Reducing risks in social impact investments

By Michael Mata | 23 Feb 2018

Australia’s banks have invested approximately $1.5bn in social impact investment (SII) projects for community housing providers (CHPs). However, there are significant barriers to expanding SIIs, according to new research from the Australian Housing and Urban Research Institute (AHURI).

SIIs aim to achieve both a financial return and specific, measurable social benefits. As a collaboration between investors, governments, and social service providers, SIIs can find new sources of capital from different types of investors, enhancing the return on government investment.

AHURI’s report recognised government policy change as a key source of risk that affects investments. Private SI investors expect returns on their investments, which only occur when CHPs are able to generate a positive cash flow to repay their debts.

However, changes to welfare and housing assistance, and government policy restricting social housing to the highest priority applicants on public housing waiting lists, can significantly reduce the cash flow of CHPs. Due to the resulting risks, government funds are required to fund the gap between a tenant’s capacity to pay and the cost of providing social housing.   

Westpac Banking Corporation, Community Sector Banking, and Bank Australia are the largest social impact (SI) investors in social and affordable housing in Australia, by virtue of lending to CHPs.

“We found that social impact investors have a range of investment expectations, from ‘impact-first’ investors who are willing to accept below market-rate returns to ‘finance-first’ investors who want returns equal or near equal to market-rates,” said Andrea Sharam, senior lecturer at RMIT University and co-author of the report.

“Although their investment is all debt investment, and returns are expected to be at market-rates, having banks involved in social impact investment adds competition to the market, ensuring all community housing providers gain more competitively priced capital and more suitable conditions on finance,” Sharam said.

“The literature is very clear that SII in social and affordable housing supply is a function of government investment in social and affordable housing provision,” the report said. “Moreover, government investment needs to be in a system that delivers revenue to support housing providers so that they have the surpluses required to service debt or equity investment. As the investment is in long-lived assets, policy and funding commitment and stability is required to ensure investor confidence.”


Related Stories:
NSW To Receive Nearly $1bn In Social Housing
Stricter Regulations Could Stabilise Housing Market

 

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