Lack of affordability of housing leads to a corresponding increase in demand for public housing which, in turn, increases segregation of the population and creates an economic drag. Now, more than ever, there is a need for both the government and private sectors to become involved in the provision of publicly funded or social housing, Simon Hunter, CommIF Asset Manager, highlights.

Hunter points out that the major cities in Australia and New Zealand ranked among the top 10 least affordable major housing markets, topping a global house price index published recently by The Economist.

“This situation is by no means unique to Australia and New Zealand, but I would argue that the cultural importance of home ownership in our countries exacerbates the problem relative to Europe and the US,” he says.

In his latest White Paper, Hunter addresses some of the ways institutional investors can be engaged to invest in social housing projects in Australia and New Zealand.

A primary focus of these initiatives is to promote private sector investment and innovation in a sector that is hampered by inadequate public funding, he says. Social or publicly provided housing has rightly been at the forefront of government policy initiatives here and in New Zealand in recent times, Hunter points out.

Unfortunately, implementation has fallen short as institutional investors have shied away from the particular procurement structures utilised by governments. “Consistency and certainty of government procurement models is a key consideration for institutional investors who must make a decision whether to commit significant resources in the face of uncertainty and the opportunity cost of deploying these resources elsewhere,” Hunter comments.

“Government financial support is needed to make these projects commercially viable and provide certainty to investors over a long-term concession period. This support may take the form of rental subsidies, or price bridging mechanisms that cover the gap between the social housing value and the market value of a dwelling,” he says.

Finally, there is an enormous opportunity to take a partnership approach with government entities to drive the regeneration of social housing stock, but what’s needed is clarity on evaluation criteria to attract innovation, he says.

“We believe there are tangible social benefits to be gained through redevelopment focused on typology, community integration, cost efficiency in terms of sustainability and access to essential infrastructure services.”

To attract institutional investment, governments must think big and enable participants to justify the often significant costs incurred when submitting fully binding bids.