Sydney experiencing a housing crisis

Housing affordability is a hot-button topic in Australia and Affordable Housing initiatives strive to help low to moderate income earners live in an area that meets their social and work-related needs while integrating housing costs within their other essential costs of living.

In what is perhaps a sign of the current housing crisis in some areas of Australia, Westpac has just committed its largest lend to date to a Community Housing Provider (CHP) in Australia, with an A$61 million debt facility approved to community housing organization SGCH.

SGCH has used some of the funds to kick off its inaugural affordable housing development in Belmont Street Sutherland worth $25 million. We caught up with SGCH CEO, Trevor Wetmore for a quick Q&A on Affordable Housing and funding challenges.

Q:  Why is demand for affordable housing increasing? Is the problem most acute in Sydney?      

A: Sydney is currently experiencing a housing crisis. Between the 1960s and 1990s, median home prices in Australia were between three to four times the average annual income. Since then they have skyrocketed to between seven and eight times the average income, pushing more and more families into ?Housing Stress?.

During 2009/10, almost half (45.7%) of low to moderate income private renters in NSW were in housing stress, up from 39.9% during 2007/08. This was even more accentuated in the Sydney region, where over 50% of low to moderate income private renters were in rental stress, up from 41.4% in 2007/08.

Housing stress is particularly evident in the Sydney area where housing is a scarce resource. Demand for affordable housing in Sydney is increasing as house prices continue to rise. Sydney is the most expensive market in Australia for buying or renting a home. The median house prices in Sydney hit $1 million in June 2015. When you compare this to $668,000 in Melbourne, $615,000 in Canberra, $605,000 in Perth and $491,000 in Brisbane, you can see the problem is most acute in Sydney.

The median rent for a house in Sydney is $530 a week compared to $450 a week in Canberra, $390 a week in Victoria and $400 a week in Brisbane.

SGCH and many other Community Housing Providers (CHPs) offer housing specifically aimed at people who are employed and earning low to moderate incomes. Affordable Housing is designed to assist key workers who are not eligible for traditional social housing but who still struggle to keep up with high private rents. It aims to relieve rental stress and support households that have the potential for income growth or home ownership in the medium-term.

SGCH has seen a big jump in applications for affordable housing since July 2013. In 2013-14 we averaged 25 affordable housing applications a month. In 2014-15 this increased to an average of 78 applications a month – a jump of more than 200%.

Q: Westpac has committed to making up to $2 billion available for lending and investment in the social and affordable housing sector by 2017, which is a terrific initiative. How challenging is it though, in general, to obtain funding for affordable housing from banking institutions?

A: There are a number of banks who now have a good understanding of the community housing sector. Consequently, it has become easier for CHPs to obtain funding. The sector has reliable cash flows because of the nature of the service it offers. The loans are reliant on the Interest Cover Ratio (ICR) which the business can sustain. As CHPs offer below market rents, a key issue is keeping costs under control to ensure that the ICR is met. Once we build a financial model, we can then put it through various stress tests to establish the key risk points.

Q: In addition to bank-sourced funding, what are some other potential avenues of funding capital for affordable housing?

A: SGCH?s experience has been that it is difficult to encourage financial institutions other than banks to participate in funding community housing. Super funds are looking for rated investment opportunities and the community housing sector is not yet mature enough in this area to obtain a rating. The Australian Bond market is also shallow and to date has not been fully tested by this sector. It is believed that it possible to source bonds from the USA and work is progressing on developing that opportunity. In the UK, the sector is well established and thriving. Bonds are the principal source of loan finance. We understand the community housing sector in the UK has loan funding in excess of £50 Billion.

The Australian Housing and Urban Research Institute Centre published a paper on this topic.

Q: What are the benefits for communities in having an integrated affordable housing plan?

A: Affordable housing brings great benefits to a local community. It allows people who may otherwise be ?driven out? by housing costs to live close to their places of employment. In some instances, it offers the opportunity for long term residents to remain close to family ties.

There are also many economic benefits of affordable housing, with money being earned locally more likely to be spent locally, and fewer problems associated with city sprawl.

Affordable housing provides a way out of the cycle of poverty by relieving housing stress through lower rents and proximity to employment. This in turn gives young people and their families an opportunity to plan for a brighter future.

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