NHFIC boosts affordable housing with social bonds
National Housing Finance and Investment Corporation (NHFIC) is Australia’s only programmatic social-bond issuer. In 2020, global interest in the product soared. Nathan Dal Bon, NHFIC’s Sydney-based chief executive, discusses the issuer’s social reporting and increasing demand from investors.
NHFIC released its second social-bond report in 2020. What are the key findings the agency would like to communicate to investors?
The report highlights the strong support from domestic and international investors for the social and affordable housing sector in Australia. NHFIC successfully issued A$1.2 billion in social bonds in its first two years of operation. This includes NHFIC’s third social bond, issued in June 2020, which at A$562 million (US$430 million) was the largest social bond printed by an Australian issuer and was close to three-times oversubscribed. NHFIC’s third bond achieved its lowest coupon rate, notwithstanding it having the longest tenor to date at 12 years.
We engaged the Australian Housing and Urban Research Institute to assist in developing metrics to assess the impact of our social bonds. The report focuses on the primary outcomes most directly attributable to NHFIC providing lower-cost and longer-tenor finance to community housing providers (CHPs).
Modelling by Paxon Group anticipates CHPs will save more than A$200 million in interest and fees over the next 12 years from NHFIC loans funded by social bonds. These CHP savings can be recycled further to support the supply of new affordable housing and service enhancement to support CHP tenants. This potential additional housing supply builds on the 1,291 new and 5,436 existing dwellings financed with NHFIC’s social-bond proceeds.
The report also contains examples of the tangible benefits to CHPs and individual tenants, and notes that the CHP sector has remained resilient throughout the COVID-19 pandemic. NHFIC’s regular monitoring and testing of CHP financial circumstances have shown no significant increase in credit risk in our loan portfolio, despite the major impact of COVID-19 on the economy. This highlights the ability of the CHP sector to generate stable returns for investors.
Social bonds had a breakout year globally in 2020 but NHFIC is still the only programmatic social-bond issuer in Australia. Do you expect demand for the asset class will continue to increase even if local supply is somewhat limited?
Yes. There has been significant market focus on social bonds and this has been heightened by the COVID-19 pandemic. Estimates are that global social-bond issuance increased by a remarkable 843 per cent in 2020.
We have continued to see strong domestic and global investor interest in our social-bond transactions, which have all been heavily oversubscribed. In light of the strong demand for NHFIC’s issuance, the Australian government increased NHFIC’s government-guaranteed liabilities to A$3 billion from A$2 billion in the last budget.
This will further support NHFIC’s objective of establishing social and affordable housing as an asset class in Australia, as well as the growth of Australia’s social-bond market.
We expect demand for social bonds – overseas and in Australia – will continue to grow, particularly as the social and economic impacts of the pandemic are likely to persist for some time. The longer-term trend of institutional investors and their clients wanting to see their funds being used to support better social outcomes, including secure and affordable housing for people on lower incomes, will also remain.
NHFIC now has three bond lines outstanding with maturities between 2029 and 2032. What are the agency’s intentions for capital-markets issuance going forward – will it continue to establish new lines or build liquidity in the existing ones?
NHFIC intends to continue issuing social bonds on a regular basis, with at least one capital-market transaction each financial year. At this stage, NHFIC is more likely to establish new bond lines than add to its existing ones. This will depend on capital-market conditions at the time of each transaction, though.
NHFIC has spoken in the past about the potential for longer-dated funding of community-housing assets being dependent on demand from CHPs. Has there been any development in this demand over the last 12 months as longer-term debt has become generally more available?
It has been a very volatile year in debt capital markets but we are aware of increasing interest in longer-term debt, particularly from overseas investors.
NHFIC will continue to consider options for longer tenor in future bond issuance, in order better to match the life of community-housing assets. As always, NHFIC and CHPs will need to consider the relative benefits of price versus greater certainty in funding from longer-tenor finance.
HIGH-GRADE ISSUERS YEARBOOK 2021
The ultimate guide to Australian and New Zealand government-sector borrowers.