Affordable Rental Housing

Steve Bevington Managing Director Community Housing Limited Group, Australia

Common myths about home ownership and renting

In rich countries everyone owns their home?

There does not appear to be a correlation between wealth of a country and the size of home ownership and rental sectors

Everyone wants to be a homeowner?

It depends on the overall housing system, availability of long-term tenure, ability to plan around housing costs and options for wealth generation

Home ownership offers people a better life?

It depends on whether the home owned fits with livelihood, study and family needs and whether the cost of ownership can be afforded.

Why do people rent? Provides housing for those without sufficient income or equity to secure home

ownership

Flexibility in managing household budget

Accommodates transitory periods in people’s lives from single to family sizes without taxes associated with home ownership

Supports mobility for work and study

Reduces the level of financial commitment to maintain accommodation

For lower income workers allows more disposable income for needs of family

For higher income families allows more diverse options for wealth creation

Rental Housing in Europe, Asia and South America

The proportion of rental housing compared to home ownership varies:-

In Europe for rental housing in 2007 compared to home ownership was 29% ranging between 60% in Switzerland to 2% in Romania. Renters occupy 89% of housing in Berlin and 41% in London.

In Australia the proportion of rental housing is also 29% of the housing market.

Accurate figures are much harder to secure for Asia to assess the size of the rental market. It is 11% in India but in cities such as Bangalore- 55%. In Thailand it is 13% but 41% in Bangkok.

It varies greatly South America. In Brazil the rental market is 25% whilst in Sao Paulo it is 20%

Issues impacting rental housing affordability

Economic factors

Public policy/Institutional factors

Land supply and planning policy

Housing design and size

Housing construction costs and methodology

Tenure

Financing

Role of not for profits in the provision of affordable rental housing

Long-term affordability is the focus and ability to cater to the lowest income group and those in highest need

Able to attract private finance and leverage existing stock

Be a conduit between private and public sector

Strong community support

External supports, financing, subsidies

Responsive localised services

Maximising long term social outcomes

Neighborhood revitalization

In UK 35% of the market is rental housing evenly split between social and private rental.

In Sweden over 500,000 homes have been built by tenant and owner co-ops.

Housing cooperatives form over half the housing stock in the country. Municipal Housing Companies, owned by local Councils, provide another 800,000 units of housing

In the Netherlands, nearly 600 housing associations provide about a third of the housing market.

Not for profit rental housing sector in Europe

1,700 English housing associations employing over 133,000 staff managing 2.4 million homes in the sector

Around 400 associations manage over 1,000 properties

Around 59 groups with more than 10,000 properties under management account for 44% of homes in the sector

Source: Department of Families, Housing, Community Services and Indigenous Affairs Report

Not for profit rental housing sector in the UK

Affordable rental housing in Australia

The Housing system in Australia is one of the least affordable in the world. 89% live in cities with 40% in the two largest cities, Sydney and Melbourne. Both are amongst the top five least affordable cities in the world.

Australia has steadily reduced its investment in affordable rental housing so that it now represents just 4% of the stock:-

The number of affordable rental housing dwellings declined by more than 40,000 from 372,000 in 1996 to 330,000 in 2008 but has risen to 421,000 in 2013.

Demand for public housing is estimated to rise by 28% or about 93,000 houses by 2023

220,000 additional affordable housing dwellings needed to be built between 2010 and 2020.

Not for profit rental housing sector in Australia

Currently there around 700 community housing providers in Australia managing 66,000 tenancy (rental) units at 30 June 2013 (AIHW)

Australian governments have committed to develop, over time, a large scale not-for-profit sector comprising up to 35 per cent of social housing by 2014.

Develop a not-for-profit sector that leverages private finance against its assets as well as attracting Government subsidies may play an important role in achieving growth in stock

The public and not for profit housing system holds over $80 billion of assets

Over $2.64 billion of Commonwealth government funding is invested in the social housing system each year

An Australian not-for-profit company delivering affordable housing to those on low incomes

Established in Australia in 1993 and has spread operations to South Asia, South-East Asia and South America

Focussed on developing housing options for those experiencing housing difficulty so they can enjoy stable lives, raise families, and engage in employment or study

A nationally accredited and registered organisation with more than 5,700 properties under rental management across Australia

Internationally operating in Timor Leste, Chile, Papua New Guinea and India. CHL aims to assist those who are disadvantaged by market failure by securing a pathway to home ownership or affordable rental accommodation.

Example: Community Housing Ltd

What can drive rental housing supply?

