About the Housing Australia Future Fund
18/04/2023
Following the Australian Labor Party’s election defeat in 2019, the Labor opposition began to re-work its policies and scale back its more ambitious election commitments. It had been proposing a program of tax reform, which included winding back negative gearing tax concessions. Labor ultimately moved away from the tax reform program, and its plan to build 250,000 social and affordable rentals in Government.
In 2021, Labor announced the Housing Australia Future Fund as the new centrepiece of its housing agenda. The aim of the Fund was to attract investment to community housing providers, which they would use to fund shovel-ready social housing projects.
The Fund proposed to make investments and generate returns based on a loan of $10 billion over five years. It was designed to be cost-neutral, aiming to raise $500 million in dividends from its investments. The original $10 billion would be returned to the Budget, along with any returns over $500 million per year.
The Fund’s annual return of $500 million would then be used to offer financial incentives for institutional investors and developers to invest in social housing. The Fund aims to build 20,000 social homes, and 10,000 affordable rentals aimed at workers on lower incomes.
The Fund would be administered by the National Housing Finance and Investment Corporation, which would be renamed Housing Australia.
After its election victory, the Government moved quickly to turn these proposals into a legislative package. The Housing Australia Future Fund Bill passed the House of Representatives in March 2023, but has not yet gained enough support to pass the Senate. The Coalition is opposed to the Fund. The Australian Greens, the Jacqui Lambie Network, and independent Senators David Pockock and Lydia Thorpe are all seeking changes to Fund before agreeing to support it.
Concerns about the Fund
There are two main concerns about the Fund. First, there is a concern that the Fund will not perform well enough to build homes. Comparable funds such as the Future Fund and the Medical Research Future Fund have made significant losses in recent years, rather than generating returns. Building and borrowing costs have also risen considerably in the two years since the policy was created, casting doubt on whether the incentives would be attractive enough for investors and developers to take them up in the numbers forecast by Government.
Second, there are concerns that the Fund will not do enough to tackle the social housing shortfall even if it does perform as planned. Australia’s social housing shortfall was most recently estimated at 640,000 homes in November 2022. Under its best-case scenario, the Fund would deliver 20,000 social homes, or around 3 percent of what is needed, and another 10,000 in affordable rentals for workers.
How the Fund could be strengthened
A recent Senate inquiry into the Housing Australia Future Fund Bill saw the community housing industry, community sector, potential investors, and academics make many recommendations on how the Fund could be strengthened.
- The Government could invest more in social housing. This could either be a direct investment in social housing, or it could be in the form of top-ups to the Fund itself to ensure it reaches its targets.
- The Government could expand the initial loan it makes to the Fund. The Medical Research Future Fund, a comparable fund, is based on an initial investment of $20 billion compared to $10 billion for the Housing Australia Future Fund. A larger initial investment has a better chance of generating higher returns.
- The Government could remove the $500 million cap on the Fund’s returns. Removing the current cap would mean that if the Fund makes returns beyond $500 million, those returns would be used to create housing incentives. Keeping the cap would mean that any profits over $500 million would be raided for other parts of the Budget.
- The target to build 20,000 social homes could be replaced with a binding commitment. This would mean that if the assumptions behind the Fund prove to be faulty, the Government would commit to delivering the same number of social homes using other mechanisms, such as funding agreements with the States and Territories or with community housing providers directly.
- Finally, the Government could signal that it has other plans to respond to the housing crisis beyond the Fund. Options that have been put forward publicly include a renter support package, an emergency fund for social housing, or a boost to the National Housing and Homelessness Agreement when it is renegotiated. This would assuage the concern held by crossbench parliamentarians that strengthening the Fund is their only opportunity to deliver an outcome on housing.
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