The federal government is being urged to set up a national investment fund to generate the money needed to build an extra 3000 units of social housing every year.
The plan, put forward by independent think tank the Grattan Institute, would see the federal government issue $20 billion in bonds and invest the money into a new fund called the Social Housing Future Fund.
Managed by the Future Fund Board of Guardians chaired by former treasurer Peter Costello, the fund would invest the $20 billion in financial markets and use any above-inflation returns to provide grants to state governments and community housing providers to build social housing.
Social housing typically caps rents at 25 per cent of tenants’ income and has been shown to reduce the risk of homelessness.
The Grattan Institute estimates an initial endowment of $20 billion could deliver an extra 3000 social housing units a year in perpetuity – or 6000 units a year if state governments were required to match federal contributions – provided the future fund achieves an average annual return of 4 to 5 per cent.
Assuming the government would have to pay investors interest of 2 per cent a year on its bonds, building an extra 3000 social homes a year would cost the federal government $400 million a year in debt-servicing costs – the equivalent of less than 0.1 per cent of annual federal government spending.
But that cost could be reduced to zero, if the federal government used some of the returns from the Social Housing Future Fund to cover the cost of the interest owed on its bonds.
“If you use some of the returns to cover the debt servicing costs, then you can build 1700 homes a year for no hit to the underlying cash balance (federal budget),” said Brendan Coates, director of the Economic Policy Program at the Grattan Institute.
An extra 6000 units a year are needed to give people the same opportunity to access social housing in the future as they had in the past.
In recent years, state governments have built 2000-3000 units per year.
‘Australia has a housing crisis’
In his analysis paper released on Sunday, Mr Coates said there was a need for greater investment in social housing as the number of social housing units in Australia had barely changed over the past 20 years, despite the national population increasing by 33 per cent in that time.
Mr Coates said “Australia has a housing crisis” and “poorer people are feeling the pinch most”.
“Many low-income renters are living in poverty, and many more are suffering financial stress,” he said.
“Inequality is increasing, and more Australians are becoming homeless.”
Mr Coates told The New Daily the Grattan Institute pitched its idea for a Social Housing Future Fund to Labor and the Coalition before the federal budget in May.
Labor leader Anthony Albanese then announced a similar policy in his budget reply speech.
The policy called for an off-budget ‘Housing Australia Future Fund’ to be managed by the Future Fund board of guardians.
But Labor committed $10 billion rather than $20 billion, and said it would deliver 4000 social housing units a year over the first five compared to the Grattan Institute’s promise of 3000 a year.
That Labor promised more units over the first five years despite having a smaller endowment suggests it would use a slightly different funding arrangement that would allow it to bring forward construction.
Economists back social housing
Grattan’s analysis paper comes after the nation’s top economists called for greater investment in social housing to support the economic recovery from COVID-19.
In September 2020, 55 per cent of Australia’s 49 leading economists told The Conversation that social housing would provide the biggest bang for the taxpayer’s buck when it came to boosting the economy over the following two years.
But the federal government offered no direct support for social housing in either of its past two budgets.
Angela Jackson, lead economist at Equity Economics, told The New Daily there was “no doubt we need more social and affordable housing in Australia – and that is going to involve greater investment”.
“How government funds that – and whether it uses a mechanism of a future fund, or funds it directly off the budget, or it looks at some joint initiatives with the private sector – they’re all things that need to be explored,” Dr Jackson said.
“Fresh ideas are good. But it doesn’t get away from the fact that what we need is government to see that it has a critical role in providing stable housing to those Australians who are struggling.”