1. Financing social and affordable housing
Peta Winzar
CEO
Community Housing Industry Association (CHIA)
September 2017

2. The impossible dream - Institutional investment at scale?
Affordable Housing Working Group
Bond Aggregator
National Housing Finance and Investment Corporation
Tweaking the tax system – MIT and CGT
In the last week the Federal government has released 2 reports, some draft legislation and a consultation paper which collectively signal a step-change in the way government is thinking about financing social and affordable housing.
Together with some complementary measures in (some) state Budgets this year, these four measures have the potential to significantly alter the financing landscape.

3. Affordable Housing Working Group
Community housing: 0.9% of all dwellings in Australia
Social and affordable housing sector: 4.3%
47% of private renters qualify for social housing on income grounds
Cost of maintaining sector at 4.3% as population grows:
6,300 SAH dwellings a year … $1.9 billion pa
Plus cost of renewal/replacement of existing stock
Just to stand still [AHWG prescription]
CHIA’s view – 100,000 SH dwellings by 2027, AND 100,000 AH dwellings by 2027
Cost: $60 billion

4. Affordable Housing Working Group
Nine months, three recommendations:
Progress initiatives aimed at closing the funding gap, eg
examine the levels of direct subsidy needed for affordable low-income rental housing,
affordable housing targets,
planning mechanisms,
tax settings,
value-adding contributions from affordable housing providers, and
innovative developments to create and retain stock.
Develop and implement a uniform, nationally applied regulatory framework.
Update the National Industry Development Framework for Community Housing

5. Bond aggregator – towards a new asset class
Objective: raise institutional finance at scale
Recommended structure – sits under NHFIC
CHPs apply for loans (fee~0.2%)
These aggregated and put to market in blocks
Longer tenor than bank finance – 10 years
Pricing benefit – up to 1.4% below bank finance
Government guaranteed?
Borrowing secured against title
T1 and T2 to begin with (first couple of years)
Aiming for steady flow of debt, year after year – “make the market”
Needs stronger regulation
NEED to fill funding gap - $3,100 pa AH, $8850 SH

6. Policy settings vary across states
Less diversification of income sources in QLD

7. Less debt in QLD – policy or practice?

8. What difference will a bond aggregator make?
Sector debt $1.05b
Refinance 0.5b existing debt – maybe $250m in bonds pa – create certainty, cut cost
Marginal impact on supply - Could increase leverage by 25-35% - ie, another 1,000 dwellings across sector with current policy settings
Constraints are lender security requirements, govt rent setting policies, CHO ambition & capacity, the funding gap, regulation, competition in resi sector from build to rent, student accommodation, SDA etc for development sites, finance, staff

9. National Housing Finance and Investment Corporation
Two functions:
National Housing Infrastructure Facility
$1b in loans, grants, equity to accelerate housing supply
Partnering with local government, development partners (but not developers)
Possible CHP funding in consortium/joint ventures
Development headworks, transport & water infrastructure, site remediation, etc
Priority to developments with certain level of affordable housing
Innovative finance – equity, blended finance – to stimulate projects
Finance from January 2019 (applications July 2018)
Bond Aggregator
Originating bonds and transacting loans/payments to investors
Investment and credit risk assessments

10. Managed investment trusts and Capital Gains Tax concessions
Legislation released last week to enable MITs to invest in residential real estate
Target is overseas investors – more generous withholding tax offered
Extra 10% CGT discount (ie 60%) for sub-market rentals let through CHP to eligible tenants and held for 10 years (cumulative)
For individual investors, extra 10% CGT discount if sub-market rental through CHP to eligible tenants for 3 years or more (cumulative).
Tenant eligibility and level of rental discount required will be set by state govt
Good in rising markets obviously. Some estimates: need 4% capital growth
Compliance costs for CHPs

11. Amcor redevelopment and CHL
Former Amcor site at Alphington, 6.5km from city
First large-scale inclusionary zoning in Victoria - 2,500 dwellings, 5% affordable
Private-Social Partnership between Community Housing Limited, Alpha Partners and Glenvill homes
CHL is one of largest community housing providers in Australia, 6,300 dwellings (30% in Victoria)
CHL lease & 2 BR apartments at fixed rent, for 10 years
At end of term, CHL keeps 10 units
C/W Budget gives developer extra 10% capital gains discount on other 140 units in long-term rental