Impact investors hope to unlock as much as $500m for social housing

Monday, 25 November 2024

The Community Housing Funding Agency wants to encourage more private investment in social housing, such as these Ōtautahi Community Housing Trust homes in Christchurch.

There is an urgent need for more social housing in New Zealand, and the government wants more community housing providers involved. But until now, finding enough funding to underpin the work of those providers has been difficult.

Today, a new agency is being launched - the Community Housing Funding Agency - which will establish privately-guaranteed bonds aimed at New Zealand investors who want their money to go to the ‘social good’ of building new housing for those needing it.

The new Community Housing Funding Agency, and its guarantees, are a first for New Zealand, but they’re necessary to help tackle the estimated $14 billion social housing deficit, the agency’s head James Palmer said.

“New Zealand has tried to do it all through government in the past, and that’s not the best approach. There needs to be an interconnected effort involving philanthropists, fund managers, and charities, as well as Government funding,” he told The Post.

The new agency will come under auspices of Community Finance, a not-for-profit which raises private and philanthropic capital for social and affordable housing developed by community housing providers.

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Palmer is the chief executive of Community Finance, which was established in 2019 with $10 million of cornerstone investments from the Lindsay and Tindall Foundations. It has now attracted about $165m in investment.

It has facilitated lending to a host of providers including Emerge Aotearoa Housing Trust, Penina Trust, and the Salvation Army to build affordable housing in Auckland, Waikato and Christchurch.

The likes of Generate KiwiSaver, Westpac KiwiSaver Scheme, Harbour Asset Management, Pathfinder, and Simplicity have helped underwrite this lending so far.

But the new scheme sees Community Finance upgrade its model to scale up its financing of social housing - with the provision of the private guarantee of future agency bonds opening the net to a wider group of founding providers.

Aggregating the finance needs of community housing providers will mean the new agency can offer much larger bonds on market standard terms, which made them attractive to a wider range of investors.

The bonds will be aimed at a range of local fund managers and KiwiSaver providers.

The new agency also had a number of impact investors, including Simplicity and The Hoku Foundation, on board, and was talking to new fund managers interested in the bonds to be issued in 2025.

Palmer said it could provide up to $500m of finance for community housing providers (CHPs) who met the standards, but there was scope to scale up well beyond that, and long term the agency could raise billions.

Community Finance founder James Palmer says there needs to be an interconnected effort to tackle the housing shortage.

There were already five CHPs on the platform, including Te Āhuru Mōwai, the largest Māori housing provider in the country, but more were signing on and the total would more than double to 13.

The model, which was based on proven international precedents, had been designed for the Government to play a future role as a guarantor, as was the case in countries such as the UK and Australia, he said.

“Government guarantees lower the perceived risk of affordable housing investments, but they wouldn’t have to carry a direct cost, as it would be improbable that it would be called upon.”

Palmer said there was an estimated $297b of funds under management in New Zealand, and there had never been more money under management domestically.

“So the question was how do you unlock those billions to get better outcomes in health, education, crime through housing? Well, it is all about social impact investing.”

While a government guarantee would encourage even more investment, Community Finance was proud to lead from the front, he said.

“But, with 22,000 and rising on the waiting list, there has never more need,” he said.

Community Finance facilitated lending to Emerge Aotearoa for new homes in a co-ownership programme in Manurewa in Auckland.

New Zealand has a widely-recognised shortage of affordable housing, with the latest HUD (Ministry of Housing and Urban Development) figures showing there were 21,958 households on the social housing waiting list in September.

The current government put the brakes on Kāinga Ora’s building programme, with 371 of its housing developments now paused or cancelled, but it did commit to funding 1500 new social housing places in this year’s Budget - places that will be delivered by community housing providers.

Palmer said the social housing shortage was dire, and would only get worse if the issues holding the sector back were not addressed.

While the waiting list had dropped a bit this year, it was due to the delivery of 4000 Kāinga Ora homes, and that pipeline had now stopped, he said.

“We are in a honeymoon period and not seeing the effect of the social housing build slowdown yet. Even the 1500 new places are a drop in the bucket compared to the need.”

Community Housing Aotearoa chief executive Paul Gilberd said they had worked with many partners over many years to establish a longer-term, lower cost debt issuer to reduce the cost of new social housing supply.

It was great to see such a tool finally introduced, and based on the success of similar bond aggregators such as Housing Australia, CHPs should deliver more new social housing per dollar invested, he said.

“Once this philanthropic funding has demonstrated the viability and effectiveness of this innovative model, we hope government will follow behind and further scale it up.

“Partnerships such as this are critical to solving New Zealand’s affordable housing shortage.”