Government-sponsored bank for social housing not a solution

Public housing and community housing, collectively called social housing, has numerous problems including un-maintained housing, poor incentives for work, inefficiency, inequities, and lack of choice. And much of the sector is financially unsustainable.

The federal government is responding to the difficulties with finance by proposing a government-backed bond aggregator, effectively a government bank, for social housing. This bond aggregator would likely borrow funds from institutional investors and on-lend the funds to social housing providers, charging an interest margin to cover its costs.

If this aggregator has a government guarantee, which seems likely, this would raise many problems, most obviously the potential for increased risks in the financial market. And the risks will increase if the guarantee is expanded — and why wouldn’t it be? If a guarantee assists borrowing for social housing, why not also guarantee private borrowing for schools, hospitals or infrastructure?

Direct government funding of the aggregator raises other problems. Government funding is only worthwhile if the benefit is fully passed on to housing providers, so why not give the benefit directly instead of using a costly intermediary?

Financing social housing through an aggregator is non-transparent compared to direct financial assistance; and a government guarantee, or tax incentives for the aggregator, would be even less transparent.

Instead, the sector needs much more fundamental reform, including privatisation of the housing stock, treating the public and private sector the same, and providing incentives to states to remove absurdly restrictive planning laws.

A government-sponsored bank would paper over the sector’s problems and may actually discourage meaningful reform.

Michael Potter is a Research Fellow in the Economics Program at the Centre for Independent Studies and author of the CIS research report Reforming Social Housing: financing and tenant autonomy.