Super Funds Gear Up for Australian Government’s Affordable Housing Drive

By Nick Hedley

Australia’s superannuation funds have welcomed the new government’s plans to facilitate the development of 1 million houses over five years from 2024 with the help of institutional investors.

In a federal budget presented in late October, Treasurer Jim Chalmers said the government will form a national “housing accord” with local governments, major investors and the construction sector.

The accord will focus partly on delivering affordable housing units through investment vehicles suitable for collective super fund investments. Government funding will be used to cover the gap between market rents and subsidized rents to make investments commercially viable.

Housing affordability is an ongoing issue in Australia. According to a recent study by financial services groups ANZ and CoreLogic, the portion of household income required to service new mortgage repayments reached 41.4% nationally in March – well above the decade average of 36.5%. Rentals have also climbed substantially, partly because of limited supply, the study shows.

To address this problem, the federal and state governments have turned to institutional investors, who have expressed an interest in providing funding – as long as mechanisms are in place to ensure the returns are adequate.

“A trustee investment in an affordable housing vehicle would still need to be capable of satisfying ordinary ‘members’ best financial interests’ requirements for trustees in prudent investment decision-making,” Mercer said in a note following the budget.

The government said parties to the accord will work “to optimize policy settings that facilitate institutional investment in affordable housing.”

Australian Retirement Trust (ART), which recently partnered with institutional investment manager QIC to fund new social and affordable housing projects in the state of Queensland, said it “fully supports” the initiative.

“We recognize that secure and affordable housing is one of the most significant contributors to the financial wellbeing of our members, and all Australians, throughout their working lives and in retirement,” ART said in a statement.

“With the national rental vacancy rate at a record low and advertised rents significantly increasing over the last 12 months, the time has come for all stakeholders to collaborate to improve financing for new social and affordable housing projects.”

ART said its partnership with QIC would deliver affordable housing without compromising its fiduciary duty to its members.

The fund is “actively looking to participate in more of these opportunities across Australia” where they represent appropriate risk-adjusted returns.

Cbus Super, which manages assets worth A$70 billion (US$45 billion) on behalf of workers in the construction industry, called the accord “a great leap forward for the provision of social and affordable housing in Australia.”

“Cbus has long been an advocate for increased investor participation in social and affordable housing,” the fund’s CEO, Justin Arter, said in a statement.

The scheme could “super charge” existing affordable housing programs while also providing attractive returns for retirement fund members.

“We applaud the move to bring together governments, industry groups and investor funds like ours so that we are working in a coordinated way in an area of national importance,” Arter said.

Cbus Deputy Chief Investment Officer Brett Chatfield said the accord is an opportunity to build on proven affordable housing finance models.

“The key has been matching the risk-adjusted return profile of social and affordable housing investments to similar investments we would otherwise make. It is this alignment that creates the win-win situation of strong investment returns for our members and more secure and affordable housing for vulnerable Australians.”

Debby Blakey, CEO of super fund HESTA, said access to affordable housing “is vitally important for our members who work in the health and community services sector that deals with so many of the social issues that flow on from a lack of appropriate, secure housing.”

The lack of affordable housing “is a drag on workforce productivity” and contributes to negative health outcomes and domestic violence, she said.

“With this in mind, we welcome the federal government’s housing accord as an important first step towards removing long-term barriers to growing the supply of affordable and social housing.

“Australia’s superannuation system has incredible investment expertise they can bring to the table and we’re already seeing the industry develop a range of models that, if backed by strong partnership with government, can attract patient, long-term capital,” Blakey said.

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