Sensible reform to finance affordable housing deserves cross-party support – The Conversation

Extract from an article by Julie Lawson, Honorary Associate Professor, RMIT University

Treasurer Scott Morrison’s visit to … London last week [included] a lengthy meeting with the UK’s Housing Finance Corporation (THFC) to discuss an affordable housing financial intermediary with its chief executive, Piers Williamson.

Founded in 1987 to make up for the shortfall in public funding, THFC is a finance aggregator and intermediary that co-funds affordable housing for rent and ownership. And Williamson is no stranger to Australia’s housing problems. He has been a source of advice and advocate for policy reform in various Australian industry and government forums. He also has the ear of our largest superannuation funds.

And, much like Australia, the UK has a serious problem with housing affordability and supply, made worse by policy and market settings that fuel instability rental housing. In this context, channelling investment via a specialist financial intermediary towards new affordablehousing provided by landlords with a social purpose makes good sense.

The idea just needs an effective champion in Australia. In fact, it needs a bipartisan team of champions.

How does this financing model work?

Long identified as a glaring gap in Australia’s affordable housing system, bonds issued via a specialist intermediary would steer investment to where it is sorely needed. If combined with appropriate incentives and public programs, it would go a very long way towards producing more affordable housing choices, as in the UK.

International research found the UK’s Housing Finance Corporation to be one of the world’s leading examples of good practice. It funds not only affordable housing but also ensures that investment flows towards registered landlords meeting real accommodation needs.

Researchers have adapted this model in proposals for an Australian Affordable Housing Finance Corporation. Combined with a well-designed guarantee and revolving capital loans program, it’s a feasible approach, as a New South Wales government-funded study found in 2016.

In the UK, THFC combines the borrowing demands from small social landlords with committed public assistance to source the most favourable financing terms available from capital markets. With a guarantee, these enabled housing associations to borrow at a cheaper rate than the UK government.

THFC acts as the landlords’ principal. It issues mortgage bonds on their behalf, raising and passing on funds at a lower cost than would be individually possible.

Public funds on both the supply and demand side are also an important part of the equation. The NSW feasibility study makes it clear that a stable government co-investment strategy is required to ensure affordable supply.

Such a strategy was well established in the UK. But in recent years it has become less generous and stable, which has affected both supply and affordability. The UK experience demonstrates that the greater the share of public investment and stability of revenue settings, the lower the cost of private finance and the more affordable dwellings can be.

SOURCE: Lawson, Julie. “Sensible reform to finance affordable housing deserves cross-party support.” The Conversation, 2 February 2017

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