Viewpoint: Super Housing Partnerships CEO Carolyn Viney talks institutional investment in affordable and social housing
In this AHURI Viewpoint we talk with Carolyn Viney, CEO of Super Housing Partnerships (SHP)*, to hear an institutional investor’s view of how Australia can encourage private investment in affordable and social housing.
15 Nov 2023
How do you see the current situation in Australia with affordable housing?
‘I would say the situation that Australia has got itself in is really quite sad, because housing affordability has been an issue, a global issue, that's been manifesting itself in lots of different ways over a long period of time now.’
‘I’m optimistic that in 2023 we now have so much focus by so many people on housing as a mainstream issue, and that will start to shift the dialogue away from, “oh that's a group of people who are not like us”. I think we now accept that there's a whole range of circumstances, mostly macroeconomic, that are forcing people into situations where housing affordability has a much wider impact than was felt before.’
How are you working with institutional investors to increase affordable housing supply?
Super Housing Partnerships has been created as an investment platform focused on enabling institutional capital providers like superannunation funds to invest in housing in Australia.
‘In theory the management platform enables us to manage investment into any kind of housing but we’ve quite intentionally focused on affordable housing: from social through to affordable build-to-rent and affordable key worker/essential worker housing as well as Build-to-Rent-to-Own housing for these resident cohorts. This reflects the fact that I think a number of the superannuation funds have been trying to find a way to participate in housing, and we provide a vehicle which seeks to overcome the barriers they have faced in investing in housing in Australia and deals with the fairly unique characteristics of institutional capital providers.’
‘Australia is still emerging as a market for the build-to-rent asset class. Historically the superannuation funds have not really had something that they can invest in here because the nature of the product being offered wasn’t consistent with large-scale programmatic deployment of capital. They invest in these kinds of platforms overseas, acknowledging that the overseas markets are mature markets. However, now we are seeing the Australian market delivering build-to-rent in single-line large buildings that better matches what institutional capital providers are after as an investment. That's a new opportunity in housing investment for Australia.’
‘We try and provide flexibility in how we approach different investment types to suit a range of different investor appetites. For example, one investment opportunity might include 20 per cent social housing; the next one might not include any social housing but a very large proportion of affordable housing as defined under the relevant legislation in each jurisdiction; the next type of opportunity might take the form of an affordable build-to-rent-to-own product. Whilst they're all a form of affordable housing, the actual nature of the risk and return profile associated with each of those investment opportunities is slightly different. The investor looking at all of those at a particular point in time might say “well I really want that one but not that one” or they might say “actually I want a bit of all of those but I want a lot of this and a little bit of that”.’
Why would superannuation funds invest in affordable build-to-rent housing?
‘I can’t see it being other than that the superannuation funds are making a commercial investment decision in investing in housing in Australia. It's a risk-adjusted investment decision which has regard to their other portfolio exposures. For the clients who we work with I think they see affordable housing as a much better risk-profile than say the premium end of the build-to-rent spectrum, where it’s ultimately a smaller number of residents who can afford the product and likely more discretionary in terms of the other housing choices those residents have available to them. There the size of the rental pool is obviously much narrower; the predictability of that rental line is more unknown. We think about normal market rental rates being highly correlated to wage price growth. There is clearly a market for premium build-to-rent but I think generally we would say we know much less about how rents play out over the longer term at the premium end of the spectrum. That’s another reason why we're very focused on the affordable housing market – our ability to look to the long term evidence of rental market movements.’
How does investing in affordable housing benefit large infrastructure investments?
‘One of the trends we are hearing about in the media, and otherwise observing, is that a lot of working Australians who are in essential worker roles on lower incomes have been priced out of the locations in which they work, facing unsustainably large commute times or relocating elsewhere altogether.’
‘So, for owners of very large assets that employ large numbers of workers, in order to operate those assets, we’re now starting to see a genuine interest from those owners in the viability of those workers renting in or near those locations.
I think there are genuinely cases where those owners are starting to think about what it means for their asset and its value if it cannot attract staff. We have already seen examples of employers in some seasonal locations build or buy ‘worker accommodation’ in order to secure staff, which makes sense given the size of the investment already made in the main investment asset’.’
How can Australia incentivise building more affordable housing?
‘In sophisticated markets, including the US and the UK, there are elements of inclusionary zoning; we need to look at how we introduce that here over time without shocking the market. Right now we're in a “more is more” situation; we need to make sure that all the things that we have done historically—privately funded build to sell, government funding of social housing—keeps going and is optimised.
‘Then, on top of that, we need all this new stuff. We need institutional investment in build-to-rent.
If we can add affordable build-to-rent to that equation we start to get accretive housing supply volumes which is a key to everything, and by extension increased affordability.
It's an ‘and’ not an ‘or’ - getting the policy and investment settings right for all these housing investment options is something we are supportive of’.
‘We need developers embracing affordable and social housing as part of what they do. We need people to want to do it voluntarily because they've got particular levers, whether they're town planning levers, tax levers or concessional financing or whatever, that they can take advantage of, that makes it more attractive for them to do those things as opposed to just what they've always done – i.e. supplying increasingly unaffordable housing. And then, we need over time those mandatory things, like inclusionary zoning, that hardwire delivery of social and affordable housing into what we do.’
‘My simple mental map is, it's a little bit like the GST; we talked about it for a long time, we knew that it was coming, people could get ready for it.. It needs to come, but steady as she goes in terms of people who are already invested in the market.’
‘However, more generally we just have to get on with it. We need to find a way for people who have land in the right locations to feel incentivized to get on with it. And for that purpose, what you might do over the next two or three or five years might be different than what you do for the period after that. Because we've got to get the machine rolling at this stage. We're at very, very low levels of supply—abnormally low levels of supply. Getting that up to normal is the first thing. And then building that up to the permanent sustainable increase that we want to see, which includes that much bigger wedge of affordable housing.’
Can streamlining town planning benefit affordable housing?
‘Generally, there hasn't been an appreciation of the time value of money and outright commercial risk associated with people obtaining an approval. If it takes three years to get a planning permit, every week that you're sitting there not achieving anything is actually costing the project money. So, when we talk about affordability, all that cost has been capitalised into the project and then we're passing that cost onto the person who's either renting or owning the home.’
‘If government can say to a developer, “if you're going to deliver a project with 20 per cent of affordable housing or whatever the threshold is, we'll give you a guaranteed decision in x number of months—it might not be a guaranteed 'yes’ you’ll get your permit , but we're going to give you a guaranteed decision either way”. That is a huge incentive for a developer to be able to get into that pathway for approval rather than being in this amorphous ‘you don't know what you're going to get or when you're going to get it’ space that we seem to have over time increasingly found ourselves in.’
‘In New South Wales, we've seen the government offer density bonuses for the delivery of meaningful proportions of affordable housing. If the cost of building the box is the same— whether it's being sold or leased at market or sold or leased at a discount—they're using that density uplift as a means of offsetting the cost that you're incurring and the income that you're losing as a result of offering that discount. I think those kind of supply-focused incentives will be very effective.’
* Super Housing Partnerships is a specialist housing investment manager that partners with large institutional investors, such as superannuation funds, to invest in new Australian residential housing, particularly affordable housing. Carolyn has previously held leadership roles across a number of large property organisations including Head of Development at Vicinity Centres and Head of Development, Deputy CEO and CEO at Grocon.