With the recent release by the National Housing Finance and Investment Corporation’s (NHFIC) of its housing report entitled “State of the Nation’s Housing 2022- 23 ” (NHFIC Housing Report), it is timely to consider some of the key findings in that report and to examine what steps are now being taken by the Australian Government and State Governments to address these issues.

Key findings of the NHFIC Australia's of Housing Report

The key findings of the NHFIC Housing Report are as follows:

  • The re-opening of Australia’s borders in 2022 has led to a much stronger than anticipated recovery in population growth.
  • In housing markets across Australia, rental demand is strong as migration returns – in parallel property prices have declined steeply as interest rates have risen, since May 2022, at their fastest pace in more than 2 decades.
  • Supply additions (net of demolitions) are anticipated by NHFIC to be 148,500 in 2022-23 and then fall to around 127,500 in 2024-25, owing to higher interest rates and lower prices.
  • Around 1.8 million households (1.7 million occupied, and 116,00 vacant) are expected to form from 2023 to 2033 taking total occupied households and vacant properties to 12.6 million (up from 10.7 million) with strongest growth expected in “lone person” households.
  • The cumulative gap between new household formation and new housing supply will be around – (negative) 106,300 dwellings over the 5 years from 2023 – 2027. In particular, NHFIC anticipates a shortfall of apartments and medium density dwellings over the coming years.
  • A range of factors are negatively impacting new housing supply including availability of serviced land, higher costs of construction (both finance and inputs), long lead times for delivering new supply and ongoing community opposition to new development.
  • Affordability for renters has worsened due to returning migration at a time of record low vacancy rates. The impact from higher mortgage rates is adversely affecting fist home buyer affordability through reduced borrowing capacity. NHFIC estimates conservatively that 377,600 households are currently in housing need - 331,100 households in rental stress and 46,500 households experiencing homelessness. NHFIC estimates Australia’s housing needs to be between 208,200 households and 577,400 households (using a range of extreme to less extreme and depending on different measures of rental stress and ABS estimates of homelessness).

Construction industry input to NHFIC Housing Report

The NHFIC Housing Report notes that in compiling the report, NHFIC consulted extensively with builders and developers in Queensland, NSW and Victoria. This feedback is interesting as it highlights the day to day challenges being faced by builders and developers at a micro level.

Construction industry feedback as highlighted in the NHFIC Housing Report includes the following:

  • Weather events and Covid-19 restrictions caused significant delays and disruptions in the first half of calendar 2022 followed by rising construction costs and higher interest rates in the second half of calendar 2022 which caused many projects to be put on hold. Builders are now making an allowance of 40% on new projects to account for unexpected delays – normally this would be 20%. Many instances have been reported of poor quality building materials arriving on site and materials being delivered late.
  • The price of some materials, such as structural timber and reinforcing steel but cost pressures remain broad – in NSW in particular where many infrastructure projects are under construction, formwork timber and labour are struggling to meet demand. Contractors have been trying to expand escalation cluses in building contracts to share the risk of costs increases between the client and the builder but margins are generally under downward pressure. In many cases, costs are exceeding QS estimates by between 10% and 15%.
  • Labour costs have increased significantly since 2021, particularly for steel fixers (300%) and form workers (50%). For trades required on residential, commercial and infrastructure projects, such as form workers, labour availability has been exceptionally limited particularly in NSW.
  • In terms of building materials for residential properties: glazing and façade materials are in short supply and the labour cost component of the finished product has risen; lifts were in short supply earlier in 2022 due to a lack of transformers and transformer parts but availability is now improving; and concrete was previously in short supply but prices have returned  to where they were around the September quarter 2021.
  • Fit out costs have increased significantly particularly plasterboard, timber studs, insulation and joinery driven with increases being driven by increasing labour costs. Cold-formed steel prices have increased significantly and delivery lead times are long.
  • Building margins, particularly in multi-density construction, are very tight with contractors seeking (and in some cases) achieving the inclusion of escalation clauses into building contracts.
  • Supply of fully serviced land in Victoria and Queensland is limited, particularly for greenfield sites. In the urban fringe, site availability is less of an issue. In NSW, the government is bringing land to market.
  • Some NSW local councils do not support new development. As a result, the time taken for development approvals has extended over the last 2 years. In NSW the planning pathway is at least 12 months for build to rent projects – in Queensland and Victoria the same planning pathway is 4-6 months.
  • Obtaining a construction certificate in NSW has become more difficult dues to changes in regulations surrounding Class 2 buildings (i.e. multi-density buildings). All designers (i.e. architects and engineers) must now be registered to work on multi-density buildings.
  • Obtaining scale in affordable housing is difficult for institutional investors who have limited capacity to invest in regional affordable housing projects – in the capital cities, height and land density limits mean some affordable housing projects are not viable.
  • Developers in the multi-density market being have been affected by difficult trading conditions for builders – cost mispricing by these builders due to weather and supply chain disruptions have disrupted projects. Some projects in NSW have been placed on hold because the return is no longer attractive – rising construction costs are squeezing margins for developers and rising interest rates are reducing the amount of funds buyers can raise.

