Australia’s banks have invested around $1.5 billion in social and community housing providers, but new research reveals there are significant barriers to expanding these ‘social impact’ investments.
The report, Understanding opportunities for social impact investment in the development of affordable housing, was undertaken by researchers from RMIT University and Swinburne University of Technology in Melbourne. It was commissioned by the Australian Housing and Urban Research Institute (AHURI).
AHURI is a national not-for-profit body that operates through government funding and research grants from its 15 university partners.
The report defines ‘social impact investments’ as those that aim to achieve both a financial return and a specific, measurable social benefit. “As a collaboration between social service providers, investors and governments, social impact investments can find new sources of capital from different types of investors and enhance the return on government investment.”
The report says uncertainty and change in government policy as a key source of risk affecting social impact investments. It says that private investors expect returns on their investment, but that this can occur only when community housing providers are able to generate a positive cash flow to repay their debts.
It identifies changes to welfare and housing assistance, and government policy restricting social housing to the highest priority applicants on public housing waiting lists, can reduce community housing providers’ cash flow, presenting a risk to investment, because this would require government to fund the gap between a tenant’s capacity to pay and the cost of providing the housing.
“We found that social impact investors have a range of investment expectations,” said report co-author Dr Andrea Sharam from RMIT University. “There are ‘impact-first’ investors who are willing to accept below market-rate returns, to ‘finance-first’ investors who want returns equal or near equal to market-rates,
“The largest investors in community housing providers’ social and affordable housing in Australia are Westpac, Community Sector Banking and Bank Australia. Although their investment is all debt investment, and returns are expected to be at market-rates, having banks involved in social impact investment adds competition to the market, ensuring all community housing providers gain more competitively priced capital and more suitable conditions on finance.”
The research also outlines a range of options for governments to support, encourage and expand social impact investment for social and affordable housing across Australia.
The report is available here.