Social bond market to grow, says NHFIC chief Nathan Dal Bon
The government’s plans to encourage $20bn in social and affordable housing will invigorate the market, says the NHFIC boss.
The nascent social bond market is set to be given a major boost in the wake of the federal government’s moves to encourage more investment in the sector, according to the chief executive of the National Housing Finance and Investment Corporation, Nathan Dal Bon.
Mr Dal Bon said the government’s plans to encourage the development of some $20bn in social and affordable housing through a range of financing options would provide an impetus for the market and for ESG-related financing in Australia.
The NHFIC – set to be renamed Housing Australia – is the only local issuer of social bonds.
It has issued $1.8bn worth of bonds, which have been used to invest in community housing projects, and another $400m in sustainability bonds over the past few years. Cbus, the construction industry fund, has bought $150m worth of bonds issued by the organisation.
The Asian Development Bank is the largest single issuer of Australian-dollar social bonds.
Social bond funds are exclusively applied to eligible projects, in line with principles set down by the International Capital Markets Association. Sustainable bonds are those where the financing can be used for a mixture of social and green projects. They are part of a broader categories of ESG-related bonds, a global market estimated by Moody’s to be worth more than $US1.3 trillion ($2 trillion).
The NHFIC has been charged with the delivery of 40,000 new social and affordable homes, including 30,000 from the $10bn Housing Australia Future Fund and another 10,000 under the new housing accord announced in the recent federal budget.
Cbus chief executive Justin Arter said the establishment of the HAFF would be “another leg up in the development of this asset class” in Australia.
“What we are getting from our members is that we should invest widely for their retirement but also in a constructive manner in ESG-related projects,” Mr Arter told The Australian.
Mr Dal Bon said the challenge of creating a new asset class in Australia for financing social and affordable housing was coming at a time when super funds were under increasing pressure to look for ESG-related investments.
“We have seen a strong focus on ESG by institutional investors, including those rated either sustainable or social,” he said.
“Interest has been growing over the past four years (since NHFIC started issuing its bonds), and we are expecting it to intensify,” he said. “We have been working with a range of stakeholders, including super funds, in terms of how we can structure the financing to enable the delivery of those 40,000 houses.
“We all share an objective in trying to build a new asset class in Australia which can help develop the social, affordable and community housing sector.”
Mr Dal Bon said it would take some time to develop financing and investment options to raise the money for the government’s housing investment goals.
The NHFIC’s annual report, released on Friday, shows it issued $198m in new bonds over the past year. The funds went to five community housing providers, supporting the delivery of 3300 social and affordable homes.
The agency approved loans of more than $500m to community housing providers over the year.
But its ability to attract investments from super funds, both through bonds and potential debt financing, also depends on having a predictable pipeline of projects which can create a stream of investment opportunities generating commercial returns.
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