Establish Institutional framework to drive supply:

Effective regulation of housing provider system

Appropriate rental legislation

Stimulus to generate housing development through:-

planning incentives,

land supply,

government grants,

taxation relief

Rental subsidies

Financing guarantees

Introduce a regulatory codeA Code, registration and monitoring system covering:-

Delivery of housing services to tenants

Management of housing assets

How providers ensure housing supply and management meets the needs of communities it assists

Standards of governance

Standards of probity

Financial viability and management

Quality assurance and continuous improvement

Affordable rental housing programs

Affordable rental programs can be introduced through subsidies to reduce the cost of market rental either through direct Government provided capital grant programs or direct provision of housing.

Rental eligibility requirements are necessary to ensure that housing is allocated to those in greatest need.

Income adjusted or discounted market rent systems ensure affordability

Effective regulation of affordable rental providers ensures public confidence in the delivery of rental operations and allocation of subsidies

Rent to Buy programs allow tenants an affordable rent in order to save for a deposit and secure a home loan.

Shared equity allows a home owner to gain entry through owning part of a home and when income rises purchase the remainder. These need an equity partner — either a financial institution or a government-backed provider.

Housing management services

Organised and accountable systems for volume management of rental housing including

Tenancy allocation- accountable process for advertising, assessment of eligibility, matching stock to applicant and tenancy start

Rent setting and collection- locally focussed and accountable rent setting and collection practices supported by sophisticated business systems

Community engagement- community based engagement to ensure neighbour relations and low cost management practices

Asset management- sophisticated system of procurement; responsive and cyclical maintenance and disposal strategies

Affordable Housing Design

Using design to improve affordability- By an appropriate arrangement of internal spaces to minimize unused space,

limit unnecessary common parts, use room height to introduce mezzanine levels.

Modern built in furnishing to create dual use rooms Use of lightweight construction materials to reduce the cost of expensive

foundation engineering Reducing cost of utilities by introducing solar hot water supply and solar

panels for electricity supply Using on site water capture and recycling water to reduce the cost of supply Design for heat capture through thermal mass in cold climates and passive

cooling in warm temperatures to reduce the cost of heating and air-conditioning

Successful design examplesPassive solar design- NSW, Australia

CHL designed and built 10 affordable housing units in an ecologically sensitive environment

Using ‘green’ building products such as aerated concrete Hebel panels and locally sourced hardwood weatherboards

Apartment building on periphery of Melbourne In partnership with a community group who purchased the land and worked on

Landscaping

Providing affordable rental housing for locals, including people with disabilities

Who will be informally supported by their families and the community

Construction- Low Cost Systems

Prefabricated housing

Housing is designed to suit the context and manufactured off-site in a factory via a production line

Can be ‘flat-packed’ to reduce transport costs

Low tech solutions

Procedures and processes are put in place to enable employment of a local labour force to construct housing

Appropriate technology, designs and contemporary materials are introduced for good quality outcomes

Low Cost Construction 1: Prefab Construction

Prefabricated housing offers the following advantages:

Housing is designed to suit the context and manufactured off-site in a factory via a production line process

Using modules to enable a variety of design responses

This ensures a quality controlled product and climate controlled work conditions

This is especially useful to counter adverse site conditions

Economies of scale result when a ‘critical mass’ of units is pre-fabricated, and the cost per unit is reduced to a competitive level; for smaller projects, pre-fabs may be too expensive

Delivery costs are minimised by designing units that can be ‘flat-packed’ for wall, floor and roof elements, thus saving Container space

Road access to the final site must be capable of supporting heavy transport vehicles delivering units

The modular units can be assembled on site using a local labour force under supervision

A training program is required initially but on-site assembly is a relatively simple process

CHL is constructing up to 200 units in Port Moresby PNG using pre-fabricated methodology

Low Cost Construction 2: Low tech solutions Design housing prototypes that suit the local

context

Include flexibility for different family groups and site conditions

Identify affordable materials to be used in construction; what can be sourced locally?

Generating local employment through a construction program-

Plan a Training program to develop a skilled workforce & offer Trades Certification for on the job learning, leading to future employment

Design a construction process to maximise local labour inputs and

This helps to build a ‘sense of ownership’ with future residents working on their own houses

Use modern building technology such as engineered footing design and steel roof frames to ensure housing meets criteria such as low maintenance; 40 year min. lifespan; thermal comfort

CHL is currently building 87 units in Suai, Timor Leste using locally made cement stabilised pressed earth bricks- employing local workers supervised by CHL

Capital grant from Government with balance provided by private partner using Equity contribution or conventional borrowing

Equity Contribution

Delivered Front Line for Social Housing

Conventionalborrowing

Donations

Joint Ventures

Government Subsidies

Government Grants

Private Funding

Rental Housing Financing

Contribution by regulated providers leveraging equity in the existing portfolio

Rental subsidies payable by Govenment on properties tenanted to public at reduced rent.

Private investors investing into social and affordable housing projects through special investment vehicles

Joint Ventures between private sector, not for profit and public sector

Direct development funding, borrowed from mainstream banking institutions, based on the return

Philanthropic funding

www.chl.org.au