Under Performance Standard 7 Financial Viability, registered agencies must maintain financial viability by effectively managing their financial risk exposure, maintaining satisfactory financial performance and a viable capital structure. 

Registered agencies report a range of detailed financial information to the Registrar of Housing Agencies (Housing Registrar) as part of the annual compliance assessment process. This reporting includes provision of the:

• Financial Performance Report, containing historical and forecast data, including grants, debt and development projects for each registered agency
• audited financial statements
• financial related policies and procedures, including policies evidencing financial risk management.

The Housing Registrar consolidates financial data provided by registered agencies to analyse the financial performance of the sector.

Housing assets

In 2021-22, housing assets owned by the sector grew by $0.79 billion to a total value of $4.84 billion (an increase of 20%). This figure reflects housing owned by the registered sector only and not housing managed on behalf of the Department of Families, Fairness and Housing and other parties.

In 2021-22, the increase in the value of housing assets was driven by both housing asset valuation increases and an increase in the number of housing properties owned by the sector, primarily by housing associations.

Operating revenue

In 2021-22, total operating revenue of the sector was $480.9 million.

Operating revenue has increased steadily over the past five years, primarily driven by operating grants received. In 2021-22, operating grants comprised 44% of the sector’s total operating revenue.

Rent revenue accounted for 33% of revenue, with the remainder comprising National Rental Affordability Scheme (NRAS) subsidies and other revenue sources. 

Rent revenue increased by 7% in 2021-22, and operating grants received were 17% higher than the prior year.

Note: Where registered agencies provide other services in addition to housing, operating grants for non-community housing services will be included in these figures. Further information on grant funding is provided below.

Operating expenses

In 2021-22, the sector incurred $430.6 million in total operating expenses before depreciation and finance costs.

In 2021-22, the operating expenses to operating revenue ratio was 89.5%, which was lower than 2020-21 but remained higher than previous years.

Property maintenance expenses increased by 21% in 2021-22, in response to the Department of Families, Fairness and Housing Building Works Maintenance Stimulus program grant spending and carryover maintenance which was unable to be completed in prior years due to COVID-19 public health measures.

Note: Operating expenses excludes depreciation and finance costs which are included in the summary financial statements.

Administration expenses increased by 10% in 2021-22, incorporating higher salaries and wages and consultant expenses as registered agencies prepared funding submissions and undertook project management activities to participate in the Big Housing Build.

Finance costs increased by 179%  in 2021-22 due to higher levels of debt in the sector to finance development projects.

Operating earnings before interest, tax, depreciation and amortisation (EBITDA)

In 2021-22, the operating EBITDA margin was 10.5%, an increase from 7.6% in the prior year. This has been driven by an increase in rental revenue, operating grants and other revenue.

Operating revenue increased by 28% in 2021-22 compared with the prior year, whilst operating expenses have increased more slowly (24% in the same period).

This measure will be closely monitored, given the significant projected growth and construction activity associated with the Big Housing Build and as newly registered agencies become operational over the coming years.

Grant funding

The sector’s revenue is predominantly comprised of rents, operating grants and capital grants. Operating grants provide funding for the delivery of specific programs and capital grants fund upgrades and development of properties.

The information and charts provided in this section of the report relate to the grant funding portion of revenue as a proportion of total revenue.

In 2021-22, the sector received $403.3 million in operating and capital grants, an increase of 64% from 2020-21. This increase was associated with additional government funding from the Big Housing Build, the H2H initiative and philanthropic contributions.

Operating and capital grants comprised 59.3% of total sector revenue, reflecting the sector’s reliance on grant funding for both operational programs and housing development. 

In 2021-22, the housing provider sector received the majority of operating grant funding ($137 million compared with $64.1 million in the housing association sector).

Launch Housing and WAYSS Ltd accounted for over 50% of total operating grants received, delivering Victorian Government support for programs addressing homelessness and family violence.

Housing associations received a greater proportion of capital grants due to their increased capacity to deliver growth in the registered agency housing stock.

In 2021-22 housing associations received $129.4 million in capital grants (compared with $64.1 million in the housing provider sector).

Housing First Ltd, Housing Choices Australia Ltd, Launch Housing Ltd and Unison Housing Ltd were the largest recipients of capital grants, accounting for 41% of all capital grants received by the sector.

Registered sector capital expenditure

Project capital expenditure in 2021-22 totalled $148.8 million.

The majority of capital expenditure was in the housing association sector, with Housing Choices Australia Ltd, Loddon Mallee Housing Services Ltd and Women’s Housing Ltd accounting for 70% of total registered sector capital expenditure.

Registered sector debt

In 2021-22, sector debt increased by $127.5 million to $1.15 billion (an increase of 12.5%) reflecting funding of development projects.

Housing association debt increased by $116.4 million, whilst housing provider debt increased by $11.1 million. 

The increase in sector debt in 2021-22 followed a significant increase of $625 million (158%) in 2020-21, which was largely due to the registration of housing provider Building Communities Victoria Ltd, which had borrowings of approximately $500 million for participation in the Victorian Public Housing Renewal Program (PHRP).

Debt composition

Whilst sector debt was higher in 2021-22, the debt to housing assets ratio decreased slightly to 23.7%, reflecting higher housing asset values.

This ratio remains within acceptable levels, with debt predominantly comprised of low-interest Federal Government loans.

In 2021-22, 76% of sector debt was sourced from government loans (Federal or State), with the remainder coming from parent/intercompany loans, private lenders and other sources (such as charity or philanthropic donations).

Debt to equity (gearing) ratio

The sector debt to equity (gearing) ratio at 30 June 2022 was 27.1%, largely unchanged from the prior year as both debt and equity increased in 2021-22.

