What’s needed to make social impact investing work for affordable housing

Australia’s banks have invested around $1.5 billion dollars in social impact investment projects for community housing providers, however there are significant barriers to expanding social impact investments, AHURI research has found.

Social impact investments, which aim to achieve both a financial return and a specific, measurable social benefit, are a collaboration between social service providers, investors and governments. Their intention is to find new sources of capital from different types of investors and enhance the return on government investment.

...having banks involved in social impact investment adds competition to the market, ensuring all community housing providers gain more competitively priced capital and more suitable conditions on finance.

‘We found that social impact investors have a range of investment expectations, from ‘impact-first’ investors who are willing to accept below market-rate returns to ‘finance-first’ investors who want returns equal or near equal to market-rates,’ says research leader, Dr Andrea Sharam from RMIT University.

‘The largest investors in community housing providers’ social and affordable housing in Australia are Westpac Banking Corporation, Community Sector Banking and Bank Australia. Although their investment is all debt investment, and returns are expected to be at market-rates, having banks involved in social impact investment adds competition to the market, ensuring all community housing providers gain more competitively priced capital and more suitable conditions on finance,’ Dr Sharam said.

The research, ‘Understanding opportunities for social impact investment in the development of affordable housing’, found that, while social impact investors expect returns on their investment, this can only occur when community housing providers are able to generate a positive cash flow to repay their debts.

However, government policy change is a key source of risk affecting investments as changes to welfare and housing assistance, and government policy restricting social housing to the highest priority applicants on public housing waiting lists can reduce community housing providers’ cash flow. To reduce risk, governments would need to fund the gap between a tenant’s capacity to pay and the cost of providing social housing.

The research also outlines a range of options to help governments support, encourage and expand social impact investment for social and affordable housing across Australia.