gideon van der westhuizen johnstaff

Social Housing Delivery in Victoria and the role of the private sector - An Overview

Urban Renewal, Planning and Design Summit, 20th-21st November 2014

Gideon van der Westhuizen

• "People who are homeless are not social inadequates. They are people without homes“

• "Public housing is more than just a place to live, public housing programs should provide opportuni>es to residents and their families“

• "Home is not where you live, but where they understand you“

• "Don't try to drive the homeless into places we find suitable. Help them survive in places they find suitable“

• "A house is a home when it shelters the body and comforts the soul“

• “Housing is a human right. There can be no fairness or jus>ce in a society in which some live in homelessness, or in the shadow of that risk, while others cannot even imagine it.”

• Public housing is a form of housing tenure in which the property is owned by a government authority, which may be central or local.

• Social housing is an umbrella term referring to rental housing which may be owned and managed by the state, by non-‐profit organiza>ons, or by a combina>on of the two, usually with the aim of providing affordable housing.

• Social housing can also be seen as a poten>al remedy to housing inequality

A typical public housing complex in Tseung Kwan O, Hong Kong. The Kin Ming Estate consists of 10 housing blocks, providing affordable housing for approximately 22,000 people. Nearly half of Hong Kong's 7.8 million popula>on lives in public housing

DHS • Custodian of social

housing • Policy, regulatory and

delivery framework • Housing wai>ng list

management • Rental arrangements

(subsidies, collec>on, etc.)

• Govt. Housing maintenance managed internally

• Master planning process management

Housing Associa2ons • Community housing, not

for profits • Develop, own and

manage rental housing • 9000 proper>es owned

or leased • Partnering with Vic Govt.

• Expected to take up to 50% of new tenants for Govt. funded proper>es from public wai>ng list

• Rental collec>on

Private Sector • Some partnership with

Govt. • Govt. can provide land –

tender procurement • Developer offer land and

housing solu>on/s (nego>ated)

• Property development

• Building & construc>on

• Professional services

• The Department of Housing (DHS) is responsible for the management of public housing, which is generally government owned and managed.

• Despite a growing need for housing support, DHS has not set overarching direc>on for public housing or taken a strategic, comprehensive approach to managing this $17.8 billion property pordolio.

• The opera>ng model for public housing, with costs increasingly exceeding revenues, is unsustainable. By using short-‐term strategies, such as reducing acquisi>ons and preventa>ve maintenance, the division is deferring the problem.

• Public housing is facing significant challenges. Against a background of finite government resources, demand has grown due to reduced housing affordability and demographic changes such as popula>on ageing, and more and smaller households.

• Increased targe>ng of public housing has changed the tenant profile to those with more complex needs and lower incomes

• Public housing infrastructure is also ageing, requiring significantly increased maintenance

• Long-‐term direc>on detailing service outcomes, comprehensive asset management strategies that consider the full life of assets, opportuni>es for innova>on, and adequate performance measures to track progress are also vital

• Role of the private sector as partner, rather than adversary, needs to be embraced

• VAGO argues that “each dollar saved by elimina1ng cost overruns and inefficiencies can be used to reduce the maintenance backlog and invest in new housing stock – a study from the UK have shown that typical savings of 10-‐15 per cent are available through tradi1onal opera1ng and maintenance outsourcing contracts in social housing. Collabora1ve models can deliver greater savings typically 15 to 25 per cent”

Background to Social Housing Provision in Victoria

• The Department of Housing (DHS) is the custodian of social housing services for low-‐income Victorians and people in need, especially those who have been made homeless and need support.

• This includes policies and procedures for Public Housing service providers.

• Tenant rents are charged at between 25 and 30 percent of combined household income (depending on eligibility and income type). Community Housing tenants are usually eligible for a rent subsidy (through Commonwealth Rent Assistance).

