Future Fund to invest in residential housing

The Future Fund was first established in 2006 to strengthen the Commonwealth's long-term financial position and invest for the benefit of future generations of Australians.

It invests the assets of the Future Fund, the Medical Research Future Fund, the DisabilityCare Australia Fund, the Aboriginal and Torres Strait Islander Land and Sea Future Fund, the Future Drought Fund, the Disaster Ready Fund and the Housing Australia Future Fund.

While the Future Fund operates independently from Government, it tailors the management of each fund to its unique investment mandate.

On Thursday (21 November), Treasurer Chalmers announced a new mandate, which will require the fund to consider Australia’s national priorities in its investment decisions, where possible, appropriate and consistent with strong returns.

These national priorities are:

• Increasing the supply of residential housing in Australia.

• Supporting the energy transition as part of the net zero transformation of the Australian economy.

• Delivering improved infrastructure located in Australia including economic resilience and security infrastructure.

The move to include residential housing comes as part of the National Cabinet's ambition to build 1.2 million new homes over 5 years from 1 July 2024 (a target which has so far been behind schedule).

Announcing the change, Chalmers said: “The independent Future Fund already plays a crucial role in our economy and the Government wants to make sure it can play an important role in the decades ahead.

“The Australian economy faces major structural shifts including from the global net zero transformation, technological and demographic change, and global fragmentation.

“The Future Fund has made clear it can play a prominent role in capitalising on these economic opportunities and supporting Australia’s prosperity.

“The Fund’s primary focus will remain on maximising its returns, and at the same time, our changes will help it maximise its role in delivering for Australians in the future.”

To ensure the fund continues to strengthening the Commonwealth’s long‑term financial position and cover unfunded superannuation liabilities, Chalmers also confirmed the government would not start any drawdowns from the Fund until at least 2032–33 in order to provide it with “the certainty it needs to continue to build its portfolio”.

By 2032–33, the $230 billion Future Fund is expected to grow to $380 billion.

“The Government remains committed to the Fund’s independence and commercial focus,” Chalmers said.

“Its primary objective will continue to be to maximise returns, the benchmark return rate will remain at between four and five per cent above CPI per annum over the long term, and there will be no change to the expected risk profile.

“The Fund will provide the same strong returns to the government’s balance sheet while supporting national priorities where it can, and complementing the significant investments made by our specialist investment vehicles including the Clean Energy Finance Corporation, the National Reconstruction Fund, and Housing Australia.

“We thank the independent Future Fund Board of Guardians for its agreement and support for the government’s changes and its constructive engagement over the course of the year,” he said.

The Future Fund’s board of guardians welcomed the changes, particularly the commitment to defer drawdowns from the Future Fund until at least to 2032-33.

“The board appreciates the strong support from the Treasurer and Finance Minister and the Government’s confidence in the work we do,” Greg Combet AO, the board chair, said.

“The Government’s decision to defer withdrawals from the Future Fund until at least 2032-33 provides the Future Fund with the confidence to provide more focus and resources to the areas of national priority identified in the new Investment Mandate that align with our risk and return hurdle.

He added: “The Future Fund is continuing to assess opportunities to invest in businesses that will play a vital role in the energy transition. We are pleased to announce that we will be appointing an Executive Director, Energy Transition to assist us with this effort. We will also be developing strategies for further investment into housing and infrastructure...

“The announcements by the Government mean that the Future Fund will be in place for years to come. This is a great outcome for all Australians," he continued.

“With that certainty we will be able to continue to invest for the long term, make sustainable contributions to the Federal Budget and continue to grow the value of the Fund long into the future.”

The new mandate in housing has been welcomed by those in the building and housing industries, with Jocelyn Martin, the managing director of the Housing Industry Association (HIA) stating it would "support increasing housing supply and could be used to overcome structural barriers to increasing the supply of new apartments which are vital to addressing Australia’s housing shortages".

“At its core, the shortage of housing in Australia is due to a lack of investment. Attracting more investment, especially into apartment construction, could help overcome the shortage of investment from domestic and international sources," she said.

“State and Territory governments have introduced barriers to overseas financial institutions looking to build homes in Australia and this has exacerbated the shortage of housing in Australia. These taxes have contributed to the volume of apartments commencing construction falling by around 50 per cent over the past decade.

“If the Future Fund is to step into the gap this could see a recovery in apartment commencements," Martin added, noting that apartments would be "essential" to meeting the demand in capital cities.

“Assuming that it takes four years to gain approval, and a further three years to build the apartments, this could see the Future Fund delivering apartments prior to the Olympics in Brisbane in 2032," she continued.

“In addition to easing the shortage of housing, this investment could represent an opportunity to target complementary policies that can assist in overcoming other structural barriers including a shortage of labour.

“HIA encourages the government to direct investment into new home building and urges the Australian government to ensure this investment is not ‘handcuffed’ with additional objectives that would add further delays and costs to construction," Martin concluded.