For those of us that have been championing housing affordability and affordable housing (two very different issues), it’s great to see the federal government taking steps (some of us might say baby steps) towards providing a framework that could unlock significant investment in what amounts to critical economic infrastructure. Sufficient and suitable housing for all, rich or poor, is vital to underpin Australia’s long-term economic future.
Having a stable form of shelter is fundamental to a prosperous society. How can anyone be productive if they do not have a place to reside and sleep in safety? How can society function if the people needed to provide essential services must travel hours to their workplace? How can parents bring up a family if there is no stability in where they sleep because they are always under threat of a forced move? How can anyone manage the emotional, physiological or traumatic events that happen in life if their primal need of stable shelter is not met?
As Treasurer Scott Morrison says, there are no silver bullets in fixing our creaking housing system. It’s a long-term game. But as with building a house, you must start with foundations. And, in my view, there is no solution that does not involve a substantial boost in housing supply.
The proposed evolution of the National Affordable Housing Agreement (NAHA) into a new deal that obliges all state governments to meet targets for affordable housing and planning reform is sensible.
For years, our state governments have been using federal government funds channeled through the NAHA to effectively patch up their existing public housing estates rather than to expand social and affordable housing provision. The implications of this change could be significant if it means they will now need to fund those works from their own operational budgets rather than using federal resources.
While the devil is always in the detail, the Treasurer’s declared intention to encourage state-level planning reform to unlock supply is also sensible, albeit a long-term game. It now becomes a choice for all state governments to either create more supply through reforming the planning process (and get financially rewarded for it – which, by the way, happens to be in the national interest) or persist in pandering to the vocal few and limit supply through restrictive planning controls.
The establishment of the National Housing Finance and Investment Corporation to provide long-term, low-cost finance to support more affordable rental housing is another positive and long overdue step to attract super funds into this sector. The bond aggregator is part of the answer, but the government still needs to reveal how it is going to provide the “co-financing” essential in making the numbers stack up for affordable rental housebuilding. Also, because it relates only to debt (rather than equity) funding a co-financed bond aggregator model can only yield a limited amount of additional supply.
We need to create the investment environment where large institutional players, such as our super funds, invest their equity in creating, owning and managing tens of thousands of additional homes for rental. This will be a game changer for Australia if we can make it happen.
We live in an international economy and capital flows where capital achieves an acceptable return relative to investment risk. Our super funds, on behalf of their members (us), need to maximise these returns and, in the housing space, will be lured to invest in countries that recognise the economic benefits derived from large institutional investment in rental housing, including investing in social and affordable housing. These countries are prepared to offer a reasonable return to attract investment capital. Given our own housing crisis right here in Australia, do we really want our super funds investing in housing of other countries?
Respected consultancy SGS Economics & Planning concluded that for every dollar invested in the right kinds of public, social and affordable housing in Australia, the community benefits in the order of $7 through savings in health, welfare and justice, productivity improvements and reduced demand for social housing services.
An internationally peer reviewed economic study by Think Impact for Women’s Property Initiative found that a return on investment of 10:1 was achieved by investing in housing sheltering vulnerable women. These benefits flow to the entire economy due to the long term budgetary savings in operating costs and would be a no brainer for any private business.
Such an approach must be part of a national housing strategy and it must have bipartisan support to give the private sector confidence to mobilise its capital and invest for the long term.
Budget moves indicate that for the first time in almost a decade, our federal government is up for real leadership in the social and affordable housing space, but they need to keep up the momentum. The National Housing Finance and Investment Corporation needs to also encourage equity investment by institutions in owning and renting a range of housing.
We need to build more social and affordable housing and we need brave governments that are prepared to think differently and adopt new and perhaps radical approaches to housing finance and management never before tried in this country. We are over 200,000 dwellings short in the social and affordable housing sector. This represents an investment of over $100 billion. Governments themselves do not have the funds to do this alone. They need to engage the private sector.
The Reserve Bank chief Philip Lowe was quoted last year as saying, “Can the government, can any of us, find assets to build that can generate a return for society?” Yes, we can. By creating and investing in a new infrastructure asset class consisting of social and affordable housing.
We cannot afford to wait any longer to start fixing this problem because – as in our transport infrastructure – we have already wasted several decades doing nothing.
Robert Pradolin is the former general manager, Residential for Frasers Property Australia.