What is needed to kickstart social impact investment for housing and homelessness?

A viable social impact investment (SII) market could provide desperately needed housing and support to Australia’s most vulnerable, a report from AHURI has found. For the SII market to prosper, it requires government assistance, such as capital gain discounts or tax concessions, to attract investors to affordable housing initiatives, particularly for projects supporting the tenancies of vulnerable people on very low incomes.

Social impact investment presents an important opportunity in Australia, but we need to better understand the finance instruments and models that might be feasible and which vulnerable housing groups can most benefit from social impact investment

The research, Supporting vulnerable households to achieve their housing goals: the role of impact investment, was undertaken by researchers from the University of Western Australia, the University of New South Wales, Deakin University and Curtin University, and looked at how SII has been used internationally; examined three Australian SII case studies; and considered finance structures that would enable social impact investors to create a portfolio of affordable housing securities that can balance financial and social return.

‘SII presents an important opportunity in Australia, but we need to better understand the finance instruments and models that might be feasible and which vulnerable housing groups can most benefit from social impact investment’, said Professor Paul Flatau, study author and Director of the Centre for Social Impact at UWA (CSI UWA). ‘The finance vehicles are only useful if they can be matched to community housing and social support providers’ capabilities and people in need of housing support including those seeking to exit homelessness and low-income older people in housing stress.’

To close the return gap and attract investment in social impact projects, governments could assist by providing capital gain discounts or tax concessions.

The report recommends the use of a suite of investment options such as impact investment mutual funds, working alongside the Commonwealth’s bond aggregator model and social impact bonds (SIB).

Another important consideration of SII markets is that social needs and investment market expectations do not always align, with the research identifying surveys revealing the majority of impact investors expect a market return, rather than a lower than market return.

To close the return gap and attract investment in social impact projects, governments could assist by providing capital gain discounts or tax concessions. Financial modelling of risk and returns in the low-cost end of the housing market suggest that impact investment models work best when investors are aligned with the social impact of the investment.

‘Investors will accept a lower than market financial return, higher risk, low liquidity, and limited ability to exit the market in return for the understanding that their investment is doing social good’, said Professor Flatau. ‘However, we do see a need to mitigate this risk, and this can be done in part by taxation benefits or other direct government subsidies to assist the financial viability of the proposed impact investment.’