Repackaging the poor: the quest for institutional investment in social housing

Anita Blessing, University of Amsterdam, the Netherlands Tony Gilmour, Elton Consulting, Australia

Overview • US and Australia: only tax credit cases: first

chance to compare the two, and consider international social housing implications

• Tax credits as a major driver of hybridity, and convergence of organisational forms

• Exploratory research: seeking feedback from a European perspective

• Marketing a dependable source of income to private investors: commodification of social housing finance?

• Implications of the switch to institutional from personal investment in social housing

“The Low-Income Housing Tax Credit (LIHTC) is the most important resource for creating affordable housing in the United States today”

US Department of Housing and Urban Development, 2011

Knowing your tax credit (1)

• Spending on affordable housing construction without increasing public expenditure

• Decreases public income• Benefits profit-making, tax-paying entities • Flows to not-for-profits, traded for upfront

development capital, or provided to NFPs as a grant

• Could be for individuals, but tailored to institutional investors

Knowing your tax credit (2)

• Competitive bidding (marketization): NFPs vs.

FPs

• New dynamics: risk / reward/ competition/

professionalisation

• High transaction costs flow to FP intermediaries

• Equity style product

• Leakage of public funds

The rise of the tax credit

1986 2009-11

USA - Low income Housing Tax Credit Program

Australia - National Rental Affordability Scheme

Established as temporary program

1993

Made permanent

1995

Attempts tomake program temporary again(vetoed)

2003

Proposed tax reforms threaten program

1989

Bush threatensto veto unless Congressagrees to endCapital Gains tax

2005

Key resourcepost Katrina

Tax creditschemesunder fire?Resurgence-Google invests

2007

National Affordable Housing Summit Group proposes tax credit scheme

2008

NRAS launched by Federal Government

2009

Round 3 tries harder to attract institutional investors(1000+)

2010-2011

SetbacksFunding diverted, targets reduced, then restored

“Although it's been done overseas quite successfully, it is a new asset class in Australia and it's a new arrangement that businesses will be entering into.”

Australian Housing Minister Tanya Plibersek, 2009

Housing policy transfer?

The NRAS “stands on the shoulders of other proposals and particularly the US scheme”

Prof. Julian Disney, 2011

LIHTC and NRAS comparedLIHTC NRAS

Affordability requirements

30+ years 10 years

Targeting Low-income Low-moderate income

Main Investment incentives

Tax credits + depreciation

Tax credits + capital gain

Regulation By contract By contract

Transparency

Scale 1,800,000dwellings

Target 50,000

Tax Credits and the “Social Housing Continuum”

Source: Housing NSW

“The importance of this policy (LIHTC) is that it is increasingly replacing direct expenditures for low-income housing” (Guthrie and MacQuarrie, 2005)

(Source: Guthrie and MacQuarrie, 2005)

Privatization and marketization of social housing provision

state support

private capital

bureaucratic distribution

private entities

public authorities

market mechanisms

Implications for social housing outcomes (1)

• Tax credit schemes mobilize broad coalitions of support for affordable housing

• Combine diverse skills and political affiliations• Staying power (bi-partisan support)

Implications for social housing outcomes (2)

Implications for social housing outcomes (3)

Charity: “trying to repair with your right hand what you ruin with your left”

Slavoj Zizek

US Department of Housing and Urban Development on the LIHTC:

“Syndication is a complex and expensive process.….. the market for housing tax credits is as complicated and sophisticated as the market for stocks and bonds.”

Source: Guthrie and MacQuarrie, 2005

Conclusions

• Institutional investment leads to marketisation of social housing provision

• Systemic costs: weakened social outcomes, leakage of public funds, complexity (barriers to entry)

• Also systemic benefits: innovation, competition, professionalisation

• A challenge to govern• Stands to alter the nature of the social

housing product over the long term