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The ART of the deal: Queensland’s got a super plan for investing in social housing

Treasurer Jim Chalmers wants super funds to invest in social housing. But how do you make sure returns to fund members aren’t compromised?  Queensland might have the answer, writes Robert MacDonald.

Aug 29, 2022, updated Aug 29, 2022
Australian Retirement Trust's CEO Bernard Reilly (Image supplied).

Australian Retirement Trust's CEO Bernard Reilly (Image supplied).

Federal Treasurer Jim Chalmers drew fire last week when he suggested superannuation funds should be doing more to support Australia’s “national priorities”.

Social housing was on his list, an asset class not renowned for its high returns.

The problem with Chalmers’ idea, as the critics quickly pointed out, is that the job of super funds is to invest their members’ money wisely and safely, not to help out the government of the day with its pet projects, as noble as they might be.

“If Australian taxpayers want to fund social housing, we should fund social housing. If we want to subsidise strategic industries, we should subsidise strategic industries,” UNSW economics professor Richard Holden wrote in the Australian Financial Review.

“We should not use the superannuation system as a kind of off-balance-sheet slush fund to pursue political objectives with members’ money – money that they have saved for their retirement.”

But what if there were a way to square the circle – to give super funds the returns they need while also letting governments tap Australia’s  massive retirement savings pool – $1.6 trillion and counting – for nation-building schemes?

Just such a model might already exist, and it’s been developed in Queensland.

Brisbane-based Australian Retirement Trust (ART) announced last month it had formed a partnership with Queensland Investment Corporation (QIC) and Brisbane Housing Company (BHC) to invest up to $150 million in new social and affordable housing in Queensland.

ART – the new name for the recently merged Sunsuper and QSuper – will provide the money, QIC will be the investment manager and BHC, a social housing partnership between the State Government and Brisbane City Council, will manage operations.

And the Queensland Government will provide the secret (and commercial-in-confidence) sauce by subsidising the revenue stream.

The partners in the new Queensland Social Housing Fund plan to build up to 1200 new social and affordable housing units by 2025, subject to finalisation of on-going paperwork.

They claim the Queensland model could be replicated nationally with the backing of the Albanese Government’s proposed $10 billion Housing Australia Future Fund.

QIC’s Real Estate Managing Director, Michael O’Brien, says “the unique framework offers a compelling value proposition for governments”.

“The innovative institutional investment structure offered through this vehicle offers value for money for governments, and the investment returns generated by the Housing Australia Future Fund could provide a recurrent subsidy to attract third-party capital and to minimise financing costs.”

He says the structure of the Queensland model also “provides an appropriate return on risk for super funds”.

ART’s Head of Sustainable Investment, Nicole Bradford, says the group did significant modelling before committing its funds.

“We believe if this investment opportunity progresses it will support more affordable housing in Queensland while also maximising the real, long-term investment returns for our more than two million members.”

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Even if the model does produce acceptable returns for ART and other super funds that might adopt it, there’s still the question of why do it in the first place?

If the Queensland Government thinks we need more social housing, which we do, then why doesn’t it just spend the money itself?

For a start, the new model arguably gives the Government better bang for its buck – all it has to do is underwrite an acceptable rate of return while someone else covers the construction cost.

At say 6.5 per cent – the rough average of super fund returns in recent years – this means the Queensland Government would need to pay a little under $10 million a year to underwrite the Queensland Social Housing Fund’s proposed $150 million investment.

There’s also the huge advantage that the $150 million would be on someone else’s books – not the Government’s.

Whatever the cleverness of the financial engineering behind this new fund, the real test will be how transparent the various parties are when it comes to reporting performance.

Treasurer Chalmers was at pains to stress the Albanese Government wasn’t interested “in directing funds in some kind of heavy-handed way to asset classes”.

Rather, it wanted to work with the super fund industry to work out ways to make investment in such “national priorities” as social housing, more attractive.

The new Queensland Social Housing Fund may well be a good solution.

But first, ART will need to be able to show, by performance, that this new fund can provide acceptable returns for members, whatever other social benefits it might be delivering.

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