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Institutional investment in affordable housing one step closer

The recent announcement by the Treasurer, Scott Morrison, to establish an Affordable Housing Implementation Taskforce to develop an affordable housing bond aggregator model is welcome news for affordable housing.

In a December 2016 Cuffelinks article, I set out how a bond aggregator model could work. The Australian Housing and Urban Research Institute (AHURI), which is funded by Federal and State Governments and leading Australian universities, has for years been advocating that a bond aggregator model is needed in Australia.

On the Treasurer's recent visit to the UK, he met with leading institutional investors who are providing debt via investing in bonds issued by the UK Housing Finance Corporation (THFC). They are also providing development and investment loans directly to community housing providers. Some of these institutions are investing equity into affordable housing projects. No doubt the Treasurer was encouraged to see the depth of institutional commitment to a more efficient mechanism to fund and build affordable housing.

Superannuation slow to invest in housing

Unlike their UK, US and European counterparts, Australian superannuation funds have been slow to embrace investing in affordable housing. It's therefore heartening to see a range of positive responses to the Treasurer’s announcement that an Affordable Housing Implementation Taskforce (comprising federal Treasury Secretary John Fraser, former chief executive of the NSW Treasury Corporation, Stephen Knight, and Chief Executive of the Community Housing Industry Association, Peta Winzar), has been tasked with devising a plan to establish a new financial intermediary. It should attract private sector investment in new affordable housing via issuing bonds allowing community housing providers access to cheaper and longer-term debt.

The Chief Executive of the $37 billion health industry superannuation fund HESTA, Debby Blakey, said in a recent interview:

“We believe the government has an important role to play to facilitate and co-ordinate investment in social housing. The government can play an active role in developing a housing bond aggregator so institutions like HESTA can invest in them. It might be through long-dated bonds which would have an attractive income or some government guarantee on the rental return of social housing projects; long-dated bonds with terms from 15 to 20 years that had a good income would be very attractive to a fund like HESTA.”

Large-scale investment critical

In the UK, the THFC has an enviable track record. From an investors’ point of view it has issued more than £5 billion in bonds with a stable ‘A’ credit rating from Standard and Poor's and a zero default rate. But most importantly from a community perspective, it has assisted in the financing of more than 2.4 million dwellings through regulated housing associations that provide secure affordable housing.

Lending support to a similar local initiative, Wendy Hayhurst, CEO of the NSW Federation of Housing Associations said:

“… affordable housing policies must move beyond reducing pressure on real estate prices to include solutions for renters and lower income earners. Attracting large-scale institutional investment is critical to establishing the community housing sector as a third tier of the Australian housing market, between the private property development industry and public housing.”

Housing underpins everything

It is incumbent on all levels of government, the community housing providers and the institutional sector to come up with a package of tools that addresses making it easier and more affordable to either buy or rent a house. As Kasy Chambers, Anglicare Australia Executive Director said:

“Housing underpins everything, whether health, education and general wellbeing, and there is no doubt there is a crisis in housing in Australia.”

However, the affordable housing bond aggregator model is one component of the affordable housing solution.

 

Adrian Harrington is Head of Funds Management at Folkestone, an ASX-listed real estate fund manager and developer, and he is one of the Federal Government’s representatives on the Australian Housing and Urban Research Institute (AHURI).


 

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