IIN has been fortunate enough to tap into the minds of the hard working individuals at Community Finance and Positive Capital who are contributing to housing affordability through impact investing. This month's IIN Showcase is broken down into two parts. Part 1 focuses on the background, purpose, and impact of Community Finance and how its Community Bonds finance impact investments, highlighting the Salvation Army Community Bond as a key case study. In Part 2 of this showcase we look at Positive Capital, a sister entity to Community Finance which has developed a Co-ownership Programme for CHPs, bringing much needed equity (through the Positive Property Fund) alongside the debt offering of Community Finance. This creates a sustainable path for a CHP to fully own properties over time.
Pictured above is one of the community homes built from Community Finance's Salvation Army Community Bond. This is discussed in more detail below.
Overview of Community Finance
Community Finance was established in 2019 as a social enterprise to mainstream impact investing, and support, positive social and environmental change in Aotearoa/New Zealand. Its founders saw an opportunity and desperate need to create a bridge between existing proven solutions, such as Community Housing Providers (CHPs), and both the rising needs for many and the growing amount of funds under management. This bridge links investable projects that deliver positive impact with returns for investors. Community Finance does this on lower margins so that it can support better returns for investors, plus lower costs for eligible borrowers.
Its founding capital partners include The Tindall Foundation, Lindsay Foundation, Whakatupu Aotearoa, Matua Foundation and Christian Savings. Each of these organisations is committed to bringing about positive social change through Community Finance, which will trigger significant growth in the impact investment sector.
Community Finance has already completed a number of firsts for the country and sector. These include:
Creating the largest open impact investment intermediary, with over $100m in impact investment loans advanced, with expectations of steady growth. In 2020, launching the The Salvation Army Community Bond securing $40m to finance 118 new public houses. Some of these projects have financed new homes for CHPs (over multiple sites), a community office hub for charities and a large site in Auckland to establish a new school.
Unlocking the first KiwiSaver investment into public housing with the Generate KiwiSaver Scheme, now with three KiwiSaver providers as active investors.
Through the Aotearoa Pledge, facilitating commitments of over $70m for new public housing projects from a range of leading fund managers, financial institutions and philanthropic foundations. Pledge partners include Simplicity, Pathfinder, Generate, ANZ, Forsyth Barr, WEL Energy Trust, Clare Foundation and Lindsay Foundation.
A Community Bond to finance impact
While there is a growing desire from investors to use finance as a force for good, investable options have previously been extremely limited in Aotearoa/New Zealand. Community Finance is therefore expanding the range of products available. As part of this, one of its core successes has been to unlock wholesale investors into impact investing through its Community Bonds. Investors are offered a fixed interest Community Bond product which pays interest in cash quarterly and typically has a maturity of three to five years.
Community Finance uses these investments to lower the cost of finance to New Zealand’s leading charitable CHPs, enabling investors to invest in a meaningful and ethical way while still earning appropriate returns. Investors also receive annual impact reports, setting out the social and wellbeing outcomes supported by their investments, with outcomes linked to the United Nations’ Sustainable Development Goals.
The impact of Community Finance and the Community Bonds has been and continues to be tangible for CHPs. First, lower fees and interest rates support CHPs in their work to meet rising needs. Secondly, Community Finance is working alongside CHPs to give them more confidence to build more homes.
The need for investment in affordable and community housing in New Zealand is vast and growing. As at August 2022, there are over 26,000 eligible households on the Housing Register (individuals and families eligible for Government funding, but with no home available for them to live in), having increased by over 20,000 households since June 2017. As finance can be 60% - 70% of the cost to acquire new homes, Community Finance, through its impact investors can be a real driver in supporting CHPs to meet this need.
Social Impact Bonds - Salvation Army Community Bond
Community Finance launched the Salvation Army Community Bond in 2020 and successfully raised $40m to build 118 apartments and houses over three locations. The first project for Community Finance was the largest of its type when commenced. Investors earned appropriate returns and The Salvation Army secured a fixed finance rate for five years.
The Community Bond supported the following community homes, which were completed and fully tenanted by June 2021:
47 x 1-bedroom apartments
3 x 2-bedroom apartments
2 x 1-bedroom homes
20 x 2-bedroom homes
10 x 1-bedroom homes
36 x 2-bedroom homes
These homes have provided housing for 150 adults and 59 children. In addition to providing good quality housing which is safe, secure and affordable, all tenants have access to wrap-around services, including: budgeting advice, community ministries, food banks, and tenancy support through Kahui Te Kaha and its social workers who support getting to and from medical and other appointments.
Pictured above is an aerial view of a section of the community of homes built from Community Finance's Salvation Army Community Bond.
A home for social impact
The long-term positive social impact of safe, secure, affordable housing is now well understood and proven. Households who move off the MSD’s Housing Register into healthy homes with secure tenure can achieve a wide range of social benefits and improvements. These can include an enhanced sense of wellbeing and social cohesion, improved school attendance and performance, improved physical and mental health and wellbeing, improved career progression and financial independence.
Community Finance believes the Community Bond offering will help enhance financial system efficiency by increasing the avenues for financing positive social and environmental outcomes as part of a growing trend of investors seeking improved ESG investment options. The model has been designed so that it is easily replicable across sectors to increase the impact in social and environmental projects as the investment sector matures.
Demonstrating that the positive outcome created by Community Finance is both sustainable and recurring, Community Finance has also:
Advanced $12m to a leading Auckland-based CHP.
Advanced $38m to secure a site for a new school.
Appointed Public Trust as trustee for each investment trust.
Engaged with a number of new CHPs in support of new public housing projects around the country.
The aspiration is to grow Community Finance to over $1b of impact investments under management, to positively transform lives throughout Aotearoa/New Zealand and make finance a force for good.
Community Finance Showcase Part 2 - Positive Capital
In Part 2 of this showcase we look at Positive Capital, a sister entity to Community Finance which has developed a Co-ownership Programme for CHPs, bringing much needed equity (through the Positive Property Fund) alongside the debt offering of Community Finance. This creates a sustainable path for a CHP to fully own properties over time.
Community Finance stands out in the local impact investment market in terms of matching dollars with tangible community benefit, now and for generations to come. The community housing sector has a critical role to play in delivering a range of homes to our diverse communities, and Community Finance’s work to unlock the potential of that and to really make headway into the housing crisis is something we should be excited about. Our housing crisis is complex and no one actor is going to solve it alone. Community Finance recognises that and is building partnerships as well as houses – something we endorse and are grateful for here at Community Housing Aotearoa.
Vic Crockford | Chief Executive
Community Housing Aotearoa
What the team at Community Finance have achieved is both unique and quite remarkable. The challenge around the availability of warm, dry housing in Aotearoa New Zealand is simply daunting. Community Finance's response has matched this challenge. They've nurtured a collaboration of investors, including KiwiSaver providers and foundations, to fund the building of much-needed social housing. We, and our KiwiSaver members throughout New Zealand, are excited (and proud) to be part of Community Finance's collaborative solution.
John Berry | Co-Founder and Chief Executive Officer
Pathfinder Asset Management Limited