The Grattan Institute has proposed a $20 billion social housing fund to build 3,000 new homes per year

The Grattan Institute has proposed a $20 billion social housing fund to build 3,000 new homes per year
(Lucas Schifres, Getty Images)
  • A new report from progressive think tank Grattan Institute proposes the federal government create a social housing fund that would take a national approach to the housing supply crisis. 
  • More ambitious than proposals already put forward by the Greens and the national Labor party, the Social Housing Future Fund would have the potential to add an additional 3,000 homes a year. 
  • Brendan Coates, director of the Grattan Institute’s economic policy program, said the current housing shortfall needed to be addressed with large-scale federal action.
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A bond-funded $20 billion Social Housing Future Fund would allow for the creation of an extra 3,000 social housing dwellings a year to address increasing demand for accommodation for lower-income Australians, a new Grattan Institute report says. 

The federal government already manages six funds worth a collective $247.8 billion, including the $199.1 billion Future Fund, the nation’s sovereign wealth fund, the institute said. 

A social housing fund that commenced in 2022 could build 24,000 additional dwellings by 2030 and 54,000 by 2040.

It comes amid an ongoing debate around how to address the nation’s housing crisis, which has accelerated over the past two years due to soaring property prices and an exodus to regional Australia. 

This year, both the Greens and federal Labor party have presented election policies to address housing supply problems. 

Greens leader Adam Bandt on October 19 launched a plan to build one million affordable homes for Australians locked out of the property market for $300,000 at an estimated cost of $7.5 billion over four years.

The Labor Party in May proposed the creation of a $10 billion off-budget Housing Australia Future Fund to build 20,000 social housing properties over its first five years. 

Brendan Coates, director of the Grattan Institute’s economic policy program, said Australia’s recent history showed the federal government regards social housing as a state responsibility — but tends only to invest in it to stimulate the economy in times of crisis.

“Australian governments have been reluctant to invest in social housing outside of recessions,” Coates said.

This occurred after the global financial crisis in 2009, with the $5.64 billion Social Housing Initiative.

“Investment in social housing was anaemic in the decade after the global financial crisis, right up until COVID struck,” he said. 

“That’s because social housing is expensive, and not much of a vote-winner.”

But now the lack of government investment is becoming a growing problem, the report said. 

The country’s 430,000 social housing dwellings, which constitute accommodation for the lowest-income Australians who pay rents capped at 25% of household income, have dropped to 4% of total stock.

This is compared with 6% of total stock in 1991. 

A $20 billion social housing fund — twice the size of the $10 billion fund the opposition Labor Party promised in May — with an investment mandate to target after-inflation returns of 4% to 5%, could over time provide a dividend averaging $900 million each year, the report says.

Adding to this, the direct financial cost to the federal government would be minimal — about $400 million a year in the form of interest costs on the outstanding debt.

The report also proposes that part of the fund returns could be used to cover the interest costs, leaving $500 million available each year to fund the construction of an annual 1,700 new dwellings.

In practice, the report said the federal government should require state governments to match federal contributions to new social housing as a condition of any grants being allocated to their state.

Any state that did not agree to provide matching contributions would be ineligible for any capital grants for social housing in that year, with the proceeds instead reinvested in the Future Fund and redistributed across all states the following year.

If states matched the funding, the fund could provide 6,000 social homes a year, which would be enough to stabilise the social housing share of the total housing stock. 

It would double the total social housing built to 48,000 new homes by 2030, and 108,000 by 2040.

A report released last week showed that housing affordability had plummeted since the start of the pandemic, particularly for low-income Australians. 

It found rental stress had risen, and the gap between incomes and average rent had widened, in almost every part of Australia except Sydney and Melbourne. 

Another report by JLL said Australia will face a rental affordability crisis as domestic and international borders reopen. Brisbane would be hit hardest, with insufficient supply likely to push rents up by more than 5% over the next five years.

The 2021 Intergenerational Report predicts Australia will need 104,430 new social housing units by 2040 to sustain the current social housing share of the total stock, assuming a slowing annual population growth to 1.1% by 2040 from the 40-year average 1.4% rate.

As Australia’s population has grown, the decline in stock has pushed many people into the private rental market, the report said.

In the current national rental market, where tenure is less secure and more costly, the median low-income social renter pays 24% of their income on rent, compared with 37% for the typical low-income private renter.