Investment in affordable housing
Evidence presented to this inquiry indicated strongly that renting must
be recognised as a mainstream, and for some a permanent, form of tenure in Australia's
housing system. As a consequence, affordable rental housing must be placed on
Australia's national policy agenda as a key issue to address poverty.
Indeed, the increasingly tight and expensive private rental sector is locking
low- to moderate-income earners out of affordable and appropriate housing. This
situation indicates market failure and suggests that market solutions to low
cost housing will simply not emerge naturally: that there is a clear need to
find ways to attract private investment into low cost and social housing.
But currently, without government incentives, affordable housing does not tend
to appeal to private investors.
In this regard, an AHURI investigative panel of experts on rental
housing and institutional investment found that significant volumes of public
and private finance would be required to meet the projected need for additional
rental housing in Australia, which could not be met from existing suppliers
Evidence presented before the committee similarly highlighted the needed for
greater investment in affordable housing. Clearly, left to its own devices, the
rental market will not deliver affordable housing for low- or moderate-income
In this chapter, the committee considers the role of government as an
enabler and investor in providing affordable rental housing.
The vast bulk of social housing in Australia is public housing, much of
which was built between 1945 and 1980, provided by state and territory
governments and financed through 'long-term, low-cost loans via the
This report has drawn attention to the shrinking pool of public houses in
Australia and the deteriorating state of many of the dwellings. Yet the demand
for public housing continues to mount.
The trend over recent years has seen the public sector withdraw from
direct funding of public housing and a heavier reliance placed on the
not-for-profit sector to assume a greater role in providing social housing. The
Queensland Department of Housing and Public Works noted that the non-government
sector had an increasingly important role to play in developing and delivering
affordable housing and housing assistance services.
The Hobsons Bay City Council was just one of the many submitters that recognised
the contribution community housing makes to accommodate both low-income and
moderate-income earners as well as groups with particular housing needs. Even
so, it was of the view that the partnering of the community sector with
government to provide affordable housing would 'require a funding commitment
from both federal and state governments'.
Indeed, it underlined its belief that 'in terms of equity and fairness,
government must take responsibility for ensuring that a supply of affordable
housing was available for those most vulnerable.
In its submission, COTA noted the importance of renewed investment in
social housing to increase the stock of housing for low income households.
While it recognised the need to bring about social and economic renewal in the
affordable housing market, it acknowledged that to do so required investment.
Mr Schrapel thought that it would be difficult in the short term to redevelop
neglected public housing and therefore some level of public investment was
The committee has made a number of recommendations designed to ensure that the
public sector continues to invest in affordable housing. But increasingly
government and the not-for-profit sectors are looking to the private sector to
also contribute to improving access to affordable housing in Australia.
Mr Myers, National Affordable Housing Consortium, voiced the view of a
number of submitters when he stated that the not-for-profit sector did not have
the ability to attract the level of resources required to fix Australia's
affordable housing problem. He thought that they were doing a great job of
leveraging but noted that the leveraging was coming in at 'perhaps 15 per cent'
with cost bases rising probably as fast'. He suggested that both the finance
and resources coming in through institutional investment must be considered, as
well as how government might support that mechanism.
National Shelter also highlighted the need to attract large scale institutional
investors into the affordable housing market.
While recognising that the community housing not-for-profit sector was a
significant part of the affordable housing equation, Mr Pisarski likewise argued
that long-term institutional investment was required in residential property
per se, not just the affordable end of it. He referred to the lack of interest
displayed by the institutional investors in the residential rental market:
Generally, institutions in Australia invest in commercial
rather than residential property...You do need to get that large scale to create
the sorts of long-term tenancies that would be in everybody's interest. But we
have this history of mum-and-dad investors, by and large propped up by negative
gearing and tax treatments. Even Ken Henry's idea of a 40 per cent income
savings deduction was a way of equalising treatment between investment types so
that then you would have been able to agglomerate small investment. I do not
need to buy a whole house but I might still want to invest in property. So I
could put $5,000, $10,000 or $20,000 into a residential property investment
portfolio and that can invest on my behalf.
