Analysis reveals the current funding model for youth homelessness is broken. An alternative funding model is urgently required.
SGS worked with a youth homelessness service provider to explore the viability of becoming a registered housing provider under the Victorian Housing Act; so the organisation could better pursue its vision of a society in which all young people and young families have a safe place to call home. We found that registration would provide the organisation the:
- Eligibility to compete for Victorian Government grant funding for housing projects
- Eligibility for low-cost construction and investment finance through NHFIC
- Potential to accept social housing management transfers, and
- Legal protection to contributors of land and/or capital; guaranteeing that those funds will continue for social housing purposes.
However, registration as a housing provider would require the organisation to make significant governance and structural changes and, if it was to acquire or develop its own properties, bear a range of additional ongoing costs for bid development, partnership development, regulatory systems and compliance.
Moreover, to be competitive in bidding for government grant funding to acquire or develop its own properties, the organisation would need to demonstrate that its properties would be financially sustainable. Meaning, the rent it charges young people would cover tenancy management, property management, and property operating, maintenance and renewal costs over the long term.
Our modelling indicates that financial sustainability can only be attained if:
- Significant partner grants are attracted to each property acquisition/development proposal so that borrowings are avoided altogether
- Targeted clients/tenants expand to include medium-income youths, so a small margin can be generated to cross-subsidise low-income youths
- An ongoing subsidy is secured from elsewhere to cover the operating deficit that will inevitably result from the properties, and
- Additional subsidies for youth support services are simultaneously secured, recognising that there is currently no nexus between capital funding decisions (for properties) and recurrent funding decisions (for youth support services).
Restated, this means that financially sustainable youth housing can only be achieved if the provider is gifted with appropriate land and buildings, or the capital to acquire them, as well as an ongoing subsidy to make up the shortfall generated through property operations. To reduce the operating subsidy requirement, the provider might expand its focus away from supporting young people at risk, i.e. to people in need but with higher incomes, but this does not align with best practice models for service delivery, some of the conflicts that inevitably arise when housing young people at risk alongside other tenants, or the sheer scale of unmet need in the youth housing space.
While we initially thought that our modelling was too conservative, engagement with a range of other youth housing providers broadly confirmed the results. So, unfortunately, we can only agree with what they told us — “You can’t make the numbers work!” and “An alternative funding model for youth homelessness is required!”.