• Housing Associa>ons are expected to take approximately half of any new tenants for new Government-‐funded proper>es from the public housing wai>ng list. Applicants who are housed by a Housing Associa>on will then be taken off the public housing wai>ng list

• In March 2012, the Victorian Auditor General's Office (VAGO) delivered a scathing report on social housing provision in that the situa>on for public housing was cri>cal and the system faced significant challenges:

– An unsustainable opera2ng model and asset management approach -‐ pujng the long-‐term provision of this public service at risk. Unviable opera>ng model with costs increasingly exceeding revenues, opera>ng costs for public housing exceed revenue collected from rent by 42 per cent. Forecast deficit is expected to double from $56.4 million in 2011 to $115.1 million in 2015

– Significant maintenance backlog -‐ 42 per cent of Victoria’s public housing stock is more than 30-‐ years old. In 2011 it was es>mated that around $600 million would be required for pordolio maintenance over three years

– Long wai2ng list -‐ as at March 2012 there was 37,887 people on the wai>ng list for public housing – Mismatch in demand and supply -‐ the mix of housing types is subop>mal and not aligned with

the type of housing required by public tenants; 20,000 people on the wai>ng list for one-‐bedroom public housing dwelling and only 17,500 of this type of dwelling in the total stock. In contrast, there were 25,000 three-‐bedroom dwellings and 6,000 people reques>ng this type of dwelling. Almost 80 per cent of demand is for a one or two-‐bedroom house and these types of houses only make up just 53 per cent of the total stock

– A lack of an overarching direc2on -‐ lack of a strategic comprehensive approach to managing the pordolio

Housing type Descrip2on Dwellings Residents

Public housing Housing owned and managed by the State through DHS. Director of Housing acts as the landlord to the public tenants

65,000 127,000

Community housing Housing managed by not-‐for-‐profit registered housing agencies and housing providers for affordable housing purposes

14,000 16,000

Transi>onal housing Transi>onal housing owned by the State but managed by the community housing sector (i.e. Not-‐for-‐profit groups)

4,000 N/A

Social housing The term used to describe public, community and transi2onal housing

83,000 143,000

• As at 2010, there were almost 83,000 social housing dwellings in Victoria, making up 3.8 per cent of Victoria’s total housing stock

• Of the social housing stock, almost 70 per cent is located in metropolitan Melbourne and 30 per cent in regional Victoria

• Around 41 per cent of stock is housing with more than three bedrooms

• There are eight registered housing associa>ons which own, develop and manage rental housing

• 33 registered housing providers which primarily manage rental housing pordolios

• Social housing is governed by the Residen>al Tenancies Act 1997 (RTA) and the Housing Act 1983

• The RTA sets out the rental agreements between a tenant and the landlord and defines the rights and du>es of all landlords and tenants

• Housing Act 1983 sets out responsibili>es for the Minister for Housing and the Director for Housing-‐ in 2005 the Housing Act was amended to provide a regulatory framework for non-‐ profit rental housing agencies and the community sector as a whole

• Around 127,000 people live in public housing dwelling units

• As at March 2012, there were 37,887 people on the public housing wai>ng list

• The public housing wai>ng list is segmented into four segments to help allocate housing to those most in need

• Average wai>ng >me for people on wai>ng lists is at least nine months

No Segment Descrip2on No wai2ng

1 Homeless with support

People with a history or high risk of homelessness

2 Supported housing

Coordinated housing for those with a disability or long-‐term health problems who need modifica>ons made to their houses and/or personal support to live independently

10,544

3 Special housing needs

Provides access to people whose current housing is unsuitable and who are unable to obtain more appropriate housing in the private rental market

4 The “General List” Housing for low income households who might benefit from assistance but who do not have an urgent need for housing

27, 343

Total 37,887

• 30 per cent of public housing is over 30 years old and was built to meet the needs of a community that has changed.

• Like private homes across Victoria that were built during the construc>on boom of the 1950s and 1960s, many public homes are now aging and are in need of extensive maintenance or full redevelopment.

• Housing built during this >me is generally suited to larger families in three and four bedroom design.

• There is a greater demand from smaller households, with single parents making up 23 per cent of public housing residents and single households accoun>ng for 49 per cent.

