulnerable to financial instability. Reserve Bank wariness about house price booms is motivated by this concern.

Diversion of investment away from productive activity: over-expensive housing – both house prices and rents – swallows up too much household income, crowding out scope for spending on goods and services that generate more of an economic return. The result is a hit to GDP, and therefore population welfare.

For all these reasons, it’s essential that the Commonwealth Government’s forthcoming National Housing and Homelessness Plan calls out excessively expensive housing as a problem to be tackled head on; committing to the fundamental reforms needed to address the issue. And, while these must include measures to enable expanded housing supply to parallel population growth, more affordable prices and rents cannot be simply achieved by ‘de-regulating planning’.

Given the complexity of Australia’s housing affordability challenge, a much wider range of actions will be needed, actions that also encompass tax and other changes that similarly call for visionary national leadership.

As emphasized by City Futures colleague, Dr Chris Martin, for the NHHP we need, fixing market failures and filling unprofitable gaps in the market will be insufficient. Rather, the Plan must break with neo-liberal orthodoxy by embracing the need for a stronger market-shaping and market-participating role for government itself.

This post was originally published by The Fifth Estate. Read the original post here.

By Hal Pawson

After more than six months of Parliamentary wrangling, the ALP’s flagship housing future fund bill finally cleared the Senate last week. For Australia’s neglected social housing sector, this presages a welcome revival of federally-supported capital investment, absent for most of the past quarter century. But, in a longer-term perspective, the resulting program will be significant only if it forms an initial downpayment on a much larger and broader housing reform and investment program.

How far will $10 billion stretch?

Under the Housing Australia Future Fund (HAFF), government will invest $10 billion on the capital markets to generate income hypothecated to social and affordable housing development subsidy. Resulting expenditures are officially anticipated as enabling construction of ‘30,000 new social and affordable houses in [the HAFF’s] first five years’.

Thanks to Senate crossbench advocacy, any shortfall in fund earnings due to capital market volatility will be topped-up from general revenue to guarantee $500 million in annual disbursements.

I’ve attempted elsewhere to explain simply how the HAFF model may work in practice. I say ‘may work’ because, while initially unveiled in 2021, Labor has remained coy on the scheme’s costings and mechanics. Therefore, a degree of speculation is unavoidable.

As Peter Mares has suggested, official reticence here probably reflects reluctance to expose the reality that the HAFF model, as inferred, will quickly exhaust its capacity to underpin new development dedications. Having committed to the initial tranche of investment contracts with housing providers (summing to 30,000 new units), program expansion will be therefore halted.

Only after HAFF-generated annual housing subsidy payments pledged in years 1-5 (but ongoing beyond that) have enabled the full repayment of construction debt by contracted housing providers will it be possible for government to dedicate subsequent HAFF returns to a follow-on tranche of newly contracted projects.

Under the small-scale NSW housing future fund, believed to have inspired the HAFF, standard contract terms are 25 years. However, according to the Grattan Institute’s Brendan Coates, it might be possible for subsidy-recipient housing providers to extinguish construction debt in as little as 15 years, implying that a new round of social and affordable development contracts could be struck from year 16.

Equally, IF 6,000 homes per year is what can be supported by a capital stake of $10 billion, IF government believes this an appropriate annual scale of construction, and IF ministers insist on funding social and affordable construction under this model, government would need to commit at least another $20 billion to the HAFF to enable a continuation in the initial flow of new development commitments in years 6-15. If subsidy contracts, in fact, need to run for 25 years, the ‘gap’ would implicitly call for a $40 billion HAFF top-up (i.e. $10 billion more every five years).

Why does all this matter?

All of this matters because, as many have rightly noted, the HAFF subsidy commitment as announced will underpin a program equating to only a very small fraction of Australia’s total unmet need for social and affordable housing.

Even if re-funded to form a continuous program of new commitments extending beyond year 5, the scale of activity envisaged under current HAFF plans is modest relative to, for example, the 175,000 qualifying households registered on state/territory public housing waiting lists. And our own census-based estimate that also factors in households on slightly higher incomes but still in rental stress puts total unmet need for social and affordable housing at 640,000 units.

Therefore, a 30,000 program (of which only 20,000 will be social housing affordable to those on the lowest incomes) is going to make only a small dent in the problem. And that’s before you factor in the growing housing need that accompanies a growing population.

These are the reasons that some advocates call for 25,000 new social housing units per year. Beyond this, one of Australia’s largest unions has recently put forward a reasoned – and funded – case for an annual program of 53,000 homes.

Even the smaller of these numbers appears huge relative to the current HAFF plan but, for context, it would account for around 12-13% of Australia’s total housebuilding – somewhat below the 16% represented by public housing construction in the period 1945-70. In England, meanwhile, not-for-profit housing associations today contribute around 25% of total housebuilding, albeit that this includes homes for market sale as well as for social rent.

What else is Labor offering – and where is it falling short?

To be fair, the Albanese government has also committed to several initiatives directly relevant to social and affordable housing supply over and above the HAFF. Firstly, under the National Housing Accord, mainly concerned with enabling expansion of overall housebuilding, the Commonwealth is pledged to fund 10,000 new affordable rental homes in addition to the HAFF 10,000.

Secondly, apparently thanks to pressure exerted by the Senate crossbench, Minister Collins in June committed to a $2 billion social housing accelerator fund directly funded from general revenue. This might generate 5,000 additional new dwellings over a couple of years.

