Wednesday 22 February 2017

Housing affordability? Scott Morrison's solution leaves us with more questions than answers


The treasurer, Scott Morrison, flew to London at the end of January to launch the government’s social impact investing discussion paper.
To listen to Morrison, his trip was all about creating innovative investment funds to support the construction of new affordable rental accommodation. Some of the media coverage proclaimed the treasurer had even found the key to unlock housing supply.
It’s understandable that Morrison wants to give the impression that the government is exploring social impact investing as a way to solve housing affordability. It’s a question for which he now has no answer – especially as he refuses to consider the main things a federal government could do to help lower housing prices: curbing negative gearing and capital gain tax discounts.
More’s the pity, though, that Morrison turned the social impact investment story into a housing affordability pitch. The opportunities for social impact investing for governments are significant: stimulating service innovation without significant risk to the taxpayer; creating new revenue opportunities for government; and opening up genuine partnership between business, investors, community groups and government.
The idea behind social impact investing is not complex. Early intervention – or the right intervention at the right time – is the holy grail of government. Get the right intervention at the right time and the savings later on are significant.
For example, if families on the verge of breakdown get the help they need before crisis sets in, state governments will save money later in terms of avoided expenses (for example, not having to pay for children in out-of-home care). Obviously, saving the taxpayer money isn’t the only positive: children stay within the family and the family stays intact.
But such interventions are usually expensive at the time. Often they don’t fit within existing government programs. Sometimes such interventions need to be tested before the long-term effectiveness can be determined. And governments cannot afford to take money away from existing acute services (like out-of-home care) and put it into untried and costly early intervention.
That’s where social impact investing comes in. The investors provide funds – new revenue streams – for the early interventions. They take a risk, yes, but if the longer-term savings occur, the government shares those financial returns with the investors.
The opportunities for the commonwealth to use social impact investing are significant: childcare, youth unemployment, disability and aged care, for example.
The Keneally Labor government in New South Wales was the first in Australia to introduce social impact investing, and full credit to Mike Baird for continuing the innovation as treasurer after the election of the Coalition government in 2011.
Today in NSW there are two social impact bond trials under way, both aimed at working with vulnerable families to prevent children from going into out-of-home care, or to reunite children in care with their parents.
Can social impact investing help the federal government deliver new stock of affordable housing for low- and middle-income families? Maybe – but not for a long, long time.
As Morrison’s discussion paper points out, the idea behind social impact investing is simple, but setting up social impact bonds or social impact investment funds is complex. There are many issues to consider, such as measuring and evaluating outcomes, sharing risk and return, high establishment costs, sharing government data, and laws that guide investment decisions for superannuation funds.
So full credit to Morrison for opening up the possibility of social impact investing at the federal level, but equally, full blame to him for implying that such social investment is about to solve the problem of housing affordability.
Witness in NSW that social impact bonds were announced in 2010. Seven years later, most of that time under a Coalition government, NSW is still only running two trials, both in the same area of government services.
Even if the commonwealth can save some time by learning from the NSW trials, it will be years before a trial of a social impact investing fund to build affordable housing is up and running.
The treasurer’s discussion paper poses 29 discussion questions about social impact investing, and most do not prompt simple answers. None touches specifically on housing. And there are further questions to consider when it comes to housing, such as:
  • The London-based housing project Morrison toured is criticised for driving up rents and driving out public housing. How will the government avoid that outcome?
  • If interest rates go up, renters and investors alike could be adversely affected. Does the taxpayer underwrite any of that risk for investors? How would vulnerable, low-income tenants be protected?
  • Who would manage the stock? What happens at the end of the leases? Will this be a “build-to-rent” or “rent-to-buy” scheme?
  • How would this save any money in the provision of public housing? Considering that public housing stock is less than 5% of all housing stock in Australia, and is increasingly occupied by single, older tenants who only have a government pension as income, isn’t it unlikely that any of them will be able to move out of public housing?
  • What have we learned from the national rental affordability scheme, or from various state government programs that support affordable housing supply or rent to buy schemes? How would the treasurer’s “new idea” for private investors in social impact investment fund deliver better outcomes?
Morrison’s “fact-finding” housing affordability tour to London gave him some great headlines. It may even introduce a welcome innovation in government funding and service delivery across a range of social service areas. But it will be a long time, if ever, before his new investment fund builds even one new affordable home.

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