• A large propor>on of older public housing needs renova>on, or redevelopment

• The Victorian Government con>nues to build and redevelop over 1,000 new public and social housing building sites throughout the state.

• DHS works with public housing tenants, local communi>es, property developers, builders, local councils and the not-‐for-‐profit sector.

• The Victorian Government demand for new housing stock from the private sector currently stands at 500 new built dwellings per annum – the demand for new social housing stock will decrease to 375 dwellings in 2015 (aqributable to the Government’s “sustainable development phase “ approach)

High-‐rise upgrade program • There are 44 high-‐rise public housing towers across Melbourne's inner suburbs which were

built during the 1960s and 1970s. • Today, the towers remain structurally sound and provide an affordable well-‐located home

for thousands of Victorians, close to services, public transport and the CBD. • The high-‐rise towers will be retained and are being progressively upgraded with new

infrastructure, foyers, windows and renovated walkways, conversion of bedsit units to flats, new kitchens, bathrooms, internal laundries, pain>ng and carpet works.

Walk-‐up redevelopments • Walk-‐up flats were also built during the 1960s and 1970s across Victoria. These are

progressively being redeveloped as they do not have lit access and are not accessible for people with a disability.

• Many of the buildings now need extensive maintenance

• The Vic Government’s recurrent expenditure on housing assistance was approximately $1.586 billion in 2011.

• The net recurrent expenditure on social housing was $903 million in 2011, this compares to $1.0 billion in 2010

• The net recurrent opera>ng costs per dwelling (in 2011 prices) for public housing in Victoria was $5,658 in 2011, having increased from $4,788 in 2006

• Data from the Produc>vity Commission in 2012 indicates that the recurrent opera>ng costs (in 2011 prices) per community housing dwelling in 2011 were $8,445 having increased from $7,784 in 2006.

• The varia>ons between public housing data and Produc>vity Commission data include the level of service and quality of asset maintenance being achieved

• Rent – every person living in public housing must pay rent. There are two types of rent, 'market rent' and 'rebated rent'

• The rent required to pay is calculated using total household income. This calcula>on ensures that the tenant never pays more than 25 per cent household income on rent

• Rent is reviewed twice a year and whenever the tenant reports a change in household details, that is, household composi>on, income or assets. Each review may change the amount of rent paid by the tenant

• See income and rent (weekly) range classifica>on table adjacent

Public housing – fixed rent: • Every public housing property has a

market rent related to the value of the property. This amount is determined by an independent valuer based on the private rental market in the same loca>on

• DHS reviews the market rent of property once a year in August

• DHS reviews the amount paid by tenants who get a rental rebate twice a year, in February and August. The >me between these reviews is referred to as a ‘fixed rent period’

• In Neighbourhood Renewal Projects (see map), tenants who commence employment are generally given a sixteen week grace period before their weekly payment amount is determined

• Rents are paid weekly and one week in advance • Rents are collected in three ways:

– Direct debit from Centrelink payments -‐ rent is taken from tenants' fortnightly Centrelink payments. This is called the Rent Deduc>on Service. When a tenant signs a tenancy agreement, DHS automa>cally signs the tenant up for this service (it is voluntary though)

– Direct debit from a bank account -‐ rent is taken from a tenant’s bank account. When a tenant signs up, DHS issues a direct debit form

– Post Office

• Repairs and maintenance -‐ The Office of Housing manages the maintenance program. A Housing Call Centre is in place to manage all requests.

• Transferring -‐ tenants can apply to be transferred to another home.

• Swapping -‐ mutual swapping service is allowed.

• Buying – the tenant house sales program gives public housing tenants the opportunity to purchase the property that they rent.

