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.

By Hal Pawson

Along with a new scheme for first home buyer assistance, Federally-led rental reform is now on the PM’s agenda. But this week’s National Cabinet and Party Conference housing announcements badly need to be integrated into a coherent and ambitious long-term strategy.

Anthony Albanese has signalled backing for ‘harmonising’ tenants’ rights, country-wide, importantly including enhanced security of tenure and minimum property standards. With growing numbers of Australians renting, many of them perpetually, and with state/territory tenancy regulation generally among the lightest in the developed world, such changes cannot come soon enough.

Admittedly, Victoria and the ACT are well ahead of other jurisdictions on reforms of this kind. Extending these nationwide would be a significant win for renters elsewhere, fulfilling part of the renters rights agenda championed by the Australian Greens.

But because this week’s National Cabinet agreement largely rebuffed calls for firmer rent regulation it seems unlikely to resolve the Government’s Parliamentary stoush with the Greens, a Senate dispute that has stalled the ALP’s flagship housing investment legislation for six months already.

Not only did the meeting unsurprisingly reject the Greens’ demand for a two-year national rent freeze; it even baulked at the ACT’s ‘light touch’ model for regulating rent increases. This involves a legislated ‘guideline’ – set at 1.1 times the CPI Rent series. A landlord wanting to increase rent above the guideline they must seek tribunal approval and show that it is not excessive to the general market level of rent for comparable premises.

As more fully argued in our recent Parliamentary submission, within-tenancy rent increase restrictions – widely operated in comparator countries – mainly function to protect tenants from the risk of large rent hikes that could precipitate serious financial stress. For example, while sector-wide rent increases averaged only 5% in the year to February 2023, nearly a quarter of rents were hiked by more than 10%.

Placing faith in planning deregulation

In seeking to confront housing affordability stress, the new National Cabinet agreement instead places faith in boosting overall housing supply; that is, stepping up housebuilding.

Interestingly, along with the usual associated warm words about Australian governments’ mutual commitment to relaxing land-use planning restrictions and streamlining procedures, the communique also announced new Federal funding in the form of the $3 billion New Home Bonus to ‘incentivise states and territories to undertake the reforms necessary to boost housing supply and increase housing affordability’.

This appears to emulate recent initiatives in both the UK and Canada. Indeed, as introduced in 2011, the UK progenitor is even named the New Homes Bonus. Under that scheme, it is local authorities which are ‘incentivised’ to facilitate more housebuilding. However, an officially-commissioned evaluation found that ‘whilst many local authorities understood the bonus as a potentially powerful incentive, very few felt it had any effect on decision-making’. Assessments have also judged it difficult to conclusively quantify housing construction additionality attributable to the scheme.

Whether the Australian version of the model will have a more decisively positive impact remains to be seen, but we should be sceptical about any strategy to enhance housing affordability inferring a belief that market housebuilding activity is primarily determined by regulatory constraints.

In reality, the prime consideration for private developers and their financial backers is expected market conditions when constructed homes are saleable. Even if a construction boost could be evoked by planning de-regulation, it is unlikely that this would continue in the face of the stabilising or falling property prices that policy proponents would hope for as a result. Such behaviour is not in any way malevolent; it is simply rational business logic for a profit-making entity.  

A ramped-up housing supply target

In any event, by whatever means it might be achieved, National Cabinet also ramped up the existing official aspiration to facilitate construction of 1 million homes over five years; instead, Australian governments have now committed to a 1.2 million target. Considering that this would represent an output increase of around a third on current activity levels, its achievement would be no mean feat.

Current Government plans envisage some 40,000 of the 1.2 million homes being social and affordable units part-funded by Federal subsidy – via the Housing Australia Future Fund (HAFF) and the National Housing Accord. That is, of course, if the HAFF is eventually passed in the Senate – more of which later.

If he is serious about meeting the 1.2 million target, the PM may need to ponder more direct government involvement in housing production. Ideally, this would include the commitment to substantial additional social and affordable housing investment in any case required to seriously address the scale of unmet need. He might even consider the recently proposed CFMEU scheme for a hugely ramped-up construction program funded by a corporate super-profits tax.

Of perhaps equal radicalism, other Australian governments could also emulate NSW in looking to revive the government-commissioned build-for-sale programs of the 1950s and 1960s. That is, homes built for sale at cost price on land owned by government or potentially acquired for the purpose through compulsory acquisition powers.

