The financing of residential development in Australia

Housing Australia
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Summary: This project provided policy-makers with an understanding of the complexity of property finance, its role in the supply of all housing types and tenures and the impact of the Global Financial Crisis on property lending.


The researchers interviewed property developers and financiers in Western Australia, New South Wales and Victoria who were involved in high density, medium density in-fill and affordable housing developments.

Debt finance remains crucial for developers to finance projects since it opens development opportunities for those without up-front capital and allows them to reduce risk. While some larger developers (e.g. Australian Real Estate Investment Trusts) have adequate access to finance, small to medium sized developers have faced difficulties especially since the global financial crisis. This has negatively impacted housing supply especially in-fill development.

Financing affordable housing for the not-for-profit sector is materially assisted through the National Rental Affordability Scheme (NRAS) although it does take time for lenders to understand such schemes. Financing further affordable housing development is limited, because banks treat loans to the sector as cash flow loans rather than loans against assets. Continued growth of the sector will make it easier to leverage finance in future.

Policy-makers are unable to directly influence lending decisions but can make a difference to the general investment environment through:

  • Recognising the diversity of developers in the industry and their differing responses to policy initiatives and the adverse effect planning uncertainty and excessive regulation can have on development feasibility.
  • Involving the financial sector in planning reform to reduce uncertainty.
  • Encouraging small and medium scale in-fill development by avoiding delays, equitable infrastructure charging, and flexibility around parking requirements.
  • Partnering with developers through joint-venture arrangements (e.g. guaranteeing to purchase unsold units).
  • Educating developers about low risk avenues for investment through demonstration programs, such as the Keystart shared home ownership scheme.
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