Leading the Charge: Federal government’s commitment to housing initiatives in Australia 

The most significant recent initiative is the establishment of the Housing Australia Future Fund (HAFF) and the commitment of $10 billion to establish that fund by the Albanese Government.

The commitment to these matters was first announced by Prime Minister, Anthony Albanese, in May 2021 as the Leader of the Opposition in his speech in reply to the Liberal Government’s 2021-2022 Budget. The legislation establishing the HAFF, in the form of the Housing Australia Future Fund Bill 2023, was introduced into the Federal Parliament in February 2023 – it was then introduced into the Senate in March this year and is currently the subject of political opposition in the Senate for a number of reasons including that it is not ambitious enough. Notwithstanding this delay, a process of broad ranging consultation with industry participants including NHFIC, the state housing agencies, community housing providers, constructors, financiers, superannuation funds is currently underway to solicit the views of key sector participants on a range of issues relating to Australia’s housing crisis.

As part of the Federal Government’s 2022 budget commitments, the remit of the National Housing Infrastructure Facility (NHIF) was widened, making up to $575 million available to invest in new social and affordable housing projects in addition to financing housing-enabling infrastructure.

These initiatives are to be further supported by the establishment of the National Housing Supply and Affordability Council. The National Housing Supply and Affordability Council Bill 2023 was introduced with the Housing Australia Future Fund Bill 2023 and Treasury Laws Amendment (Housing Measures No. 1) Bill 2023, and establishes the National Housing Supply and Affordability Council as an independent advisory body to the Australian Government on matters relating to housing supply and affordability.

Further significant announcements were made by the Australia Government in the 2023-2024 Budget as follows:

  • increasing the Government-guaranteed liability cap for NHFIC by $2.0 billion to $7.5 billion to enable NHFIC to increase its support for social and affordable housing through loans from the Affordable Housing Bond Aggregator (AHBA) – this is intended to facilitate the delivery by NHFIC of a further 7,000 low-income dwellings;
  • amending NHFIC’s Investment Mandate to require NHFIC to take reasonable steps to allocate a minimum of 1,200 homes to be delivered in each state and territory within 5 years of the HAFF’s commencing operation;
  • expanding the eligibility of the Home Guarantee Scheme to allow any 2 eligible people to be joint applicants for a guarantee beyond spouses and de facto partners; allow non-first home buyers who have not owned a property in Australia for at least 10 years to access the First Home Guarantee and Regional Home Guarantee; allow a single legal guardian of children to access the Family Home Guarantee and allow Australian permanent residents to access the Scheme;
  • redirecting interest earnings on unallocated NHFIC funds to support more social and affordable housing and delivery of housing priorities; and
  • halving the withholding tax for build-to-rent developments from 30% to 15% and increasing the depreciation rate for build-to-rent properties from 2.5% per year to 4% per year – to qualify apartment buildings will need to be retained under single ownership for at least 10 years and must offer tenants leases of at least 3 years.

