The government will establish the National Housing Finance and Investment Corporation (NHFIC), an affordable housing bond aggregator designed to attract private and institutional investment and provide cheaper, longer-term finance to the development of affordable housing.
In the 2017 Budget, the government said that it would allocate $9.6 million for 2017-2018 to establish the NHFIC, which will begin operations from 1 July 2018. NHFIC will operate an affordable housing bond aggregator, and will administer a $1 billion National Housing Infrastructure Facility.
Final details on the structure and operations of the NHFIC were not outlined in the budget package, but the government said it “will settle the final details of the NHFIC following advice from the Affordable Housing Implementation Taskforce, due by mid-2017.”
The announcement was welcomed by the investment industry.
“The intent of this national housing investment corporation is really around being a vehicle that is able to issue bonds to investors, with the intent of seeing those bonds taken up by institutional capital, superannuation, and the like,” said Mark Peacock, acting executive director, Impact Investing, Social Ventures Australia (SVA). “Because they’re going to be funded with government-backed bonds, there will be an implicit AAA credit rating behind these bonds. If there is any issue with the repayment, the federal government will stand behind them and investors will get their money back plus the coupon.”
The implicit AAA credit rating makes the bonds a strong potential investment for institutional investors such as superannuation funds, and the NHFIC will then have “significant capital” to lend to registered community housing providers and not-for-profit housing providers, Peacock added.
“Most likely, because these bonds will be issued on a 15, 20 or 25-year term, the corporation can then on-lend on similar sorts of terms, giving long–dated certainty of funding on cheaper terms which, in theory, should enable providers to have the capital to deliver social and affordable housing,” Peacock said.
SVA has established experience in allocating institutional investment in affordable housing. SVA manages the $30 million Social Impact Investment Trust on behalf of superannuation fund HESTA. Last year, the trust made a AU$6.7 million allocation to Horizon Housing, a community housing provider in Queensland. This investment will see the Trust partner with Horizon Housing to “finance the purchase of management rights for 995 existing affordable housing properties and the future development of up to 60 new social and affordable homes,” according to HESTA. Horizon Housing has properties and projects across 15 local government areas in Queensland and northern New South Wales.
The NHFIC has the potential to play a complementary role to other buckets of capital, Peacock also noted. The NHFIC, in establishing a list of registered community housing providers, will also be gathering information of a due diligence nature, which will also attract greater confidence to the sector by institutional investors. Thirdly, Peacock said, NHFIC has a strong role to play in establishing metrics to measure the social and economic impact of affordable housing, as well as report on the data collected to those metrics.
“The other thing that excites SVA is around how we’re focusing on tracking and measuring the social impact,” Peacock said. “At the moment, that’s done in a scattergun approach, if at all. I think the corporation has a great opportunity to standardise the metrics and start to look at investment opportunities at that level. Yes, there should be metrics on the risk/return profile, but also the underlying social impact that can be achieved.
“Then you also get a consistent set of metrics that hopefully the tier 1 community housing providers adhere to, which provides impetus for the sector to coalesce around what’s agreed collectively.”
The bond aggregator model has been successfully implemented in the United Kingdom through The Housing Finance Corporation (THFC) which administers £5 billion in loans to housing associations.
The announcement was welcomed by superannuation funds. David Atkin, Chief Executive Officer of Cbus, said the new financing structure “should go a long way” to attract new flows of private investment in affordable housing.
“Cbus has been calling on the Government to set up a UK style financing model and we’re pleased to see it included in the Budget,” Atkin said. “If there’s an appropriate risk and return profile, Cbus stands ready to invest in affordable housing and we have the capacity to make meaningful investments in this space.”
The announcement in this week’s budget is a further step in a process that has been unfolding for a few years. Earlier this year, the federal government has issued a discussion paper on their role in developing the social impact investing market. The paper solicited public consultation on three main points – the role of the Australian government, which the government has proposed as “creating an enabling environment” and “funding (or co-funding with state and territory governments) investments which would likely achieve savings to fund the intervention and deliver better outcomes for Australians; the principles for social impact investing; and outlining the potential regulatory barriers to growth and ways in which the government can act to address the barriers.”
The paper itself was a follow-on from the Financial System Inquiry (FSI), which addressed a broad mission statement of laying out a blueprint for financial system for the next decade, and included specific references to impact investing.