Less than two weeks ago, I argued in The Fifth Estate that Australia’s housing debate needed to move beyond planning reform and housing targets to the harder question of delivery.
The collapse this week of one of Western Sydney’s largest housing development and construction groups brings another part of that delivery challenge sharply into view: finance.
Bathla Group has entered voluntary administration, with its main development entity, Universal Property Group, reporting liabilities of around $3.2 billion as at June last year. This is not an insignificant player. The group has delivered homes, townhouses and apartments across Western Sydney, including in Schofields, Marsden Park and Tallawong, and has a substantial future housing pipeline.
Bathla’s managing director has attributed its difficulties to a combination of softening sales, falling buyer confidence, rising construction costs and changing lending and market conditions.
But the significance of the collapse goes beyond one company.
Reporting this week has raised concerns about what Bathla might mean for Australia’s rapidly expanding private credit market, which has become an increasingly important source of property development finance.
It is far too early to declare a wider crisis. But it does raise a question we hear surprisingly little about in the housing supply debate.
Who is going to finance all the housing we are planning for?
Governments across Australia are trying to accelerate supply through rezoning, planning reform, faster approvals and ambitious housing targets. These reforms matter. But they also rest on an assumption that, once sufficient development capacity has been created, private investment will turn that capacity into housing.
That assumption needs more attention.
Development has to be financially viable before a dwelling gets built. Land, construction, infrastructure contributions, professional fees, taxes and financing costs all have to be carried, often for years, before revenue is realised. When costs rise, sales slow or finance becomes more expensive, projects that work on paper can quickly become marginal.
We see this particularly clearly in Western Sydney. Governments need large volumes of new housing here, but households also face significant affordability constraints. There is only so much additional cost that can be passed on to purchasers.
This creates a difficult tension. The places where we most need relatively affordable new housing can also be the places where there is least room to absorb escalating construction and financing costs.
That makes development finance a housing policy issue, not simply a financial markets issue.
When finance tightens, housing feels it
Private credit has helped fill a gap as traditional banks have become more cautious about development lending, particularly for projects without sufficient presales or those carrying greater development risk.
There is nothing inherently problematic about alternative sources of capital. They can enable developments that might otherwise struggle to secure conventional finance.
But the cost and availability of that capital matter.
If lenders become more cautious following recent events – requiring more equity, charging more for risk or becoming more selective about projects – those decisions eventually turn up in the housing pipeline.
Some projects will be delayed. Marginal projects may not proceed. Developers may postpone new stages or land acquisitions. Smaller and more highly leveraged developers may find capital particularly difficult to obtain.
This is where the distinction between housing capacity and housing delivery becomes important.
We can zone land for thousands of homes and accelerate assessments. But somebody still has to finance and build them.
There is also a risk that worsening feasibility simply produces calls to reduce affordable housing requirements, infrastructure contributions, environmental standards or other public obligations.
Some requirements may well need reconsideration where they are poorly calibrated. But if the only way we can make housing viable is by progressively removing the things communities need, we have not solved the problem. We have shifted it elsewhere.
The harder policy question is how we change the feasibility equation itself.
Public land, infrastructure investment, concessional finance, guarantees, value capture and longer-term partnerships with institutional investors and community housing providers all warrant attention. There is particular potential where public land, patient capital and long-term affordability can be brought together, supporting long-term affordability rather than relying solely on conventional market delivery.
If the conventional development model is becoming increasingly difficult to finance and deliver, do we also need different models of housing production and investment?
Finance and production need to come together
Modern methods of construction are receiving renewed attention in NSW and nationally, usually because of their potential to deliver housing more quickly through prefabrication, modular construction and advanced manufacturing.
But there is another dimension to the MMC discussion that deserves greater attention: pipeline.
Manufacturing facilities require considerable upfront investment. They need scale, repetition and some certainty that orders will continue. That is difficult to achieve if every housing development is financed, designed and procured as an isolated project.
NSW is beginning to recognise this in its emerging approach to MMC, with greater emphasis on building a reliable pipeline alongside manufacturing capacity.
That potentially creates a different conversation about the relationship between government, institutional capital, housing providers, developers and manufacturers. Rather than viewing finance, construction and housing demand as separate parts of the delivery system, there may be opportunities to bring them together around longer-term housing pipelines.
MMC is not a solution on its own. It needs a steady pipeline of housing to make it viable, while institutional investment also needs to support the delivery of genuinely affordable housing.
But it does suggest the need to think about innovation more broadly.
If the existing housing delivery system is struggling to produce the volume of housing governments require at prices households can afford, perhaps we need innovation not only in how we plan housing, but in how we finance and produce it.
From targets to delivery
The immediate concern following Bathla’s administration is, of course, for the homebuyers waiting for properties, alongside employees, contractors, suppliers and others caught up in the collapse. Administrators are seeking to stabilise operations and continue construction and settlements where possible, so administration does not mean Bathla’s substantial housing pipeline simply disappears.
But we should pay attention to what happens next.
If the fallout leads to more cautious development lending, the consequences could extend well beyond Bathla.
Australia’s housing challenge is still too often presented as a shortage of land, approvals or planning capacity. Increasingly it is also a question of delivery capacity – and that includes the capital needed to turn an approval into an occupied home.
The Bathla collapse does not tell us that private credit has failed. But it should prompt governments to look much more closely at how the housing needed to meet their targets will actually be financed.
Where will the capital come from? What happens to the housing pipeline when financing conditions tighten? And which projects and communities become most vulnerable when they do?
Planning reform remains necessary. But if we are serious about moving from housing targets to housing delivery, planning, finance, infrastructure and production need to be considered together.
Otherwise we may become very good at planning for housing that nobody can afford to finance and build.
