How investors can help to solve affordable housing dilemma

The stewardship activity understaken by fund managers with key stakeholders, state issuers, and companies can help to link client capital with social goals such as affordable housing, according to Janus Henderson.

The manager said that the progress towards alleviating the housing affordability crisis can be achieved by investors willing to allocate capital to this this space through direct ‘use of proceeds’ bonds, with creditworthiness of high quality investment grade institutions, and through accessing competitive financing rates, combined with government funding, provided to community housing providers (CHPs).

Janus Henderson, who stressed that a task to solve the housing affordability crisis would require funding and collaborative efforts from all stakeholders, also highlighted the role of its own team to play through their active engagement.

Janus Henderson’s Australian Fixed Interest team said it was seeking to increase the supply of public debt that had proceeds directly linked to solving the affordable housing issue by  having conversations with
issuers and offering them support to come to market.

Another example included the Housing Australia (formerly known as the National Housing Finance and Investment Corporation), a government owned entity who administer the Home Guarantee schemes and provide lending to registered commercial enterprises at discounted funding rates to deliver community housing projects.

The manager said that Housing Australia issued bonds with the proceeds going directly towards the housing projects that its fund invested in. These were publicly offered bonds and they were AAA rated and government guaranteed.

Additionally, the other parties potentially involved in solving this crisis were state governments who can issue their own sustainability bonds. For example, Treasury Corporation Victoria’s (TCV) and NSW Treasury Corporation (TCorp) have capital directed to affordable housing within their sustainability bond framework (amongst other sustainable investments), Janus Henderson’s team said.

Also, there were examples of commercial banks and mutuals that were dedicating a proportion of their finance and lending activities toward supporting finance for social housing.

“We look for those institutions who have a meaningful footprint in the area and have support of the sector embedded in their corporate targets. One such example is Bank Australia,” the manager said.

“The bank has dedicated assets classified as impact finance assets. The impact portfolio is currently $1.8 billion (as at June 30 2023) – or around 17% of their assets, with plans to grow this to 20%. Bank Australia have been investing in affordable housing for 15 years.

“This includes lending to community housing providers (CHPs) to help them build affordable and social housing. These are secured commercial loans through the CHPs for residential mortgages that originated as part of government sponsored administrated affordable housing programs.”

On top of that, there were supranationals and sovereign agencies advocating for the same themes (i.e., access to shelter), but in developing countries, with one example being the African Development Bank’s (ADB) charter which aimed to alleviate poverty, generate investment/economic growth and improve equality and living conditions within Africa.

To achieve this, they raise capital for a number of projects that seek to achieve positive social outcomes.

Following this, ADB has issued ‘use of proceeds bonds’ into the Australian bond market with capital directed towards ‘affordable housing’ projects in Africa combined with other ‘eligible’ programs linked to their social goals.

The other group were corporates engaged in the build-to-rent sector in Australia, however, Janus Henderson said, it was a sector that was still nascent in Australia.

“Our team conducted a site tour of one of Mirvac’s build-to-rent developments. Whilst we had hoped for more, we would not classify this sector yet as “affordable” shelter and look for more progress to be made here,” the manager said.

The last category regarding their potential to build affordable housing were universities due to their often large land available on campuses and the fact that they were already engaged in providing student accommodation.

“We have been made aware that this is something that has been explored between some state governments and universities.

“The safety and security of their staff and students is paramount, and this may prove to be a sticking point for the universities to proceed with these types of projects. For our part, we will continue to have conversations with corporates on what they can do to alleviate the housing affordability pressures during our engagement meetings,” the manager concluded.