Rebuilding after COVID-19: state government investment in social and affordable housing

COVID-19 has both contributed to and exposed the lack of affordable housing stock in Australia, particularly in regional areas. An increased availability of social and affordable housing will bring security and stability to those in society who need it most as well as generate much-needed growth for small businesses and the construction industry. So, it is only apt that state governments are turning to investments in these types of housing to rebuild after the pandemic. 

However, despite recent announcements, state governments aren’t able to tackle the issue alone. With stimulus payments set to end next month, it is crucial, now more than ever, that governments and the private sector work together to provide housing solutions that meet the needs of Australians across the country in the post-pandemic world.

Government announcements

Since June last year, there has been an influx of state government announcements aimed at unlocking social and affordable housing:

• Australian Capital Territory. The Australian Capital Territory will invest $61 million into public housing, which includes $32 million dedicated to land and extending the Growing and Renewing Public Housing program and $20 million for the construction of new social housing.
  
  
• New South Wales. $812 million has been allocated as part of the 2020-21 New South Wales Budget for new and upgraded housing, including the delivery of around 580 new social homes across metropolitan and regional areas. The New South Wales government has stated this is the biggest investment in social and community housing in the state in more than 20 years.
  
  
• Queensland. As part of the second stage of the ‘Unite and Recover for Queensland Jobs’ plan, the Queensland Government has announced a $100 million housing construction package. The program aims to deliver 215 new social housing dwellings across the state with works commencing by the end of 2021.
   
• Tasmania. The 2020-21 Tasmanian Budget includes an investment of over $300 million to deliver new housing and homeless initiatives. Of this investment, there will be $100 million dedicated to building 1,000 new homes in areas of high demand in the next three years.
  
  
• Victoria. Victoria has announced the ‘Big Housing Build’ package as part of its 2020-21 Budget, which will invest $5.3 billion in funding to construct 9,300 new social housing and 2,900 affordable and low-cost homes. 25% of this funding will be allocated to areas in regional Victoria. The Victorian Government has stated that this is the largest contribution in the state, and in Australia, to public and community housing to date.
  
  
• Western Australia. The Social Housing Economic Recovery package will invest $319 million into social housing in Western Australia. This will refurbish 1,500 homes, build approximately 250 new dwellings and provide a maintenance program to target 3,800 regional properties.

With some states making the largest contributions to social and affordable housing in decades – or even ever – in response to COVID-19, it seems that these ‘unprecedented times’ are calling for equally unprecedented investments.

The social and affordable housing market 

COVID-19 has created a surge in the demand for social and affordable housing, on top of a pre-existing shortage. In 2019, there were nearly 150,000 households on the general waiting list for government housing across the country with over 50,000 of these being recognised as households with the greatest needs.

Since then, COVID-19 has heightened rates of unemployment and homelessness, increased demands for emergency accommodation and forced some to downscale properties, all of which has further affected those on the lowest incomes. 

While the real estate market is making a comeback, with property prices surging and queues once again out the door for weekend inspections due to record low interest rates and first home buyer incentives, this creates a further divide between those who can afford a property and those who cannot.

This is particularly true for regional areas, with Australia recording the biggest net migration to the regions in the country’s history last year. With the ability to work from home, COVID-19 has created a desire to live outside major cities and those looking for getaways are snapping up holiday houses for regional escapes in the absence of international travel.

This mass migration has seen property prices soar in regional areas. At the same time, however, it has left few affordable dwellings for local residents. Many locals in these areas are still recovering from the devastation of the 2019-20 bushfires, floods and lockdowns during the peak of the pandemic and now a shortage of low cost housing is placing some into further financial distress.

With society set to return to some semblance of normality following the roll out of  vaccines, it is hoped the economy will level out, however it is likely that the end of JobKeeper payments and JobSeeker supplements at the end of March will further aggravate the situation for some. It is this unpredictable see-sawing of the pandemic which has highlighted how important it is to have a secure home.

Why invest in housing? 

Social and affordable housing provides security of tenure and support which is fundamental for stable education, health and overall productivity – aspects of life which are challenged for those experiencing rental stress or homelessness.

