Finance for Rental Housing Steve Bevington Managing Director Community Housing Limited Group, Australia

 A large Australian not-for-profit company delivering affordable housing to those on low incomes  Established in Australia in 1993 and has spread operations to South Asia, South-East Asia and South America  Focus on developing housing options for those experiencing housing difficulty so they can enjoy stable lives, raise families, engage in employment or study  An accredited and registered organisation with more than 5,700 properties under rental management across Australia.  Internationally operating in Timor Leste, Chile, Papua New Guinea and India. CHL aims to assist those who are disadvantaged by market failure by providing affordable rental or home ownership  Financial capacity- Assets-$503 million Interest bearing loans-$104 million Equity-$320 million Community Housing Limited

Affordable rental housing  Affordable rental programs can be introduced through subsidies to reduce the cost of market rental either through direct Government provided capital grant programs or direct provision of housing.  Rental eligibility requirements are necessary to ensure that housing is allocated to those in greatest need.  Income adjusted or discounted market rent systems ensure affordability  Effective regulation of affordable rental providers ensures public confidence in the delivery of rental operations and allocation of subsidies  Rent to Buy programs allow tenants an affordable rent in order to save for a deposit and secure a home loan.  Shared equity allows a home owner to gain entry through owning part of a home and when income rises purchase the remainder. These need an equity partner — either a financial institution or a government-backed provider.

Financing fundamentals to drive affordable rental housing supply The following preconditions are necessary to develop a significant rental housing sector:-  Effective rental housing legislation to protect tenants and investors.  Transparent, straightforward property registration and transfer system to provide security for investors.  An effective housing provider framework to develop and manage rental housing  Predictable revenue and management/overhead costs for managing rental housing  Stimulus for housing development through access to land, capital, subsidies, taxation relief and/or planning concessions.

Financing approaches  Assets used as security portfolio for leveraging capital eg. asset transfer programs in UK  Capital fund/grants to finance property development and attract co-financing from private financiers eg. expansion of rental housing in Europe and Australia  Supply side Rental housing subsidies to cover the gap between rental revenue and cost of finance as takes place in Austria and Australia  Demand side Rental housing allowances to cover the gap between tenants’ ability to pay and rent charged as takes place in Europe, Chile and Australia  Tax credits for rental housing supply to attract private investment eg. driver of affordable rental supply in USA and Australia  Affordable housing fund/bank issuing government guarantees or bonds to attract equity into rental housing supply.

Debt financing for rental housing supply Debt financing can be sourced through property backed securities at terms dependent on credit risk assessment based on whether there are guarantees; housing provider track record; and institutional capacity of jurisdictions. CHL has a ten year record of sourcing debt finance sources debt under following conditions without guarantee:-  Terms between 3-10 years  Loan to value ratios at 50% under first mortgage conditions  Interest cover ratios of 1.3  Interest rates at the standard home loan lending rate

Equity for rental housing supply Equity can be secured to drive rental housing supply securing returns through capturing development surplus, rental revenue after overheads, and capital gain. A financial instrument such as a Unit Trust allows investors to buy units and trade these at a time of their choosing:-  Equity Fund secured against title through freehold or first mortgage  First rights over rental revenue stream  Rental subsidy and/or taxation relief to meet the gap between revenue and agreed returns  Rights to liquidate stock progressively in order to realise capital gains.

Capital grant from Government with balance provided by private partner using Equity contribution or conventional borrowing Equity Contribution Delivered Front Line for Social Housing Conventional borrowing Donations Joint Ventures Government Subsidies Government Grants Private Funding Rental Housing Financing Contribution by regulated providers leveraging equity in the existing portfolio Rental subsidies payable by Govenment on properties tenanted to public at reduced rent. Private investors investing into social and affordable housing projects through special investment vehicles Joint Ventures between private sector, not for profit and public sector Direct development funding, borrowed from mainstream banking institutions, based on the return Philanthropic funding