Reimagining the economics of public housing at Waterloo

The physical design of New South Wales Land and Housing Corporation’s (LAHC) proposed redevelopment of Sydney’s Waterloo Estate has been reviewed and reworked by various stakeholders to reimagine a better urban design outcome. This report does a similar exercise for the economic and financial designs of this project, and public housing generally. Are there economic designs that can improve the long-term public housing outcomes from redeveloping the Waterloo estate? To date, investment in new public housing has been considered as a cost only. But housing (even public housing) is an asset that generates a return over time in the form of rental income and capital gains. This is a key economic issue with the LAHC self-fund model. Indeed, applying this model while ignoring asset returns is self- limiting; it privatises long-term returns on real estate assets, which are the source of value funding public housing redevelopment. If the New South Wales government wishes to maximise long-term public housing provision, they should consider more elegant economic and financial designs. This would include mimicking private sector behaviour, such as using leverage during redevelopment periods, retaining market risk and return during the development process, and retaining long-term ownership of as much of the real estate asset base as possible. Doing so would also provide the flexibility to vary future redevelopment stages to accommodate changing housing policy needs. One alternative we explore is where 50% of new dwellings are public housing, 25% are retained by LAHC as build-to-rent housing at market prices, and 25% are sold by LAHC to the private market. This scenario uses low-cost leverage, generates positive cashflow, and maximises exposure to long-term capital gains for LAHC.