Increased housing stock boosts activity and employment in the construction industry, which has faced changes as a result of the pandemic due to declining migration and the flow on effects to population growth, the shift to working from home and a reduction in residential property purchases. Small and medium sized businesses such as architects, local builders, suppliers and manufacturers, which are typically dependent on the residential construction industry, also benefit from growth in the housing sector. 

Investment in social and affordable housing also provides an opportunity to bolster the economy and production in regional areas. With regional towns growing at faster overall rates than the capital cities, there is the need for key workers, infrastructure and major resources to be deployed into these locations. Increased social and affordable housing could be a catalyst for overall regional development and expansion while meeting the demand of population spread and mobilisation.

For these reasons, it’s clear why governments are signalling that investment in social and affordable housing will be a key component of a strong economic recovery. Yet, it is also clear that there is a need for far more dwellings than are able to be funded from state governments’ pockets alone.

The call for private sector participation 

Traditionally, governments have built, owned and managed social and affordable housing in Australia. However, it is evident that the fallout from the pandemic calls for new approaches to provide increased stock at scale. These outcomes can be achieved if governments, community housing providers (CHPs) and the private sector work shoulder-to-shoulder to develop social and affordable housing.

One approach has been the collaboration of government and private sector consortiums in a public private partnership (PPP) where the development, management and maintenance of social and affordable housing stock is contracted out to the private sector. However, these PPPs have traditionally been complex and costly.

Governments have also sold (or vested) state owned land to private investors and CHPs, or a joint venture of the two, who develop market rent housing before the development reverts back to the government as social and affordable housing. The sale of land in one city also provides the opportunity to unlock capital for constructing housing in another. This fluidity allows governments to target new or changing areas of demand such as rural and regional towns.

Alternatively, governments may retain ownership of the land for social and affordable housing to be constructed on, either by or on behalf of the government, and then leased to a CHP to manage. Models employed in disability housing can be of use here, where the private sector develops the property and provides it to the government for use as accessible and disability housing stock. The reverse of this arrangement is a possibility too, where private property investors could lease newly built dwellings to the government to increase the availability of social and affordable housing creating a long WALE REIT structure with a government tenant covenant which is financially attractive to institutional investors.

In any scenario, stakeholders should look to utilise existing dilapidated and unmaintainable properties or shovel ready sites to flip into additional housing stock, as opposed to being locked into stock in existing locations that may no longer be meeting evolving demands or housing standards.

In order to create the kind of stock required for social and affordable housing under these arrangements, local councils and state governments and other key stakeholders will need to work together to overcome complex planning regimes which have typically created an obstacle to developing certain types of land, particularly in some regional areas.

While some of these processes are ongoing, it shows what can be done when the different segments of the real estate industry come together with a shared ambition. It is now open to the government, as the protagonist in the provision of social and affordable housing, to select the most suitable model to address the needs of the market.

The post-pandemic home 

COVID-19 has not only exacerbated the need for housing, but has also changed what is important in a home. The 2020 mantra, ‘stay home’, means the home needs to be an environment that meets individual needs.

Lessons have been learned from the social housing tower lockdown in Melbourne – that a lack of housing stock is not only a social issue, but also a health concern. People are needing homes that keep them healthy, are spacious with natural lighting, ventilation and outdoor areas, and that can provide a liveable work from home environment when needed.

The pandemic has, above all, created an increased desire for connectivity to which housing will need to respond. People are wanting to live close to amenities, services and public transport. In terms of apartment living, people are prioritising shared facilities and spaces and valuing the opportunity to participate in residential and community groups and forums as a way of counteracting many months of disconnect.

When providing social and affordable housing, quality cannot be compromised for quantity and stock should instead be viewed as an asset class that meets design, planning, environment and security standards.

Where to from here? 

The task of delivering social and affordable housing that meets individual needs, at scale, is no easy feat. While recent government funding recognises the importance of investment in social and affordable housing for an economic recovery, a response to the lack of low cost housing stock is pressing.

As recovery from the impacts of COVID-19 begins, it will be key for developers, investors, CHPs and other members of the housing sector to keep a watchful eye on the market for opportunities to work together to increase Australia’s social and affordable housing stock.