Government partnerships with superannuation funds “could lead to the creation of a new asset class whose returns are not influenced by market peaks and troughs”.
The Super in the Economy report by Frontier Advisors, commissioned by Industry Super Australia (ISA), said with meaningful government backing, affordable housing investments could deliver stable long-term returns for super funds while addressing an economic and social need.
“Affordable housing investments can be a win-win for super fund members and the nation,” said Matt Linden, ISA deputy chief executive.
“With the right financial models and a steady pipeline of projects industry fund members get a low-risk investment that delivers secure returns even when the economic seas are rough, and thousands of Australian families get the quality affordable housing they need.”
Presently, there was an estimated 671,000 affordable housing dwelling shortfall in Australia expected in the next decade. Just 4% of housing stock was classified as affordable, the lowest proportion of social housing among OECD nations.
Factors like increased focus on fees, its definition by the regulator and the Your Future, Your Super (YFYS) performance test had previously impacted the participation of super funds in such investments.
“Fundamentally, the gap between social and affordable rents and market rents must be closed through some form of scalable government financial contribution to achieve a commercially viable return. Lack of consistency with respect to government policy support and targets for new social and affordable housing has meant there has been no investment pipeline to consistently allocate capital to, even if the risk/return challenges can be overcome,” read the Super in the Economy report.
“Relative to other jurisdictions, another impediment has been a lack of available built investment opportunities. Superannuation funds typically prefer investing in existing assets rather than greenfield projects. In the cases where superannuation funds are willing to consider greenfield investing, development risk is typically perceived to be excessive.”
It has put forward initiatives to address these issues such as:
The issue of super funds and affordable housing was expected to be a top priority at the inaugural Treasurer’s Investor Roundtable meeting this week.
Linden added, “Through the Housing Accord and this week’s investor roundtable the government has shown it is serious about tackling affordable housing supply, now the key players – like industry super funds – need to thrash out the ideas that will align this national interest with our members’ financial interest.”