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Affordable housing: Australia’s latest infra asset class?

Inspired by the UK, a reform being proposed could unlock vast amounts of capital looking for stable income, say the country’s super funds.

Australia’s Labor Party has proposed a new affordable housing policy which the country’s superannuation funds say would create a new asset class within infrastructure. 

The Labor policy supports implementing a bond-aggregator model to fund community housing and proposes a ban on non-recourse borrowing arrangements in Self-Managed Super Funds (SMSFs). 

The bond-aggregator model, proposed by Treasurer Scott Morrison last month and endorsed by the Labor party, could open up a new asset class and help ease the supply-side problems of housing affordability, Industry Super Australia’s chief economist Stephen Anthony suggested. The country’s investors typically classify affordable housing as infrastructure.

“There is now broad consensus behind adopting the bond aggregator model that has been so successful in the UK,” commented David Atkin, chief executive of Cbus, the industry super fund for the construction and building industry in Australia. 

“Cbus is actively looking to invest in this area but to do so prudently we need the right policy settings. A scheme backed by the Commonwealth government at least initially is a good place to start,” said Atkin, adding that government leadership is crucial to get policy settings and the risk-return profile right. 

The removal of non-recourse borrowing arrangements, on the other hand, will allow greater access to the housing market for first-home buyers, as well as reduce the risks to the financial system posed by the buildup of leverage by SMSFs, according to Anthony. 

“There is a growing gap between available housing stock and first-home buyers seeking to enter the market [and] this is exacerbated by the current non-recourse borrowing allowed within SMSFs,” said Anthony, adding the ban is a positive step forward for the system as a whole. 

Other measures from the proposal include a tax on investors who hoard vacant properties, doubling the foreign investment application fees for residential purchases, limiting negative-gearing tax breaks for investors and tightening the capital-gains tax discount.  

However, Anthony and Atkin are against the idea of allowing superannuation funds to be used for housing deposits. Atkin described it as a short-sighted and flawed proposal, while Anthony said it would cripple super funds’ returns in the long run and increase prices. 

Australia’s infrastructure pipeline currently features three affordable housing-related schemes, one of which is the A$1.1 billion ($829 million; €774 million) Social and Affordable Housing Fund PPP. The New South Wales government will pay out the contracts, which provide stable income streams for up to 25 years, through its investment arm, TCorp. As part of the first phase of the scheme, the vehicle awarded five consortia with contracts to deliver 2,200 homes last month.