The Federal Government also announced that it will provide $2.7 million in 2023–24 to the Treasury to support delivery of priority housing measures and is also enabling up to 3 additional members to be appointed to the National Housing Supply and Affordability Council to provide a greater breadth of policy expertise.

How States and Territories are driving change for social and affordable housing

The States and Territories are progressing their own initiatives to increase the supply of social and affordable housing.


In Victoria bids have been received by Housing Victoria for the Ground Lease 2 PPP and the announcement of a successful proponent is expected shortly – this will facilitate the redevelopment of existing social housing sites in South Yarra, Port Melbourne, Hampton East and Prahran. This follows the first Ground Lease PPP in 2020 which covered development sites in Brighton, Flemington, and Prahran.

New South Wales

In NSW, Land and Housing Corporation (LAHC) has called for bids for the redevelopment of the Waterloo Estate with short- listed bidders being announced in November 2022. This will be one of Australia’s largest urban renewal projects.

The renewal of the Waterloo Estate will increase and accelerate the supply of new social, affordable and private housing in that precinct with new social homes replacing the existing older social housing located on the site - that existing housing is around 40-70 years old and the current homes and facilities are nearing the end of their intended lifespan and are also increasingly difficult and expensive to maintain.

The renewal of the estate will be staged over the next 30 years to enable a coordinated approach that minimises disruption for existing residents. The project is made up of three related stages: Waterloo South, Waterloo Central and Waterloo North. Waterloo South covers about 65% cent of the Waterloo Estate and is the first stage of the renewal. The project will deliver around 3,000 new homes, made up of social, affordable and private housing as well as new and improved parks, open spaces and retail and community facilities. Mixed housing communities will be created where social housing blends with private and affordable housing, with better access to transport and employment, improved community facilities and open spaces.


At the Queensland Housing Summit in October 2022, the Housing Investment Fund (HIF) was boosted to $2 billion to support a revised target of 5,600 social and affordable home commencements across Queensland by 30 June 2027. Annual funding of $130 million a year is now available.

The HIF provides subsidies, one-off capital grants and other support to encourage developers, builders, Community Housing Providers, tenancy managers, institutional investors and superannuation funds to partner to develop, finance and operate social and affordable housing across Queensland. The HIF is a key enabler of the Housing and Homelessness Action Plan 2021–25, including the Queensland Housing Investment Growth Initiative, the largest concentrated investment in social and affordable housing in Queensland’s history. Expressions of interest have been called for and lodged for the second round of funding from the HIF with an announcement expected in June/July of successful proponents.

The Queensland Government has previously approved three Brisbane-based affordable Build to Rent housing pilot projects by developers - Frasers Property at 210 Brunswick Street, Fortitude Valley, Mirvac at 60 Skyring Terrace, Newstead and Cedar Pacific at 50 Quay Street, Brisbane. Combined, these properties will offer approximately 1200 rental apartments, including up to 490 dwellings to be provided at a discounted rent.

Western Australia

In its recent 2023-2024 Budget, the Western Australian Government announced it would provide https://www.wa.gov.au/government/announcements/511-million-funding-boost-social-housing-and-homelessness$511 million in new social housing and homelessness investment for initiatives across Western Australia – this includes the WA Government boosting social housing delivery with an additional $450 million investment in the existing Social Housing Investment Fund and a New Keystart loan program to boost housing supply.

The additional $450 million to be invested into the Social Housing Investment Fund, is expected to deliver around 700 additional social homes across WA and fund major refurbishments to the Department of Communities' ageing housing stock to ensure dwellings can continue to house vulnerable Western Australians now and into the future. As part of the WA Government's homelessness reforms, $49 million is being provisioned in the Budget for a pilot program to partner with community housing organisations to provide 100 supported landlord homes for people experiencing rough sleeping in regional Western Australia.

