Higher interest rates, inflation, increased construction costs have created a challenging macroeconomic environment for community housing providers (CHPs) and the housing market more broadly.

This has had an impact on the economics of social and affordable housing projects in the pipeline and moderated demand for Affordable Housing Bond Aggregator (AHBA) loans, resulting in lower than forecast bond issuance in the 2022/23 financial year. However, we continue to see activity in the sector, which is crucial to addressing Australia’s housing crisis.

The CHP sector is underpinned by stable cash flows and low vacancy rates, and NHFIC continues to fund projects with and without government subsidies.

Notwithstanding the macroeconomic backdrop, NHFIC expects to return to the bond market during the 2024 financial year and will continue to support the CHP sector with the products we have available, including the AHBA and the National Housing Infrastructure Facility.

NHFIC has a robust pipeline of loans to CHPs under the AHBA. This is expected to support a new benchmark bond transaction in 2023/24.

CHP demand for NHFIC’s finance from 2024 will be influenced by government housing policies including the National Housing Accord (NHA), the proposed Housing Australia Future Fund (HAFF) and state-based social and affordable housing programmes. If these translate into higher AHBA loan volumes, this will be reflected in NHFIC’s bond issuance.

NHFIC bond issuance to date has ranged from 10 to 15 years in tenor. NHFIC continues to view this range as balancing our borrowers’ and investors’ preferences. However, given the uncertain interest-rate outlook coupled with long-term government subsidies, CHPs continue to express a preference for longer-term finance. This is an angle we are keen to explore with investors.

The potential HAFF programme, the NHA and other state government housing programmes are generally supporting new construction projects and are built to high environmental standards. This may facilitate increased sustainability bond issuance where NHFIC is funding a mix of social and green assets.

Having said this, there are no material changes expected to the programme, and social housing assets remain NHFIC’s core focus.

This is a long-term goal for NHFIC and a key principle behind the formation of the ABHA in 2018. We continue to promote to, and educate, institutional investors on the social and affordable housing sector through our social bond report, investor meetings, site tours and other events. In addition, NHFIC supported and partnered with the Community Housing Industry Association to develop an ESG [environmental, social and governance] reporting standard for the Australian community housing sector designed to improve disclosures and reporting for investors and other stakeholders.

NHFIC has also been exploring opportunities for institutional investors to invest directly in subordinated debt and capital notes for social and affordable housing developments under the potential HAFF and the NHA programmes.

For term funding, NHFIC’s primary focus will remain on the Australian domestic market. If NHFIC’s funding task increases with the government’s social and affordable housing policies, there will be an opportunity to build larger, more liquid bonds lines.

Regarding short-term funding, NHFIC is in the final stages of establishing an ECP programme to enhance our short-term funding options. NHFIC expects to issue ECP in a range of foreign currencies.