By Anna Bowden, Social Outcomes

It seems almost impossible to go a day in Australia without the topic of property coming up, and more specifically, the rapid rate at which housing prices are escalating. For low-income earners in Australia, access to housing is a serious concern. Across the country, the proportion of households spending more than half their incomes on rent rose from 20% in FY2007-08 to 25% in FY2009-10. This combination of a long-standing cultural affinity for property, alongside a growing number of people who struggle to access housing in Australia, is fuelling demand for innovation around the ways in which we provide for, and fund, affordable housing.

For instance, the Australian Senate Economics References Committee Inquiry into Affordable Housing, due to report in April 2015, has been analysing “innovative and responsible funding mechanisms…that provide a stable and cost effective way of funding affordable rental and social housing.” Earlier this month, NSW Premier Mike Baird announced a $1 billion social and affordable housing plan, in partnership with the Council of Social Service, NSW and Infrastructure Partnerships Australia. Speaking on the commitment, NSW Community Services Minister, Gabrielle Upton said new funding models “can be developed to get more bang for your buck and increase the number of social and affordable housing residences”.

In the same vein, a new report from the University of New South Wales City Futures Research Centre, argues that large scale institutional investors, including our significant superannuation funds in Australia, should be investing into rental properties for lower income  households. The report explains that the existing market for rental property investments is overly targeted at higher income renters. However, yields from investments in lower-income housing are generally steadier and more constant over the long-term, making them suitable for institutional investors. As Pauline Vamos, Chief Executive of the Association of Superannuation Funds of Australia (ASFA) stated, “It’s a nice asset class, it’s domestic property, has a social good, which is very important for many funds, and you’ve got that potential for a steady return as well as a capital gain…We buy and hold, we don’t buy and flip”.

The problem is that demand for higher cost rental properties is so high that these sorts of investments for lower income dwellings generally require some kind of ‘nudge’ from the government, such as subsidies, investment guarantees, quota setting, or tax incentives.

Such an incentive scheme has been trialled before in Australia. The National Rental Affordability Scheme (NRAS) was established in 2008 to incentivise private investment via tax credits, into new affordable developments that would be rented at 20% below market rates. The model, valued at around $1 billion, was similar to international incentivisation schemes such as the Low Income Housing Tax Credit in the US, which provides dollar-for-dollar tax credits for investments in affordable housing, and has resulted in funding being provided to develop over 2.4 million rental units for lower income families.

In the UK, debt guarantees have been deployed under the UK Housing Guarantee Schemes, which could provide over £3.5 billion in guarantees to encourage affordable housing developments.

NRAS was disbanded by the Australian Federal Government last year, under the reasoning that the scheme’s target outcomes were not fully achieved. This is not to say that need for, or interest in, affordable housing has weakened. In fact, in October last year, in what is regarded as one of the largest debt funding deals in the sector to date, Westpac Institutional Bank announced a $61 million loan facility to NSW community housing provider, St George Community Housing Ltd, for the development of 275 new dwellings. That investment followed Westpac’s announcement in 2013 it would commit $2 billion in lending to social and affordable housing by 2017.

The development of models for affordable housing that are cost-efficient and generate significant social outcomes,  will benefit enormously from surveying innovations underway across the globe. For instance, in the US, a Social Impact Bond was recently announced in Richmond, California, to fund the rehabilitation of 20 properties per year, over five years. Currently, there are over 800 abandoned homes in Richmond, which results in significant maintenance costs to government each year. The Bond, valued at US$3 million, will be used to purchase homes, and employ local workers to rehabilitate them. The homes will then be sold on to first-home buyers.

The US is also exploring the possibility of Payment by Outcomes contracting to improve the energy-efficiency of 20,000 US Department of Housing and Urban Development (HUD) units receiving rental assistance.  HUD currently spends around US$7 billion per year on energy bills for government-supported properties. By upgrading the energy and water efficiency of these buildings, HUD stands to gain from cost reductions of up to 20%.

A number of providers are also looking to innovative ways in which multiple social concerns could be addressed within one initiative, while creating significant cost savings for government. For example, in Cairns, social enterprise Three Sista’s provides transitional and crisis accommodation, alongside wrap-around social services, including on-site training and employment programs in unit refurbishment, grounds management, and hospitality.

In Victoria, the Ashwood Chadstone Gateway Project is the largest non-profit housing development in the State, valued at around $140 million. The project is a mix of 210 social housing units, 72 private dwellings, and a multi-function space which is now used for a social enterprise to provide employment training to local youth.  The buildings additionally seek a positive environmental impact, with solar hot water units, and rainwater collection and storage.

Also in Victoria, 20-unit building, ‘Nightingale,’ in Brunswick is Breathe Architects latest project. Breathe also led design at The Commons apartments in Brunswick, which boasts rooftop gardens and bees, but, for environmental reasons, won’t provide any air conditioning or parking. The Nightingale is deliberately keeping profits modest, and instead focusing on affordable housing provision. To reduce costs on the development, Breathe are cutting out any marketing, sales, and real estate agent costs. The units will also not have individual laundries, or any basement car parking. Design decisions like these are made collaboratively with potential buyers, who are asked a set of “would you rather” questions, for instance, choosing between internal laundries, or extra apartment space.

In the Netherlands, the largest container city in the world is providing one thousand housing units for students. While not specifically affordable housing, it does demonstrate an innovative approach to reusing the approximately 20 million containers that transit the world’s oceans each year, and create waste disposal issues at the end of their lifecycle.

If Australia is to meet our growing need for affordable housing, we’ll need to think innovatively about how it can be modelled, and funded. In particular, we should be looking at programs that hit multiple impact points. As the cases above highlight, there’s no reason why several positive social and environmental impacts couldn’t be achieved for each program, thereby improving the livelihoods of hundreds, if not thousands, of Australians.