The McGowan Government has also made amendments to Keystart's pilot Urban Connect program that will mean one-bedroom apartments are now eligible under Urban Connect. A new Keystart Loan Program will also be introduced to enable customers to secure pre-sale off-the-plan properties.

The expanding role of National Housing and Finance and Investment Corporation

NHFIC was established by the Federal Government in 2018 under the National Housing and Finance and Investment Corporation Act 2018 (NHFIC Act) and operates subject to the NHFIC Investment Mandate (the latest version was registered on 21 December 2022) (NHFIC Investment Mandate) which is itself a legislative instrument. The responsible Minister is the  Minister for Housing, Minister for Homelessness and Minister for Small Business, the Hon Julie Collins MP (Minister).

The NHFIC Act:

  • provides the Board with statutory responsibility for deciding NHFIC's strategies and policies, and ensuring the proper, efficient and effective performance of NHFIC’s functions. The Board makes its investment decisions independently of Government;
  • provides for the appointment of the NHFIC CEO, who is responsible for the day-to-day administration of NHFIC, subject to and in accordance with the policies determined by the Board;
  • requires the Board to ensure that NHFIC maintains commercially sound and sufficient levels of capital and reserves; and
  • allows NHFIC to borrow money (supported by a Commonwealth guarantee).

Under the Public Governance, Performance and Accountability Act 2013 (PGPA Act), NHFIC is classified as a corporate Commonwealth entity being a body corporate that is legally separate from the Commonwealth.

NHFIC is part of the Treasury portfolio of agencies. Its responsible Minister is the Minister for Housing, Minister for Homelessness and Minister for Small Business, the Hon Julie Collins MP who became the responsible Minister following the Federal election in May 2022. The duties of the responsible Minister in relation to NHFIC are set out in the NHFIC Act. These include that the Minister appoints the Board and may provide directions about the performance of NHFIC’s functions in the form of an Investment Mandate, including in relation to such matters as strategies and policies the Board must observe, decision-making criteria, limits on financial assistance, and risk and return on investments. The Investment Mandate may not, however, direct the Board in relation to particular financing decisions.

NHFIC operates independently of the Government and applies commercial discipline in making financing decisions. NHFIC’s Board is responsible for determining strategy, defining risk appetite, making financing decisions and ensuring the proper, efficient and effective performance of NHFIC’s functions. The Chief Executive Officer reports to the Board and is responsible for the day-to-day administration of the organisation.

NHFIC’s main activities are:

  • provision of loans at a concessional interest rate to registered community housing providers (CHPs) funded out of bond issuances under the AHBA (see sections 16 -21 of the NHFIC Investment Mandate). Through its bond aggregator function, NHFIC is able to raise debt at a spread (determined by market conditions) over and above the Australian Government’s cost of borrowing. NHFIC passes the resulting cost savings on to CHPs alleviating the need for CHPs to pay commercial rates of interest thereby ultimately enabling CHPs to reinvest more funds back into social and affordable housing, historically in Australia, public housing was run by the states and territories but CHPs are a fast growing alternative to state owned and managed housing (and part of NHFIC’s statutory purpose is to support the growth of the community housing sector in Australia);
  • provision of loans at a concessional interest rate to qualifying applicants out of the NHIF(which is a separate pool of funds to the AHBA) (see sections 21A – 24 of the NHFIC Investment Mandate) – loans can now be made out of the NHIF for both a housing enabling infrastructure project or a social or affordable housing project;
  • operation of the Federal Government’s various home loan schemes (see Part 5A of the NHFIC Investment Mandate); and
  • a research function (see Part 5A of the NHFIC Investment Mandate).

