How property investors can have a positive community impact without sacrificing financial gains

There exists a property investment strategy with guaranteed healthy returns and low risks. It’s called Social Housing. Clever property investors have been quietly reaping the benefits for decades.

For more than a decade property investors and mortgage holders have enjoyed record increases in property value, but all cycles must complete at some point. As policy makers respond to the unfolding housing crisis across the nation, those with investment properties may be nervously wondering what they can do to shore up their assets for the inevitable decline in values and rental prices. The good news is that property investors have the chance to move their assets into a safe place and help those in need while they’re at it.

Newy Finance saw it coming a mile off so we’re ready answer these key questions for you:

• What is social or government housing?
• How does social housing work in Australia?
• Why is it such a great investment strategy for both new and experienced investors?
• What are the different social housing options for property investors?
• What are the benefits of investing in social housing schemes, and who stands to gain?
• How can I find out more about placing my investment property in Social housing or Defence Housing programs?

Predictably, big changes are on the way. Newy Finance is looking past the immediate pandemonium, instead choosing to focus on getting clients ahead and their assets safely growing. Let’s kick it off!

Never heard of it: What is social housing in Australia?

Social housing describes rental housing that is owned or managed by not-for-profit, non-government organisations or directly by the government. They are funded or partly funded by the government with the aim to provide safe, stable and affordable housing to those who need it.

Social and community housing programs have different focuses and scope. This could be:

• Long-term and short term housing
• Specialised housing for disadvantaged community groups
• Crisis accommodation and housing for emergency situations
• Housing for Australian Defence personnel

A host of unfair negative stereotypes and stigma exist around placing privately owned investment properties in government programs, and it’s a real shame because they’re one of the safest places to put them with the highest level of protection on offer.

How do government housing programs work in Australia?

Unless you look at direct options – such as Defence Housing or Community Housing Programs – the most common way property investors become involved in social housing is via property developers who have won a tender to develop and construct a number of homes fit for this purpose. Options exist for both homes currently in the private rental market, and those looking to be newly developed via various methods.

Contrary to public perception, the majority of Australian who live in properties managed by the government are model tenants who look after their properties with pride and gratitude.

But what about people that trash the place?  Maybe not surprisingly, it happens on a much higher scale in the private rental market. But it’s really a non-issue in this case because it’s the responsibility of the government and/or housing providers to repair and rebuild any damage that occurs to a privately owned property placed into their care.

Why is government housing a great property investment strategy?

Government housing programs offer the guarantee of a property that is constantly tenanted, well maintained and often offer varying degrees of financial incentives to subsidise a lower rental income.

If you’re into the stock market and investing in shares, the government housing programs are very similar to investing in government bonds. They’re considered low-risk investment because the debt is owed by the government. Similarly, investors placing properties with social housing providers or directly with the government via programs experience long term, low risk returns. It’s in their best interests to make sure those investment properties are kept in tip-top shape.

Passionate about ethical success after a 20 year career in wealth management, Mike Cowan – the Director of Web Brains and Newcastle local – had this to say on the topic:

 “It’s fairly clear that Governments are leaning harder and harder into the issues surrounding housing affordability and particularly access for low income families.

If we assume that change is coming, then history teaches us that people who are ahead of the wave benefit far more than those behind it. If there exists a possibility to get a government guaranteed rental return, asset maintenance and extended guaranteed tenancy, this is potentially an adjustment in risk profile and a significant reduction in many of the risks associated with investment properties.

Aside from obvious social benefits, a lower but stable return could represent an attractive option for investors who potentially need stable income more than higher, but riskier returns.”

It’s one of those underrated and often over-looked investment options, but Newy Finance is working to bring about more awareness.

What are they then? The social housing programs Aussies can invest in

There are several different social housing programs and schemes that are funded or managed by Federal or State governments to varying degrees. They often partner with external social housing providers in delivering these services.

Depending on the scheme, a property investor may need to engage with the social housing provider, government department or property developer as a first point of contact.

The 4 main programs include:

• National Rental Affordability Scheme – this scheme generally requires the dwellings offered to be newly constructed, so property investors can access it by contacting the department for a list of property developers who are constructing homes for it.
• Affordable Housing Scheme – this is similar to the NRAS but is a little simpler for individuals simply wishing to rent their investment property out at below market value to approved tenants.
• Defence Housing Australia – you can opt to invest in a property with Defence Housing Australia or lease a property to Defence Housing Australia. They provide a high quality and comprehensive standard of property management, long term lease conditions and regular free valuation services to keep your rental pricing in line with market value.
• Community Housing Leasing Program – This program provides government funding to community housing providers to transition private rental market housing to social housing. Home in Place is a Newcastle provider you can contact to discuss placing your investment property into their social housing program.

