Industry super funds have pledged to invest billions of dollars in social and affordable housing in a proposal that could rejuvenate federal government plans to address a critical shortage exacerbated by cost-of-living pressures.
Critically, the plan prepared by IFM Investors, a major institutional investor owned by a collective of industry super funds, relies on various reforms from state and federal authorities and calls for a doubling of Labor’s $10bn housing investment vehicle.
IFM has flagged an “indicative” investment representing 0.5% of its trillion dollar-plus assets that could result in $15bn invested by 2030 to help deliver about 100,000 social and affordable homes.
The IFM’s head of global external relations, David Whiteley, said super funds had been looking to invest in residential housing for decades but, until now, the economics did not stack up.
“We’re just at the precipice now of being able to establish a new asset class for super funds and for super fund members,” Whiteley said.
He said the right policy settings could deliver returns to members and address the housing shortage.
Plans to use retirement savings pools to deliver social objectives tends to trigger heated debate, which was evident earlier this year when the government announced it would direct the Future Fund to invest in areas of national priority, including housing and infrastructure.
Institutional investors have traditionally shied away from social housing because the returns are usually too low to meet their financial obligations to members.
But Whiteley describes Labor’s Housing Australia Future Fund (HAFF), which pays out at least $500m a year to support community housing providers with concessional loans and other sorts of payments, as a “gamechanger”.
Under the IFM plan, industry super funds would help bankroll social and affordable housing via long-term debt provided to not-for-profit housing providers, backed by HAFF subsidies.
As financiers, super funds would generate returns through regular repayments from the housing providers, which would retain ownership and landlord responsibilities.
The plan is designed to bring more supply on to the market, which differs from policies that allow first home buyers early access to super, inflating demand.
“The challenge is that we need more houses; the solution isn’t to create demand side pressure,” Whiteley said.
IFM is a signatory to the government-led national accord to build 1.2m new homes over five years, with payments directed to state, territory and local authorities to support the delivery of new homes, including a combination of at-market and community housing stock.
However, Australia is already falling behind those targets amid subdued new housing starts, caused in part by high financing and construction costs.
The delays have significant social and political ramifications with a looming federal election that will be fought on cost-of-living issues.
There is a projected shortfall in social and affordable houses of almost 1m homes over the next 20 years, according to the Community Housing Industry Association.
Social housing refers to government-subsidised housing while affordable homes are typically rented out at below-market rates.
The association’s chief executive, Wendy Hayhurst, said “there’s a range of capital sources and all of them need to be mobilised” in order to address the shortfall.
“Superannuation can play a role in that and, if we don’t have that, then the government, on its own, is going to have to come up with that capital,” Hayhurst said.
“We just don’t think that’s realistic at the moment.”
The amount of social housing as a proportion of Australian households has been steadily declining for years, according to official data, and the shortfall is getting worse.
The private rental market has been getting tighter as people get priced out of home ownership, Hayhurst said.
The IFM has made several recommendations designed to entice institutional investors into housing, including doubling the HAFF initiative to $20bn, identifying pipelines of land needed for housing, and supporting the uptake of modular housing.