In terms of the AHBA, NHFIC has undertaken 6 bond issuances to date totalling $2.195 billion in the Australian capital markets. Bonds have been issued by NHFIC to date for tenors of 10 – 15 years.  Bonds issued by NHFIC carry a Commonwealth Government guarantee (Cth Guarantee) pursuant to section 51(1) of the NHFIC Act. The Minister has power under section 51(3) of the NHFIC Act to determine a cessation date for that guarantee (which may not be earlier than 1 July 2023) by legislative instrument. Contracts entered into prior to any cessation of the Cth Guarantee (including any bonds issued prior to that time) will continue to have the benefit of the Cth Guarantee.

NHFIC’s bond issuances consist of $1.787 billion in social bonds and $408 million in sustainability bonds. All six NHFIC bonds support social and affordable housing outcomes, in addition to sustainability outcomes achieved by NHFIC’s sustainability bond. In respect to each category:

  • social bonds are any type of bond instrument where the proceeds, or an equivalent amount, will be exclusively applied to finance or re-finance in part or in full new and/or existing eligible social projects and which are aligned with the International Capital Market Association’s (ICMA Social Bond Principles 2021; and
  • sustainability bonds are any type of bond instrument where the proceeds or an equivalent amount will be exclusively applied to finance or re-finance a combination of both Green and Social Projects (ICMA, Sustainability Bond Guidelines, 2021). 

All 6 NHFIC bond issuances support social and affordable housing outcomes, in addition to sustainability outcomes achieved by NHFIC’s sustainability bond. NHFIC’s social bonds represent 15% (approx) of all Australian dollar social bonds outstanding in the Australian debt capital markets. NHFIC is the only Australian domiciled issuer of social bonds and is the second largest issuer of Australian dollar social bonds behind the Asian Development Bank.

To date, NHFIC has provided long-term loans totalling $3 billion under the AHBA to registered CHPs supporting 16,365 new dwellings and potentially saving CHPs an estimated $550 million in interest and fees as well as associated refinancing costs. It has also approved $413.5 million in funding for infrastructure facilities (out of the NHIF) to unlock over 7,500 projected new dwellings and thereby accelerate housing supply (note that figures are as stated in NHFIC’s Annual Report 2021-2022). NHFIC also has access to a line of credit from Commonwealth Treasury which it can utilise as a short term funding measure pending issuance of bonds under the AHBA.

NHFIC has also been collaborating with the community housing sector on an industry-led ESG Reporting Standard, one of the first country-based CHP standards developed. The ESG Reporting Standard was released in March 2023. The development of a national reporting standard for CHPs across Australia will help better position the sector to access capital and diversify its investor base. Momentum is building around the world to mobilise capital to help deliver better ESG outcomes and, as a result, there is a growing appetite from investors for more information on these non-financial factors so they can better identify material risks and growth opportunities. Global finance channelling into ESG-related activities has grown exponentially over the last decade, with capital into social bonds increasing significantly over the last five years. In November 2020, the UK developed a new Sustainability Reporting Standard for Social Housing (SRS), for housing associations to demonstrate their ESG credentials. The CHP standard developed in Australia has drawn on the success of the SRS and will be tailored to Australia.

The community housing sector performs an instrumental role in the Australian housing system, but remains a relatively small industry and hasn’t yet established itself in equity and debt capital markets. NHFIC has provided an important link between CHPs and institutional investors, but there is an opportunity to make the sector more recognisable, transparent and accountable to investors and lenders who are increasingly focussed on ESG outcomes. The ESG Reporting Standard includes reporting on things like greenhouse gas emissions, the number of longer-term secure tenancies offered to tenants and the wrap-around services CHPs offer their residents. The reporting framework allows the aggregation of data across CHPs, to provide greater insight into the CHP sector and its ESG impact. NHFIC has worked with CHIA and other organisations on developing the Standard. This work has included extensive consultations with the broader CHP sector and investors.

The ability of NHFIC to offer concessional interest rate loans and to provide significant long-term financing has been and remains an essential ingredient in the ongoing development of the stock of social and affordable housing in Australia.

