This session is part of a number of Sessions on Finance for Pensioners and solutions to the Housing and Rental Crisis in Australia.
There is only one way to solve the housing and rental crisis.
BUILD MORE HOUSES
What is affordable housing
Affordable Housing can be defined as housing that costs less than 30% of gross income. For home owners this means maintenance, rates and mortgage is less than 30% of income and for pensioners rent is less than $171.66 per week for singles and $258.78 for a married couple. There are no such market rents so it is obvious that Commonwealth Rent Assistance (CRA) is essential. Single Pension CRA is $105.60 per week and for a married couple it is 99.50.
So an affordable rent is $171.66+$105.60 = $277.26 for a single pensioner and $258.78+$99.50=$358.28 per week for a married couple.
There is of course insufficient supply in the rental market.
It is also a problem that market rents are rising faster than incomes.
The biggest demand for pensioners is for 1-bedroom units but the market trend in building new houses is for bigger houses ( say 250m2)
The result of this is that an increasing number of pensioners is in housing stress.
It is therefore highly desirable that tenancy for pensioners is long term, tied to the pension and that they do not have to compete with other tenants every time their lease expires.
It is obvious that the number of pensioners will increase dramatically and that the supply of rental accommodation does not change and more than likely will decrease if no action is taken.
What is the government doing so far
- The Government Housing Accord
The Government Housing Accord is now relying on Superannuation Funds and other Institutional Investors to solve the Housing Crisis for them. “Tell them they are dreaming” . The only organisations that can administer affordable housing are not-for-profit organisations.
I have put several proposals to Julie Collins, the Federal Housing Minister and 3 times have requested a meeting with her. No response.
Superannuation Funds under their articles must make a profit for their members and cannot build affordable housing unless the government gives them large subsidies so they can make a profit.
This will be a complete disaster and you only have to look at the NDIS to see how much costs and subsidies will blow out.
Institutional Investors are very interested in Affordable Housing and Community Housing Providers but for all the wrong reasons.
Community Housing Providers do not have it easy . They are not-for-profit organisations and potentially the only organisations that can provide affordable housing and rental accommodation. Most of them are working at a loss and are subsidised by the government. Many organisations overseas ( and in Australia) have gone broke and will stop operating in the future.
Institutional Investors are sharks and are keeping a sharp eye on the next one that stops working and goes broke. The will then pick up the complexes at a discount and carry out extensive renovations which under division 43 depreciation is very good for their rich clients.
THEY THEN DOUBLE THE RENT
It is happening oversees everywhere
Sorry low income people and pensioners. We have to make a profit.
Rents will increase across the board
They are also eying the subsidies that the Community Housing Providers used to receive.
Would it not be better to give these subsidies directly to the people that actually build the houses. There are plenty of Builders and developers who are prepared to develop long term rental accommodation if they get some reasonable funding.
- The Housing Australia Future Fund ( HAFF)
The $10 Billion Housing Australia Future Fund is now approved by the senate after the Greens unsuccessfully tried to get a cap on rentals.
This is a con.
The Government pretends to spend $10b in affordable housing yet only commits 5% or 500M per year to build houses. They say that over a 5 year period they can build 30,000 houses for $2,5B ( 5 x $500m). That equates to $83,333 per house ????
Instead of committing $10B to the housing sector the government is actually withdrawing $10B from the economy to invest elsewhere. They will give it to the Australian Future Fund who will invest it for them in the stock market, submarines, artificial intelligence etc probably on the advice of the Price Waterhouses of this world.
From the returns of HAFF (let’s hope the stock market does not crash) they will invest $500m per year in housing which will build 1250 houses @ $400,000 each.
Instead of 30,000 houses they can only build 6250. Not nearly enough.
- Federal Budget allocation of $350M for affordable Housing
The government is not very good with figures. They also have announced in the last federal budget that they will provide $350m (over 5 years) to support the funding of 10,000 houses. That is $35,000 per house which is even cheaper than the $83,333 per house under HAFF.
Some would call it deceptive and misleading conduct.
- Private Rental Incentive.
Private individuals can get a rent subsidy if they charge a reduced rent. They cannot rent out the property themselves or through a real estate agent . Rentals can only be administered by a registered Community Housing Provider. Centacare Evolve has a monopoly (very strange under the Competition and Consumer Act 2020) . No other Community Housing Organisation has been approved by the Government.
I am building affordable rental accommodation in Geeveston and applied under the Scheme to Homes Australia. They told me to talk to Centacare Evolve. Their reply was that Geeveston was not suitable and that I would not qualify.
Again strange as there is a waiting list of 154 people for Community Housing in that area.
I also know that Centacare Evolve has vested interest in the Huon Valley
All a bit strange to me
NONE OF THE ABOVE SOLUTIONS IS EFFECTIVE
To be fair to the government there are a number concessions to First Home Buyers
First Home buyers Grant $35,000
Home Guarantee Scheme where home buyers can buy a home with as little as 2% deposit (plus costs)
You can withdraw up to $50,000 from your super to buy your residence
The Government can share the house with you up to 30-40%
Government in the last budget also increased Government Rental Assistance by 15%. This seems as a reasonable initiative but does nothing for the most vulnerable and pensioners.
Rents for pensioners are set at 25% of the pension +Government Rental Assistance
So rents will Increased by the same amount as the Rent Assistance increase.
Subsidising the rent rather than building more houses is like subsidising the medicine without curing the illness. This in general is a favourite short term strategy of governments and politicians
BUT NONE OF THESE INCENTIVES WIIL BUILD HOUSES
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Providing Affordable Accommodation and keeping it’s subjects above the poverty line is the responsibility of Federal Government and building houses is the responsibility of State Governments but we still have to build the houses.
