Australia’s $1 trillion industry superannuation sector is working with the Albanese Government on the next steps for the Housing Accord announced during the Federal Budget.
Major superannuation funds including AustralianSuper, the Australian Retirement Trust, Aware Super and CareSuper have publicly backed the Accord, an agreement between state and federal governments and institutional investors which aims to deliver a million extra houses from 2024.
But the challenge ahead is how to translate the goal into financing new investments – expected to come through a range of different vehicles – in ways which also meet super fund’s primary obligation to invest for the best financial interest of members.
Chief executive of the $260 billion AustralianSuper, Paul Schroder said his fund had signed up to the Accord which he described as a “positive step forward in finding real, lasting and scalable contributions to Australia’s housing supply challenges.”
“As Australia’s largest super fund, we want to be part of a broader solution while delivering on our overall purpose to help members achieve their best financial position in retirement,” he said.
He said finding opportunities to invest in affordable housing at scale in ways which also met the members best financial interest test “had been a challenge for funds like AustralianSuper in the past.”
But he said “this should not be a barrier to considering potential investments in the future.”
The next step in the discussions will be the Treasurer’s Investor Roundtable on November 25 which will include representatives from the super fund sector such as AustralianSuper’s Schroder, HESTA chief executive Debby Blakey, the chair of IFM Investors Greg Combet, Rest Super chief executive Vicki Doyle, Australian Retirement Trust chair Andrew Fraser and Cbus chair Wayne Swan.
The Accord follows a speech by Federal Treasurer Jim Chalmers in August appealing to the superannuation sector to work with the government on delivering national goals including more affordable and social housing as well as more investment in infrastructure and renewable energy.
Different approach
While many super funds invest in housing in different ways, they have different specific investment experiences which could each play a role in a broader industry wide commitment to direct more funds into social and affordable housing as well as build-to-rent housing projects.
AustralianSuper is already working with Assemble Communities on two new developments in Brunswick and Kensington in Melbourne involving 370 units where construction is expected to begin shortly.
“We worked hard with Assemble to develop a model that is sustainable, scalable and attractive to institutional investors,” Schroder said.
The chief executive of the $240 billion Australian Retirement Trust, Bernard Reilly, also backed the establishment of the Accord.
“Housing is a complex issue that requires a coordinated policy response from all levels of Government as well as the private and community sector,” he said.
While he said ART’s priority was to maximise the best financial interests of its two million members, he said institutional investors and the private sector had a role to play in “carefully examining where there are opportunities for investment, or barriers that we can help to clear.”
He said ART’s recent deal with the Brisbane Housing Company (BHC) and the Queensland Investment Corporation (QIC) to finance new social and affordable housing projects in Queensland provided “an innovative and scalable model for the financing, development and operation of social and affordable housing without compromising our fiduciary duty to our members.”
Others in the sector say that the Queensland deal, which takes in several parties with different risk profiles and responsibilities, could provide a good model for future housing developments envisaged under the Accord.
Providing a bridge
A key player in providing a bridge between super funds and affordable housing will be the National Housing Finance and Investment Corporation (NHFIC) which issues government backed bonds which raise finance for community housing providers across the country.
But the investment success of the projects often involves extra support from state governments, particularly the availability of low-cost land and other concessions which need to be negotiated including with local councils.
Cbus deputy chief investment officer, Brett Chatfield, said the fund had already invested almost $150 million in NHFIC bonds over the past four years.
He said Cbus was also providing construction funding for a social and affordable housing complex in Victoria.
Chatfield said the key for superannuation funds to investing in social and affordable housing, where tenants pay below market rents, ranging from 20 to 80 per cent of market value, was to match the risk adjusted return profile of these investments “to similar investments we would otherwise make”.
“Current construction supported by NHFIC bond issues shows the funding model works,” he said.
Aware Super is one of Australia’s largest build-to-rent developers, with $1.5 billion already committed to further build the fund’s residential property portfolio by 2025.
The fund has an Essential Worker Housing Program, which began in 2018 which offers eligible residents rent at 80% of the market rate for quality apartments close to important urban infrastructure such as hospitals, schools and transport.
The chief executive of Aware Super, Deanne Stewart, said Aware was “committed to playing our role alongside government initiatives such as the National Housing Accord 2022 to address the national housing crisis.”
She said diversifying the fund’s investment portfolio to invest in new areas such as build-to-rent was in line with its mandate to act in the best financial interests of its members.
Assistant Treasurer, Stephen Jones, told a post budget webinar held by the Financial Services Council that the government would not be forcing super funds to invest in affordable housing and other projects but was determined to find a way for them to invest new housing in a way which would deliver commercial return rates.
“The government has to understand the way institutional investors are looking at these things and the hurdles they have to jump over with their boards [to approve investment projects],” he said.
Jones said the government believed that it could “create the right business model” which would provide the “right incentives” for superannuation funds to invest in new housing projects.
“We think there are opportunities for [super funds] to invest in residential property now and we think there has got to be a business model that works.”
This article was edited on 8/11/22 to correct the value of industry superannuation funds from $1 billion to $1 trillion.