• Two op>ons available to increase supply of housing:

– Development (supply) models – involve par>cipa>on by the non-‐government sector to develop new social housing stock

– Transfer models -‐ transfer to the non-‐government sector of responsibili>es related to ownership, management and/or opera>on of public housing stock

Status Quo Model • This model relates to public housing

directly being funded, operated and delivered by DHS: Commercial Structure Features Applicability to Model

Title transferred to private sector No

Residual land value risk allocated to private sector

No

Contractual term N/A

Opera>ons transferred to private sector

No

Maintenance transferred to private sector

No

Direct increase in supply of housing stock

No

U>lisa>on of private sector finance No

Nature of the housing stock Exis>ng

Development PPP • Development PPP model includes

contrac>ng with the private sector via a SPV for the design, construc>on, financing, opera>ons and maintenance of social housing

• Some elements of public housing can transfer -‐ transferred stock to be redeveloped or refurbished within limits of the commercial framework of the PPP

• Social housing stock can remain as public housing in Govt ownership at transfer to a CHP as community housing

• Can include a subsidy from Govt or payment to Govt depending on the commercial arrangements of the project

Commercial Structure Features Applicability to Model

Title transferred to private sector Yes

Residual land value risk allocated to private sector Yes

Contractual term = 25-‐30 years

Opera>ons transferred to private sector Yes

Maintenance transferred to private sector Yes

Direct increase in supply of housing stock Yes

U>lisa>on of private sector finance Yes

Nature of the housing stock New and exis>ng

CHP Development Agreement • Community housing organisa>ons with

capacity to par>cipate in rapid growth can enter into financial partnerships with the private sector to undertake a socially mixed housing development project

• Stock transfer model can be modified to achieve desired outcomes

• Some Australian housing developers/owners moving to undertake some commercial ac>vity. Brisbane Housing Company has diversified into commercial land development and mixed use residen>al development

• The commercial development part is outsourced to the market




Contractual term Contract permanently transfers freehold ownership of the private component to a third party



Direct increase in supply of housing stock Yes



Community Housing Provider (CHP) Transfer Model

• Involves the transfer of legal >tle and other rights and stock to the CHPs

• Value of stock and its appearance on the balance sheet of the CHP allows for acquisi>on from any net posi>ve cash flow and borrowings secured against the value of the transferred assets

• CHP provides eligibility assessment, alloca>on of housing, tenancy management and lifecycle maintenance




Contractual term Contract permanently transfers freehold ownership of the housing stock to the private sector



Direct increase in supply of housing stock Yes (via the ability to “leverage” the value of the transferred proper>es into new stock)



Shared Equity/Ownership • Assists social housing tenants with low to

moderate income to purchase a share in the property they occupy (no less than 60-‐70 per cent of the property value)

• Remaining share is owned by the Govt and/or a CHP

• Tenants are not charged a rent for the use of the remaining share – early approach to shared equity

• Shared ownership is different in that tenants make repayments on the mortgage component and pay rent on the remaining por>on owned by the State and/ or CHP


Title transferred to private sector Yes (par>ally)

Residual land value risk allocated to private sector Yes (par>ally)

Contractual term Unit sale of property

Opera>ons transferred to private sector No

Maintenance transferred to private sector Poten>al (depending on the specifics of the arrangement)

Direct increase in supply of housing stock No – however an indirect increase can be achieved via the re-‐investment of sale proceeds into new/ replacement stock

U>lisa>on of private sector finance Yes (on the basis that the purchase proceed are financed by private finance)


Outsourcing maintenance/ management • Outsourcing of O&M op>on involves

drawing on the services of non-‐government organisa>ons for the maintenance of exis>ng public housing stock

• Services include tenancy arrangements, administra>on, reloca>on, communica>on and consulta>on, as well as maintenance and repairs

• Cost savings from efficient opera>ons can be used to invest in addi>onal housing stock

• Does not involve the crea>on of new stock or replacement of stock


Title transferred to private sector No

Residual land value risk allocated to private sector No

Contractual term Opportunity for shorter term contracts (5-‐10 years)



Direct increase in supply of housing stock No

U>lisa>on of private sector finance No


• The Victorian Government is considering the following financing mechanisms to achieve financial outcomes that do not specifically provide a direct increase in supply, but provide it indirectly via the achievement of financial benefits:

– Securi>sa>on – Loan Guarantees

– Bond issues – Sale and leaseback

Social Housing Provision Partners

• The main housing providers in the community housing sector are:

– Registered Housing Associa>ons, which develop, own and manage rental housing proper>es; and

– Registered Housing Providers, which primarily manage rental housing that is owned by other organisa>ons.

