The Invisible Hand? Using Tax Credits to Encourage Institutional Investment in Social Housing

Abstract

Over recent decades many developed countries have commercialised the provision of state-subsidised housing, and introduced a stronger role for market forces. Government financial support now often aims to leverage debt or equity investment. Spearheading this policy change is a quest for the ‘Holy Grail’ of contemporary social housing policy: private equity investment, sourced from large institutional investors such as banks and pension funds. For comparative housing research, this opens up exciting new territory. Recent Australian developments using tax credits to incentivise investment – based on a successful US scheme – provide a valuable opportunity for comparison. This exploratory paper contrasts the two countries’ housing tax credit schemes, highlighting outcomes for investors, tenants and the wider housing system. Foregone corporate taxes provide governments with a powerful ‘invisible hand’ to incentivise flows of private equity, replacing direct public grants. Yet despite free market rhetoric, tax credit schemes still rely on additional government intervention - especially during financial market turbulence.

Key Words:

• Institutional investment
• affordable housing
• tax credits