Mr Langford, Junction and Women's Housing, supported the contention that
private investment was needed to drive that renewal in social housing where government
had left a funding void. He similarly pointed out that, by and large, individuals
owned the majority of private rental in Australia and referred to the barriers
holding back institutional and private sector investors from moving into the
affordable housing space. He noted that they would be looking for more stable
returns. In his view, partnerships were required to attract long-term
Dr Lawson and Professor Berry also asserted that access to private
finance was crucial to not-for-profit housing agencies aspiring to develop or
acquire new stock. In this context, they argued, however, that Australian
efforts orchestrated by various governments 'to attract institutional
investment into rental housing have been "piecemeal and fragmented"
or have lacked essential policy support'.
National leadership can be demonstrated by governments acting
as both an enabler and investment partner. In housing this could entail tax
incentives for additional affordable and sustainable housing (via the
continuation of a refined NRAS) plus government guarantees backing investment
to reduce perceived risk, and equity contributions in the form of subordinated
public loans or government land.
In their assessment, such strategic actions would 'channel lower cost
institutional investment to appropriately regulated landlords serving the
housing needs of those households not met by current market processes'.
Interest in higher end of rental
The prospect of low returns stands out as one of the major disincentives
to invest in affordable housing. The AUHRI investigative panel of experts highlighted
the fact that institutional investors were deterred from investing in rental
properties because they 'heavily discount capital gains and expect higher
rental yields than those typically applying in the rental investment market'.
In respect of low returns, rental yields have hovered around the 4 per cent
mark for the last decade.
The Department of Social Services agreed with the view that
institutional investors have little interest in affordable housing. Despite
recognising the importance of private investment in affordable housing, the
department noted that:
To date, efforts to attract a significant level of institutional
investment into affordable housing have been unsuccessful, primarily due to the
return offered on these investments. Given the fiscal constraints on all levels
of government, necessary changes will need to be considered to ensure that
private and institutional investors are able to take on a greater role in the
provision of affordable housing.
Retirement villages illustrate this point. Mr Yates, COTA, referred to the
changes in the retirement village industry over the past couple of decades,
which have seen the industry move more upmarket because 'it could not
necessarily see how to make a lot of money out of lower income people, although
there are quite a lot of pensioners in current stock'.
More broadly, Mr Doss, Brisbane City Council, observed that the industry
appeared to be providing housing more at the higher end of the market rather
than at the affordable end, particularly in Brisbane. In his view, this preference
to invest in the higher end market was to do with profit margins. He gave an example:
...when we ran a housing affordability scheme a few years ago
which included federal government money we had a lot of trouble attracting
developers to undertake that scheme. That gave them substantial reductions in
infrastructure charges—up to 50 per cent reduction in some cases. But that
meant that the product had to be rented at a certain level. We found that we
would go chasing to try to get people into that scheme. We ended up having to
hand money back, because in the market there were better profit margins in the
higher end of the market.
The Brisbane City Council found that players such as the Brisbane
Housing Company and others have had 'to be the ones who go in there and provide
an alternative to the market, but they have a specific mandate to be able to do
Brisbane Housing Company Ltd
The Queensland state government and the Brisbane City Council worked
together to establish the Brisbane Housing Company because there was a
particular concern about the loss of affordable housing in inner Brisbane. Mr
David Cant, CEO of the Brisbane Housing Company, explained:
Public housing did not have much stock in inner Brisbane; so,
as the demographic of people in need was switching from families to single
people, it was felt there was a particular need to be addressed.
The company was incorporated as an independent charity in 2002 and was
originally planned to deliver 400 homes over four years. It has successfully
delivered 1,500 homes of which it retains 1,200. Over time, the company has
varied the types of dwellings and has engaged in mixed-tenure developments,
where, 'as the density of dwellings in inner Brisbane has risen, it has been
less appropriate to make it all affordable housing'.
