The Greens have wrung another $1b from Labor for social and affordable housing and are now prepared to pass the Housing Australia Future Fund Bill. What’s the scam?
The scam is the maths still doesn’t stack up and the biggest winners will be people who are looking to purchase a holiday house; the financial services crew which is to manage the money.
A $10bn government loan invested to return a net 5% pa, while at least 40% is held in cash means that the Future Fund will have to swing into expensive private equity and alternative investments (invest with the 2% upfront, 20% performance fee crowd).
That’s why the Medical Research Future Fund has a ‘look-through’ fee north of 2% pa, which is likely to be the case for the HAFF.
Like the MRFF, the HAFF is likely to have an annual distribution requirement. The MRFF has been paying out around $600m pa from its $20bn fund. So, how the HAFF intends to payout $500m from $10bn is anyone’s guess. “Beyond me,” said a financial services source. “The maths doesn’t add up.”
And the investments can’t be too risky because of that annual distribution requirement. So ~45% in cash, earning 4.1% when you have a target of 5% *after-fees* does not stack up.
And if fees set you back 2%, then the target for HAFF is really 7% gross minimum. So they would have to load it up with private equity or hedge funds, says Harry Chemay, who wrote this analysis of the HAFF and MRFF.
Which will be great news for the Porsche & Ferrari dealerships in Sydney and Melbourne.
Why did Labor not simply commit the $500m from the Budget and be done with it? Perhaps because most Australians own their own home so it is a simple punt on how many votes it would cost; a ‘fiscally responsible’ strategy for the optics, even though they are sitting on a $20b surplus.
Michael West established Michael West Media in 2016 to focus on journalism of high public interest, particularly the rising power of corporations over democracy. West was formerly a journalist and editor with Fairfax newspapers, a columnist for News Corp and even, once, a stockbroker.