Financing Affordable Housing

1. Financing Affordable Housing NSW Community Housing Conference 2006 The Affordable Housing Partnership

2. The Affordable Housing Partnership • The Affordable Housing Partnership • vast experience in the housing industry • complementary skills in property development, property finance and social housing management • passionate commitment to the development of innovative affordable housing initiatives. • Hal Bisset • leading figure in the social housing sector for over 25 years • founder and CEO of Ecumenical Housing • Principal of Ward Bisset Consulting. • David Moeller • property developer for nearly twenty years • formerly Development Director of Victoria Harbour for Lend Lease • Board member with the Port Phillip Housing Association. • Neil Youren • financier with significant experience in all aspects of property financing • Formerly Global Head of Property Finance for NAB • Member of Victorian Ministerial Housing Council • Founder of Monash Capital Group

3. The Affordable Housing Partnership • Will address a major gap in the emerging affordable housing sector – the lack of property development and finance experience in the not-for-profit sector. • Generally acts as the agent of a Registered Housing Association by assisting to: • procure land from developers • oversee the design and construction of dwellings • secure finance for the development and • implement long term property management strategies. • Key role is knowledge transfer to the not-for-profit sector • Each stage of the development & finance task has been carefully analysed to find the most effective and efficient means possible to deliver the final product.

4. Housing development & finance • Financing affordable housing cannot be separated from the overall development of the affordable housing project • All investors will undertake due diligence involving complete financial analysis of the viability and sustainability of the project • Due diligence will also involve scrutiny of the risk management capability of the organisation developing the project and managing the project • Good governance of the organisation will be absolutely essential • The organisation will also have to demonstrate high level skills in both: • Housing development • Property (tenancy & asset) management

5. Steps involved in negotiating affordable housing finance • Clarifying the costs of housing development • Employing strategies for reducing the costs of development • Understanding the cash flows required for development • Estimating the revenue streams for a housing project • Estimating the costs of housing management • Raising debt finance against the net income stream • Securing equity finance from social investors • Securing equity finance from private investors • Reducing equity finance by capturing development profit • Incorporating affordable home purchase to enhance financial viability and improve housing outcomes

6. Clarifying the costs of housing development

7. Employing strategies for reducing the costs of development

8. Understanding the cash flows required for development

9. Estimating the revenue streams for a housing project

10. Identifying & minimising the costs of housing management

11. The importance of life-cycle costing to financial sustainability

12. Finding a structured finance solution • What level of debt can the project sustain? • Are there any social investors willing to contribute to the project? • Will government contribute a capital subsidy and if so under what terms? • Is private equity available and if so under what conditions? • Is there potential to capture development profit and if so what are the risks? • How can all of these be packaged together in t structured finance solution?

13. Raising debt finance against the net income stream • United Kingdom: 70% geared • Australia: 30% geared – Why? • Cash flow is sustainable, but.. • New asset class and • Lack of liquidity for refinancing • Documentation is crucial • Interest rates will inevitably come down • Rates may be able to be fixed for longer • However affordable rental schemes will always require some subsidy

14. Securing equity finance from social investors

15. Capturing development profit • Development profit = the difference between market value and the total cost of production • Development profit can be used to offset the cost of acquiring the balance of dwellings which are retained for affordable housing • Risks are significant = construction risk + market risk • Risks can be managed through joint venture with private developer with proven track record • Joint venture = sharing of risk: upside and downside

16. Securing equity finance from private investors • Private equity not yet readily available, but will come as understanding of residential sector increases • Will still require subsidy but could be recurrent rather than capital • Structured equity – quite possible now • Infrastructure analogy, issues are • Acceptable minimum return • access to asset – not necessarily ownership • Capability of sponsors and managers

17. Partnership approach to finance • Blending • Community Sector • Housing Sector • Finance Sector, • Mixes of any two are interesting but.. • Most powerful is all three

18. The Home Ownership GAP

19. A New Approach – Home Ownership Achievement Scheme

20. HOAS: Goal is 100% finance = No subsidy

21. HOAS and NSW • Trialling in SA and Vic • Would like to trial in NSW • Needs suitable Housing Association • Either Greenfield sites or existing housing stock • Needs 100+ dwellings to establish scale • Benefits are: • Creates additional rental stock that converts to.. • Ownership scheme for tenants • Capability transfer plus income stream for Housing Associations