Therefore, as stated by the CEO, 'we have made a virtue of necessity and done
some complexes where we have sold some apartments as well'.
Mr Doss noted that the Council provided some seed funding for the Brisbane
Housing Company as well as access to sites within Brisbane. He noted that initially,
the aim was to deliver housing to the social and affordable housing part of the
market. According to Mr Doss, the company learnt some lessons from delivering
entire buildings of social and affordable houses. He maintained that best
practice dictated that 'instead of having entire complexes of one type, you
salt and pepper different forms of housing through development areas', which
fits with the 15 per cent target adopted in Western Australia and under
consideration by Economic Development Queensland (EDQ). Mr Doss commented:
So Brisbane Housing Company has now moved on to where it will
provide a number of different housing choices within its developments, from the
high end to middle of the road to affordable to social housing as well, and
those products work quite well...It also provides appropriate support services
within those developments.
Mr Cant referred to the need to persuade people who invest in property
to divert their funds into affordable housing. With regard to the Brisbane
Housing Company, he was pleased to be able to say that:
...by getting well-designed buildings that are well located and
with strong on-site management, we have actually persuaded them that it is a
good place to invest their money. Some have been owner occupied, some have been
investors buying a market for sale unit and some have been NRAS investors.
Mr Cant explained:
Privatisation is normally the privatising of profit. We are a
not-for-profit. The unstated premise of all my remarks is that these disposals
are to charities or not-for-profits—be they not fully charities, but I think
they would all be charities—that retain the portfolio for the community's
benefit. We only house people from the public housing waiting list in our
rental properties. The stuff we sell we might sell in the open market, but the
things we rent out we rent only to people under the single register in
Mr Walker stated that the Queensland Department of Housing and Public
Works was of the view that the Brisbane Housing Company was a good model among
many good models.
Professor Beer told the committee that the Gold Coast Housing Company had also been
Clearly, programs are needed to create opportunities for institutional
or corporate investment into private rental. The Brisbane Housing Company and
the Penny Lane Key Worker apartments are both examples where partnerships
between government, community housing providers and private investors have
worked to provide affordable housing. But, as noted earlier, there must be
incentives to attract private investment.
Incentives for investors
The AHURI panel of experts on rental housing and institutional investors
Financial incentives and credit support will be essential to
achieve increased supply at the affordable end of the market, to overcome
investor perceptions of risk and to meet their yield requirements. The impact
of government support is demonstrated by the way that NRAS has catalysed
increasing specific interest from the finance industry in investment in the
supply of affordable rental housing.
There are numerous government backed schemes that could be used to
attract investors into the affordable housing markets. Youth Affairs Council of
Western Australia mentioned promoting private engagement in social housing
through protected savings and loan circuits (France), guaranteed housing
association loans (Netherlands), providing tax incentives to investors of
special purpose bonds (Austria) and via low-income housing tax credits (US).
Professor Beer thought it was worth noting that in the United States of America
(US) a lot of affordable housing was provided privately because of tax breaks
for developers if they provided affordable housing. In brief, he explained that
developers there might produce 200 multifamily housing units but 20 would be
developed as affordable housing in order to attract substantial tax breaks for
the overall development. In his words, such a tax arrangement would 'be
important for them in terms of their feasibility'.
Mr Schrapel, Uniting Communities, agreed with the view that in the end engaging
the private sector came to an investment issue and referred to incentives,
including taxation that would allow these schemes to flourish.
Dr Lawson and Professor Berry noted that the primary purpose of any financing instrument
...to attract larger volumes of appropriate investment, under
improved terms and conditions to those that exist currently to ensure the
supply of decent quality, secure and affordable rental housing. International
research demonstrates that raising funds at this scale will require a dedicated
financial mechanism and appropriate institutions that are fit for purpose to
raise and distribute funding.
