Key issues:
- The number of houses owned or managed by not-for-profit housing associations is increasing.
- A number of larger not-for-profits that engage in more commercial activities are emerging through growth and merger.
- Not-for-profit housing providers who are able to attract new sources of funding will contribute to an increased supply of affordable rental housing.
- Growth in social housing will occur if large not-for-profit housing providers increase in both scale and number.
- There must be greater private institutional investment in affordable rental housing.
2.1 A bigger role for the not-for-profit sector
Australian Housing Ministers agreed in May 2009 that jurisdictions and the Commonwealth develop, over time, a large scale not-for-profit sector comprising up to 35 per cent of social housing by 2014.9 A not-for-profit sector that leverages private finance against its assets as well as attracting Government subsidies may play an important role in achieving growth in stock to address forecast need. Governments should only responsibly assist not-for-profits to expand their asset base if those providers are well-governed, financially sound and able to operate at scale.
The not-for-profit sector could play a part in building a social housing market that includes strong operators who can deliver growth in affordable rental housing supply. This could occur through the emergence of new models of financing and management through the consolidation and expansion of housing portfolios.
2.2 The changing face of community housing in Australia
Currently there are 930 community organisations in Australia.10 They include housing associations, cooperatives, tenancy managers and not-for-profit organisations such as welfare organisations that provide housing as an adjunct to other services.
Community housing has grown rapidly, mainly as a result of transfers of dwellings from State and Territory housing authorities. In the decade up to 2008-09 community housing has almost doubled, from 6 per cent to 10.8 per cent of social housing stock.11
The not-for-profit sector will also receive a significant boost through NRAS and the transfer of stock funded under the Social Housing Initiative of the Nation Building Economic Stimulus Plan and the Social Housing National Partnership Agreement. These programs are expected to take the proportion of social housing stock in the not-for-profit sector's hands to around 15 per cent of all social housing, providing a solid base for further expansion of the sector.
A small number of not-for-profit providers have pursued an active growth strategy, and the largest organisations (approximately 45 providers) manage 63 per cent of all tenancies.12 Increasingly, the most entrepreneurial parts of this sector are showing potential to boost the supply of affordable housing.
This growth could create potential for a larger affordable housing sector, with diversity in the mix of tenants, which helps meet the overall demand for housing, reduces homelessness, and supports the Government's agenda for social inclusion.
Other not-for-profit organisations have chosen not to pursue more commercial activities, specialising in tenancy management for particular groups or local communities.
2.3 Leveraging Social Housing Assets for Growth.
Achieving additional funding for affordable housing from the private sector coud be facilitated if social housing assets were held by private organisations that are able to enter commercial arrangements. This means looking at ways that new debt and equity funding can be raised by developing an affordable housing market that is open to new private investment.
This approach will need to consider:
- increasing the overall supply of affordable housing by leveraging off the existing social housing asset base and government capital funding
- promoting efficiency in the social housing sector through fostering greater competition between housing providers
- addressing the labour force marginalisation and social exclusion now experienced by many public housing tenants
- improving ageing, often poorly located, public housing stock and concentrations of social disadvantage through urban renewal and
- through these reforms, addressing disadvantage, supporting national economic development and delivering better choices and outcomes for tenants.
Figure 4: Snapshot of Australia’s social housing situation
- As at 30 June 2009 there were 177,652 households on public housing waiting lists,13 50,000 applicants on community housing waiting lists14 and just over 10,500 households on waiting lists for State owned and managed Indigenous housing.15
- Over $2.64 billion of Commonwealth government funding is invested in the social housing system each year.16
- The social housing system holds over $80 billion of assets, very few of which are leveraged for growth.
State and Territory Governments are already introducing new programs that increase supply through various forms of leverage.
Leveraging government investment – some early results17
New South Wales – The NSW Government has invested $49.8 million in funding for an Affordable Housing Innovations Fund (AHIF) under which registered community housing providers will deliver 356 new dwellings using a mix of grant funding, debt financing and equity contributions. This will contribute 214 dwellings more than government funding alone could deliver. These providers will contribute equity and debt of $55.5 million to these projects.
Victoria – Registered housing agencies contribute at least 25 per cent of total project costs to new dwelling construction, via debt funding, other monetary contributions and land. This means that the Victorian Government’s $300 million investment in housing growth for low income Victorians will result in approximately $400 million of affordable housing.
The challenges of developing social and affordable housing have been faced by other countries over the past 25 years. While Australia is not yet at a point where we could easily adopt these approaches, we can learn from these experiences to inform future directions for Australian housing policy.
