New Horizons

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-By John Boley

Housing Choices Australia (HCA) is in the vanguard of an emerging new sector in Australia’s property market. At the moment, HCA manages more than 1,100 properties and 1,500 tenancies and is growing rapidly through property development, property purchasing and transfer of properties from state government and other organisations.

The sector is affordable and primarily rental accommodation and Housing Choices Australia chief executive Michael Lennon recently told Australian Construction Focus that growth in demand for such property is “exponential”.

Michael began by explaining the status of HCA. It is “a charity for tax purposes. These organisations are set up under corporate law. They blend public and private funds and in doing so are able to combine the commercial disciplines of a private company with the market interventions that a government might do. It’s an interesting hybrid corporate form.” The private money is largely private debt raised commercially from the market.

HCA’s activities already cover almost the full gamut of the property industry. “We are as close to a fully integrated property business as you might get, so we source land, identify uses, build. We sometimes design, sometimes contract, we own land and we operate and maintain buildings, and we tenant, so we do as many parts of the property business as you can imagine, unlike most other parts of the property industry which are obviously heavily segmented.”

You can call this spreading the organisation wide, or, as Michael prefers, you could call it integrated. “There are models like this in other countries, but it’s unusual to cover the initiation of projects right through to their management.”

HCA is attracting talented staff. “We have a range of skills from banking and investment through to business planning and financial analysis, and through to project development, project management and project maintenance. It’s necessary because unlike the private market, which is primarily project oriented, the intention here is to retain the assets and potentially to reconfigure them all the time so it does require an unusual set of skills but we do have them.”

The HCA model is, says Michael, a new institutional form for Australia, “but they are widely accepted in other parts of the world, in Europe and the UK. For example, in the Financial Times top 20 companies last year three were housing associations. These organisations can move into quite sophisticated commercial spaces and I think in terms of the positioning of these entities these organisations have to do more than the commercial market, not less. They have to do all the things a commercial property business could do, but we also have to cover market segments and deal with sub-optimised return. Such matters require a different set of activities and skills.”

In effect, HCA is running faster than the conventional commercial market. “This is not sub-market activity – this is market plus!”

The point is, says Michael, that Australia is playing catch-up with other developed nations and HCA has to move quickly. “We would very much see this as a thriving and emergent organisational force in an area where Australia has lagged behind a number of other countries.”

HCA has established an entity in Tasmania (Housing Choices Tasmania) which is already managing nearly 300 units and it will be building and developing there later this calendar year. HCA also expects to be operational in Northern Territory, also this calendar year. In terms of the growth parameters for the organisation countrywide, it is substantially dependent on the financial environment in which the business operates, says Michael. “Clearly over the last two years we have had the benefit of being able to access federal nation-building stimulus funding. That has enabled us to fund, along with private debt, a very substantial number of projects.”

Is such hectic growth sustainable? “We would expect to go through a period of some consolidation of that growth but we think our future path is endlessly upwards – at least I think we are very confident we have created a platform for growth.”

In terms of the construction and development partners HCA has worked with in the last two years, they include some of the best-known names in the business. “They are all large national property firms and they are getting a sense of the potential of this sector.”

Is it difficult to integrate affordable rental housing into existing communities? “We are able to demonstrate, by the quality of our buildings and tenancies, a high level of confidence about the impact of our developments on neighbourhoods. The second thing is that we put a lot of energy into processing carefully and in the last 18 months I think only once have we relied upon an appeals process, where we depended upon the decision of a tribunal.”

So what is the demand for this kind of housing? Michael is quite clear about its need: Australia has the second lowest proportion of non-market housing among all its OECD trading partners, second only to the US, and less than five per cent of the total housing stock is available as subsidised housing in one form or another. The national housing supply council estimates a dramatic shortfall in current and projected supply of affordable accommodation. So on current policy settings, given the population characteristics of the country, “we expect there to be a dramatic escalation in demand for affordable accommodation over the next 10-15 years.”

It’s unlikely the extra demand will be funded solely out of the public purse, he thinks. Government will work towards a mix of public and private capital to satisfy that demand and these institutional forms are likely to be the device that is used.

HCA has no real overlap at all with aged care programmes, except to the extent that as people age then they move from one system into another. But most of the aged care accommodation programmes that are being discussed at the moment are essentially about people who are catering for themselves through their own resources and through the private market. HCA’s interest is long-term affordable rented accommodation for a variety of customer groups that include people on low incomes, with disabilities, who are disadvantaged or at the risk of homelessness.

However, Michael points out there is a significant issue in Australian demography with the rising number of people over 50 without any equity in residential property. They are likely to move into retirement, where their incomes decline substantially, having no property, and they will depend on the private market. Their affordability problem is likely to worsen quite dramatically. While HCA does expect the proportion of aged rentals in Australia to rise quite substantially, the people it hopes to house are those who do not have the funds available to be placed into aged care or retirement accommodation programmes.

Asked if HCA could go nationwide, or would the better idea be for a number of smaller regional or local models, Michael answers somewhat tongue-in-cheek: Australia has managed to repeat the railway-gauge scenario across the history since federation, he believes. HCA’s expectation is that the states are unlikely to continue to insist on separate entities being set up in each jurisdiction – it’s tremendously inefficient but it’s a product of our political system. There is at the present time a proposal to establish a national registration system – but that’s different from a national regulator.

There is enormous logic in already emerging organisations such as Mission Australia and HCA and it’s about drawing together the government and management capabilities in order to produce these sorts of outcomes and also to get efficiencies in terms of the cost of funds, supply chains and the like.

Michael’s preliminary comments on NT, just before a visit up there, were that, like many parts of Australia the state is likely to grow in concert with the expansion of the minerals industry in the next 10-20 years. In particular, decisions to be made around the end of this year about major gas projects are likely to have significant implications for demand for affordable accommodation both in the construction period and subsequently. The Territory government has therefore been looking for new ways in which supply of additional accommodation can be met and HCA has been working with the Territory and with a partner organisation in SA to look at the establishment of an affordable housing rental company in the Territory later this year. Those negotiations are currently underway and “we are very hopeful of a successful outcome.”

Undoubtedly HCA’s activities present a big opportunity across Australia for the construction sector. There are few property organisations that have grown at HCA’s rate over the last two or three years. “We would see the development of long-term commercial arrangements being a part of business growth for both parties. As I said, we are already involved with some of the largest corporate identities in the property industry and we expect that to continue. We expect to be able to negotiate competitive deals on the same basis as any other company.”

Michael says HCA is very pleased with the value it has obtained from its investment in the last couple of years. Although it has in-house capability for law and finance and project supervision, there is no plan for a large administration internally. HCA likes the way it has so far bought projects – without getting its hands dirty – and would like to continue to make use of the expertise of professional construction companies and suppliers to the building industry. “This emerging business sector represents new opportunities for those professions.”

Home Automation

Call it ‘domotics,’ and you are likely to receive a blank stare, but refer to it as ‘smart home’ or ‘home automation,’ and you will get a nod of acknowledgement. For the past few years, consumers have heard the word ‘smart’ attached to countless products and services, from food and drink to snacks like popcorn and mobile phones, which no one seems to refer to as a ‘cellphone’ anymore. Yet what, exactly, constitutes ‘smart’?

July 16, 2020, 10:00 AM AEST