Making Housing Affordable Series. MICHAEL PERUSCO. Revitalising social and affordable housing

The discussion and commentary about housing affordability in Australia has reached a crescendo in recent months. But an important piece of the housing puzzle cannot be overlooked in the debate: the role of social housing.

It is time for governments across the country to recognise that a well-functioning social housing sector is critical to balancing the housing market’s equilibrium. It cannot be pushed aside for more populist political topics.  

In this article, I outline the role social housing plays in the community and what needs to be done to create a vibrant and robust social housing sector that provides Australians on low incomes with secure, affordable long term housing options.

The role of social housing

Firstly, it is important to clarify what social housing is.

Social housing is short and long-term rental housing that is owned and run by government or not-for-profit agencies. If it is operated by government, it is referred to as public housing, and if it operated by not-for-profit registered housing agencies, it is referred to as community housing. Rent is usually charged as a percentage of household income – typically 25 per cent.

Social housing plays a critical role in the housing market. It provides affordable rentals for those on low incomes, connects vulnerable tenants to support services and provides a more secure tenure. One of our tenants recently told me that when she signed her lease with Unison Housing, following a period in the private rental market, she felt she could “finally take a deep breath and relax” for the first time in a decade. She has since gone on to establish strong roots in her local community and her health has greatly improved.

Social housing is in decline – rents are shrinking and costs are increasing. Over the past decade, Australia’s population has grown by 16.7 per cent but the number of social housing units has only grown by 6.4 per cent. And much of this growth came from the Rudd Government’s once off GFC stimulus package, rather than a sustainable investment stream.

Approximately 4% of Australia’s housing stock is social housing. This compares to 32% in the Netherlands, 18% in England and 6% in Canada. In Victoria alone, 1,800 additional social housing units are required each year to maintain the current proportion of housing stock at 3.5%.

The increasing rates of housing instability and homelessness being experienced across Australia reflects diminishing housing options for people on low incomes, particularly those on Newstart and pensions who are also facing a range of challenges in their life.

Affordable Housing

In the context of Social Housing, the term “affordable housing” is used to describe housing that is made available to households on low to medium incomes, with rent set at 75-80 per cent of market rent. A thriving affordable housing market plays a key role in a well-functioning rental market. It allows people with lower paying jobs to live nearer to their work and provides options for older people who find themselves forced out of the private rental market.

The need for government support

Since the federal government’s once-off $6.4 billion investment in social housing in 2009, investment levels have fallen to record lows. Much of the discussion over the past eight years has centred on the notion that through financing mechanisms, impact investment and other “innovative” ideas, housing could be generated without government subsidy.

There now appears to be an understanding that however innovative the financing model, significantly increasing the supply of social and affordable housing requires a subsidy from government. The reality is that the rents received are too low to fund long-term maintenance requirements and service loans. A government subsidy is essential to bridging this gap.

Initiatives in Victoria and NSW

Over the past 12 months, we have seen welcome first steps taken in Victoria and NSW.

In NSW, the government has established the $1 billion Social and Affordable Housing Fund. The NSW Government’s investment arm, TCorp, is investing the money to provide a stable income stream to boost social and affordable housing for up to 25 years, with homes to be built over the next four years.

The Victorian government has recently set up a Social Housing Growth Fund, which will reach $1 billion over the next four years. The government is currently determining how the income stream generated from the fund will be used most effectively.

Victoria also announced a loan guarantee program of up to $1 billion to help community housing organisations access finance at affordable rates and a $100m revolving loan facility provided directly by the government,

In addition, both jurisdictions have committed to redeveloping large public housing estates and transferring public housing stock to the community housing sector (35 per cent of stock in NSW and 4,000 dwellings in Victoria).

