Chapter 1


Chapter 1

Introduction

1.1        On 22 March 2018, the Senate referred the National Housing Finance and Investment Corporation Bill 2018 (NHFIC bill) and the National Housing Finance and Investment Corporation (Consequential Amendments and Transitional Provisions) Bill 2018 (NHFIC consequential amendments bill) to the Senate Economics Legislation Committee (committee) for inquiry and report by 7 May 2018.[1]

1.2        The government announced a comprehensive housing affordability plan in the 2017–18 Budget, including measures to improve outcomes for Australians across the housing spectrum, from first home buyers and renters to those in need of crisis accommodation and those at risk of, or experiencing, homelessness. The housing affordability plan included the establishment of the National Housing Finance and Investment Corporation (NHFIC).

1.3        In his second reading speech for the NHFIC bill, the Assistant Minister to the Treasurer, the Hon. Michael Sukkar MP, stated that:

Housing is critical to the social and economic wellbeing of Australians and the economy as a whole. It can impact on employment, education and health outcomes, and it is a significant driver of investment, productivity and economic growth. It's also the main savings vehicle for the majority of Australians.

While housing is primarily a state responsibility, the Commonwealth government nonetheless has an important role to play when it comes to addressing housing affordability and securing better outcomes for Australians, particularly the most vulnerable.[2]

1.4        The NHFIC bill establishes the NHFIC, a new independent corporate Commonwealth entity to improve housing outcomes by making loans, investments and grants. Mr Sukkar explained that the objective of the new entity was to 'improve housing outcomes for Australians, particularly vulnerable Australians who need social and affordable housing'. He noted further:

The finance corporation, which is modelled on successful initiatives in the United Kingdom, will strengthen efforts to increase the supply of housing by encouraging investment in housing, particularly in social and affordable housing. It will contribute to developing the scale, efficiency and effectiveness of the community housing sector and, importantly, will provide loans, grants and investments that complement, leverage and support Commonwealth, state and territory activities relating to housing.[3]

1.5        The NHFIC consequential amendments bill deals with consequential and transitional matters arising from the NHFIC bill.[4]

1.6        The NHFIC and the NHFIC consequential amendments bills are discussed in more detail below.

Conduct of the inquiry

1.7        The committee advertised the inquiry on its website and wrote to relevant stakeholders and interested parties, inviting submissions by 13 April 2018.

1.8        The committee received 15 submissions, which are listed at Appendix 1.

1.9        The committee thanks all individuals and organisations who assisted with the inquiry and took the time to make written submissions and provide responses to questions on notice.

Background

1.10      The explanatory memorandum[5] notes that the continued growth in Australia's housing prices has affected the ability of Australians to purchase their first home or find affordable rental accommodation. Low-income and vulnerable Australians are disproportionately affected by the lack of affordable rental accommodation.[6]

1.11      The community housing sector in Australia has grown in recent years, but it remains relatively small. In order to meet current and future demand for affordable rental housing, the community housing sector must achieve the necessary scale and capability. However, substantial barriers, such as limited financial capability and fragmentation in the sector, may prevent the sector from meeting demand.[7]

1.12      On 7 January 2016, the Australian Government announced the establishment of an Affordable Housing Working Group (Working Group) to investigate ways to increase the supply of affordable rental housing through innovative financing models. The Working Group comprised members of the Commonwealth Treasury and Department of Social Services, as well as members from the New South Wales, Victorian, and Western Australian governments.

1.13      The Working Group recommended the establishment of a bond aggregator taskforce to design a proof of concept for a bond aggregator model.  The Bond Aggregator will facilitate greater private and institutional investment in affordable housing, and will lower the cost of capital for affordable housing projects.
This recommendation was agreed to by the Council on Federal Financial Relations.[8]

1.14      As noted above, the government announced the establishment of the NHFIC in the 2017–18 Budget. Following this announcement, in September 2017, Treasury released a Consultation Paper on the NHFIC, the National Housing Infrastructure Facility (NHIF), and the Affordable Housing Bond Aggregator. According to the Mid-Year Economic and Fiscal Outlook 2017–18, the consultation process included targeted roundtable discussions with participation from more than 120 stakeholder groups across Australia. The consultation also received over 50 submissions.[9]

1.15      In January 2018, Treasury released exposure draft legislation for the NHFIC bill and conducted a consultation process from 12 to 22 January 2018.[10] In addition, in February 2018, Treasury released an exposure draft Investment Mandate for the NHFIC and conducted a consultation process from 4 February to 9 March 2018.[11] The Investment Mandate provides details of the activities of the NHFIC and is discussed in more detail below.