The committee has written at length on NRAS as an effective incentive
encouraging the private sector to invest in affordable housing but, as a number
of submitters argued, this scheme on its own was insufficient to meet the
growing demand. Dr Lawson and Professor Berry referred to the housing supply bonds
(HSB) proposal, which has been developed with funding from AHURI working with
industry specialists both in Australia and Europe.
Housing supply bonds
In 2011, the Senate Economics References Committee considered the merit
of introducing social bonds as a means of attracting private investment into
Australia's social economy. It recognised that the development of a social bond
market in Australia 'could bring significant finance to the social economy and
thereby relieve the government of some social infrastructure costs.' It
recognised, however, that the lower rate of return on a social bond coupon
presented challenges when competing in the commercial market. The committee
formed the view that government support was required to 'catalyse this market'
and recommended that further exploration of ways to create incentives to invest
in a social bond market be undertaken.
In its response to the committee's recommendation, the Australian Government
noted that the uptake of social bonds in Australia had 'typically been limited
to investors with a direct or personal connection with a specific social
venture'. It suggested that before considering tax concessions, more needed to
be done to understand the use of social bonds and the circumstances in which
they could be a viable option for encouraging social investment. It noted
Given social impact bonds are complex instruments; further
consideration is being given to some of the potential challenges associated
with their implementation. The Government also recognises that social impact
bonds are only one type of social investment tool amongst a range of new and
In May 2012, after extensive research and consultation, AHURI published
a report on HSBs. AHURI informed the committee that recent policy interest had
focused on the housing bonds model, pioneered in Austria, which could be
effective at leveraging finance for affordable housing. It explained that the
Austrian Housing Construction Convertible Bonds scheme had 'been found to be
popular among risk averse investors; an efficient scheme for capturing long-term
savings; and, given the modest tax incentive, very cost effective'.
A 2012 AHURI study recommended a suite of HSBs with each bond type
having risk and return characteristics and enhancements designed to attract different
potential investors. According to the study:
The HSBs proposed are intended to provide a standardized
instrument for retail and institutional investors, to encourage investment in
affordable rental housing and to keep at arm's length the respective roles of
investor in, and provider of, affordable housing. The bonds are issued by an
intermediary, not by individual providers, in order to achieve this
standardisation. The funds raised are then on-lent to providers.
The creation of a specialist financial intermediary (or intermediaries)
to channel raised funds towards affordable housing delivered by registered
providers would be central to the financial architecture proposed to deliver
the HSBs. The role of this specialist intermediary would be 'to link suppliers
of capital with appropriate investment opportunities and to create aggregation
benefits and efficiencies through lower transaction and search costs'. The financial
intermediary would also assist in making providers 'investment ready'.
The proposed three HSBs matched to each investor segment are outlined in
the following table:
Table 23.1—Housing Supply
Characteristics and enhancements
AAA Housing Supply Bond
A fixed interest, long-term (up to 10 years) AAA-rated bond—implying
need for a government guarantee.
Super fund managers (15% tax rate)
Tax Smart Housing Supply Bond
A fixed term, fixed interest (or indexed) lower yield long-term bond
with a tax incentive to generate a competitive after-tax yield.
Retail investors (various tax rates)
NAHA Growth Bond
A zero interest bond that converts a direct grant into a long-term
The AHURI report also recommended a number of specific regulatory
measures to reduce risks, including:
ensuring that standards of financial auditing comply with
eligibility for funding; and
a sustainable business model and designated tax privileges.
According to the report, performance based reporting 'must be
sufficiently robust to ensure adherence to intended goals and appropriate
sanctions must be in place to reinforce good performance'.
