Countries with prominent and growing institutional and private finance investment in social and affordable housing, typically have long-standing government policies such as guarantees, enduring subsidies, or public and private loan intermediation, which help reduce the funding gap, research released by the National Housing Finance and Investment Corporation (NHFIC) found.
In order to obtain insight into the challenges and opportunities for private investment in subsidised housing, NHFIC’s report is based on a comparison of country-level statistics for the US, UK, Canada, and a few chosen European nations, complemented with interviews with local and foreign investors.
The study demonstrates that, albeit to diverse degrees and in different ways across many nations, investment flows into subsidised housing are significant and rising.
The majority of the additional investment is being driven by large institutional investors, mostly through debt financing, while equity investment is also increasing from a low base.
In nations like the UK and the US, where there are more established support structures and policy tools in place to catalyse investment, such as tax credits and government-backed financing and government (and non-government) financial intermediation, subsidised housing asset classes have become more prominent.
The report found common features used by governments to encourage private capital include longstanding government-backed guarantees for private financing, long-term subsidies such as tax credit programs, financing intermediaries (with similar or broader mandates to NHFIC), allowing for-profit housing providers to access government support, and planning requirements.
The Property Council of Australia welcomed the research. Property Council Cheif Executive Mike Zorbas said the research was characteristic of the high quality of NHFIC’s work and that the analysis provides more reason to support the immediate passage of the Australian Government’s legislative agenda, currently before the Senate.
“Australia faces a stark reality; we are not planning for, or supplying, enough homes across the housing spectrum,” Mr Zorbas said.
“Gateway reforms like the Housing Australia Future Fund and National Housing Supply and Affordability Council must pass the Australian parliament without delay.
“Australia will fail to address the housing gap until we bring down the cost of buying and renting homes by improving our state planning systems, unlocking further supply by becoming the first choice for global capital, as partly anticipated by the national Housing Accord.
“Our reputation for welcoming housing investment must be on par with the UK and US as this report highlights.
“We need to level the playing field for new build-to-rent housing, purpose-built student accommodation and retirement living communities,” he said.
The report also found that large global pension and insurance funds invest in subsidised housing in countries with favourable arrangements, such as the UK.
For example, in 2021 Legal and General invested £270 million to develop 1,400 new affordable homes across the UK and more recently has announced plans to invest a further £2 billion of retirement funds over the next five years to create 10,000 new homes nationwide.
“International and domestic institutional investors cited several social and affordable housing investment enablers, including tax incentives and subsidies, risk diversification and stability of cash flows, regulatory reform to allow institutional investors to own social housing stock, allowing for profit providers to take on development risk and access government incentives, achieving ESG objectives and providing greater information on tender/funding opportunities.” the report said.
“Investment barriers cited included subsidised housing projects lacking sufficient commercial returns, insufficient scale, a lack of information on opportunities available, lack of data on vacancy risks, reputational risks around managing subsidised housing tenancies, and unfavourable market conditions.”