Lessons learned

What these policy initiatives demonstrate is:

  • A recognition that a government subsidy is required and it can be in different forms
  • Government is open to purchasing access to social housing for a period of time (in NSW, 25 years) rather than owning and maintaining the asset.
  • There is land available in the community for social and affordable housing and these mechanisms can be used to flush them out
  • Increased commercial acumen is required of community housing providers
  • Organisations are expected to have greater reliance on debt
  • Partnering with private providers is being encouraged

These initiatives recognise that a multi-provider framework for the delivery of social housing is the preferred model for government. This makes sense because the community housing sector provides not-for-profit, government-regulated social and affordable housing and is the viable alternative to the private and public housing systems. The community housing sector can:

  • Access finance in a way that public housing systems cannot
  • Build and develop housing more cheaply than government and for-profit providers
  • Be more nimble and flexible than government
  • Partner more easily than government

Bond aggregator model

There has also been movement at the federal level. The Government and opposition have indicated their support for a bond aggregator model, similar to that used in the UK. This involves the federal government establishing a finance corporation to issue bonds to investors. The finance corporation then lends the funds raised to community housing providers to increase the supply of affordable housing.

The benefits of this approach are twofold. Firstly, it enables institutional investors, including superannuation funds, to invest in social housing at scale. Secondly, it provides community housing providers with cheaper finance for longer periods. While this is a welcome move, it will only make a real difference if it accompanied by a subsidy from government.

National Affordable Housing Agreement

There is also debate about the National Affordable Housing Agreement (NAHA). Under the NAHA, the Commonwealth provides $1.3 billion a year to the states and territories towards the cost of housing and homelessness services. While it is true the agreement can be improved, abolishing it would be a mistake because it would reduce funding to a public housing system that is already starved of funds. The Governments approach to the NAHA reamins unclear however, Labor has announced its intention to work with the states to drive better outcomes and performance in the NAHA. This includes strengthening benchmarks across the housing affordability spectrum such as housing supply, planning reform and inclusionary zoning. Such a renegotiation should also ensure Commonwealth funding is matched by the states.

The opposition’s policy to re-establish the National Housing Supply Council and the Minister for Housing are very welcome steps.

National Plan for social and affordable housing

It is critical that the Federal Government leads a process to develop a plan for the increased supply of affordable housing in Australia – social housing, affordable housing and private housing that is affordable. Such a plan would first identify the scope of the problem and then set targets at federal, state and local government levels that can be monitored.

Addressing the gaps identified would require a comprehensive policy response including taxation, planning and social and affordable housing.

Sustainable pipeline of investment at scale

A key element of any National Plan must be the establishment of a sustainable pipeline of investment for social and affordable housing.

The pipeline can be achieved by:

  • Creating access to low cost finance over longer periods as referred to above; and most importantly;
  • Providing a government subsidy that makes the investment in social and affordable housing viable.

Given the underinvestment in social and affordable housing over the past decade, an additional 10,000 – 15,000 dwellings per year nationally is an appropriate target.

The funding required would be in the order of $2.5 billion per year, which would need to be shared across jurisdictions. While this sounds like a large amount, it pales in comparison to funding in other areas of government and represents the minimum required.

It would be necessary to review and consolidate existing Commonwealth funding arrangements and determine how they link to the recent policy announcements by state governments. Combined, these offer a very good start that can be built upon to deliver the increased supply required.

Recycling of stock and moving to mixed tenure environments

In dealing with the future of social and affordable housing, it is also important to deal with the way in which it is delivered.

A criticism of public housing estates is that they create enclaves of disadvantage that limit the opportunities of those who live within them. As a result, there has been increased interest about the capacity of mixed tenure developments in order to improve community outcomes.

Mixed tenure developments are those with a mix of home ownership, private rental and social housing. Our experience at Unison Housing suggests these models can reduce social and economic inequalities. The concept emerged as an important public policy idea in the US and UK as a result of the concentrations of disadvantage on public housing estates.

The characteristics of a neighbourhood clearly shape households’ access to resources and opportunities. Research into place-based disadvantage in Australia shows that disadvantage in particular regions is entrenched, while other research in Victoria has demonstrated that more disadvantaged areas had less access to supermarkets and a higher concentrations of fast food outlets. While mixed tenure might not be the sole answer to disadvantage, place clearly matters. This resonates with our experience at Unison Housing of delivering mixed tenure communities.

It is encouraging that recent policy announcements in NSW and Victoria recognise the importance of place and seek to create mixed tenure communities where large redevelopments of estates are taking place. It is critical that this focus is not lost. 

Michael Perusco is the CEO of Unison Housing, a large community housing provider operating in Victoria and South Australia. 

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