Overview of the NHFIC bill

1.16      The NHFIC bill gives effect to elements of the government's housing affordability plan announced in the 2017–18 Budget by establishing the NHFIC.

1.17      As a new independent corporate Commonwealth entity dedicated to improving housing outcomes, the NHFIC will have broad functions that enable it to administer:

  • a $1 billion NHIF which will help to finance critical infrastructure to increase the stock of housing, particularly affordable housing, and to bring forward the supply of such housing; and
  • an Affordable Housing Bond Aggregator which will improve the efficiency of financing for Community Housing Providers (CHPs), enabling them to improve housing outcomes for their clients. CHPs are non-government organisations, generally not-for-profit organisations, which provide subsidised housing for people on a very low, low, or moderate income or for people with additional needs.[12]

1.18      The NHFIC bill, which was introduced in the House of Representatives on 15 February 2018, comprises six parts:

  • Part 1 sets out the objects of the bill, arrangements for commencement, application to the Crown, and definitions;
  • Part 2 establishes the NHFIC and sets out its functions, powers and constitutional limits; and provides for the Investment Mandate for the NHFIC;
  • Part 3 establishes the Board of the NHFIC, and provides for its membership and meetings;
  • Part 4 comprises two Divisions:
  • Division 1 establishes the CEO of the NHFIC, including:
    • procedures for appointment and resignation;
    • functions;
    • remuneration;
    • terms and conditions; and
    • acting appointments.
  • Division 2 deals with the recruitment of staff and consultants and committees;
  • Part 5 sets out the arrangements for NHFIC's financial affairs in relation to:
  • maintenance of adequate capital and reserves;
  • payment of dividends to the Commonwealth;
  • borrowings;
  • guarantee by Commonwealth; and
  • taxation;
  • Part 6 sets out delegations, the requirement for a review of the operation of the NHFIC Act, and the rule making power.

1.19      The object of the NHFIC bill, as outlined in clause 3 is:

...to establish the National Housing Finance and Investment Corporation to improve housing outcomes for Australians by:

  1. strengthening efforts to increase the supply of housing; and
  2. encouraging investment in housing (particularly in the social  or affordable housing sector); and
  3. providing finance, grants or investments that complement, leverage or support Commonwealth, State or Territory  activities relating to housing; and
  4. contributing to the development of the scale, efficiency and effectiveness of the community housing sector in Australia.

1.20      These objectives will be implemented through the NHFIC's initial activities of administering the Bond Aggregator and NHIF. The explanatory memorandum states:

The bond aggregator seeks to catalyse institutional investment into the community housing sector and improve the financial and management capabilities of this sector (capacity building)—thereby allowing the sector to better leverage the potential large-scale institutional investment enabled by the bond aggregator.

Under the NHIF, financial assistance will be made available to enable critical infrastructure to increase the stock of housing, particularly affordable housing, and to bring forward the supply of such housing. It does this by addressing impediments in building the infrastructure that is critical to unlocking new housing supply. These can take the form of financial constraints—such as mismatches between future revenue streams and the upfront costs of infrastructure—and coordination issues relating to the different stakeholders and different layers of government regulation and responsibilities.[13]

1.21      It is the government's intention that the Bond Aggregator and NHIF operate in conjunction with commercial lenders and State and Territory governments to ensure that its financing is additional to that otherwise available, rather than replacing finance available from other sources.[14]

Establishment of the NHFIC, functions, powers and constitutional limits

1.22      The NHFIC bill seeks to establish the NHFIC as a corporate Commonwealth entity. The NHFIC will operate independently from government in exercising its functions and adopt a corporate model of governance, making it subject to the Public Governance, Performance and Accountability Act 2013.

