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Economists savage Housing Australia Future Fund model, while PBO finds Greens plan for direct housing investment could build 225,000 public and affordable homes over the next decade, returning $13 billion in rental revenues.

Modelling conducted by the Parliamentary Budget Office has found that the Greens' call to invest $5 billion a year directly in social and affordable housing could build 225,000 public and affordable homes over the next decade. 

The Greens have called for the government to invest a minimum of $5 billion per year in public, community and affordable housing as part of negotiations on the Housing Australia Future Fund legislation.

PBO modelling shows that if the federal government invested $5 billion each year, in partnership with the states, 110,000 public and affordable homes could be built in the next five years compared to the 30,000 touted by Labor. By retaining ownership of the homes, the government would earn an estimated $13 billion in rental returns over the next decade, which could be invested in building further housing or used to cover the borrowing costs of the government’s ongoing investment.

By retaining ownership of the homes and rental revenue, the impact on the budget bottom line would be limited to an average of $400 million per year in the first 5 years of construction, similar to the touted spend of Labor’s current Housing Australia Future Fund model. 

This analysis comes as economists John Quiggin and Cameron Murray savage Labor’s Future Fund model, with Dr Murray comparing it to skit in Utopia and Professor Quiggin referring to it as  “an accounting fiction”, that exposes social housing funding to “the risk of equity markets, for no good reason whatsoever”.

Dr Murray pointed out that the Future Fund “spent $500 million just in fees last year in order to lose $2.4 billion of value”, saying a housing fund owning BHP and Apple shares was “a risky, expensive and unnecessary waste” when instead the Fund could be investing directly in Australian housing and making higher returns.

The Senate inquiry also heard from Master Builders and the Housing Industry Association, who made it clear that the capacity to build more social and affordable housing exists, with capacity constraints set to ease and private construction demand hollowing out quickly.

Lines attributable to Max Chandler-Mather MP, Greens spokesperson for housing and homelessness:

We’ve now heard testimony from two well renowned economists absolutely savaging Labor’s disastrous plan to gamble $10 billion on the stock market rather than invest in housing.

Given the evidence given at the Senate Committee hearing this week, it's past time Labor admitted their plan will make the crisis worse.

You don’t tackle the housing crisis by gambling money on the stock market, you solve it by investing directly in building public and affordable housing, like governments used to. 

A $5 billion direct investment every year could fund more than 200,000 good quality public and affordable homes over the next decade, clearing the wait lists and ensuring we actually tackle the scale of the housing crisis. 

A $5 billion a year direct investment in public and affordable housing, where the government retains ownership of the homes and collects rental revenue, would see a modest $400 million annual overall impact on the budget, similar to Labor’s Future Fund model, except in this instance the plan would build 110,000 homes in the first five years - not 30,000.  

If Labor can find $368 billion to fund AUKUS, which will amount to $12 billion a year on average, then they should be able to stump up $5 billion a year to make sure Australians have a good place to call home.  

With the private construction of homes dropping off significantly as construction constraints ease, now is exactly the time to invest directly in building good quality public and affordable homes, putting those workers and materials to work housing Australians. 

If Labor wants to pass their housing plan through parliament, then they’ll need the Greens, and the only way they are getting our support is if they agree to actually invest directly in public, community and affordable housing. 

In this week’s Senate inquiry, it was clear the government has no idea how their own housing plan will work - no projections of what returns the Fund will earn, no estimate of how much will be paid to investment managers and no modelling of whether its target of 30,000 homes will even be achievable. 

People desperately in need of social and affordable housing deserve certainty - that looks like guaranteed ongoing investment in building housing, not an ill thought out gamble on the stock market that looks increasingly unlikely to meet the government’s own inadequate target.

PBO analysis

Rental returns could be used to build additional housing (Table 3) or used to reduce costs to government

Government’s housing plan

  • $10 billion invested with Future Fund
  • Returns, capped at a maximum of $500 million per year (unindexed) to be used to fund housing, with matching contributions from states and territories expected
  • No guarantee of any housing funding in years of poor returns
  • The government's target is to build 20,000 public and community and 10,000 affordable homes over 5 years, no ongoing building. Modelling indicates capped $500 million annual spend unlikely to allow Fund to reach targets
  • Governments will not retain any equity in homes built, no guarantee social or affordable housing will be provided in perpetuity or will continue if funding withdrawn

Evidence from Housing Australia Future Fund hearing, 15 March 2023

In Senate inquiry hearings today, economist Professor John Quiggins said that “there is very little to commend the mechanism” of the Housing Australia Future Fund, characterising the government’s presentation of “an initiative that will only perhaps deliver $400 to $500 million per year in expenditure…as a $10 billion proposal” as misleading, and “an accounting fiction”. Further he identified that capping housing funding at the amount generated by fund returns as “not a good way to fund public expenditure of any kind, particularly not…social housing.“

Economist Dr Cameron Murray compared the housing fund to an episode of the political satire Utopia, describing the investment of $10 billion in financial assets via the Future Fund rather than directly investing in housing as “a risky, expensive and unnecessary waste”, declaring that “it really puzzles me that the housing policy we have come up with to help households being squeezed in rental markets is to not invest in building housing”.

Dr Murray pointed out that the Future Fund “spent $500 million just in fees last year in order to lose $2.4 billion of value”, with the fees five times higher than the Norwegian sovereign wealth fund and each per year to the maximum the Fund will be able to spend on housing.

“This fund has been portrayed as a low-risk long term politically-insulated funding source. It is exactly the opposite—it is a high-risk fund that defers tough housing spending decisions to future politicians who now have an excuse to limit housing funding to $500 million.”

Dr Murray suggested that “had the Future Fund invested directly in Australian housing instead of the financial products it did invest in, it would have made more money once you factor in some rental returns”, as well as putting “housing equity into the fund and increas[ing] the rate of new housing construction.”

“I have no idea why in a housing policy you would want to own BHP and Apple shares… skip the risk the Fund process adds and instead start investing the $10 billion directly in housing”

Professor Quiggin expressed further concern about the risks of exposing the social housing to “the risk of equity markets, for no good reason whatsoever…if we face a budget crunch for any reason, that will coincide with poor stock market returns, and the Treasury will be faced with a pretty hard task or the Housing Minister will be faced with a hard task in saying, I want a budgetary allocation to top returns to keep this program going so that's why I think this whole mechanism … is, as I say at worst, misleading, bad for public policy, at best, at worst, high risk for the sector”

The Senate inquiry also heard from Master Builders and the Housing Industry Association, who made it clear that the capacity to build more social and affordable housing exists, with capacity constraints set to ease and private construction demand hollowing out quickly.

In the evening session, the Future Fund could not quantify what the projected returns from the $10 billion housing fund would be, with no projections about what the Fund could earn possible with the government not yet having issued the investment mandate governing the Fund.

Senator McKim asked Treasury whether modelling existed as to whether the target of 30,000 homes was achievable given the likely returns from the Fund, but Treasury was unable to provide a concrete answer.

Senator McKim pressed the Future Fund on what they expected the housing Fund would have to pay in fees to investment managers but they were unable to provide a specific answer, though predicted fees in the range of 1.4%, equating to $140 million annually in investment costs.

Treasury confirmed that there was no guaranteed minimum spend on housing by the Fund, and no plans to index the $500 million spending cap - which multiple witnesses earlier in the day called for as an essential change to the legislation, and suggested that the $10 billion fund may be inadequate to sustain indexed returns (with an ongoing real value of $500 million) without eroding the capital.

Treasury, Finance and DSS confirmed that they had not modelled the effects of the package on rental affordability. 

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