House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Scott Morrison MP)

General outline and financial impact

National Housing Finance and Investment Corporation

This Bill gives effect to the Government's commitment to establish a new corporate Commonwealth entity, the NHFIC, to improve housing outcomes for Australians. This commitment was announced as part of the Government's Reducing Pressure on Housing Affordability plan in the 2017-18 Budget.

Context

Housing plays a critical role in the social and economic wellbeing of Australians and the economy as a whole. Housing is fundamental to employment, educational and health outcomes, and is a significant driver of investment, productivity and participation.

Housing supply has not kept up with demand, particularly in Australia's major metropolitan areas, contributing to sustained strong growth in housing prices. This is impacting on the ability of Australians to purchase their first home or find affordable rental accommodation. The lack of affordable rental accommodation is particularly affecting low-income and vulnerable Australians.

While the community housing sector has grown over recent years, it remains relatively small. There are substantial barriers to the community housing sector achieving the necessary scale and capability to meet current and future demand for affordable rental accommodation. Factors include the fragmentation of the sector and its limited financial capability.

Housing developments also involve the construction of housing enabling infrastructure such as water, sewerage, electricity and transportation. The long construction periods, high upfront costs, limited or no short-term revenue and uncertainties around the timing of infrastructure delivery may result in housing developments being stalled or moving slowly, even though they are fundamentally viable over the life of the project.

Government response

On 7 January 2016, the Australian Government announced the establishment of an Affordable Housing Working Group ('the Working Group') following a request from Treasurers at the CFFR meeting in October 2015 for further work on housing affordability.

The Working Group focused primarily on investigating ways to boost the supply of affordable rental housing through innovative financing models. The Working Group comprised members of the Commonwealth Treasury and Department of Social Services as well as members from the New South Wales, Victorian and Western Australian governments.

The Working Group's report, Innovative Financing Models to Improve the Supply of Affordable Housing, recommended the establishment of a bond aggregator taskforce to design a proof of concept for a bond aggregator model to provide for greater private and institutional investment in affordable housing. The Treasurers at the CFFR meeting agreed to the recommendations of the report, including the establishment of an expert taskforce to design a proof of concept for an affordable bond aggregator to report their findings to Heads of Treasuries by mid-2017.

In the 2017-18 Budget, the Australian Government announced the establishment of the NHFIC to operate a bond aggregator and the NHIF. The Government released a Consultation Paper on the establishment of the NHFIC in September 2017 and feedback from that process has been incorporated into the Bill.

This Bill gives effect to elements of the Government's Reducing Pressure on Housing Affordability plan announced at the 2017-2018 Budget ^[1] to establish the NHFIC. The NHFIC is a new independent corporate Commonwealth entity dedicated to improving housing outcomes, with broad functions to enable it to administer the NHIF and Bond Aggregator.

The $1 billion NHIF will help to finance critical infrastructure to increase the stock of housing, particularly affordable housing, and to bring forward the supply of such housing. Through the NHIF, the Government will seek to address impediments in building the infrastructure that is critical to unlocking new housing supply. These can take the form of financial constraints - such as mismatches between future revenue streams and the upfront costs of infrastructure - and coordination issues relating to the different stakeholders and different layers of government regulation and responsibilities.

The Bond Aggregator will improve the efficiency of financing for CHPs by aggregating the lending requirements of multiple CHPs and financing those requirements by issuing bonds to institutional investors. The Bond Aggregator will build capacity of the sector and improve housing outcomes by providing CHPs with a more efficient source of funds, reducing the refinancing risk faced by CHPs and reducing borrowing costs.

This Bill is part of the Government's broader plan to improve outcomes across the housing sector, which is focused on three key pillars:

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boosting the supply of housing and encouraging a more responsive housing market, including by unlocking Commonwealth land;

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creating the right financial incentives to improve housing outcomes for first home buyers and low- to middle-income Australians, including through the Government's First Home Super Saver Scheme; and

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improving outcomes in social housing and addressing homelessness, including through tax incentives to boost investment in affordable housing.

This work is further supported by the efforts that the Commonwealth and State and Territory governments are making to address housing affordability, such as through the development of a new National Housing and Homelessness Agreement.

Elements of the Bill

Key elements of this Bill include:

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The NHFIC is to be established as a corporate Commonwealth entity.

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The NHFIC will be governed by an independent, skills-based, part-time Board consisting of a Chair and between four and six other voting members, responsible for decision making and the efficient and effective performance of the NHFIC's functions. A Commonwealth official may be appointed by exception and on a time-limited basis as a non-voting observer to attend and participate in Board meetings.

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The Government will set its expectations about the performance of the NHFIC's functions in an Investment Mandate (a non-disallowable legislative instrument), which must be issued by the Minister. The Investment Mandate may include directions about such matters as strategies and policies which the Board must observe, decision-making criteria, and risk and return on investments. The Investment Mandate may not, however, direct the NHFIC in relation to specific investments.

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NHFIC's key function is to make loans and investments and issue grants, within constitutional limitations, to improve housing outcomes. Initially, this function will be performed through the administration of the Bond Aggregator and the NHIF, which will be described in the Investment Mandate.

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The Board must maintain adequate capital and reserves of the NHFIC and will consider, at the end of each financial year, whether a dividend may be paid to the Commonwealth.

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Liabilities of the NHFIC will be guaranteed by the Commonwealth.

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A CEO will be responsible for the day to day administration of the NHFIC, and the NHFIC will be able to employ staff and consultants as needed. The Board may establish committees to assist it.

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The NHFIC will be subject to the requirements relating to corporate Commonwealth entities in the PGPA Act, including reporting requirements. The NHFIC will need to include certain additional detail in its annual report, including the particulars and impact of any changes made by the Government to the Investment Mandate and a summary of activities undertaken pursuant to its key function.

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Rules may be made under the Bill.

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The operation of the Bill will be reviewed three years after its commencement.

Date of effect: This Bill commences on the day after Royal Assent to allow Board appointments to be made and the investment mandate to be issued before NHFIC commences its operations. It is the Government's intention that NHFIC will commence its operations on 1 July 2018.

Proposal announced: This Bill implements the Government's commitment, announced as part of the Reducing Pressure on Housing Affordability plan in the 2017-18 Budget, to establish the NHFIC to operate a bond aggregator and the NHIF. Key design features of the NHFIC included in this Bill were announced by the Assistant Minister to the Treasurer, the Hon Michael Sukkar MP, in a media release dated 1 December 2017.

Financial impact: The measures have the following financial impact:

Establishment of National Housing Finance and Investment Corporation and National Housing Infrastructure Facility

Human rights implications: This Bill supports the realisation of the human right to adequate housing. See Chapter 8, Statement of Compatibility with Human Rights.

Compliance cost impact: Minor