1.23      The NHFIC bill outlines the functions of the NHFIC, which include:

  • making loans, investments, and grants to improve, directly or indirectly, housing outcomes;
  • setting terms and conditions for such loans, investments, and grants;
  • providing business advisory services and other assistance in capacity building to CHPs;
  • any other functions conferred on the NHFIC by the bill or any other Commonwealth law;
  • doing anything that is incidental to or assists in the performance of the above functions;
  • granting financial assistance to States and Territories for the purposes of any of the matters mentioned above; and
  • setting the terms and conditions of such grants of financial assistance.[15]

1.24      The NHFIC bill defines a CHP as 'a community housing provider (however described) that is registered under a law of, or under a scheme administered by, a State or Territory'.[16]

1.25      The NHFIC will have the power to do all things necessary or convenient to be done for or in connection with the performance of its functions, such as entering into any contract and entering into arrangements known as swaps, foreign exchange agreements, forward rate agreements, options or hedge agreements.[17]

1.26      The NHFIC bill expressly enables the NHFIC to perform its functions only for purposes related to specific constitutional powers. This ensures that it is not implied that the NHFIC can perform functions that exceed the Commonwealth's legislative power under the Constitution.[18]

Investment Mandate

1.27      The NHFIC bill outlines the role of the Investment Mandate, which will be the key vehicle for the government to set out its expectations for the NHFIC.

1.28      The Treasurer must issue the Investment Mandate which will give the NHFIC Board directions about the performance of the NHFIC's functions.

1.29      The Investment Mandate is not subject to disallowance as it forms part of a class of legislative instruments to which disallowance does not apply.[19]

1.30      The Investment Mandate may include:

  • strategies and policies that the NHFIC must adhere to for its effective performance;
  • decision-making criteria for the provision of financial assistance and capacity building activities;
  • limits on the extent of financial assistance; and
  • risk and return relating to the NHFIC's investments.

1.31      In order to ensure that there is sufficient flexibility to address emerging issues or other matters that the Government considers are important, the Minister may also include other matters in the directions. However, the Investment Mandate must take into account the object of the NHFIC bill, and in performing its functions, the NHFIC must take all reasonable steps to comply with the Investment Mandate in the course of undertaking its functions. This ensures that the NHFIC focuses on satisfying its Investment Mandate.[20]

1.32      It is the government's intention to include the details of the Bond Aggregator and NHIF in the Investment Mandate. The explanatory memorandum notes this is because the Investment Mandate provides flexibility to allow NHFIC's operations to respond to the needs of the community housing sector and other recipients of financial assistance.[21]

1.33      The explanatory memorandum states that it is expected that the Investment Mandate will set out:

  • the eligibility criteria for NHIF finance, investments and grants, and bond aggregator finance;
  • the types of financing mechanisms for the NHIF and the bond aggregator functions;
  • matters that must be considered by the Board when making lending decisions;
  • matters that must be considered by the Board in determining lending conditions;
  • benchmark returns for NHFIC investments and finance;
  • the level of risk acceptable for NHFIC investments and finance;
  • additional corporate governance and transparency matters; and
  • the types of support services that the NHFIC may provide to CHPs to assist in building the capacity and capability of the sector.[22]

Draft Investment Mandate

1.34      Key aspects of the draft Investment Mandate, which (as noted above) was released for public consultation in early 2018, include:

  • providing directions about the two core functions of the NHFIC, the Affordable Housing Bond Aggregator and the NHIF, which will support investment in Australian housing;
  • providing detail on the NHFIC, specifically eligible projects and project proponents, the financing mechanisms and lending criteria related to its activities;
  • authorising the NHFIC to provide support to registered community housing providers to develop their financial and management capabilities;
  • stating that, of the $1 billion allocated to the NHIF function for loans, investments and grants, a combined cap of $175 million applies to the infrastructure grants and capability building activities;
  • providing that up to $150 million of NHFIC's funding may be allocated to provide an interim 'warehouse facility' that extends bridging finance to registered CHPs until a bond issuance can be made through the Bond Aggregator function; and
  • outlining various general governance matters and setting requirements in relation to the maintenance of funds, benchmark rates of return and risk management.[23]

