Treasurer Scott Morrison raised the prospect of a new government backed body to fund affordable rental housing by raising finance in the bond market. But the big question he left unanswered is: who will pay for it?
Lesley Dredge, CEO of the Community Housing Federation of Victoria, said “we’re very please to see the government has the desire to do something for affordable rental housing. But we’re looking forward to seeing how it can be made to work.”
Speaking in Melbourne on Monday, Mr Morrison said his plan would fund affordable housing by “harnessing large-scale private investment through a bond-aggregator concept”.
The bond-aggregator would issue bonds in the wholesale finance market, presumably with the benefit of a government guarantee, and lend it out to community housing bodies “allowing them to access cheaper and longer-term finance,” the Treasurer said.
While the aggregator would be able to get finance for housing co-operatives at cheaper rates than they could borrow themselves, there is still a problem.
“For affordable housing you would still need to have some sort of subsidy from the government or elsewhere – that’s why it’s called ‘affordable housing,'” said Dr Frank Gelber, chief economist with BIS Oxford Economics. “If you could fund it commercially, the market would already be doing it.”
Treasurer Morrison acknowledged there is a “financing gap” that would have to be dealt with to make the concept a bricks-and-mortar reality. But he did not address how this would happen beyond pointing to the success of The Housing Finance Corporation (THFC) in Britain.
However THFC relies on a very generous government rental benefit, paid to low income renters, that boosts income for housing co-operatives. “That rental benefit, combined with the low interest rates the THFC can borrow at, brings the returns to housing organisations to just below market rental rates,” Ms Dredge said.
The comparable Australian benefit, known as rent assistance, is much lower, so the combination of the lower rates from aggregation and rent assistance would not make up the difference between market rents and what housing associations could earn. That means a subsidy would still be needed to make the system work.
Treasurer Morrison did not reply to requests from The New Daily to clarify his plans.
Dr Gelber said a number of plans to encourage private sector involvement in the provision of affordable rental housing “had been tried and failed.”
If a suitably subsidised rental arrangement could be found, the industry fund movement would be happy to provide finance at lower rates than would be available through the banks, according to David Atkin, CEO of industry fund Cbus.
“Cbus stands ready to invest in this critical infrastructure, but the federal government needs to get the policy settings right to make those investments sustainable,” Mr Atkin said.
“If that’s done and there’s an appropriate risk and return profile, Cbus has the capacity to make meaningful investments in this space,” he said.
Cbus investments manager Brett Chatfield told The New Daily that “industry funds would be able to provide capital for affordable housing at about half the margin above the bank bill rate that the banks could provide.”