In the USA, the Low Income Housing Tax Credit (LIHTC) program is the largest generator of new affordable housing. The LIHTC is popular among investors primarily because it enables those who invest in affordable housing developments to have a dollar-for-dollar reduction in their federal tax liability. Owners obtain tax-credit equity through a syndicator, direct placement, or a combination of these. Development financing sources include tax-credit equity, below-market-rate debt, market-rate debt and various other public and private resources.
Since its establishment in the Tax Reform Act of 1986 the LIHTC is credited with the production of over 1.9 million affordable rental units nationwide and has stimulated the engagement of the not-for-profit sector in affordable housing construction. An estimated 25 per cent of new rental apartment construction has been attributed to the not-for-profit sector.18
In the late 1980's the United Kingdom Government created robust regulatory structures for not-for-profit housing associations that provided strong institutional safeguards. The Housing Corporation had a primary role in the registration and regulation of all housing associations as well as allocating public investment funds to these associations. By 2007, private investment in social housing had risen to over £30 billion19 with around 150 lenders including large financial institutions, providing debt finance to not-for-profit housing associations.20 The contribution of the regulatory system was assessed as reducing the cost of this debt by some $125 million per year.21 The combination of grant funding combined with private loans raised in financial markets (which in 2007 was in the ratio of £1 of public money for £2 of private finance) permitted the acquisition or construction of 30,000 additional homes each year.22
2.4 Financing affordable housing
Competitive rates of return on residential housing mean there are opportunities to attract private investors and commercial developers to affordable housing. Residential real estate has had lower volatility than other asset classes and provides a sound opportunity for diversification of an investment portfolio. Over the last ten years residential property has generated average returns of 13 per cent.
Table 1: Comparative Analysis Table
| Asset Sector |
Average 10 year return
1998A to 2008A |
Source |
| Historical Returns |
| Residential Property |
13.0% |
IBISWorldtbl1 |
| Office |
10.6% |
Property Council/IPD |
| Industrial |
12.1% |
Property Council/IPD |
| Retail |
12.5% |
Property Council/IPD |
| Australian Equities |
6.5% |
UBS |
| A-REITS |
0.8% |
UBS |
| Australian Unlisted Property Trusts |
11.2% |
Mercer Unlisted Property Trust Index |
| International Equities (MSCI Index) |
0.7% |
MSCI World Index |
| Australian Government Bonds |
6.3% |
Bloomberg/IBISWorld |
IBISWorld reports gross yields (inclusive of expenses); therefore we have notionally adjusted this yield to exclude general expense such as property management, Council rates, insurance and repairs and maintenance. All other returns are generally reported on a net basis.
Source: Comparative Analysis, National Rental Affordability Scheme, May 2009. Ernst and Young for the Department of Families, Housing, Community Services and Indigenous Affairs.
Private investment in residential property has traditionally been from individual investors with low levels of investment activity, usually owning one or two dwellings. Provision of rental accommodation at a scale to meet the forecast shortage requires large scale institutional investment in new rental housing.
Many organisations in the not-for-profit housing sector are well placed to participate in the growth and management of affordable rental housing. Apart from their expertise in tenancy management and tenant support services, such organisations have the ability to utilise both government capital grants and non-government finance to deliver significant increases in stock.
A new class of not-for-profit housing organisation is emerging with providers that have strong management capability, the ability to attract capital funding, and the potential to progress to developer/provider models of delivery. A review of some larger not-for-profit providers is at Appendix B.
More sustainable growth will require greater participation by institutional investors in a more developed and accessible market. There is strong potential for commercial operators to emerge within the affordable housing market either as partners with not-for-profit organisations or in their own right.
Questions
How many not-for-profit organisations that currently exist in Australia are in a position to grow? What are the main obstacles to growth for these organisations?
How could not-for-profit organisations currently not providing community housing be encouraged to expand into this field? Are providers of aged care and disability housing services particularly well suited to provide not-for-profit housing?
Is it realistic to attract providers into this sector, where they haven't previously been housing providers?
How can the private sector (individuals and institutional investors) be encouraged to invest in creating new affordable housing, beyond the NRAS program?
What lessons have been learnt from the growth of the not-for-profit housing sector in Australia to date?
What is the likely path of structural reform of the existing not-for-profit housing sector?
Is there an appetite among many small-medium organisations to merge/partner and what, if any, assistance would they require to enable this?
Since government focus is inevitably on growth providers to increase the amount of community housing stock, what will be the future role of smaller providers?