NHFIC Board

1.35      The NHFIC bill establishes the Board of the NHFIC. The Board will comprise the Chair and a minimum of four members but no more than six other members. The explanatory memorandum states:

This is considered appropriate so that the Minister [Treasurer] can appoint a Board with the breadth of skills, qualifications and experience required to oversee NHFIC's functions.[24]

1.36      To ensure that Board members have relevant expertise, in order to be appointed to the Board, the Treasurer must be satisfied that the person has appropriate qualifications, skills or experience in:

    • banking and finance;
    • law;
    • housing, including social or affordable housing;
    • infrastructure planning and financing;
    • local government;
    • public policy; or
    • expertise prescribed by rules made by the Minister.[25]

Overview of the NHFIC consequential amendments bill

1.37      The NHFIC consequential amendments bill deals with consequential and transitional matters arising from the NHFIC bill.

Consequential amendments

1.38      The NHFIC consequential amendments bill seeks to amend the Administrative Decisions (Judicial Review) Act 1977 to exempt the NHFIC from the requirement to provide reasons for decisions under section 13 of that Act. The purpose of this amendment is outlined in the explanatory memorandum:

This will ensure that the NHFIC is not required to provide reasons for decisions relating to its activities such as decisions to provide, or not to provide, financial or other assistance to particular entities. Information considered by NHFIC when making a decision is likely to be complex, commercially sensitive and/or provided in confidence. In order to produce a meaningful statement of reasons it would inevitably need to refer to such information. This exemption will ensure the efficient administration of the NHFIC and is consistent with the exemption afforded to the Export Finance and Insurance Corporation.[26]

1.39      The NHFIC consequential amendments bill also seeks to amend the Freedom of Information Act 1982 (FOI Act) to exempt the NHFIC from the requirements of the FOI Act in relation to documents in respect of its commercial activities. This exemption is similar to the exemption that applies to the commercial activities of the Export Finance and Insurance Corporation, NBN Co and other entities, such as Indigenous Business Australia. It is the government's intention that the Investment Mandate will direct NHFIC in relation to the publication of information about its decisions (subject to commercial confidentiality).[27]

Transitional provisions

1.40      The government's intention is that the NHFIC's activities will commence on 1 July 2018.

1.41      Under the transitional provisions the NHFIC may not commence making decisions before 1 July 2018 (or such later date as the Minister determines) regarding:

  • the making of loans, investments or grants, or to grant financial assistance to a State or Territory; or
  • the provision of business advisory services or other capacity building assistance to CHPs.[28]

Financial impact

1.42      The establishment of the NHFIC and the NHIF is estimated to result in a cost to revenue of $173.9 million over the forward estimates period as set out in the table below:

Table 1: Financial impact (as set out in Explanatory Memorandum)[29]

2017–18

2018–19

2019–20

2020–21

-$9.6m

-$53.6m

-$55.7m

-$55.0m

Legislative scrutiny committees

1.43      The explanatory memorandum to the NHFIC and the NHFIC consequential amendments bills states that the proposed legislation is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

1.44      The Parliamentary Joint Committee on Human Rights considered the bills in its Report 3 of 2018 and found that they did not raise human rights concerns.[30]

1.45      The bills were also considered by the Senate Standing Committee for the Scrutiny of Bills in its Scrutiny Digest 3 of 2018.

1.46      Concerns raised by the Scrutiny of Bills Committee in relation to the NHFIC bill focussed on the appropriateness of delegating to the executive government the Parliament's power under section 96 of the Constitution to make grants to the States and Territories, and to determine their terms and conditions, without any statutory guidance as to the types of terms and conditions under which financial assistance may be granted by the NHFIC to the States and Territories. The Scrutiny of Bills Committee also suggested that the NHFIC bill be amended to subject the NHFIC Investment Mandate to disallowance.[31]

1.47      The Scrutiny of Bills Committee also sought further advice from the Treasurer in relation to two subclauses of the NHFIC bill which seek to allow the Chief Executive Officer of the NHFIC to delegate and sub-delegate certain powers and functions to senior members of staff of the NHFIC.[32]

1.48      The Scrutiny of Bills Committee made no comment on the NHFIC consequential amendments bill.[33]

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