There is a marked increase in ’Impact Investing’ in Australia, with investors having an bigger interest in delivering a positive social and environmental impact on top of favourable financial returns. A recent announcement by the Office of Social Impact Investment in NSW gives a glimpse of the upcoming opportunities to existing and aspiring property investors.

Who benefits from social housing investment? All of us!

The simple and truthful answer is everybody benefits. Some local Real Estate Agents might have a couple less properties to sell or manage, but after a decade out in the sun we think they’ll cope just fine.

A win for Property Investors

You could be looking to buy your first investment property, transfer existing ones or repurpose a family home in favour of down-sizing. The reasons for properties entering the market as to rent homes is as varied as their owners.

The major benefits to investors can include:

• Stable rental income over varying lease periods – some as long as 10 years
• Subsidies to cover the gap between market rate and the leased rental rate
• Financial incentives in the form of tax offsets, lower Capital Gains Tax when the property is sold in the future or direct payments
• Reliable and high quality property management with well-established processes and standards
• Guarantees on property condition maintenance, including repairs to any damage incurred

We can’t leave out the long break investors get from actively involving themselves in property and tenant issues – and you know what? You get all those benefits while providing a home to someone who needs it most.

A win for the Australian Government

These programs benefit the government greatly. They take pressure off the already stressed services and departments, and offer the government breathing space to construct state-owned dwellings to offer through their various schemes.

After a long slowdown in construction of Australian houses in general and the effects of closed borders since 2020, the demand for housing is outstripping even our fastest efforts to supply it.

In February 2022 the National Housing Finance and Investment Corporation released its State of the Nation’s Housing 2021-22 report and the findings were sobering. By 2025, we will have an estimated shortfall of 163, 400 homes compared to the people who need them.

Released in May 2022, an excerpt from a paper released by the City Futures Research Centre at the University of New South Wales states:

“The 30,000 public and community housing lettings to new tenants recorded across Australia in 2020-21 represent a nominal decline of 42% compared with the 52,000 logged in 1991. Proportionate to population, the decline is 61% – that is, 30.0 lettings per 10,000 population in 1991 versus 11.7 in 2020-21.”

The government cannot possibly deliver these homes alone, with its latest commitment of delivering 30, 000 homes for social housing by 2027 falling well short of the previous figure.

Already we are seeing investment property owners who leave their properties vacant as holiday homes or accommodation rentals receive requests from local councils and shires to place them on the private rental market for short terms to relive the brewing crisis. Discussion surrounding a tax on vacant properties is also being discussed, already implemented in Victoria.

A win for tenants who need affordable housing

Affordable housing supply has been in a deficit since the 1990s. The latest data from the 2021 census shows that need growing to an unreasonable level for a developed nation like Australia, with regular home ownership and rental prices exceeding what the many Australians can afford.

An excerpt from a report by the Australian Housing and Urban Research Institute states:

 “We find that 564,864 Australian households were living in or had requested to live in social housing. As there were 9,275,217 households in Australia in 2021, this meant 6.1 per cent of all Australian households (564,864 households) were living in, or had requested to live in, a form of social housing.”

6.1% of our total population is by no means a small figure, and this data was collected well before sharp increases in the cost of living, inflation and interest rate rises. When you consider that those who recorded themselves during the census as ‘Renting – Private’ but pay 30% or more of their wages to cover it – it’s difficult to assess the true level of housing stress unfolding.

The distance between who we imagine needs social housing, and who actually does need sit has widened dramatically over the last decade.

For tenants the list of benefits they get from stable, safe and affordable housing is long. Ultimately the aim of social housing is to ensure equal opportunity exists for citizens to transition to the private rental market and home ownership, and have reasonable health and wellbeing outcomes in their lives.

Interest rates making your eyes water? Find out more about investing in government and social housing property

This is change in national discourse and policy as housing supply dwindled was not only predictable but expected. Disruptive changes that have catastrophic impacts like a global pandemic exacerbate already stressed systems, and always invite sharp re-examinations by society, as they should.

The answer is a simple one, and one that clever property investors have used for decades – government housing.

As far as Newy Finance is concerned, the current state of the property market and economic outlook is just another opportunity to be creative and forward thinking about how to help clients get ahead and stay ahead. It turns out solid investments and doing good in your community don’t have to be separate. What’s not to like about that?

If you’re concerned about servicing the mortgage on your current investment property or are looking at purchasing or constructing one, this approach is worth serious consideration. Get in touch with Jon to talk about whether it’s the right approach for you, how to make it happen.