Research commissioned by Industry Super Australia has recommended the government streamlines planning requirements, sets affordable housing targets and provides concessions to attract institutional capital to the nascent affordable housing sector to plug the growing shortfall of affordable dwellings in Australia.
The shortfall in 2022 is estimated at 524,000 and expected to increase to 671,000 over the next 10 years according to the report by Frontier Advisory which was released on Tuesday. Only four percent of Australia’s housing is classified as affordable, the lowest proportion of social housing among OECD nations.
The report shows the affordable housing sector can deliver stable long-term returns which are immune to economic conditions and provides a buffer against volatile global markets. A survey of investors in the UK found returns in affordable and social housing were between six to eight per cent. This could be higher in Australia due to the difference in interest rates.
“With the right financial models and a steady pipeline of projects industry fund members get a low-risk investment that delivers secure returns even when the economic seas are rough, and thousands of Australian families get the quality affordable housing they need,” ISA deputy chief executive Matt Linden said in a media release.
Industry funds have up to $35 billion to invest in unlisted property in the next 10 years acc0rding to industry data, a potential deep source of liquidity if the model and returns are suitable.
However there are significant barriers that have limited institutional investors appetite including lower total returns and higher perceived risk compared to other traditional property sectors; the lack of consistent and transparent regulations, land tax, stamp duty and other tax incentives as well as the inconsistency of definitions and regulations with the involvement of state and municipal governments.
Other recommendations in the report include developing the build-to-rent market through incentives, standardised planning regulations, government guarantees and reduced bank funding bureaucracy for large developments as well as encourage public private partnerships.
The release of the report comes ahead of Friday’s Treasurer’s Investor Roundtable between Australia’s largest banks, super funds, asset managers and government to promote investment in housing and other sectors.
A number of super funds are also signatories to a Housing Accord, an agreement between state and federal governments and institutional investors aimed at delivering a million new houses from 2024.
“Through the Housing Accord and this week’s investor roundtable, the government has shown it is serious about tackling affordable housing supply, now the key players – like industry super funds – need to thrash out the ideas that will align this national interest with our members’ financial interest,” Linden said.