Better Philanthropy Award 2020

Leveraging a grant to create affordable housing

Three years ago, the Lord Mayor’s Charitable Foundation in Melbourne embarked on the Affordable Housing Challenge as a means of addressing the shortage of affordable housing across the city. The Foundation had for many years supported people experiencing homelessness with a range of initiatives: this time, the thinking was different.

What if the Foundation became a key player in using philanthropy’s risk capital to devise a new model of affordable housing? What if the Foundation took a $1 million grant to leverage a site in a local government area and then enabled a partnership between the LGA and a community housing provider?

The site needed to be well located – close to services, shops, schools and transport – sustainable, and be no cost to the local council. It was an exciting idea – it brought together philanthropy and local government in a rare project of collaboration. And it made the most of philanthropy’s capacity to bear risk. And now, the fruits of that approach are clear to see – in July, Darebin council in Melbourne’s inner north approved the new social housing development at Preston, with a development budget of $16 million. Housing Choices Australia was chosen as the community housing developer due to their affordable housing development experience and their ability to raise capital from a range of sources.

Lord Mayor’s Charitable Foundation CEO Dr Catherine Brown acknowledges that the project started from “Ground Zero’’ – there was no template in Australia for what they were proposing, which brought its own challenges. “You have to be pretty tenacious,’’ she says. “It could just have drifted away.’’

Each of the challenges was worked through with patience, diligence and determination, on both sides of the table. Local government has historically not seen itself as a provider of affordable housing or of land for affordable housing and that has now started to change. But discussions also revealed how little experience local government had of how philanthropy works and what it can contribute.

Learning to work with another sector is quite different,’’ Catherine explains. “I think local government doesn’t think much about philanthropy. I don’t think they understand philanthropy, so everything single thing was new. Every single meeting was explaining what philanthropy does. It sounds strange but they hadn’t thought about philanthropy.’’

In addition, local government has a bureaucracy that is cautious about innovation and is traditionally risk-averse. That may change a little now that this landmark agreement has been signed off.  “Once they’ve done one, I think everyone will feel more confident and they’ll start to move faster,’’ Catherine says. “Darebin is working with us to prepare a kit for other local governments to use.”

Critical to the success of the project was a detailed analysis undertaken by the University of Melbourne’s Transforming Housing Partnership that identified the key criteria for site selection. The Foundation sent out requests to local governments across Melbourne to submit sites that they thought would be suitable for affordable housing. The submissions were marked against the criteria, which ranged from proximity to green spaces, and public transport, as well as services and shops, to evaluate the best potential site.

“It was about access to employment, access to services – really practical things,’’ Catherine says. “It’s wonderful to have a stable home but the next thing is how can I get involved in education or employment for example. …we try to put all those sorts of elements in selecting a site so it’s going to be well located housing and sustainable…as well as cost-effective to run.’’

Once the site was agreed to, the local council would effectively donate the site to an affordable housing project by setting up a long term (49 year) lease with a community housing developer. On top of the Foundation’s $1 million, there would be financing provided through the National Housing Finance and Investment Corporation (NHFIC) and some State government support is expected.

The Foundation’s commitment to the idea went beyond the original funding, and included its own expertise, the establishment of an external advisory committee and also paying for US affordable housing advisor David Rosen to take part in the preparations and assisting with documentation.

Catherine doesn’t think the project would have been realised without philanthropy’s capacity to bring social-risk capital to the idea.

“When we started it had never been done. We could see it was possible and we thought we’d just have a go…,’’ she says. “When philanthropy does go in early on these projects, we do de-risk it a bit for everybody. And I think government’s are only just starting to realise this too. There have been a few other projects where other partners realise that with philanthropy coming in with early support, it then makes it a less risky proposition for government.’’

The approach is set to be replicated with another project, an affordable housing site in the City of Melbourne. The current Affordable Housing Challenge is being used to unlock underutilised land owned by faith-based organisation and large Not-for-Profits. The key from here is for other foundations following Lord Mayors’ into the space: there is evidence of some others showing interest and Catherine can see it’s an area with potential.

“I think that’s what philanthropy should be doing, to be honest: we are the risk capital for solving tough community challenges…that’s our main job,’’ Catherine says.

There is certainly interest from other councils who have seen the value of the project and approached the Foundation. Darebin is likely to be finished early in 2022, by which time there may well be a few other similar projects on the drawing board.

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