Affordable housing limited by ad hoc funding, new research finds

Affordable housing project outcomes are being driven more by funding opportunities than by defined housing needs, new research by UNSW Sydney has revealed.

The research, Paying for affordable housing in different market contexts, was undertaken for the Australian Housing and Urban Research Institute (AHURI). 

Report authors Professor Bill Randolph, Dr Laurence Troy, Dr Vivienne Milligan and Ryan van den Nouwelant, from the City Futures Research Centre in the UNSW Faculty of Built Environment, analysed six recently completed affordable housing developments across Australia.

An interactive modelling tool, the ‘Affordable Housing Assessment Tool’ (AHAT), was developed to determine how affordable housing project costs, revenues and subsidies impacted affordability for the range of lower income households in need of affordable housing.

Funding opportunities for affordable housing include having access to government land; public and private capital and debt finance; tenant rents, including from commercial tenancies; and sales of properties to the private market.

Depending on how these diverse sources of funding are combined can add complexity, cost and financial risk to delivering affordable housing.

For instance, in the absence of adequate funding, community housing providers are having to reduce the proportion of their developments dedicated to social and affordable housing in order to reduce project debt to levels that can be serviced by rents from low-income tenants.

"What we have developed for the first time is a tool that enables us to start with housing needs, then figure out which types of subsidies and policies will best be able to fund projects to meet those needs," says Dr Troy.

"By using this tool we also found subsidising the private sector to produce affordable housing that is available for a defined period of time is less cost effective over the longer term than directing such subsidies to not-for-profit housing providers."

The report makes a number of policy recommendations to help affordable housing meet the needs of low-income households:

• make public land available at below-market cost to support affordable housing development;
• keep affordable housing in the not-for-profit housing sector to retain for the long term the social benefit created by public investment;
• encourage mixed tenure developments and development at scale;
• provide ‘gap funding’ to help reduce the need for private financing;
• use needs-based modelling for investment decisions and to drive the allocation of subsidies.

The research report is available here.