The extreme need for affordable housing in some cities, especially Melbourne and Sydney, is yielding some creative solutions, none more so than the Homes for Homes concept developed by social enterprise The Big Issue. It’s no magic bullet for funding… or is it?
According to Steven Persson, chief executive of social enterprise publisher The Big Issue, many years ago one his colleagues spotted a neat idea in the US to fund social and affordable housing.
A development company called Lennar had put a caveat on its property titles that enshrined a small donation as part of the disbursements at settlement when the properties were sold.
The idea intrigued, and a small group of people at The Big Issue, which sells magazines through homeless people, decided to explore the concept and see if it could be made to work in Australia.
The result could be one of the most sustainable and creative solutions for affordable housing that has yet to be found.
In essence it’s a legal mechanism placed on the title of a property for the vendor to donate 0.1 per cent of the sale price to a pot of funds that will support affordable and social housing. The donation is voluntary and the covenant can be removed at any time.
The thinking is when you’re enjoying your capital gains tax free uplift in property you might want to share a small part of that good fortune to those less fortunate. On a $500,000 property it amounts to $500.
Over time, assuming that people will continue to trade their properties every seven years on average, it could add up to an ever-increasing flow of money. A bit like an annuity for social and affordable housing.
Last week Persson was happy to report that the first tranche of that flow had come through. Better still, at $500,000 – though a small amount compared with the size of the problem – it was about four years ahead of schedule.
Sources for the funding are privately owned developer Grocon and the ACT based Snow family’s Capital Estate Developments, which have placed the covenant on their property developments.
Persson thinks it’s a great start but says a lot more funding is needed.
“Currently we’re short close to 200,000 properties and we’ll be close to 700,000 short in the next 20 years,” he says.
Using the estimate of $150,000 a dwelling, it would cost $30 billion to fund today’s housing needs – well beyond the budget of most government coffers.
Of course it depends what you think “constitutes a house”, Persson says.
“We’re non judgemental about this because various governments, to their credit, have tried, but it’s almost beyond even the ability of the public purse to fund,” Persson says.
The point is, “there is this massive national crisis and while dollars might expand they will never expand to meet the overall demand”.
The monies are accumulated by Homes for Homes and dispersed on a competitive basis, decided by a panel of experts, making sure those funds go to organisations that will lead to the best outcomes.
Key is that money raised in a particular state or territory will stay in that state or territory.
Over the next few decades the hope is that the pot of funds will build to a significant amount.
What it takes to rollout such a scheme
It’s taken a lot of work to get there.
“The major banks and the banking industry are throwing their support behind it,” Persson says.
He names Minters, Corrs, Freehills and Clayton Utz as legal firms who have pitched in “with hundreds of thousands of hours of pro bono work” to set up the structures and the mechanism to ensure security for the property owner.
Backing has also come from lenders, community housing associations, developers and the Green Building Council on Australia, which has allocated Green Star support for the scheme through innovation points.
State, territory and federal governments have provided seed funding for the scheme of between $500,000 and $6 million (the amount put in by the federal government).
“What we have found is that if we’re prepared to do a robust business case solution and provide evidence, parties of all persuasion are willing to support us.”
The problem has been clear for a long time, Persson says.
Without housing a host of problems cannot be fixed. Housing is essential to an ordered life and issues such as addiction or joblessness are almost impossible to fix without the security of a home.
“There is no silver bullet or overnight solution… giving people the opportunity to do the right thing could take 10 to 15 years,” Persson says.
“So we have to make sure we are sustainable and it’s embedded systematically.”
That’s the part that has taken so long.
But why has it been so hard to get across the line?
“We’re saying to developers, at no cost and no risk, put this mechanism on your place.
“The question is, who are you again? What’s your substance? What’s your legal work? Show us the marketing materials. So we’ve had to show it will go through the system and not hurt settlements.”
Persson and his team had to work “diligently” with conveyancers, banks, mortgage brokers and the like to ensure that settlements would not be hampered.
They had to anticipate every question that could be asked, before going to a “kindly disposed developer and saying, ‘Why don’t you do it?’”.
Developers have a business to run, he says. They can’t put in place the assurances and mechanisms for you.
“Our field has often said, ‘Here’s a quick, sexy idea. Why don’t you do it?’”
To give people confidence the team also had to encourage a particular high-quality support network that includes Goldman Sachs senior chairman Terry Campbell, former Australian of the Year Simon McKeon, St George Community Housing chief executive Scott Langford and Telstra chief executive Andrew Penn.
It’s no silver bullet
But it’s no silver bullet, or at least no fast silver bullet.
Persson says, “It’s taken 11 years to come to fruition and it will take another 10 years to become sustainable.”