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Affordable housing could boost economy by $64 billion, EY study finds

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By John Beveridge - 
Affordable housing Australia EY study

“Greed is good” was the famous catchcry of Gordon Gecko in the 1987 movie Wall Street, which was aptly greeted by a massive share market crash.

However, how would it be if co-operation and sharing actually led to even better outcomes than individualised greed?

It may actually be possible in real life with a study on the benefits of affordable housing schemes for essential workers producing enough good results to satisfy almost everyone.

Led by consulting group EY and looking into the affordable housing schemes funded by industry superannuation giant Aware Super, the study found that they led to shorter commute times, more spending on leisure activities and increased productivity that could represent a $64 billion boon for the economy.

Greed is good but co-operation yields $45,500

All told, the affordable housing schemes produced $45,500 in broader economic benefits per tenant annually as well as stable returns for investors that owned the accommodation.

It makes a lot of sense at a time when many areas of Australia’s large cities are struggling to attract essential workers because they simply can’t afford to live near where they work and struggle to find a manageable commute.

The Federal Government has been encouraging superannuation funds to help bankroll its ambitious plans to build 30,000 affordable homes in the next five years through its $10 billion Housing Australia Future Fund and if that can be achieved, it could be a classic win/win solution all around.

Aware Super chief executive Deanne Stewart said the analysis showed the benefits of better enabling build-to-rent developments to the economy and called on all levels of government to accelerate policies to achieve more affordable housing.

Will governments cut red tape?

That might include local councils accepting higher density developments on the understanding that they would be getting a property that would attract great tenants and essential workers into their community.

“Our property managers tell us our tenants stay in our properties longer, they care for their homes really well, and with a high proportion of shift workers they’re not material contributors to local area peak-hour congestion,” said Ms Stewart.

At a state level, Ms Stewart said there should be land tax and stamp duty relief and help with zoning issues while at the federal level, investors should be able to access the same GST treatment as community housing providers to reduce the cost of development.

Such changes would help to remove some of the barriers to institutional investment in affordable and social housing by allowing for regulatory certainty.

Living nine kilometres closer to work

Taking a closer look at Aware’s affordable housing program, participating nurses, teachers and police on average live nine kilometres closer to their workplaces than before the program and provide the super fund with a stable rental yield.

The housing is offered at below-market rates but the greater rental stability compared to regular residential rentals still produces excellent investment results.

That makes sense because longer term tenants lead to lower vacancies and more attractive properties, making up for the lower rental income.

At the moment, Aware has developed or is developing five large affordable housing sites in the Sydney suburbs of Miranda, Epping, Waterloo and Hurstville and the Victorian suburb of Moonee Ponds, with key workers such as teachers, nurses, emergency services and social workers getting a 20% reduction on market rents.

Once finished, the properties will make available up to 234 key worker housing units and Aware is actively seeking more sites to develop.

Benefits all around

Interestingly, EY found that the $45,500 economic benefit was split into $5800 in cash benefit to the tenant, $2000 in increased leisure time to the tenant thanks to 112 hours less commuting time on average and $33,000 in staff productivity and retention benefits to employers.

There were also other benefits such as retail spending in the local community.

If all of Australia’s 1.4 million key workers were housed in this sort of accommodation, the annual economic benefit would reach $64 billion.

Even the super fund has done well out of the projects, with Aware’s residential and affordable housing investments performing better than its commercial real estate, with the overall asset class returning around 450 basis points above the industry benchmark.

None of this fits in too well with Gordon Gecko’s “Greed is Good” mantra but it is worth considering another example on the other side of the ledger that shows some of the pitfalls of a greed approach.

Greed can lead to ugly hidden commissions

The recent liquidation of boutique home builder Chatham Homes was hardly an isolated event – plenty of builders have been going broke due to the rising cost of building materials and labour and difficulties fulfilling fixed price contracts.

However, the collapse did shine a light on a very ugly picture of largely hidden commissions builders have been paying to referring agents that were between 8% and 12% of a contract price.

Chatham Homes owner Bradley Hall said that “absurdly high” referral commissions to wholesale channel real estate agents, financial planners or other advisers who introduced buyers to builders cost as much as $40,000 and dramatically raised builder costs.

The commissions were usually buried in standard home building contracts and not disclosed to consumers and accounted for 15% of Chatham Homes’ $2 million in unsecured debts.

All of which makes a lot of sense when you consider the raft of complaints you hear from customers of financial planners and real estate agents who find the bank valuation of their newly built investment properties is lower than their investment cost.

So, keep a close eye on the fine print of building contracts if you may fit into this referral commission structure.

As for greed being good, it has finally caught up with the real estate agents and other creditors of Chatham, who are unlikely to get their hands on all of their expected cash.