AHURI BRIEF

Understanding counter cyclical investment in social housing

What are the considerations for building social housing in an economic downturn?

Last updated 26 July 2019

For governments, investing in affordable housing means aiming to maximise the quantity and quality of new dwellings achievable for the available government resources. One option that works over the long periods of economic cycles is counter cyclical investing, where governments invest more in affordable housing supply during economic slowdowns.

Reduced building costs

During times of reduced competition, the costs of building affordable housing are cheaper, for both the costs of building industry professionals and for land that might otherwise be bought by private developers.

When the Western Australian government’s Affordable housing strategy was developed and launched in 2009–10, the Housing Authority was able to take advantage of weak housing market conditions, ‘securing good deals with developers and builders which maximised public investment outcomes’.

An added benefit of counter cyclical investment in such economic circumstances is that Governments can help stimulate economic activity in the general community, such as through the purchase of building supplies and maintaining employment of building industry professionals. Indeed, AHURI research suggests that during the global financial crisis the WA Housing Authority was ‘arguably the major player in the Perth residential development industry’.

Counter cyclical investment in affordable housing can also be of benefit to private investors. In a housing or retail market downturn, when other real estate assets become riskier and credit tightens up, having a government partner may become more attractive for corporate investors.

Public and private sector partnerships

Counter cyclical investment in affordable housing can also be of benefit to private investors. In a housing or retail market downturn, when other real estate assets become riskier and credit tightens up, having a government partner may become more attractive for corporate investors than they may have previously been. The National Housing Finance and Investment Corporation (NHFIC), which oversees the selling to institutional investors of government-backed bonds that are then loaned to Community Housing Providers (CHPs) to develop affordable housing developments, presents a low-risk, government guaranteed asset for institutional investors.