Leveraging the country's $4T in superannuation to tackle housing affordability has been proposed for several years. I even attended Treasurer Jim Chalmers Investment Round Table to discuss institutional investment when wearing my UDIA National hat in November 2022.
Achieving this goal will needs several significant things to be addressed, not least of which is viability.
💸Super Funds typically target returns to their members of 3.5%+ above inflation. At current rates, that needs to be around 7.5%, or say 6% in "normal" periods.
The problem is construction costs for apartments, when matched with prevailing market rents, won't meet this return profile.
🏡Think about the gross rental yields you see achieved in the marketplace now, which tend to be in the range of 3-5% gross – before holding costs such as land tax, management fees, interest etc, are considered.
This gap is exacerbated further when "affordable" (sub-market) rents are put into the mix.
🆘Thus for any development to achieve the necessary metrics for Super Fund members, they will need a combination of: • high gearing from banks • lowered holding costs • rental support (for affordable) • cheap or free land (government)
Yes, utilising Super Funds could lead to an increase in investment in the apartment sector, but to do it at scale they will need subsidies of some description, especially if holding on to the dwellings long-term as BTR.
They are more likely to success with a hybrid model, such as what Assemble offers.
Even so, these projects will only deliver a small part of the total housing needed across Australia, plugging a gap in the build to sell space which is struggling big-time.
🤔Whether superannuation should be used to fund other people's housing, or allow you to buy your own, is a debate for another day.
🎯Achieving the #housingaccord target of 1.2m homes will take much, much more than Super-backed housing projects.