Right model needed for super to address affordable housing

Oksana Patron

23 November 2022

Industry funds are poised to invest up to $35 billion in unlisted property over the next decade provided that there is the right model in place with impetus from the federal government to partner with institutional investors and government guarantee, according to Industry Super Australia (ISA).

However, without meaningful and consistent government concession schemes that could boost returns from investments for private investors most affordable housing projects could be at risk to become unviable.

ISA’s commissioned report “The Super in the Economy” by Frontier Advisors found that there would be 671,000 affordable housing dwelling shortfall in the next decade which could become a new asset class, with returns not influenced by market peaks and throughs.

Additionally, if affordable housing longer-term leases could be backed by government guarantee, and given their typically low vacancy rates, they could deliver long-term returns largely immune to economic conditions.

However, in order to create the necessary pipeline of projects, Frontier recommended that the government should:

• Create clear planning requirements with a strong focus on incentivising greater density near public infrastructure and set affordable housing targets for local governments to meet
• stimulate the build-to-rent (BTR) market through incentives, streamlines planning, guarantees and reducing funding red tape
• encourage mixed tenure developments and build-to-rent-to-sell developments where investors can subsidise reduced rents through increases in capital values of the holdings
• audit publicly owned land for underutilised properties
• and encourage more public private partnerships with state governments

The report additionally highlighted that overseas institutional investors had found viable affordable housing projects to invest at scale, given that build-to-rent was practically non-existent in Australia but was 28% of the property sector in the US and 11% in Europe, and that their investments in Australia had been smaller and more fragmented.

Also, given the Federal Government’s recent announcement of a $15 billion National Reconstruction Fund, seeking co-investment with institutional investors, the report found that were three other areas where governments could further stimulate investments, including:

• Agriculture: Support improved data collection on farms, the supply chain and investor experience
• Technology: Support pre-seed and seed funding for hard technology companies and to help commercialise innovations that arise from universities and research institutes, potentially utilising a structure whereby private capital receives an initial preferred return
• Private markets: Review Your Future, Your Super benchmarks so it better measures member returns, the test focus on illiquid asset fees rather than returns makes projects less attractive.