Challenges and considerations in social and affordable Housing Investments 

There is increasing interest in the social and affordable housing sector in Australia as an investor asset class. This is true for both international investors and financiers and major Australian investors and property companies.

An important factor to bear in mind is that if a project proponent is considering a new housing development and wants to raise finance from NHFIC, it will be necessary to set up a registered  CHP - NHFIC can only provide AHBA backed loans to registered CHPs under the NHFIC Investment Mandate. This involves dealing with state based bodies such as the NSW Housing Registrar (or the equivalent regulator in the relevant state or territory) and meeting the regulator’s requirements particularly around financial strength, reporting, governance and the distribution of housing assets upon insolvency or winding-up. It will also involve dealing with the Australian Charities and Not-for-profits Commission (the national regulator of charities) to obtain status as a registered charity and with the Australian Taxation Office to obtain the relevant tax exemptions available to charities.

The Commonwealth together with the states and territories have established the national Regulatory System for Community Housing (NRSCH). Registered CHPS in all states (except Victoria and Western Australia) are subject to the National Regulatory Code for the NRSCH which sets out the performance requirements that registered housing providers must comply with in providing community housing under the National Law. Community housing providers must demonstrate their capacity to comply with the National Regulatory Code on application and once registered, must demonstrate ongoing compliance with the Code. NRSCH policies provide guidelines for Housing Registrars to achieve a consistent approach in the exercise of their regulatory functions. Policies are agreed and adopted by all jurisdictions participating in the NRSCH. All states and territories other than Victoria and Western Australia participate in the NRSCH.  Each participating jurisdiction has passed legislation adopting the national regulatory system. In Victoria CHPs are regulated under the Housing Act 1983 and in Western Australia under the Housing Act 1980. 

A registered CHP will invariably be established as a company limited by guarantee and therefore will have no share capital as such but simply one or more members. This is important to bear in mind as “equity” like funding from third party investors seeking a commercial return cannot be contributed as share capital but rather must be contributed to the CHP in the form of subordinated debt – this debt will rank behind, and be subordinated to, any senior debt funding from NHFIC or commercial banks (i.e. it will be treated as deeply subordinated akin to traditional equity in the form of share capital). Capital can also be contributed to a registered CHP by way of donation or gift.

When considering how to structure any subordinated debt instruments, the requirements of section 16(2) of the NHFIC Investment Mandate must be borne in mind – this provides that NHFIC may provide a loan in relation to a mixed tenure development only if it is satisfied that any profits from the development will be applied to support affordable housing outcome.

It is also important to bear in mind that even though commercial banks and NHFIC will take security from the registered CHP, enforcement of security against a CHP is unlikely to be straightforward in practice as housing regulators are likely to become involved in the work-out with a view to ensuring the relevant social and affordable dwellings remain available as housing stock for that purpose.  Housing regulators themselves have the ability to appoint a statutory manager to the CHP if the regulator is concerned as to the state of its solvency. The interaction between such a statutory manager if appointed and a receiver and manager appointed by a third party creditor will then have to be addressed in the work out scenario.

Housing agencies frequently provide contributions, grants and subsidies to CHPs in the form of recoupable grants which are secured on a long term basis and which need to be addressed as part of any senior financing arrangement.  If a registered CHP obtains funding from a state housing agency or government department, this will invariably involve a funding agreement and the taking of security by that agency/department for its grant/loan. If there is senior debt funding in place with NHFIC (or commercial banks), a priority agreement will be required with the agency /department regulating priorities as between the two creditors. In NSW, housing agencies are moving away from taking registered mortgages over real estate and instead will now rely on a statutory charge over the land as provided for under sections 18 and 19 of the Community Housing Providers (Adoption of National Law) Act 2012 (NSW).

The above matters are just some of the issues which need to be navigated when considering an investment in the social and affordable housing sector and access to NHFIC funding.

Author: Peter Doyle

Expertise Area