What are social impact bonds and how do they work?

AHURI research informs Budget 2017 policy development

Last updated 15 May 2017

In the 2017–18 Federal Budget, the Government announced it will provide $10.2 million over 10 years from 2017–18 to partner with state and territory governments to trial the use of Social Impact Investments. These will fund a small number of innovative programs aimed at improving housing and welfare outcomes for young people at risk of homelessness, including those supported by specialist homelessness services, exiting the out-of-home care system or exiting institutions such as juvenile detention.

What are social impact bonds?

Social impact bonds (SIBs)—also known as social benefit bonds—pay a return to an investor when an agreed social benefit outcome has been achieved by a service provider. These social benefits might be anything from improving conditions for people experiencing chronic homelessness to improving employment outcomes for long-term unemployed young adults.

The return to investors is partly generated by the cost savings to government in dealing with a social issue due through a SIB-funded program compared to the costs that would otherwise have been required. Payments to investors are conditional on the service provider achieving good results.

For a social impact bond to be feasible, the planned activity must have meaningful and measurable outcomes that the service provider, private investor, and government stakeholders can agree upon as measures of success. These outcomes need to be demonstrable within a timeframe that the above stakeholders agree upon as reasonable.

Where did they start?

Social impact bonds were developed by Social Finance Ltd in the UK, and between 2007 and 2016 that organisation has raised over £100 million investment for social benefit projects. By early 2015, 44 bonds had been issued by various governments and organisations across Europe, North America and Australia.

Australia’s first social impact bond

The NSW Government created Australia's first SIB, the Newpin bond in March 2013 to fund UnitingCare Burnside's New Parent and Infant Network (Newpin) program. The bond is expected to last 7¼ years.

In June 2013, $7 million had been raised to finance the bond, allowing UnitingCare Burnside to run intensive courses for parents and to restore children to their families from out-of-home care. By 30 June 2014, the Newpin program had supported 55 families with 82 children across three facilities, including opening a new facility. Further, in 2014–15, 113 families were referred to Newpin, 42 children were restored to their families, and children in 35 families were prevented from entering out-of-home care.

In its first year (2014), the Newpin bond delivered a 7.5 per cent return to investors, while improving supports for parents of children in, or at risk of entering, out-of-home care. By August 2015 the bond generated an 8.9 per cent return to investors.

How have social impact bonds progressed in Australia?

The Federal Government 2017–18 Budget investment comes on top of other social impact investment developing with the support of government and non-government organisations such as Social Ventures Australia (SVA) and Impact Investing Australia. The NSW Government has established an Office of Social Impact Investment and aims to build capacity in the sector. Victoria announced an investment of $700,000 in the 2016–17 budget to explore options for social impact bonds in the state.

In late 2015 the South Australian Government made a $9 million commitment to Common Ground Adelaide and Hutt Street Centre to launch a specialised homelessness service using a social impact bond. This service will support 400 homeless individuals.

Queensland is currently piloting an SIB program with focus areas in homelessness, Indigenous disadvantage (specifically children in care and chronic health issues) and recidivism.

AHURI Inquiry

An AHURI Inquiry, ‘Social impact investment for housing and homelessness outcomes’, is currently underway, exploring the opportunities, capacity and ability of social impact investments to create social change in housing and homelessness in Australia. Drawing on national and international evidence and new empirical data, findings will inform Australian housing affordability and homelessness policy.