Zagga bridges housing and infrastructure divide

Real estate private credit specialist Zagga is filling the financing gap in Australia’s housing crisis, investing in essential projects unfulfilled by banks and government.

Private credit firms have a major role to play in solving Australia’s housing crisis. Pic: Getty Images.

• Australia needs to build 1.2 million new homes over five years to address the current housing shortage

• Private credit firms like Zagga are filling the gap between government and bank financing

• More government incentives are needed to fill low to middle income housing requirements

Special Report: Private credit firms like Zagga are playing a pivotal role in addressing Australia's housing crisis by stepping into the financing gap left by traditional banks and government.

It is no surprise that Australia is in a housing crisis. The nation has been struggling with declining home ownership and rising housing costs for at least two decades, and things are coming to a head.

While the Albanese government’s National Housing Accord has set the goal of building 1.2 million new homes over the next five years, Australia is already falling short of the target.

In May, the National Housing Supply and Affordability Council released the 2025 State of the Housing System report.

By the council’s measure, we’ll fall short of the 1.2m new homes target by more than 250,000 dwellings, and not a single state or territory is building enough to meet their set goals.

Two of the five key policy recommendations to address the shortage are to increase construction sector capacity and productivity, and to apply best practice principles to planning systems and land availability.

That’s where alternative real estate investment firms like Zagga come in.

Solving for community needs

Founded in 2016 with a pool of $7 million and 20 investors – many of them friends and family – Zagga takes an evidence-based, case-by-case approach to every investment opportunity, delving deep into project fundamentals to understand the true viability of any given development.

With banks becoming more cautious in their investments due to increasing regulatory and capital constraints, Zagga’s risk and execution executive director, Tom Cranfield, believes private credit is well positioned to step in – offering the flexibility and appetite needed to fund projects that fall outside the scope of traditional bank lending, particularly in the commercial real estate sector.

“We’re able to dig deep and understand the benefit of these sorts of assets for everyone,”  Cranfield said.

“We see housing as the best asset class with the deepest marketplace to invest. Our strategy is focused on solving for community needs, whether that’s housing or other asset classes.”

Taking a look under the hood

Like many real estate investment firms, Zagga has invested in several luxury apartment buildings in Sydney and Melbourne but the company considers itself asset agnostic.

They’ve also provided capital for townhouses, land subdivisions, boutique commercial offices, planned communities, industrial warehouses, shopping centres, and  quick service retail offerings .

Cranfield says their focus on solving for community amenity  often leads them to other opportunities outside direct housing development, building out the ‘other spaces’ needed for a community to thrive.

After all, owning a home means little if you can’t access essential services – like groceries, clothing or petrol – within your local area.

It’s the kind of development the government pays little attention to, and banks are often too conservative to touch.

One of Zagga’s newest investments, the Silverdale Shopping Centre west of Sydney, is a case in point.

Venturing where banks fear to tread

Just a 20-minute drive from the new Western Sydney International Airport, Silverdale is a small town that’s likely to get quite a bit bigger over the next few years.

The Silverdale Shopping Centre is owned by a local family who have lived in the area for decades.

They recognised the need for an expansion of the site as the demands of the local area grew but were unable to secure funding from traditional banks due to the project not aligning with standard lending criteria.

Zagga took a hard look at the Silverdale Centre’s fundamentals.

They made note of the Western Sydney Airport, less than 20 kilometres away by road, of the NSW Government’s rezoning of the land between Camden and Penrith for urban communities, and the growing population of Silverdale itself.

They considered Woolworth’s involvement in the centre’s lease covenant as the largest supermarket chain in Australia, confirmed the operational team’s capacity to both build and manage the project, and realised they had a real opportunity on their hands.

“We benefited from the banks being…. benign on their appetite for the project funding ,” Cranfield explained, "and thus we were able to fill the funding gap needed to reach project completion with the Centre scheduled to open in the next few weeks.

“Once the delivery risk is gone, we expect the banks to refinance the loans.

“At that point, that’s when we exit – our focus is primarily on  the development phase of a project, not holding the asset long term.”

Where private credit and government meet

Filling the gap between banks and government investment is the sweet spot for private credit.

Middle-market providers like Zagga have a combination of flexibility and capital liquidity that banks and government initiatives simply can’t match.

In today’s evolving funding landscape, banks, government initiatives, and private credit each play a vital role. While public infrastructure is best driven by government, and banks continue to support traditional home lending, private credit investment firms like Zagga offer the flexibility and responsiveness needed to fund complex mid-market projects – bridging the gap where timing, structure, or risk profile may fall outside conventional parameters.

Shopping centres, service stations,  business parks, strata-based apartment blocks… they fill in the gaps between basic infrastructure and the family home.

That’s not to say every development opportunity will be snapped up by a company like Zagga – as a private investment firm, they have a responsibility to generate returns for their investors first and foremost.

“A number of the projects or areas which need the housing supply aren't actually profitable projects to deliver in the middle market,” Cranfield explained.

“The end value of the units, the cost and margin, need to stack up so that a private developer will want to do it. They’re not government bodies; they do it for a margin.

“They take risk and they have to deliver, fund it and sell it. They’re entitled to a return for that.”

If you’ve ever wondered why so few developers are building low- to middle-income apartment blocks, the basic answer is that they’re not profitable.

Under the targets set by the National Housing Accord, 60,000 homes will need to be built each and every year.

It’s simply not viable to expect government – be they state or federal – to identify and fill the need for housing everywhere.

So how does everyone else do it?

While Australia is not unique in its unaffordable housing crisis, we’re certainly doing it tougher than a lot of our global peers.

One of the big differences in our housing sector as opposed to say the UK and US, is the level of real estate debt held by private credit.

Global management consulting firm Alvarez & Marsal estimates about 17% of Australia’s commercial real estate debt – that’s anything outside straight residential dwellings, including mixed-use apartment buildings – is held by private credit.

According to Bayes Business School data, non-bank lenders accounted for 41% of British real estate loans in 2023 and 20-30% across continental Europe.

In the US, the share of non-bank commercial real estate debt is even higher, estimated at about 61% of the US$6 trillion market as of March 2023.

As bank capital becomes more constrained and regulatory scrutiny increases, private credit has stepped into the gap.

Offering flexibility, tailored solutions and bespoke debt structures, these alternative investment firms are willing to lend on broader terms, that banks generally cannot extend.

That’s not to say government and banks don’t have a major part to play in enabling private equity to fill these gaps.

Incentivising affordable housing

In the UK, more than half of all affordable house building is supported by government grant funding under initiatives like the Affordable Homes Program, with the remainder delivered by the private sector as a condition of planning permission.

Across the pond in the US, developers are encouraged to build affordable housing with incentives like the Low-Income Housing Tax Credit, allowing them to claim tax credits over a 10-year period post construction.

In both instances, government incentives drastically increase the profitability and security of developer’s investments, ensuring long-term returns and benefits that outweigh the immediate cost of building the housing itself.

In the end, it will take a combination of government incentives and initiatives, bank financing, and experienced middle-market operators all working in tandem to their individual strengths to address the Australian housing crisis.

“If we can solve some of the delivery efficiencies and cost by way of improved labour, improved technology processes and faster planning frameworks, the housing market will become more available to everyone,” Cranfield said.

“We’re deliberately positioning ourselves to address a clear gap in the market, with a defined investment strategy that solves a real need in a way that is both scalable and sustainable. It’s a model that our investors can believe in and grow with, and we’re excited to have them on that journey with us.”

This article was developed in collaboration with Zagga, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.

Originally published as Zagga bridges housing and infrastructure divide