Thirdly, as part of the parliamentary deal that eventually secured the passage of the bills through the Senate last week, government pledged another $1 billion to supplement the existing National Housing Infrastructure Facility. However, while NHIF assistance may be provided via grant, it is largely a financing and not a funding vehicle – i.e. a source of cheap debt to enable social and affordable housing development.

More broadly, delivering on other elements of its 2022 election platform, Labor has also implemented significant enhancements to national housing policy architecture; in particular, the re-establishment of a National Housing Supply and Affordability Council and the upgrading of a national housing delivery agency, Housing Australia.

What is badly needed at this point is a framework to lend coherence to the initiatives already delivered since the election and – more importantly – to provide a roadmap for the much wider and more ambitious housing reforms Australia badly needs.

Being already committed to a 10-year national housing and homelessness plan (NHHP), it would be hoped that this kind of framework is something Government already has in hand. However, while its development process is still at a relatively early stage, there are serious concerns that the NHHP could fall far short of what’s needed. To consolidate its housing policy progress to date, and to lock in a positive trajectory for the future it’s vital that this process is put back on track.

This story was first published by John Menadue’s Pearls and Irritations. Read the original story here.

By Ben Knight, UNSW Media

Social housing in Australia has been in neglect for more than two decades. With a growing shortfall, ballooning waitlists and exploding queueing times across the country from minimal investment, the sector desperately needs a way to fund the construction of new below-market rent dwellings, and quickly.

With Federal Parliament sitting once more  after winter recess, the Housing Australia Future Fund (HAFF) has finally passed the Senate. This will usher in a new funding mechanism enabling publicly subsidised, privately financed, social and affordable housing development.

“Superfunds and other institutional players are looking for new investment opportunities, and governments are looking for to boost social housing construction while minimising new debt on the public balance sheet,” says Professor Hal Pawson, Associate Director at UNSW’s City Futures Research Centre. “With the HAFF framework legislated at last, Australia has a new national match-funding mechanism to enable institutional investment, which will help expand much-needed social housing production.”

How will the HAFF enable social housing investment?

Under the HAFF, the Australian Government plans to borrow A$10 billion to invest in equity markets, generating an estimated $500M annual return to subsidise housing development that, being backed by investment income, will be accounted as ‘off balance sheet’ expenditure. That is, formally sitting outside of the annual budget. 

Emulating similar, but much smaller frameworks established by several states including NSW, it is understood that community housing organisations will then secure private (debt) finance from institutional investors like superannuation funds to develop 30,000 units in the program’s first five years, underpinned by government contracts for annual subsidy payments for 25 years.

“Crudely ignoring inflation, the maths of this will see subsidy paid out at $500 million a year for 25 years, summing to $12.5 billion over the period, and therefore implying a per dwelling subsidy totalling $417,000 across the 30,000 unit program,” Prof. Pawson says.

Along with tenants’ rents, these subsidy payments will enable the housing providers to meet finance costs – interest and repayment on institutional debt – as well as ongoing housing management and maintenance. In other words, institutional investors will be financing a program, ultimately largely funded by government subsidy.

“The upside of this mechanism is that, for a given annual amount of public subsidy, it effectively enables government to bring forward social housing investment,” Prof. Pawson says.

Expended more conventionally, through capital grants, a given annual subsidy spend (say $500 million per year) would generate far fewer dwellings over the first few years of a program, Prof. Pawson says.

“If the subsidy needed to build each new social housing unit is $417,000, a $500 million capital grant program would give you only about 6,000 in the first five years, not 30,000,” Prof. Pawson says.

As Prof Pawson explains, however, there is also a HAFF downside. “Once the 30,000 homes have been contracted near the start of the program, the income stream generated by the $10 billion HAFF investment is fully committed for the next 25 years”.

“In isolation, 30,000 new units will make only a very modest start towards redressing Australia’s far greater social and affordable housing shortage. But if governments insist on this form of procurement, extending and expanding the program beyond this tranche will be possible only by boosting the value of the HAFF itself – for example by pledging another $10 billion equity investment stake,” Prof. Pawson says.

Leveraging institutional investment

Institutional investors, like Australia’s superannuation funds, regularly invest in infrastructure assets, like roads, ports and tunnels, but few have a direct stake in social housing – or, indeed, in any form of rental housing.

“There’s potential for social housing to attract institutional investors like superannuation funds, but up until now, Australia has generally lacked the right government policy settings to ensure the returns are comparable with competing risk-adjusted investment options,” Prof. Pawson says.

Importantly, the returns on social housing as an asset class are predicated not on capital gains via property sales, but a steady cashflow from rent revenue ensured via long-term government contracts, such as those expected to be struck under the HAFF. From the investor perspective, it’s a low-yield, low-risk stake that can form part of a diverse, balanced fund portfolio.

“In this model, the institutional investor is providing debt, not equity. Their financial input doesn’t buy them an equity stake in the building,” Prof. Pawson says. “Instead, with debt repaid after, say, 25 years, the properties are eventually outright owned by the community housing organisation for retention as low-rent homes in perpetuity.”

Large corporations having a stake in social housing might prompt anxieties, but if structured in this way, should be benign. Indeed, as Prof Pawson argues, this arrangement could in fact bring added benefits. 

“For the ‘big end of town’, it would give them some skin in the game, in a part of the housing market they haven’t had much interaction with before,” Prof. Pawson says. “From a strategic point of view, it means those companies will have a vested interest in the vitality and sustainability of social housing and will be motivated to protect and defend it into the future.” 

This story was first published by UNSW Newsroom here.