Finding solutions to the homelessness crisis in social impact investment

By David Donaldson

August 9, 2017

It’s estimated that around one in 200 Australians are homeless on any given night. A further one million Australians face housing stress — spending more than one third of their income on keeping a roof over their head.

More than 200,000 households are currently waiting for access to social housing units, of which more than a third are classified as “in greatest need”.

To make matters worse, significant proportion of the current social housing stock is no longer fit-for-purpose, being at the end of its economic life, poorly maintained, lacking in location and amenity, or underutilised as households have become smaller.

Clearly governments need to be doing more — but what should they do?

new report from the Australian Housing and Urban Research Institute and UNSW’s Centre for Social Impact argues that social impact investing may be an effective tool for addressing Australia’s homelessness and affordable housing problems.

While the authors note that it’s no silver bullet, and the evidence base is still evolving, they believe that “social impact investing, although in its infancy in Australia, shows potential to be an effective way of tackling complex social issues.”

Most probably think of social impact bonds when social impact investing is mentioned, but it’s a category that includes enterprises that reinvest profits in social services and other types of socially beneficial non-government investment.

The options

There are three key ways in which social impact investment could help, the authors believe: significantly increasing the supply of affordable housing with attractive attributes; significantly increasing the supply of fit-for-purpose social housing and support other positive outcomes; and acting as an incubator for government to trial innovative and new ways of providing services that effectively deliver desired outcomes.

This could include creating incentives to build appropriate housing, as well as services that support residents to maintain their tenancy, improve social outcomes, and help people to move from social to affordable housing over time and where appropriate.

“Current models of government’s social service provision and delivery mechanisms are not achieving the desired outcomes,” the report says.

“Many of the shortcomings that have been identified in the existing system are key elements that SII is specifically designed to counteract — including: a focus on paying for outcomes rather than paying for activities and outputs; a focus on prevention and early intervention — breaking the cycle before the problems become chronic and entrenched; increased accountability for achieving outcomes through transparent measurement; increasing cross-sector collaboration to find new and better ways to solve old problems; redirecting investment towards evidence-based services, programs and initiatives that achieve the best outcomes most efficiently; and leveraging government’s return on investment by attracting other forms and providers of capital.”

It also notes that “as it is likely Australia may have a more significant proportion of long-term renting households in the future, incorporating longer and more secure tenure and more rights/ability for tenants to make a home in any SII affordable housing solution design would have positive benefits.”

The research examines three primary models, based on successful interventions overseas:

  1. Investment funds that finance property (eg the bond aggregator model, low income housing tax credits);
  2. Social enterprises which generate a profit to reinvest in affordable housing or homelessness support services (eg some community housing providers);
  3. Social impact bonds — which are a pay-for-performance instrument where government pays on the basis of outcomes achieved).

Previous successes in this field show that active and stable government support and funding are necessary to attract investment and buy in.

Beware the risks

The opportunities and benefits are “exciting” and need further exploring, says report author and study lead Professor Kristy Muir. But it’s important not to treat it as a panacea, as there are also numerous risks.

“The very definition of a social impact investment is one that intentionally aims to achieve social impact along with a financial return, while measuring the achievement of both. It’s an appealing model. But it’s important to remember that we are dealing with people’s lives,” says the the Centre for Social Impact CEO.

“Our most vulnerable have complex needs, and we need to be careful we’re not paving the way for future harm if the investments don’t work out. This is one of the key reasons why government has an important role.”

But there is plenty of risk in doing nothing, too.

“For both social and affordable housing, there exists a significant financing gap. Government has a critical role in filling it if it wishes to engage the investment community in collaborating and contributing to solutions,” she argues.

“Where we can see that SII has a role to play, other funding solutions and policy interventions will need to run in parallel. These are safeguards that need to be in place in order to minimise that risk to our most vulnerable Australians.”

AHURI released the report as the first of three looking at housing and social investment. The next two will examine the risks and potential operationalisation of the ideas in greater detail.

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