New Housing Solutions & The Role of Private Capital

Private capital the answer to housing crises

LongView and PEXA research identifies new solutions to help home buyers and renters

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The third instalment of LongView and PEXA’s housing affordability Whitepaper series – Mobilising Private Capital for New Housing Solutions – was released today and concludes that the size of the A$10 trillion residential market and the growing scale of the crisis mean governments alone will never be able to make a meaningful difference to bridge the widening purchase and rental affordability gap for Australians, nor the rental experience.

The paper calls for private capital from traditional sources like superannuation funds, banks, family offices and high net worth individuals, but also from the $2.1Tn already invested in housing by Australia’s suburban landlords – the largest capital pool of all where private capital is plentiful and agile enough to help deliver immediate and large-scale solutions to an urgent national problem.

The Whitepaper evaluates four key private investment models – shared equity, institutional ownership of rental properties, build-to-rent (BTR) developments and rent-to-buy schemes – to determine which ones will make the biggest difference, which ones can work at scale and, crucially, which ones provide sufficient returns to attract private capital in the first place. Each of these models has been trialled extensively internationally and are already attracting investment in Australian markets.

The analysis concludes that shared equity schemes and institutional ownership offer the greatest potential to improve housing affordability and the rental experience, while the jury remains out on the longer-term impact of BTR developments on affordability.

Whitepaper 3 builds on Longview and PEXA’s two earlier Whitepapers released this year, which found the current system is broken and is failing Australians – particularly those locked out of home ownership. The first examined the house purchase affordability crisis and explained the real drivers of increasing prices, while the second considered Australia’s broken private rental system, which does not work for either renters or landlords. Together, the series brings together quantitative analysis and decades of data, drawing on LongView and PEXA’s deep property market experience.

“Australia’s housing affordability crises has been decades in the making and despite well-meaning attempts to solve it, it is only getting worse,” PEXA Chief Executive Glenn King said. “These crises fundamentally threaten the Australian way of life, and underpin some of our most pernicious challenges, from homelessness to health and wellbeing, and employment and economic growth.

“Yet the simple truth is that our housing crises have just grown too big for governments to handle alone. For example, the average total change in property prices each year amounts to a third of Australia’s GDP, more than the Australian Federal Government’s entire budget. Even if the government spent every dollar they have giving grants to homebuyers, the purchase affordability problem would still worsen.

“The size of Australia’s housing market, and the seeming impossibility of government intervention at the scale required to significantly address these problems, requires the involvement of private capital, and Corporate Australia, to find new solutions that work.”

LongView Executive Chair Evan Thornley said it was clear that shared equity and institutional ownership offered the greatest potential to ameliorate Australia’s housing crises. He said shared equity schemes – where an investor puts up some of the purchase price – improved purchase affordability by reducing the mortgage deposit barrier faced by homebuyers while offering good exposure to capital growth – the core component of returns in Australian housing markets.

Mr Thornley said institutional ownership – effectively the creation of Real Estate Investment Trusts that hold a large number of rental properties – could offer a radically better renting experience through more professional ownership and because institutions tend to hold property for longer periods. This would significantly reduce the possibility of renters getting evicted for a sale. To make this more attractive for investors would require reform of some land tax regimes, which penalise large landholders unless they invest directly in affordable housing.

“While there is a lot of discussion lately about the role of government and especially superannuation funds, the single biggest source of capital, by far, is the $2 trillion already invested by Australia’s private landlords – much of it poorly,” Mr Thorney said. “By creating an environment where landlords are attracted to moving out of direct ownership of individual properties and into owning shares of large funds, we can enable these transformations.

“These solutions need enabling infrastructure like a liquid secondary market for shares in the fund, which will improve the liquidity of these models and make it easier for investors of all stripes to meet their financial needs while supporting housing models which improve the lives of Australians. And ultimately, that’s the game. We need to recycle the private capital and housing stock that is already in the system in more effective ways to solve the problems we are facing.”

The Whitepaper concludes that BTR developments offer better tenure security and experience for renters than other market alternatives but, to date, have not demonstrated they improve affordability as they tend to target premium markets.

“Australia’s housing affordability crises has been decades in the making and despite well-meaning attempts to solve it, it is only getting worse,” PEXA Chief Executive Glenn King said. “These crises fundamentally threaten the Australian way of life, and underpin some of our most pernicious challenges, from homelessness to health and wellbeing, and employment and economic growth.

Mr King said PEXA’s collaboration with LongView was an example of its commitment to partnering with the private sector to accelerate practical, national solutions to the housing crisis that can be immediately and independently deployed.

“It is clear there is more work to be done. On top of the private capital solutions analysed in the Whitepaper we know that another barrier to efficiently solving Australian housing crises is the shortage of accurate, timely, granular data,” Mr King said. “Private-sector data and information can help speed up the response to increasing demand by local governments, planners, developers and builders. With the right data they can supply the right type of housing in the right locations, more quickly. In addition, a centralised, national social housing register to support the provision of social and affordable housing could help increase transparency and provide security to vulnerable Australians who remain on long waiting lists.

“By bringing together a coalition of the willing, across all sectors, we can help facilitate a broader national response to find new, practical solutions to tackle this current crisis.”

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