Building Capacity of Community Housing in Tasmania

Michael LennonCEO

Why Private Finance?

• Decline in public funding

• ‘De-politicising’ housing

• Commercial disciplines via Corporations Act and Directors Duties

How Public Interests are Protected

• Arises as a consequence of capital funding from government

• Keep property used for its funded purpose

• Claim over proceeds if property is sold

• Right to transfer asset to another HA if there is a failure of the HA

• Can be created by statute or by contract (or both)

Historical means of protecting interest

• Mortgages

• Charge/Caveat

• Planning instruments

These rights were usually connected with the terms of funding

New means of state’s interest

Victoria: Sections 107-110 of the Housing Act 1983 (2005)NSW: section 67HA – 67N Housing Act 2001 (2010)

•SHA has interest in land where:• It has transferred that land to the HA; or • Where HA has agreed to it in a funding agreement.

•HA must not transfer, sell, lease, mortgage, charge or otherwise deal with land in which SHA has an interest. Consent will not be unreasonably withheld.•Interest may be recorded on title.•NSW provisions also allow SHA to remove interest from title, and create a charge in a community housing agreement which may also be registered on title.

So what is this interest?

• Not a traditional interest in land (mortgage, charge)

• Novel interest created by special statutory provisions

• Constitutes a restrictions on dealing with the land – different to a mortgage/charge which includes a power of sale and creates priority over other creditors

• Not strictly necessary since a mortgage over the property could have the same effect – therefore this could be created by contract

Approach in other jurisdictions

WA: – •Community Housing Agreement creates charge over land, SHA may register caveat on title in respect of that charge. •SHA may also register restrictive covenant requiring land be used for community housing

SA: – •South Australian Housing Trust Act enables deed of statutory covenant to be registered on title to land. •South Australian Co-Operative and Community Housing Act enables registration of a charge over title to land in favour of SHA to secure funding covenants

Impact on raising finance

• Bank will require first-ranking security over which they may exercise their power of sale

• Land must be capable of being sold unencumbered to maximise its value as security

• Tripartite or deed:

• Priority of interests

• Notice by lender to state if HA defaults and cure period

• Cancellation of recording in register if bank exercises power of sale

Security Trust

• Mortgages held by Security Trustee

• One tripartite agreement between state housing authority and Security Trustee to manage priority of interests

• Multiple security pools can be created

• Property can be removed/added from security pool

without having to discharge or grant new mortgages

Other implications of Security Trusts

• What is meant by “will not be unreasonably withheld”?

• Implications for asset planning – e.g. sale of assets to regenerate other stock and potential loss of unit numbers

• Contingent liabilities in funding deeds

• Implications for duties for directors

Housing Choices Australia

• Owns more than 1,100 properties and manages an additional 550 properties

• Merger of four affordable housing organisations to maximise growth opportunities by State and Federal policy settings.

• Integrated property development, property and rental management services

• Constructed 460 new units since June 2009 and finalising contracts for 190 units.

Housing Choices Australia

Key Target Groups are people:

• with a range of disabilities;

• priced out of housing market (i.e. inner city and central activity districts); or

• in neighbourhoods of multiple disadvantage.

•The net asset position of HCA is valued at $433 million

•Debt facilities in place of $50 million

•Asset growth of 69% in past two years

Funding Models

• Product is no different to standard market product• Nation Building Social Housing Initiative – 75% Govt

Funds and 25% Housing Association (VIC)• Capacity to raise additional revenue from:

o State and Commonwealth rental subsidies (National Rental Affordable Scheme and Commonwealth Rent Assistance)

o Equity contributions (cash or land)

o Sales to private marketo Unencumbered stock o Investment loans secured to deliver additional

units

Development Opportunities

• Inclusionary zoning

• Redevelopment of under utilised properties

• Blended redevelopment of public housing estates

• Outsourced management of public housing estates

Springfield Road, Croydon (10)

10 x 2 bedroom apartmentsCompleted: November, 2010

Shepparton Parkside (6)

6 x 3 bedroom houses Completed: September, 2010

Nelson Street, Ringwood (36)

12x1 bedroom & 24x2 bedroom apartments(4x Fully Accessible 4x Universal Apartments)

Completed: December 2010

79A Raglan Street, Daylesford (3)

2 x 1 Bedroom & 1 x 2 BedroomCompletion Date: June 2011

Freshwater Drive, Craigieburn (8)

6 x 3 & 2 x 2 bedroom Townhouses Completion Date: 5th November, 2010

New Quay, Docklands (85)

42 x 1 & 43 x 2 bedroom apartments Completion Date: June, 2011

Cottrell Street, Werribee (15)

6 x 2 bedroom & 9 x 3 bedroom villa unitsCompletion Date: 7th December, 2010

Drill Hall Redevelopment (59)

51 x 1 Bedroom units & 8 x 2 Bedroom unitsCompletion Date: November, 2011

Housing Choices Tasmania – Funding Model

• Government Outsourced Tenancy Management Plan.

• 138 Housing Tasmania units leased for 3 years.

• Surplus net rental income, Commonwealth Rent Assistance and debt funding are combined to deliver further units for low income tenants.

• Within the 3 year lease, HCT intends to deliver an additional 40 units into the Tasmanian market – 25 this year.

Housing Choices Tasmania – Funding Model

• HCT debt is guaranteed by HCA.

• HCT is newly established in Tasmania - logical decision to collaborate with a local organisation.

• Tenancy management provided by Colony 47.

• Both parties bring their respective strengths to the project.

Title Transfer or Not?

• An evolving policy, Government will need to be prudent.

• Protecting tenants interests.

Perceptions of current and new landlord

• Management of Government’s asset base

- credit ratings and debt borrowing ability.

Recorded as a loss in Government’s financial statements.

Title Transfer or Not? (contd.)

• May enable Community Housing providers to secure debt finance facilities and greater control with property management.

• Transfers the long term maintenance liability from the Government to the Community Housing provider.

Title Transfer or Not? (contd.)

Another Option:

Lease arrangement similar to the Housing Provider Framework in Victoria.

•Community Housing provider has access to rental cash flow and CRA and is responsible for all maintenance except structural.

•Part of gross rental income (approx. 20-25%) is returned to the Government to fund structural maintenance etc.

Risks

For government Assets Performance

For tenants Affordability Reliability Empowerment

Risks

For banks Reputation Solvency Governance

For providers Capability – people, systems, governance. Commerciality – Directors’ duties, lending covenants,

leverage Retaining organisational values Building partnerships and relationships

Conclusion

• Exciting times, great potential, but…

• There are risks for everyone

• Non-market tenancy management is relatively straightforward

• Ownership, development, private funding and Directors duties introduce much greater complexity

• This is key to the next evolution of the sector

Creating Communities…