To build a house in the first instance we have to create more land and infrastructure.
There are plenty of builders who are prepared to build if only they had suitable land and infrastructure. There is no financial institution in Australia that provides loans to private developers aided by APRA who has instructed banks to treat developers much more harshly than private individuals.
A private land developer has normally a very good case .
In my personal case we have 1.5M in unencumbered real estate, rental income of $825 per week , $200,000 in the bank and need to construct a road and infrastructure of $500,000. This road will pave the way for the development of 61 affordable rental accommodation dwellings. We applied for a loan of $330,000 from numerous financial institutions including a Business Growth Loan from the Department Of State Growth.
The loan would easily be repaid from the sale of 7 blocks of land worth $150,000 each when the road is constructed. Interest rate is not critical and no subsidy is required.
Developers would be prepared to pay interest @ 10% providing that it is short term ( 1 to 2 years).
Not a single financial institution is prepared to give a loan for a road and infrastructure.
NHIF ( National Housing Infrastructure Facility) or NHFIC (National Finance & Investment Corporation) can provide funding for infrastructure associated with affordable housing but only registered Community Housing Providers are eligible and private developers do not qualify.
HAFF could provide such finance
RECOMMENDATION 1
STATE GOVERNMENT OR NHIF OR HAFF TO PROVIDE SHORT TERM INFRASTRUCTURE LOANS AT AN INTEREST RATE OF 10% TO PRIVATE DEVELOPERS OF AFFORDABLE HOUSING .
RENTAL ACCOMMODATION
We are in the business of providing long term affordable rental accommodation. To analyse investment of rental property a rule of thumb is very helpful.
Weekly rent should be 1/1000th of the value of the property. For instance a $300,000 property should have a rent of $300 per week and a $500,000 property a rent of $500 per week.
This is a gross return of 5.2% (52 weeks in the year divided by 10). If we had to borrow the full amount of the property this would also be the interest I had to pay to the bank to break even ( interest only).The break even point ( disregarding operating costs for the moment) is the equation that not-for-profit organisations should operate on.
So a $520,000 property should have a rent or interest of $520 per week.
This is $100 per week per 1% of interest.
One can see that interest rate for a long term investor of affordable rental accommodation is absolutely critical. At present, as a company we have to pay interest @ 7.85% with the Commonwealth Bank . This would make the rent $785 per week + outgoings which would obviously not be affordable rent.
At present Centrelink is providing loans to pensioners under the Pension Loan Scheme (Home Equity Access Scheme) of 3.95%. If the government could provide a loan @ 3.95% for Affordable Housing, rent would be $395 per week.
Housing Affordability Tasmania is selling 3-Bedroom properties @ $389,000 in which case rents would be $295 per week which is affordable.
RECOMMENDATION 2
GOVERNMENT OR HAFF TO PROVIDE LONG TERM LOANS TO INVESTORS IN AFFORDABLE RENTAL ACCOMMODATION AT AN INTEREST RATE COMPARABLE TO THE HOME EQUITY ACCESS SCHEME.
Capital Guaranteed Investments.
I have been an investment adviser for 20 years, specialising in maximising pensions for retirees. This sector of the community is very conservative and the first thing a couple would ask is “ but is it guaranteed “. Pensioners do not want to take any risks.
Investment advisers in general and superannuation funds must create a diversified portfolio that must include some capital guaranteed investments like government bonds.
A 5 year Government Bond at present has a return of 4.331%
The government could set up a Government Housing Bond and use the funds exclusively as a loan to developers and builders of long term rental accommodation.
They can use the same mechanism as the Pension Loan scheme to lend it out to developers
These Bonds must be Capital Guaranteed
RECOMMENDAION 3
GOVERNMENT TO SET UP A GOVERNMENT HOUSING BOND AT THE 5 YEAR GOVERNMENT BOND RATE TO BE USED EXCLUSIVELY TO PROVIDE LOANS TO DEVELOPERS OF AFFORDABLE RENTAL ACCOMMODATION
The issue of a guarantee is essential and is expanded in our strategy to solve the Housing and Rental Crisis in Australia by setting up our Housing Affordability Trust (HAT).
HAT will solve the Housing and Rental Crisis in Australia without any cost to the government
The Trust will have the following features
- Capital Guarantee
- Government guaranteed Capital Growth of 3%
- Income of 5% ( = 2.75% above Centrelink deeming rate)
- Largely non-assessable for Centrelink and ATO
This is the Holy Grail of Investment vehicles and the public, pensioners, councils, even foreign governments will invest in such a fund and will create trillions of dollars to invest in housing.
This Trust is a not-for-profit Trust and will build 100,000 s of houses at no cost to the government.
It will benefit First Home Buyers and retirees and everybody else in the public.
Our biggest fear is that the Price Waterhouses of this world get hold of the innovative and exclusive ideas underlying the Trust and will exploit them to make large profits for themselves and completely defeat the purpose of the trust.
Therefore the details of the Trust at present are confidential
I have approached Julie Collins, Minister of Housing but her department is not interested.
If anybody else in the government is interested I will be only too happy to fully explain the details of the trust
RECOMMONDATION 4
THE GOVERNMENT TO SET UP THE HOUSING AFFORDABILITY TRUST (HAT)
Politically my strategies are very favourable
- HAT will solve the Housing and Rental crisis in Australia without any cost to the Government
- Strategies will benefit First Home Buyers, retirees , government and the general public
- $10B in HAFF can be used for other purposes
- 1/3rd of Australians is renting and a favourable rental strategy will favour the party that proposes it
- The Green’s rent caps are not really relevant any more as rents will be reduced.
- Cheaper rents will lower inflation
- Loans by the government do not affect the bottom line . Loans are an asset .Spending money to build houses would be a liability