In concluding, the AHURI report suggested that the HSBs proposal was 'now
ready for more detailed refinement and development'. To do so, the report
recommended that as part of the implementation strategy, a task force be
established. This would be:
...a collaborative government–industry–third sector task force
to steer and coordinate five expert groups with the overall goal of developing
and refining the HSB concept, based on the broad proposal contained in the
report... [Its] core focus 'should be to develop a tradable housing bond and
contribute directly to the plan for the enhanced NAHA with advice on
consequential policy settings, public funding, legislative requirements and governance'.
It is worth noting that AHURI researchers continue to build on their
work developing a model that would attract and channel private investment
towards affordable housing. For example, in their submission, Dr Lawson and
Professor Berry proposed the Affordable Housing Finance Corporation Model,
which, they described as 'simpler than the HSB approach'. This proposal was
'grounded in extensive national research of industry stakeholders and
successful international experience'.
A number of witnesses supported the introduction of affordable housing
bonds as a special purpose financial instrument to attract investment in
affordable rental housing. For example, the Queensland Council of Social Service
suggested that developing affordable housing bonds was an option to promote greater
private sector investment in affordable housing. According to the council, the
concept of social bonds was well-grounded and had been used internationally to
encourage investment in affordable housing.
In its view:
Affordable Housing Bonds would complement and extend existing
public subsidies, such as NRAS, to increase the supply of affordable housing
over the long-term.
Mr Brett Petersson described the AHURI proposal for tradeable bonds as
'a sound proposal', which had 'received significant support from industry and
The City of Boroondara also cited AHURI's research on HSBs and the affordable
housing finance corporation model for Australia. In its opinion, AHURI's model for
...a safe, effective and innovative way to increase social housing
stock managed by registered Community Housing Providers (CHP) and funded
through a strong and low-risk investment framework.
According to the City of Boroondara, all of the schemes reviewed by AHURI
in its international study of housing guarantee schemes showed a zero default
rate and no call had yet been made on the government guarantees. The City of Boroondara
stated further that this default rate was due largely to the 'supportive role
of Government in bolstering the equity position of housing providers and their
revenue stream and the financial management and monitoring regimes guiding
housing sector organisations'. In the City of Boroondara's view, this arrangement
provided a 'sustainable and sound business model' which was 'first and foremost
the strongest line of defence protecting any Government guarantee, growing
supply capacity amongst providers and easing access to lower cost larger
volumes of investment'.
The Institute for Social Research, Swinburne University of Technology
noted the failing private rental sector, in terms of security, supply and
affordability, and the 'great need' to rebuild Australia's social housing
sector. In its view, much of the growth could be funded by savings in other
areas (negative gearing, FHOS) but also by some form of affordable housing
supply bonds as proposed by Dr Lawson and Professor Berry.
National Shelter referred to round tables held in 2012 and 2013
involving approximately 150 participants, who broadly supported the
introduction of an affordable housing supply bond to attract the significant
investment potential of superannuation and equity funds.
Clearly, the comprehensive work undertaken by AHURI on housing supply
bonds provides a solid, well researched body of work that now warrants the
Australian Government giving far more serious consideration to the introduction
of HSBs or similar vehicles designed to attract investment affordable housing in
The committee recommends that the Federation White Paper process give
due consideration to the proposal for the introduction of housing supply bonds
using AHURI's research as a starting point for its consideration.
The committee also recommends that the Australian Government establish a
cross-sectoral high level industry and government Housing Supply Financing Task
Force, as proposed in the AHURI report. It would provide advice to governments
on the potential for a housing supply bond in Australia and investigate other
mechanisms for private investment.
Clearly the HSB is only one means of attracting private investment into
the affordable housing market. It should be noted that the AHURI expert panel expressed
considerable interest in the housing supply bonds proposal which was 'consistent
with housing being seen as an infrastructure–type investment'. Even so, the
expert panel saw housing supply bonds 'as a medium rather than short-term
solution because of the inevitable delays in designing them and in establishing
the institutional environment needed to support their delivery'. According to
the expert panel:
There was a sense of urgency for more immediate action,
specifically around the unallocated NRAS incentives, and a commitment to a
minimum supply target for new rental housing as an indicator of the scale of
opportunity that government was seeking to generate.
