How social and affordable housing delivers on ESG through its immense social impact

Australia’s urgent need for more social and affordable housing is in the spotlight, with the Housing Australia Future Fund (HAFF) approving grants for 185 social and affordable housing projects that will deliver 13,700 new homes.

The projects are the first to be green-lit since the government established the $10 billion HAFF and the $350 million National Housing Accord with the goal of delivering 40,000 social and affordable homes in the next five years. The announcement of the first HAFF grants also follows the release of the government’s Sustainable Finance Roadmap, which outlines its ambition to be a leader in financing sustainable initiatives, including housing projects.

Building these homes will undoubtedly have an enormous social impact – helping to reduce homelessness, providing sanctuary for vulnerable Australians and creating more inclusive and supportive communities. Investing in social and affordable housing projects is also helping organisations meet their environmental, social and governance (ESG) commitments.

But while investor interest in the sector is growing, Australia must overcome significant hurdles to meet its target of 40,000 homes. These include traditionally poor rates of return on private investment in social and affordable housing schemes.

This is the finding of new research published in our report, A Pulse on Social & Affordable Housing in Australia 2024. The research asked 88 industry leaders in the community housing, private capital, financial, property development and advisory sectors how they think Australia is tracking towards the 40,000 target and what’s required to get there.

“It is not enough to say that we need more social and affordable housing,” says our Finance Partner Lucy McCullagh. “It needs to be a bankable asset class that is attractive to all industry participants involved in the process, including investors, financiers, developers and community housing providers.”

Delivering the ‘S’ in ESG

Social and affordable housing delivers social impact by providing affordable accommodation for vulnerable individuals and families. This includes those on very low incomes, those who have experienced homelessness or family violence, and those with other complex needs. Below-market rents also enable essential workers on low to medium incomes, such as healthcare workers and teachers, to live in high-demand areas close to their jobs.

Making social and affordable housing more attractive

To make social and affordable housing a more bankable asset class, the government and community housing sector need to work together to address investors’ concerns, says industry.

Jane acknowledges that the housing crisis is not new, but “has built up like a thunderstorm on the horizon over many years, as successive governments have moved towards a decentralised housing model”.

“Unfortunately, the community housing sector doesn’t have the money or control over things like access to land, planning approval timeframes and tax rebates to fix the situation on its own,” she says. “The government has access to a lot of levers it can use to make the sector more attractive to investors.”

Key areas of focus highlighted by industry in our survey include developing a more uniform, national approach to approval processes and expediting planning approvals. The community housing sector also needs to urgently upskill and upscale to manage the huge volume of new developments required to meet Australia’s housing target.

Developing new housing models that provide a greater return on investment will be vital.

“One way to do this is with mixed tenure developments that combine private market rental housing with social housing, affordable housing and even commercial or retail space,” says Lucy. “That way you get a mixture of returns that increases the overall return profile for investors. These types of mixed developments also help create more inclusive, supportive communities that people want to live in.”

With the government pressing ahead with its funding initiatives, it is important that the right settings are in place to capitalise on the current momentum, with industry and governments at all levels working together.

“The housing crisis isn’t going away,” says Jane. “Providing safe, affordable housing for all Australians is a social justice issue for the entire community and no one can delegate to anyone else the collective responsibility for ensuring we significantly improve the situation.”