Stimulating private sector development of affordable housing - The University of Sydney

Stimulating private sector development of affordable housing

13 October 2022
Report finds no single sector can supply
No single sector can supply Australia's needed social and affordable housing, increasingly it needs to be financed, developed and managed by partnerships of government, community-based and market providers, according to new research led by Sydney's School of Architecture, Design and Planning.

Key Findings

·       No single sector can supply Australia’s needed social and affordable housing

·       Private investors, developers and industry leaders revealed a strong appetite for investing in affordable housing partnerships, reflecting the high level of demand for this type of housing and an increasing focus by boards and shareholders on projects that deliver social and environmental outcomes

·       There are risks in partnerships for both governments and private developers, which can be mitigated by carefully designed schemes and effective regulation and oversight

The research, ‘Private sector involvement in social and affordable housing’, undertaken for the Australian Housing and Urban Research Institute (AHURI) led by researchers from the University of Sydney, investigates models for engaging private sector investors and developers in financing and delivering social and affordable housing. It also identifies the financial, regulatory, or development barriers that may prevent more financiers and developers being involved.

“In Australia we need around 36,000 new social and affordable homes each year; prior to the COVID-19 pandemic we produced about 3,000,” says lead researcher Richard Benedict, Research Associate at the University of Sydney.

To meet this demand, new hybrid models are needed, whereby social and affordable housing is increasingly financed, developed and managed by a combination of government, community-based and market providers, and cross-sector partnerships. No one sector can address the scale of unmet need alone.
Richard Benedict, Research Associate, University of Sydney

The research revealed that several institutional investors and superannuation funds had a level of interest in investing in social and affordable housing in times of low interest rates even though yields are typically lower than in other forms of residential investment.

Lower yields were seen to be offset by lower risk in the social and affordable rental sector, which some participants advised holds value for longer than market rate rental, thus appealing to institutional investors. However, there are geographical differences in investment appetite, with institutional investors more focused on Sydney and Melbourne where demand is consistently high.

Participants emphasised that private investment in affordable housing for low and very low-income earners will always require some government subsidy or capital contribution. The international evidence indicates that private involvement should be viewed as a way of extending, rather than replacing, public subsidy to house low-income earners and those with special needs. A partial alternative to direct government subsidy is to reduce project costs, such as by providing access to government land or using inclusionary planning mechanisms.

Overall, this study highlighted that a range of established and emerging affordable housing product types can be supported through collaboration with private not-for-profit and for-profit partners. These depend on different combinations of government subsidy, policy settings, and regulation, and are suitable for delivery across a variety of different development contexts.

“This is a timely report, with the new Commonwealth Government already signalling its interest in new approaches to addressing Australia’s entrenched housing problems. National leadership and a cohesive, systemwide strategy for increasing investment in Australia’s social and affordable housing sector is long overdue,” observed report co-author, Professor Nicole Gurran from the Sydney School of Architecture, Design and Planning.

“Our study reveals practical measures that can be undertaken by all levels of government in partnership with the private sector to diversify and increase the supply of homes affordable to lower income Australians.”

However, research participants also identified barriers and risks that must be addressed if the private sector is to support a significant increase in social and affordable housing. Changes in government, changed and discontinued policies and programs and a lack of continuity across political and bureaucratic leadership undermine opportunities to expand social and affordable housing through private sector involvement. They emphasised that certainty is essential for investor confidence, across all regulatory and program settings. In addition, development challenges included lack of access to suitable sites; labour shortages; and long, complex government tendering and planning approval processes.

Participants also warned of risks to government, community or specialist housing organisations and residents arising from poorly designed processes. These risks included the ‘leaking’ of public assets and subsidies; inefficient and poor delivery of projects; tenant disruption; and the diversion of resources and opportunities from the community housing sector. While increased private involvement in social or affordable housing schemes can present a reputational risk to government, risks could be mitigated through strong due diligence and effective regulation and oversight by government.

Sally Quinn

Media Adviser

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