AHURI BRIEF

Why building housing infrastructure after the pandemic can benefit Australia

The evidence for government investment in social housing  

Last updated 6 May 2020

With Australian Government Treasury analysis predicting that Australia will record an unemployment rate of 10 per cent by June 2020 due to the Covid-19 pandemic, the Commonwealth Government will be exploring ways of stimulating the economy in the near future to increase jobs and spending.

Investing in housing construction is a key post-pandemic economic strategy to both boost jobs and to provide infrastructure that benefits a great number of Australians. This can include both increasing funding for supply of public and social housing dwellings, and providing shared equity finance for lower to mid income households to buy and build new homes.

The case for social housing

Well before the impacts of the 2020 pandemic, large numbers of lower income Australian households were struggling to find affordable housing and there were long wait lists for social housing. AHURI research estimated that in 2016, there was a shortfall of around 431,000 social housing dwellings, and that this deficit would grow to 727,300 dwellings by 2036. The research concluded that 36,000 new social housing dwellings per year were required to meet this need.

With high unemployment and increased incidence of homelessness a likely outcome of the economic downturn, new social housing will be essential to ensure housing outcomes do not worsen. Industry and community organisations and peak bodies are calling for a social housing building program as part of the economic stimulus response. For example, the Australian Council of Social Service (ACOSS), in a recent report, proposes building 30,000 social housing dwellings as a way to reduce homelessness and to boost employment.

A proposed funding model

AHURI research modelling identifies a ‘capital grant model’, FR306p89 as the most effective long-term funding mechanism for affordable rental housing for low and very low-income households. This approach combines a larger upfront government grant with some borrowings from the bond market obtained through the National Housing Finance Investment Corporation (NHFIC), and savings to government through not using any Commonwealth Rent Assistance payments.

Of the five scenarios modelled for the costs of developing and operating required social housing dwellings across a 20-year timeframe, this was the most cost effective in the long-term (see table 1). An up-front investment provided by the Australian Government provides immediate economic stimulus to get the construction industry operating at full capacity as quickly as possible.

Five Invetsment Pathways Comparison

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The benefits of counter cyclical investment

Lack of available capital during economic downturns may leave private development projects to languish. Indeed, the construction industry associations, the union (the CFMEU) and the Master Builders Australia are predicting that investment in residential and business construction will fall by 40 to 50 per cent due to the pandemic.

As a consequence, the construction workforce, who are usually in high demand for private construction projects, now become available at reduced cost to government backed construction projects. This counter cyclical investment has proven to be an effective way to increase housing supply and to maintain workforce incomes and skills.

A successful government case study

The Western Australia Government’s Affordable Housing Strategy benefited from both the reduced private investment availability and the economic stimuli offered as a response to the 2008–09 Global Financial Crisis. AHURI research identified that ‘at the time of strategy development and launch' (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.’ The strategy provided a range of affordable housing options including social rental, to discounted private rental and a shared equity scheme for low income home owners.

Of the new affordable homes, around two thirds (66.4%) were shared equity and low deposit home loans made available to lower to mid income households. Shared equity schemes, whereby the home buyer shares the capital cost of purchasing a home with an equity partner, allow lower income homebuyers to buy sooner as they need a lower initial deposit and have lower ongoing housing costs.  It may be that once these homeowners have rebuilt levels of capital through their employment in the future, they can be encouraged to buy out government shared-equity investment, thereby reducing government debt at some point.

Such loans (such as Keystart loans) require householders to be in paid employment for at least six months—a timeframe that may need to be reconsidered if governments were to implement such a strategy as part of a post COVID -19 stimulus.

The WA Affordable Housing Strategy exceeded its initial target of 20,000 new homes by 2020. By 2015 it had delivered 5,400 social housing rentals, 2,700 discounted private rental homes for people on low incomes and 11,900 home loans and shared equity loans for homebuyers on modest incomes. The Strategy was expanded to achieve 30,000 affordable homes, and then 35,000 homes by 2020. The WA example shows that by working across the continuum of housing need, a large volume of new supply can be delivered quickly, and draw on a range of finance sources.

The long-term benefits

AHURI research analysis ‘supports the case for targeting public subsidy to not-for-profit developers (government or non-government) to ensure that a long-term social benefit is retained. Investing in affordable housing held over the longer term provides a continuing basis for the retention of the social dividend of affordable housing into the future. Comparable subsidies are not preserved when allocated to private owners who will seek to trade out at some stage, capitalising the subsidy into privatised capital gain.’

The long-term benefit of supporting public and social housing construction is that the housing remains accessible to very low income householders well into the future. This aligns an ‘infrastructure investment pathway’ to construct and operate assets and services to deliver ongoing social and economic benefits to broader society.