Thinking | 10 August 2020

Creating more social housing in the wake of COVID-19

By Katrina Reye

The Berejiklian Government is considering a $500 million injection into the property industry to accelerate property development and boost the economy as part of the Government’s COVID-19 economic recovery plan. A cabinet briefing paper prepared by Land and Housing Corporation indicated this move might be coming, according to a report by The Sydney Morning Herald.

This would be a welcome development both in NSW and other states as the COVID-19 pandemic continues to cause significant economic impacts, including substantial increases in unemployment likely to lead to a greater demand for social and affordable housing. Pre COVID-19, waiting lists for social housing in Sydney and Newcastle already ranged from a waiting time of five to 10 years or longer in some areas.

Accordingly, there is substantial pent up pre-existing demand in social and affordable housing that is likely to worsen as a result of the impacts of the pandemic.

In addition, the construction industry is a major employer in Australia, employing over 1.15 million nationally and approximately 390,000 in NSW. The COVID-19 pandemic has caused a range of structural changes to the property industry, such as a reduction in demand for commercial office space – as businesses realise that part of their workforce can work from home – or a softening of demand in residential purchases – as people struggle with unemployment or reduced employment.

In these circumstances, Government investment into social and affordable housing developments becomes even more critical, as such investment would have the joint positive impacts of:

- stimulating the construction industry and supporting employment in that important sector (subject to any further lockdown restrictions imposed); and

- also providing new social and affordable housing stock to address current shortfalls that are only projected to accelerate over time.

Projects in the social housing sector in Australia and New Zealand have shown that Government stimulus is necessary to bring additional social housing stock to market. Some examples are below:

- The NSW Social and Affordable Housing Fund used to stimulate the construction of new social housing dwellings by the community housing sector in exchange for a services fee from Government over a term of 25 years;

- The Victorian Social Housing Growth Fund which invested initial capital provided by Government with the returns used to fund the service payment stream for the dwellings over a long-term concession;

- NSW Communities Plus projects which often involve the contribution of land from Government. For example, the Communities Plus build to rent project in Redfern was proposed to involve the construction of 500 build to rent units on Government land to be held by the developer for market rent for 40 years until the development reverts back to Government;

- Construction of social housing stock by or on behalf of Government, which is then leased to community housing providers. Community housing providers then enter into residential tenancy agreements with social housing tenants. Tenants of community housing providers are then eligible for Commonwealth Rent Assistance (as opposed to tenants of State or Territory housing authorities) which can be used to subsidise rent payable back to Government for use of the asset or the fee payable for the tenancy management and maintenance services;

- New Zealand’s capacity building model whereby the Government pays the social housing provider the Income Related Rent Subsidy (IRRS), which is the gap between the rent recoverable from the social housing tenant and the market rent plus an operating supplement based on approximately 25 to 30% of the market rent. The IRRS subsidises the reduced market rent recoverable from social housing tenants and the operating supplement subsidises the tenancy management services; and

- The NRAS scheme, under which investors received a tax offset for building and renting out properties at rates at least 20% below market value.

As you can see from these examples, creation of new social housing stock is heavily dependent on Government incentives and Government projects to make the projects feasible and sustainable.

In the current economic environment, these type of projects are the perfect opportunity for Government to stimulate the economy, create employment, support persons suffering from unemployment and create more social infrastructure.

Contact

Katrina Reye

Katrina practises principally in the areas of commercial law and property law and development.

Mark Dessi

Mark specialises in the construction, energy and infrastructure sectors...

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