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22 September 2020

Can Affordable Housing Solutions Form Part of the Post-COVID19 Economic Recovery?

As Melbourne has yoyoed in and out of lockdown in 2020, our lives have been turned upside down.  As policymakers plot a pathway out of the associated economic downturn, a pre-Covid challenge may represent an opportunity to create jobs and investment opportunities for our industry partners, while also reducing the vulnerabilities of many Victorians.

There is strong consensus: housing affordability is a significant issue in Melbourne. For people hardest hit by the impacts of the Covid crisis, having an affordable place to live projects to be an even more significant concern. 

Social housing is one form of affordable housing that can provide safety and certainty for vulnerable people. Significantly, Victoria has the lowest level of designated social and affordable housing across all Australian States and Territories. 

As the development industry is vital to Victoria’s economic success, investment in increasing the supply of social housing in the post-Covid economic recovery could provide a multi-pronged benefit to many Melburnians. Building new social housing units would result in a marked increase in construction jobs and economic activity within the development industry and potentially result in financial returns for investors/developers at a time when there are concerns about the demand for new private housing given the drop in migration.

We understand that housing affordability is front of mind for State and Federal Governments. A suite of measures to support the delivery of new social housing stock is likely to be announced in the coming days and weeks.

If innovative partnerships between private developers, community housing providers, and different levels of government are recognised, there could be benefits to a range of stakeholders in the post-Covid era. Conceptually, this could be similar to the provision of social housing as part of the economic stimulus delivered as part of the GFC stimulus packages in 2009.

How is social housing provided currently?

Social housing has two separate components

  • Public housing – delivered, maintained, and administered by the State Government.
  • Community housing – maintained and administered by Community Housing Providers (CHP’s).

Construction of public housing has been limited in recent years with the State Government more focused on large-scale infrastructure projects. Public housing units are considered expensive to deliver and oversee (some estimates putting each unit at over $400k). 

Meanwhile, community housing is different, being provided either by or in partnership with, Community Housing Providers (CHP’s) who are not-for-profit entities that are registered and regulated by the State Government.  The role of CHP’s is primarily to manage rental housing portfolios for other parties, including the Director of Housing. 

While some CHP’s own the properties they manage, often they manage the rental arrangements on behalf of the owners. There are currently 29 registered CHP’s in Victoria, all ranging in size. Some CHP’s specialise in specific client groups which may include disability housing, aged tenants and youth housing.

The Federal Government also plays an important role in providing community housing, with the National Housing Finance and Investment Corporation (NHFIC) providing financing for CHP’s and new housing infrastructure projects. The NHFIC has recently arranged a new agreement with industry partners in NSW to deliver a range of new social and affordable housing projects.

What and where are the opportunities?

It is our understanding that the State government is set to announce increasing supply of social housing as a major priority for the post-Covid recovery. Although at this stage there is limited regulatory support within key State departments, we understand that this is likely to change in the coming months. A major investment in regulatory support for future community housing projects would increase certainty for investment in such projects.

With the Federal Budget around the corner, it is likely that major increases in funding for CHP’s and other investors in community housing will be delivered as a part of recovery measures. While the number of CHP’s is unlikely to increase overnight, their role in the post-Covid delivery of community housing will become more significant.

Ratio sees opportunities for our industry partners in the ‘delivery’ part of this space: specifically, the design, approvals and construction phases. The State and Federal Governments have little expertise (or likely interest) in providing these services. Therefore, it is likely to fall to industry partners with experience in construction projects to assist in the delivery of new community housing units. While Federal Government funding and State Government regulatory support is likely to be available, we believe that a major role will fall on the private sector to assist with the design, approvals, construction of new community housing stock.

Once new stock is delivered, we believe that CHP’s will continue to provide the administration and oversight of new community housing units. The opportunity exists for industry partners to enter symbiotic relationships with CHP’s pre- and post-construction. We understand that a range of models are likely to be made available.

A potential Partnership Model for the post-Covid delivery of community housing is detailed at Figure 1 (right) demonstrating the key opportunity in the delivery of additional community housing units.  As the public sector announcements are made in the coming weeks, we will keep our partners apprised of the opportunities that may arise.

 

Author: Scott Matheson, Senior Planner

 

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20200922 affordable housing
20200922 affordable housing chart