The affordable and social housing sectors are becoming more accessible and attractive to large-scale institutional investment as the range of new built-to-rent and co-investment opportunities begin to prove their claims and the return potential of the asset class becomes better understood.

The 2024 Investment Magazine Real Estate Forum in Melbourne last month heard that institutional investment in social and affordable housing is attracting increased institutional investor support.

Investment opportunities in the build-to-rent space, offering reduced development risks and secure, long-term cashflows – either subsidised by government or not – are proving attractive to institutional investors, demonstrated notably and most recently by a significant commitment via the Housing Australia Future Fund (HAFF) by four profit-to-member funds – CareSuper, Cbus, Rest and Hostplus – led by IFM.

“This has been a conversation that’s been ongoing for some time, driven by IFM,” Housing Australia chief credit officer Rowena Johnston said.

“This has been a long-term collaboration. We established an advisory council when we were establishing the HAFF, [and we] engaged with the advisory council, including institutional investment partners that we might be able to work with, because there is a vital slice of the capital stack that needs to come from either sub-debt, or equity-like investments from institutional investors.”

Rowena Johnston

An investment in the HAFF exploits a government subsidy to ensure returns from the investment meet the funds’ risk and return requirements.

Johnston said the recent investment was “the result of months of conversation, and months of work on what the required return is for those super funds, because obviously, they have investors and people’s futures involved in the returns that come out of those investments”.

Driving growth in supply

Johnston added that Housing Australia has also funded unsubsidised investments and property development.

“But we also need lots of different models to try and drive this growth in supply to that end of the housing continuum,” she said.
“And the investment by these super funds, led by IFM, will enable that, as an established vehicle and a well-trodden avenue towards getting that investment for that component of the capital stack.”

Super Housing Partnerships chief executive Carolyn Viney said that “as a general rule, we would say the closer housing looks to infrastructure-like returns, the easier it is for people to get their head around what’s going on.”

“Things like HAFF, that puts that level of availability payment in for 25 years to enable that first or long-term owner of the asset to have a very, very, very low-risk, resilient cash flow, that gets pretty close to buying an airport or a hospital.”

She said key to the Super Housing Partnerships model is partnering with community housing organisations and de-risking investment by ensuring tenants in properties that are built to rent have resilient cashflows and can continue to pay rent.

“The resilience of that cash flow…is one of the things that we’re focused on,” she said.

Carolyn Viney

“If you said, as a developer or an operator, do we think we have those skills in our own right to manage those tenants, we would say no, we don’t. If the community housing providers weren’t as good as they are, then we’d have a different view of it. And again, we’ve partnered with tier-one, nationally accredited community housing providers for all of those reasons, because that part of what we’re relying on is mission critical.”

Tim Buskens, chief executive of the not-for-profit Hope Housing, said the organisation exists to help essential workers buy homes closer to the places they work but co-invests with the worker in their home – buying into existing stock, rather than constructing new dwellings.

Buskens said the aim was to reduce the financial burden on homeowners, while generating an acceptable return on investment.

“We don’t take a definition of a discount to market [as being] affordability, we take a definition of what’s actually affordable for the family budget,” Buskens said.
“We look at affordability as if you’re servicing a family home or residential property that’s less than 30 per cent of your family budget, that’s affordable.”

Co-investment enhances returns

Buskens said that as an investor, Hope takes “a pure equity sleeve and into that asset”.

“In our model the owner is like the tenant in the build-to-rent [model]. The owner, however, unlike the tenant in a build-to-rent, looks after the property, takes care of all the costs, does all the maintenance, and fully occupies that, which again enhances the growth that we are able to achieve,” he said.

Buskens said the co-investment model means an investment is leveraged.

“If we look at the long-term average of the market, the last 50 years of long-term growth is about 9 per cent,” he said.

“That is geared, gives us about 13 per cent And in the past 12 months [we] delivered 11.4 per cent against a market growth of 9.1 per cent, so we’re obviously, through a selection process, getting a bit of alpha there. But that 11.4 per cent, on a geared basis, is 16 per cent.

Tim Buskens

“Risk is interesting. We’re an occupier, so obviously, the development risk isn’t there.”

Viney said it was refreshing that asset owners are increasingly turning to the social and affordable housing as a viable asset class and source of member returns.

“The fact that assembled audience today, representing one of the largest systems in the world, is dedicating a session to talking about residential housing investment in Australia is something that we wouldn’t have been doing five years ago,” she said.

“The fact that we are doing that in such a constructive way is really, really positive, too. I can tell from the detail in some of the comments that have been made that people are up the curve in understanding residential, including one of the most nuances parts of the residential sector, which is social and affordable.”

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