Super investment pathway could close rental supply gap

A ground-breaking report by RMIT researchers outlines a new investment pathway to lift the supply of affordable rental housing.

The report recommends the establishment of an Affordable Housing Finance Corporation (AHFC) combined with a well-structured guarantee, to make it more attractive for long term managed funds to invest in new affordable and well-targeted social housing infrastructure.

Published by RMIT University and the Australian Housing and Urban Research Institute (AHURI), the research was led by Honorary Associate Professor Julie Lawson and Professor Mike Berry, from RMIT’s Centre for Urban Research, with Carrie Hamilton and Professor Hal Pawson (UNSW).

Enhancing affordable rental housing investment via an intermediary and guarantee has been released ahead of a seminar to be held in Melbourne today, where experts from the superannuation sector, researchers, government and the housing sector will respond to the report.

Dr Lawson said home ownership rates were declining, especially among the young but also among established households, with tenants now making up more than 29 per cent of Australian households.

“While the number of tenants is growing, the number of those renting social housing has almost halved – despite burgeoning waiting lists – from 5.8 per cent of households in 1998 to 3.9 per cent in 2010,” she said.

“Strategic investment is needed to increase the quantity, quality and security of affordable rental housing accessible to low and middle income households.

“Private investment will only flow when the risk weighted returns are right for investment funds.

“A specialist intermediary such as the AHFC combined with a guarantee helps achieve this balance.”

The AHFC would pool the aggregated investment demands of the growing and professional community housing sector (currently managing 45,000 dwellings), to provide a suitable scale of and pipeline demand for bond issues attractive to Australia’s rapidly expanding managed funds sector.

The proposal draws on well-established and successful international models from the UK and Switzerland that have been adapted to meet Australian needs and market conditions.

The UK’s Housing Finance Corporation and the Swiss Bond Issuing Co-operative both participated in the study.

“The guarantee makes more efficient use of limited public resources, by simply exploiting government credit worthiness to full effect and strategically backing bonds investing in recently completed, tenanted developments managed by the not-for-profit housing sector,” Dr Lawson said.

“Together, the AHFC and structured government guarantee bridges the financing gap to attract institutional investment and increase the supply of new, well targeted affordable rental housing in Australia.”

John Hopper, Head of AustralianSuper’s Fixed Income Portfolio, said: “If the government guarantee, proposed by AHURI, can be structured in the right way and the return was attractive relative to comparable investments, these types of housing bonds could be part of our portfolio.

“An appropriate guarantee would bring the risk and return profile more in line with government bonds and could be more attractive to long term investors like AustralianSuper.”

Professor Mike Berry said the AHFC overcame many of the barriers that have blocked private investment in affordable rental housing in the past.

“The AHFC would give the Australian Government the vehicle to guide investment into affordable housing while developing deeper, longer term bond markets, strengthening the affordable rental sector and securing investment in well needed social and economic infrastructure in Australia,” Professor Berry said.

“The AHFC offers a tried and proven mechanism for institutional investment in affordable rental housing, to be underpinned by government and operating across all participating states and territories.”

Carol Croce, CEO of Community Housing Federation of Australia said: “Many community housing providers are on a growth trajectory in response to high demand for affordable housing.

“Better financing options will mean more affordable homes can be provided by community housing providers that will reach households not served by the current market.”

The seminar, “Private sector finance: increasing the options for affordable rental housing”, is being held today at the State Library of Victoria.

Originally published on RMIT News.