The 2018 US meetings focused around engaging with the peak bodies for housing delivery, government agency, investment facilitators and our own Australian Embassy. Housing delivery mechanisms and incentives were considered in terms of multifamily/build to rent and single family/single dwelling. The meetings have created a channel of feedback on thinking around affordable housing mechanisms and will feed into future policy/advocacy and our Canberra Member Exchange Conference in August.
Each of the 22 meetings held over 5 days considered the current US affordable housing policies and their influence on delivery of low cost social and affordable housing. Key Meetings were held with the US Dept of Housing and Urban Development, Morgan Stanley, Pension Real Estate Association, National Association of Real Estate Investment Trusts, National Multifamily Housing Council, NAHB, ULI, JLL, UN Habitat, Federal Reserve Bank of New York, CDFIs, Bridge/Eden Housing, Furman Institute of NYU and others.
Some of the findings:
· For 30 years Low Income Housing Tax Credit (LIHTC), Community Reinvestment Act (CRA) and Community Development Finance Intermediary (CDFI) models have seen affordable housing make up to 10 per cent of annual US dwelling delivery. In Australian terms this would equate to around 15-20,000 affordable homes built per year if supported by similar measures;
· The LIHTC of 4% and 9% annual credits paid over up to 30 year removes rental income variability to the construction project. Australia does not have any such tax credit product;
· The CRA is intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low and moderate income neighbourhoods, consistent with safe and sound operations;
· The CRA requires that each depository institution’s record in helping meet the credit needs of its entire community be evaluated by the appropriate Federal financial supervisory agency periodically;
· The key role of the CDFI market is to assist as an originator in the aggregation of private, institutional, government, philanthropic and their own debt and equity to fund public and private CHP developments for social and affordable housing. Acting as a market finance ‘shock absorber’, CDFI’s are non-regulated entities capable of flexibility in lending covenants and defaults. They can act as an originator in a subordinated debt arrangement to balance financial and societal outcomes;
· US has now changed the Federal Housing Act to allow private debt and private liens on public property;
· US social and affordable housing markets are nearly all serviced by build to rent/multi-family dwellings;
· Build to Rent (BTR) describes multi-unit residential dwellings built and designed specifically to be rented out by a longer-term single owner (institutional or private). There is strong investment from investors into the Multifamily/build to rent market with potential for this market to be opened up in Australia;
· US BTR multifamily sector represents about 15 per cent of properties with five or more units in the US, a position obtained after 25 years of growth with the sector accounting for over 25 per cent of the $US2 trillion institutional property investment market in the US, ranking it as the second largest investor allocation after office property. Recent indications indicate that residential is overtaking office investment;
· The US BTR multifamily sector generates $US163 billion in revenue a year and has more than 500,000 multi family related companies in the sector and is estimated to own around $US600 billion in assets;
· Given its market size, the US is the largest BTR market in the world and it accounts for around a quarter of all institutional investment in US real estate;
· Lower yields for investors in affordable housing are accepted by a mature investment market that includes pension funds;
· There is a lower volatility for the US affordable housing asset class. Data from the National Multifamily Housing Council showed that there was full occupancy during the downturn with low vacancy rates. This shows a solid return on investment and a good return in times of economic uncertainty;
· The potential market opportunity in Australia exists for affordable multi-family development asset class.
· While it is near impossible to predict the growth profile of the BTR sector in Australia, there is the potential for this market to be very large and to grow relatively fast (as has been the case in many other markets globally);
· It is estimated by JLL that, assuming that Australia were to reach a relatively moderate level where BTR represented 10% of all institutional investment in real estate, this would translate to around $40 billion and this is still less than 1% of all Australia’s residential housing stock institutionalised;
· Consider a new step in the financing evolution of the CHP sector by attracting more equity capital from Australia’s $2.2 trillion superannuation (pension) sector. The diversification of investment return requirements of the funds needs some attention and requires the mature consideration of investment interest from the Australian superannuation funds into Australian affordable housing investment.
· All levels of Government in Australia need to provide long term incentives to create a market oriented solution. Need to reduce housing costs through legislative and regulatory reform. Changes to planning regulations are needed to fast track affordable housing stock development;
· Government effectively needs to act as the CDFI market ‘shock absorber’ until market maturity is achieved;
· With Government, CHPs and the institutional community working collectively in the financing of affordable housing, move forward to ensure all Australians have access to secure, stable and affordable housing through the Build to Rent market including:
o Developing a credit instrument for Build to Rent which will require the industry to partner with Australian financial institutions such as Community Sector Banking that considers other Government incentives which reduce the Yield Gap.
o Federal deployment of a range of financial, land, taxation and planning mechanisms to attract development and investment into affordable housing.
o State based planning instruments can have hurdles removed that otherwise deter investment into affordable housing BTR. Reducing approval times for complying development for medium and high density residential development with affordable BTR.
o Land use incentives to permit multi residential development provided they include a proportion of affordable rental dwellings to be encouraged through National Housing and Homelessness Agreement negotiations.
o CHPS could acquire a share of the dwellings in a Build to Rent development, with those units being offered at 75 per cent of the market rent which will take up some of the demand for the dwelling particularly where affordable housing targets are set.
o Securing the additional CGT discount for affordable housing as is being legislated for affordable housing.
PowerHousing is providing its report to Treasury and to the Federal Government/Opposition. We will also be announcing key note speakers for our Member Exchange Conference in August to progress these initiatives.