• Registered Housing Agencies manage around 16,000 rental housing units around Victoria.

• Some of these agencies specialise in providing accommoda>on to specific target groups such as people with a disability, singles or older people

• Housing Associa>ons are generally the larger not-‐for-‐profit organisa>ons that develop, own and manage rental housing for lower income Victorians. As they own property, they are able to borrow against these assets, which allows for investment in new developments and partnerships.

• Almost 9,000 proper>es are owned or leased by housing associa>ons in a range of loca>ons throughout Victoria. The majority of this housing is long-‐term accommoda>on for families and individuals who are not able to afford or access the private rental market.

• Housing associa>ons also provide transi>onal and crisis accommoda>on.

• Currently, for every dollar spent by the government, housing agencies aqract an extra 25 to 30 percent from private, philanthropic and local government sources.

• Housing Associa>ons own and manage stand-‐alone proper>es, rooming houses, accommoda>on with onsite support, medium density housing and flats.

• Some examples of recent housing projects that have been developed in partnership with housing associa>ons include:

– Park Place in North Fitzroy

– Commonwealth Games Village in Parkville – Woodstock in Balaclava – Stand-‐alone proper>es in regional Victoria.

• In addi>on, approximately 1,600 proper>es are leased by the Director of Housing, under the Housing Provider Framework, to the remainder of the not-‐for-‐profit housing sector

Housing Coopera2ves: • There are two types of housing coopera>ves:

– Common Equity Rental Coopera>ves and – Rental Housing Coopera>ves (RHCS).

• Both housing coopera>ves are made up of members who are interested in being accommodated in secure, affordable and good quality rental housing.

• Common Equity Rental Coopera>ves members are housed in proper>es leased from the registered housing associa>on Common Equity Housing Ltd.

• Contractual arrangements exist between Common Equity Housing Ltd and each Common Equity Rental Coopera>ves in the form of a head lease on the proper>es owned by Common Equity Housing Ltd.

• Each Common Equity Rental Coopera>ves then leases the proper>es to individual Common Equity Rental Coopera>ves members.

• RHCS are registered Housing Providers with tenant managed, long term housing for low income members. The proper>es are owned by the Director of Housing and leased to tenant groups under the Housing Provider Framework Lease and Property Management Agreement.

• Increasing role of the private developer to work hand in hand with Government to provide balanced and sustainable housing solu>on

• Preferred model -‐ Govt transfers public land to the developer for the purpose of demolishing the old public housing and construc>ng new public and private housing

• Cost of the transferred land is then deducted from the total amount paid to the developer, with the subsequent sale of the private housing cons>tu>ng part of the developer’s return

• Govt. contracts with Developer, through a private sector SPV, via a project deed

• Developer designs and constructs social housing component for Govt-‐ Govt pays for building contract

• Contractual obliga>ons two-‐fold namely development and facili>es management. Delivered by two separate SPV’s

• In return for the development and management services, Govt. makes monthly performance-‐based payments to the SPV. The payments fund part of the project delivery cost

• Forecast project funding requirements met by the SPV through combina>on of debt and equity

• Independent en>ty appointed as the building contractor and provides design and construc>on of both infrastructure and financing; marke>ng and sales for the project's privately owned proper>es

• Govt. en>tled to agreed propor>ons of the income from the private dwelling sales

• True Partnership with equitable risk sharing in social housing delivery -‐ Government, Private Sector and Housing Associa>ons

• Innova>ve housing financing op>ons to be considered (supply and transfer models – Securi>sa>on, Loan Guarantees, Bond issues and Sale and leaseback

• Housing tenants to pay fairer share of rent

• Maintenance and opera>ons management to be outsourced

• The problem is not merely one of affordability but also one of availability and scale

gideon van der westhuizen johnstaff

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