At the National Shelter 2012 and 2013 round tables, a number of options
were discussed including the 'housing supply bond', as well as an 'infrastructure
bond' and an expanded and revised NRAS. National Shelter observed that common
to all these options was an acceptance of the need to attract substantial
investment into affordable housing to alleviate the current lack of supply.
National Shelter identified a number of matters that would need to be addressed
to secure greater institutional investment in affordable housing:
certainty from government, particularly the need for bi-partisan
or multi party support;
scale of investment including government backed opportunities to
enable institutions to invest $500m per annum using a portfolio approach;
reduction of financial risk for institutions; this may require
the Commonwealth to underwrite a component of debt, if not all;
ability for liquidity of investment;
government equity and government credit enhancement to assist
with consistent and predictable yields as a yield gap does exist;
revising NRAS to improve its workability including for scale investors,
fix aspects of its tax treatment and provide ongoing funding certainty to
ensure a pipeline of supply;
development of an investment scheme that does not require
investors to fund property development; and
recognition that the requirements of institutional investors
differ from banks. For example, banks prefer strata development but
institutions prefer lower risk management arrangements such as multi-unit
residential that are all rental.
As noted throughout part II of the report, there was also general
acceptance that public funding would be needed to continue to assist in the
provision of affordable housing. For example, National Shelter acknowledged
that while there was support for attracting private investment into affordable
housing, it should not replace government funding. It accepted that while
private investment should be used to accelerate affordable housing outcomes, government
funding, through a subsidy, would still be required for social housing. National
Shelter also suggested that the introduction of private investment mechanisms,
such as supply bonds, would also supplement and provide alternatives to
existing private rental investment measures, such as negative gearing or
capital gains tax.
Together with Shelter WA, it recommended the creation of vehicles such as unit
investment trusts (in which investors can invest in the overall fund instead of
individual properties) and Affordable Housing Bonds for attracting and managing
institutional investment in rental housing.
It is important to note that the 2012 AHURI study on HSBs also suggested
that HSBs were not intended to replace existing forms of housing assistance for
affordable rental housing, such as that provided by NRAS and CRA, and under NAHA.
Instead, they aim to complement and extend the value of such
public subsidies in order to increase the long-term supply of affordable
housing. HSBs of themselves will not deliver affordability outcomes for tenants
regardless of their circumstances. Assistance currently provided through NRAS
and CRA is still needed to ensure affordability outcomes for tenants of affordable
rental housing and to assist with repayment of the bonds over their (presumed
10-year) life span.
As noted earlier, a number of witnesses referred to other mechanisms
designed to attract private investment into the affordable housing sector including
tax incentives to boost the supply of affordable housing. Some have already
been introduced in Australia including NRAS, but other suggestions are drawn
from overseas, including protected savings and guaranteed housing loans and, as
considered at length by the committee, housing supply bonds.
Without doubt significant amounts of public and private finance will be
required to fill the growing shortfall of affordable rental properties in
Australia. Investment is not meeting current demand, let alone projected needs.
The Australian Government has available to it any number of levers to attract
much needed private investment in the supply of affordable rental properties.
The committee has considered and made recommendations in respect of taxation
incentives, schemes such as NRAS and HSBs. It has looked at the role of
community housing providers and the partnerships they can form with private
enterprise to develop affordable housing. These various schemes and incentives
are not intended to work in isolation but to come together as a concerted
effort to boost the supply of affordable housing.
In this regard, the overriding message coming out of this inquiry is the
need for the Australian Government to give coherence to the numerous local,
state and national incentives and schemes intended to contribute to the
provision of affordable housing. It can only do so by providing much needed
leadership through a renewed COAG process and by having a Minister for Housing
and Homelessness driving this process. The committee has made recommendations
Navigation: Previous Page | Contents | Next Page