The Building Financial Capacity of Housing Agencies (BFCHA) program aims to increase the supply of social and affordable housing in Victoria.
Through the $1.1 billion program, the Department of Treasury and Finance and the Treasury Corporation of Victoria offers low-cost, long-term low-interest loans and state guarantees to registered community housing agencies in Victoria. This provides debt finance to be used as a co-contribution (a share of total project costs) by community housing agencies seeking government funding to develop social housing.
In our mid-term program evaluation, Sapere observed that the program represents, for Australia, an unusual example of complementary funding and financing support to meet the subsidy needed for social housing, long sought by the sector. This added complexity into our analysis, as we needed to take account of the complementarity of the separate funding and financing programs in our analysis and in considering input from stakeholders through consultations and survey responses.
Sapere found that the design of the BFCHA loan is an effective contribution to the subsidy needed and the sector views it as the best finance product on the market for social housing provision.
Complementarity between finance and funding programs offered by the Victorian Government was found to be a strength, and the responsiveness of BFCHA’s design and administration contributed to improved financial capacity and capability of the community housing sector, which itself had grown during the program’s life.
“The key to maximising BFCHA’s contribution to growth in social housing dwellings at a reduced cost is a consistent offering of both funding and financing to this now-more-sophisticated sector in Victoria.”– Sapere
Sapere estimated that community housing agencies that have drawn down BFCHA low interest loans up to 6 April 2023 had (until then) saved approximately $4.2 million in interest cost savings, with additional savings expected to accrue over the life of the loans. Still, the transaction costs inherent in financing were significant for all agencies and were material for some given their lack of scale or prior experience with government financing. This sensitivity was clear as the evaluation occurred in a period of substantial volatility in costs of social housing construction and operation, in interest rates from all finance sources, and a sector adjusting to a greater amount of debt and its ongoing management than had previously existed in the sector.
The environment has changed significantly from the one in which BFCHA was introduced. Sapere recommended that the offer of a government guarantee for commercial borrowings warranted further scoping, and actions to improve administration—such as streamlining information requirements, documentation and structure of security—were worthwhile pursuits given the materiality of transaction costs to community housing agencies.
Acknowledgement: The Sapere team wish to acknowledge the social housing market expertise of our advisers and their assistance in developing this report: Carrie Hamilton and Richard Benedict.
Our team included
- Melissa Skilbeck
- William Li
- Zabard Hartmann
- Susan Friend
- Matt Balmford