Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
Failure on affordable housing means losing a $64 billion benefit: Aware Super
Australia’s lack of affordable housing for essential workers means it’s missing out on an extra $64 billion in employer and community benefits, according to internal analysis from Aware Super, but the current investment settings mean most institutions can’t commit to similar initiatives.
“We are pleased to see Federal and State governments taking the issue of housing seriously, including the measures recently announced by the NSW and Victorian Governments, but more can and must be done to deepen the impact of these policies,” said Aware Super chief executive Deanne Stewart.
The study of 365 affordable housing units in seven assets across Aware Super’s program found each tenant generated around $12,149 in benefits from reduced commute times (they saved around 112 hours annually from living an average of nine kilometres closer to work) and traffic congestion, reduced environmental benefits and avoided health service costs through increased physical activity. There are around 1.4 million essential workers living in Australia’s capital cities.
Employers also reaped the benefits of workers having more time to pursue further education and upskill, a deeper pool of labour, and the “happiness factor” resulting in decreased absenteeism and better employee health.
“The demonstrable benefits identified from Aware Super’s portfolio assets are significant in their own right,” Stewart said. “Our hope is that by sharing this data freely and widely, we can help more investors realise the opportunity to learn from our experience and more fully assess the opportunity to build high quality housing at the kind of scale that will put affordable living into the reach of every Australian family.”
But policy settings stand in the way of more involvement from the institutional investor community. As a panacea, Aware thinks investors in affordable housing should be allowed to access the same GST treatment as community housing providers to “materially reduce” the cost of development, as well as get relief from land tax and stamp duty to improve achievable rates of return while keeping rent prices appropriate. It also wants councils to rethink what high density housing will actually mean for their local area.
“We’d urge councils to engage in good faith negotiations on questions of density, particularly where a property is attracting really great tenants into a community – essential workers are invariably community-oriented, often wanting to live close to where they work in healthcare, education, emergency services or the public service,” Stewart said.
“Our property managers tell us our tenants stay in our properties longer, they care for their homes really well, and with a high proportion of shift workers they’re not material contributors to local area peak-hour congestion – and it’s easy to see that feedback coming through in the analysis.”
Aware has been a vocal participant in the housing debate and one of the few funds to put its money where its mouth is by investing heavily in essential worker housing. A number of other large funds are signatories to the government’s Affordable Housing Accord but remain concerned about the returns on offer and the level of Your Future Your Super risk by investing in assets that don’t fit neatly into the existing property benchmark.
And while the recent passage of legislation for the government’s Housing Australia Future Fund (HAFF) could mean more co-investment opportunities, Cbus is so far the only fund to publicly commit to investing alongside it.
“If we want to break down, brick by brick, those obstacles preventing us from scaling up our commitment in a sector that not only provides our members a source of stable returns, but also houses those who provide our families and communities with essential services, then we need to work together. The shortage of housing isn’t a new issue facing our society. We’ve been on the frontlines watching it evolve and deepen for the last five years.”
