With the median house price in Sydney hitting $1 million in June 2015 it is unsurprising that Sydney has an affordability crisis. While the high housing costs are bad news for those wishing to buy their first property, they are also bad news for those who are renting. With a high proportion of property sales going to investors, those punters need some return on their money (beyond hoped-for future capital gain). Return in the here and now means rental income – hence high property sale prices directly hurt renters as well.
Affordable Housing initiatives are one way that governments, not-for-profit organisations and sometimes private organisations try to assist renters, who are not eligible for traditional social housing but who still struggle to keep up with high private rents, to remain in areas with high professional and social significance for them.
Funding is a critical aspect of getting Affordable Housing initiatives off the drawing board and into reality and Westpac has committed to making up to $2 billion available for lending and investment in the social and affordable housing sector by 2017. As part of this ongoing commitment, Westpac recently 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.
We caught up with Jon Ross, Westpac Institutional Bank?s Global Head of Public Sector & Asset Management, for a quick Q&A on affordable housing funding and projects.
Q: Westpac has committed to making up to $2 billion available for lending and investment in the social and affordable housing sector by 2017. Why did Westpac make this decision?
A: Helping people gain access to social and affordable housing is a core part of Westpac?s vision to be one of the world?s great service companies, partnering with our people, customers and communities to prosper and grow. Beyond lending money, Westpac also plays a vital role lending time and expertise on a pro-bono basis.
Q: What types of factors does Westpac take into account in determining whether an affordable housing project is right for funding?
A: Westpac endeavors to support Community Housing providers who are keen to grow in the sector. In determining who we will support, we take into account the abilities of the management team, the financial position of the community housing provider, development expertise and the viability of the specific project.
Q: In addition to bank-sourced funding, what are some other potential avenues of funding capital for affordable housing?
A: In Australia, in many ways the social and affordable housing sector is still immature and requires government support to enable it to grow. Community Housing Providers are not-for-profit and therefore have no access to capital outside of internally generated cash-flows. Their ability to generate significant free cash flow is limited because their income is provided from social and affordable rentals. Until community housing providers are able to achieve critical mass there is a need for government support whether through stock transfers, land transfer, guarantee, grant or other support.
In the UK, which is 20 years ahead of Australia, the sector enjoyed very strong government support during the development stage which has allowed the sector to develop to the extent that the level of bank and institutional debt in the sector is now GBP75 billion and the level of government support has declined significantly.
Q: What excited you personally about being involved in these projects?
A: We are fortunate that we have the expertise and financial skills and the backing of Westpac to spend the time to help the development of such an important sector. Housing is an essential need for all and with average house prices in Sydney of $1 million this is an issue that affects everyone. Unless we are able to provide affordable housing within reasonable proximity of where people work our society will be the poorer. To play a small part in addressing this issue is personally satisfying.
You can find out more about Westpac?s sustainability and community values and initiatives here.