The aggregate sector gearing ratio remains within the Housing Registrar’s preferred benchmark of 30%.

 

Interest cover

The interest cover ratio indicates the extent to which operating earnings can cover interest expenses.

This ratio has declined in recent years and decreased further to 1.7 in 2021-22, despite higher EBITDA in that year.

As above, a significant factor in the decrease in interest cover in 2021-22 is the interest cost associated with Building Communities Victoria Ltd debt, together with higher debt generally throughout the sector.

Finance costs in the sector totalled $30.2 million in 2021-22, compared with $10.8 million in 2020-21.

However, a positive interest cover ratio of 1.7% continues to demonstrate the ability of the sector to meet its interest repayment obligations, and the sector retains significant liquid assets. 

Liquidity

The working capital ratio shows the ability of the sector to pay its current liabilities with its current assets. Note: Excludes capital grants received in advance.

This ratio has decreased in 2021-22 due to a reduction in the sector’s cash balance discussed below, together with higher current liabilities.

A working capital ratio of 3.2% at 30 June 2022 demonstrated that the sector had sufficient current assets to meet its short-term financial obligations. 

Cash and short-term investments

Total cash and short-term investments were $549.1 million at 30 June 2022.

This represents a decrease of $211.5 million or 28% from the prior year, mainly due to funds being expended on housing development projects and in support of operational goals.

Capital structure

In 2021-22, equity continued to represent a significant portion of the sector’s capital structure, driven by positive earnings accumulated over time and an increase in housing asset values.

At 30 June 2022, total liabilities (predominantly debt, payables and provisions) of $1.53 billion remained much smaller than equity of $4.25 billion. However, as noted earlier, debt has increased significantly in recent years to facilitate sector growth. 

Income statement ($ million)

^{1. Net operating surplus includes non-cash adjustments and as such will fluctuate year on year. Please refer to the analysis of the registered sector performance based on operating earnings before interest, tax, depreciation and amortisation (EBITDA).}

Balance sheet ($ million)

This approach aims to encourage early identification of risk and better monitoring and mitigation of potential harms, as well as foster greater capacity building in the sector through ongoing improvement efforts.

The possible compliance outcomes for each performance standard are:

• Met – the registered agency has demonstrated that it complies with the performance standard.
• Capacity to meet – the registered agency has demonstrated that it mostly meets the performance standard with some identified areas for improvement.
• Did not meet – the registered agency did not demonstrate that it meets the performance standard with a number of areas identified for improvement.
• N/A – the performance standard is not applicable to the registered agency. For example, where a newly registered agency is in the construction phase and is not yet delivering rental housing services. For these registered agencies, Performance Standard 1 Tenant and housing services, Performance Standard 2 Housing assets and Performance Standard 3 Community engagement would not apply.

In addition to being evaluated for compliance with performance standards, registered agencies are also assessed annually against continuous improvement criteria. This includes assessing the registered agency's progress and ongoing improvement against Key Performance Measures (KPMs) and other measures outlined in its annual business plan.

Annual compliance assessment outcomes 2021-22

In the 2021-22 reporting year, the community housing sector was assessed to have achieved a high level of compliance with the Act and performance standards.

Of the 42 registered agencies in 2021‑22:

• Forty-one (97.6%) were assessed as meeting or having the capacity to meet compliance with all performance standards.
• Forty (95.2%) were assessed as meeting all performance standards.
• Five are not yet delivering housing services and received a N/A result for Tenant and housing services, Housing assets, and Community engagement.

The following table sets out the overall results against each performance standard for 2021-22:

Further detail of individual registered agency outcomes is in Appendix 1.

For registered agencies that received a ‘capacity to meet’ assessment, the issues identified were limited to one aspect of a performance standard, for example, complaints management.

A registered agency assessed as not meeting certain performance standards is subject to close regulatory engagement to drive improvement and to identify if further regulatory intervention is required.

The following table summarises outcomes of compliance assessments for the past three years:

Regulatory action items

The Housing Registrar identifies areas of non-compliance, performance issues, and opportunities for continuous improvement, and assigns corresponding regulatory action items.

The Housing Registrar uses a regulatory action plan to continuously monitor and assesses progress against these items.

A regulatory action plan may be developed in response to:

• an annual compliance assessment
• a registration
• ongoing monitoring activities, including notifications from a registered agency of an event that may impact its ability to meet performance standards (reportable event)
• a complaint referred to the Housing Registrar which may include an investigation or inspection.

The table below summarises the key areas identified for improvement for 2021-22:

The number of regulatory action items assigned in the 2021-22 annual compliance assessments (57) remained consistent with the previous year (59).

Fourteen regulatory action items relate to improving management structures, systems, policies and procedures to ensure the operational needs of its business can be met under Performance Standard 6 Management.

Of these, eight action items require registered agencies to implement a policy review schedule. Another six action items require registered agencies to provide evidence of new systems implemented to update the Public Register within legislated timeframes.

Thirteen action items relate to improvements in complaints management under Performance Standard 1 Tenant and housing services, a result consistent with the previous year.

The focus of these action items is ensuring that complaints systems are operating efficiently and are supported by positive complaints cultures. This includes ensuring complaints policies are accessible, provide clear avenues for appeals and referrals, and assist tenants and prospective tenants to make complaints to improve services.

The 93 regulatory action items arising from new registrations in 2021‑22 are focused on the establishment and provision of information relating to governance and risk management. This includes providing final approved versions of policies, risk registers and board terms of reference, making tenant policies readily available through a website and reporting on the progress of construction of new developments.

The 58% increase from the previous year in action items from new registrations can be attributed to more non-operational entities achieving registration, which are required to demonstrate compliance regarding future operations.

Appendix 1: Registered agency compliance outcomes 2021-22

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