Could social impact investment be the disrupter needed for affordable housing and homelessness in Australia?
It's the last days of national homelessness week, and just up the road from our CSI Sydney office is the camp otherwise dubbed by the media as "tent city" – a place where people who are homeless have gathered as a community and a protest. This has become a political contest between local, state and federal governments. Irrespective of where you sit on this issue, at the heart of it, we have a critical problem – a lack of stable, safe affordable accommodation for people who are most vulnerable in society.
In such a wealthy country the scale of the number of people in Australia affected by housing unaffordability and homelessness is bewildering. More than one million Australians faced housing stress in 2015, spending more than 30% of their gross income on housing costs. Almost 200,000 households are on social housing waitlists and over 1 in 4 of these are of ‘greatest need’. And alarmingly, on any given night in Australia, more than 100,000 people are homeless.
The problem of housing affordability and homelessness is of such a scale that we need multiple strategies and a coordinated response. We not only need existing and new solutions that have efficacy, we also need the capital to fund them. In a new report released with AHURI this week “The opportunities, risks, and possibilities of social impact investing for housing and homelessness”, CSI researchers across the network ask: could social impact investment provide that capital?
Social impact investment (SII) aims to achieve a social and financial return. By definition SIIs aim to achieve a social impact by providing a financial and social return, which would not have occurred without the investment. These are usually cross-sectoral initiatives that involve social purpose organisations, investors (private, institutional or government) and regulators and enablers (government and intermediaries).
In the housing space, social impact investment can be in property through the provision of, affordable housing, housing support services, or both. Different finance models can be used to fund the investment, including:
- Social enterprise models where businesses invest, generate a return and reinvest their profits into social good (e.g. Community Housing Providers)
- Social impact bonds (e.g. pay by performance instruments where government fund NFPs – like housing providers, specialist homelessness services or tenany support organisations – and investors based on the outcomes that are achieved)
- Other investment models (e.g. aggregated bond model – used in the UK and floated as an option in Australia; low income tax housing credits; or mutual funds).
The big question is can SII work? While still in its infancy in Australia, overseas examples suggest that under certain circumstances it could help to:
- Increase the supply of affordable housing;
- Increase the supply of fit-for-purpose social housing; and
- Help support residents to maintain stable housing and achieve other positive outcomes (e.g. they can act as an incubator for government to trial innovative and new ways of providing services).
SII in property has significant potential for scale because the property asset can help mitigate the risk of an investment. In regard to Social Impact Bonds (SIBs), there is evidence that significant money can be saved if we invest in early intervention and prevention, i.e. housing first and tenancy support to go with it – than if we don’t.
In addition, SII could help support innovative ideas, drive cross sector collaboration and increase the focus on prevention, early intervention and outcomes.
However the potential of SII will only be realised if barriers and risks are addressed and certain conditions are in place. Government can play a key role in assisting to address a number of these, including:
- Bridging the gap between market and actual financial returns is one of the key barriers to increasing investment in this area. The expectation of most investors is to generate a market based financial return and to invest only in the market if risk can be somewhat mitigated.
- Providing a stable environment for investors with stable, long-term policy and funding environment (e.g. National Rent Assistance Scheme)
- Sharing risk with investors &, in many cases, community organisations
- Providing infrastructure that can help reduce the risks and costs of transactions and delivery (including organisational readiness; outcomes measurement; effective and affordable intermediaries)
- Establishing finance models that can be scaled and minimise risk (e.g. the bond aggregator model used in the UK could help increase scale and lower the cost of finance).
It is important to acknowledge critical risks and warnings. SII is not a panacea. It is not a replacement for existing funding (and we need to ensure that SII funding does not replace funding for effective existing programs that do not match SII). SIIs can have very high transaction costs and, like any investment, some may not result in financial returns.
Finally, and most importantly, we must remember that SIIs are designed to address complex social issues. The people SIIs serve may be vulnerable and have complex needs. If these investments fail, the potential for causing harm is significant. Safety nets must be put in place to ensure this doesn’t happen. If we can overcome barriers and mitigate risks, SIIs could be a disruptive force for good.