A way forward for the housing legislation

Measures of the kind floated above might even be sufficient to woo Greens Senators to relent on their opposition to the ALP’s housing bills so that the HAFF-subsidised social and affordable housing program can be finally got under way. Short of that, as previously argued, Federal Labor needs to more clearly signal that the current housing bills and recent announcements represent only the initial elements of a more coherent and ambitious long-term housing investment and reform agenda.

The obvious vehicle for this should be the promised National Housing and Homelessness Plan. As part of a vision for a better functioning housing system, the Plan should, for example, envisage a better (more strongly) regulated rental sector to the liking of the Greens Party. However, the recently issued NHHP Discussion Paper suggests that the Plan may fall totally flat.

The paper, for example, lacks any analysis of housing system performance, a weighing of relevant evidence and at least provisional set of overarching goals or ‘missions’ which could be further refined via consultation. While its commentary is generally anodyne in the extreme, some sections of the paper are highly dependent on contentious Productivity Commission assertions on the inherent superiority of market forces and the benefits of deregulation, all of which are uncritically cited.  

As a basis for an initiative that should be the Government’s housing policy flagship, the Paper is a woeful failure. It only vindicates previous warnings that this assignment should have been delegated to the new Housing Australia agency and not to the Department of Social Services. Or, if the PM would prefer, why not take up Ken Henry’s kind offer to lead an underpinning housing system review?

Ministers must get a grip of this process, and fast. Beyond re-allocating responsibility for NHHP development, they should affirm its importance by legislating its remit, broad objectives and review schedule. And if they are seeking inspiration on the scale and breadth of the task at hand, the Australian Housing and Urban Research Institute has only recently published the very blueprint needed.

This post first appeared in John Menadue’s Pearls and Irritations. Read the original article here.

Hal Pawson and Chris Martin writing for the UK’s leading housing industry magazine, Inside Housing

In what feels like the dying days of an exhausted government, Michael Gove’s Social Housing (Regulation) and Renters (Reform) Bills look like last gasp attempts to breathe life into a housing reform agenda barely on life-support.

True, many of the measures that strengthen regulatory oversight in social housing and tenant security for private renters will be widely welcomed. But, as Matthew Bailes and Charlotte Carpenter point out in their recent story for Inside Housing, these moves lack a grounding in any overarching vision or reform agenda for the wider housing system.

The last such official analysis and position statement for England, ‘Fixing our broken housing market’, is now more than six years in the past. Thus, Bailes and Carpenter rightly echo the National Housing Federation’s recent call for the next government to urgently instigate a more formal and long term national housing strategy for England.

This chimes with policy developments in Australia where, after a decade of federal complacency and inaction, housing stresses have similarly escalated to historic highs. Rent inflation is at record levels, while homelessness has continued to climb, all against a backdrop of ongoing homeownership decline.

Complementing the NHF pitch, our new report calls for Australia’s federal government to chart a coherent national road-map for housing and homelessness reform. With many of our recommendations also relevant to the UK, we outline the goals, scope and institutions an ambitious national strategy needs to succeed in the domestic context.

Unlike both England and Australia where such a project would be without precedent, substantive national housing strategies do, in fact, exist in other countries. As analysed in our report, there is much to be learned from strategy-making experiences in nations such as Canada, Austria and Finland.

Closer to home for Inside Housing readers, there is a lot to be said for the Scottish Government’s ‘Housing to 2040’ policy blueprint. Importantly, this continues a Scottish housing strategy-making tradition incorporating public consultation, goal setting, evaluation and revision.

‘Housing to 2040’ also bears the hallmarks of any meaningful strategy: analysis of problems to be addressed, clear and measurable goals for gauging progress in tackling those problems, identified actions to achieve those goals, and plans for mobilising resources to implement specified actions.

Following Australia’s 2022 general election, the country has a new national government with a degree of housing ambition and an initial suite of policy and investment initiatives to match. Whether Prime Minister Albanese fully recognises the need for a far-reaching long-term strategy of the kind we propose, remains to be seen. But British readers will be envying the scenario where that question can at least be asked.

Towards an Australian Housing and Homelessness Strategy by Chris Martin, Vivienne Milligan, Julie Lawson, Chris Hartley, Hal Pawson and Jago Dodson is published by the Australian Housing and Urban Research Institute (AHURI)

This story was first published in Inside Housing. Read the original story here