Planning Social Housing

Why we did this audit

Housing is a basic human need. Without safe and stable housing, it is difficult for a person to fully participate in society.

Social housing aims to provide housing to people on low incomes. In Victoria this includes:

• public housing, which Homes Victoria owns and manages
• community housing, which not-for-profit community housing providers own and/or manage. 

The number of social housing dwellings in Victoria has largely remained steady from 86,418 in June 2017 to 88,189 in June 2023.

But the demand for social housing is growing. There are currently around 50,732 applications from people seeking a new home on the Victorian Housing Register, which is the waiting list for social housing. 

It is important that Homes Victoria is planning for and delivering housing that helps reduce this demand.

We also looked at the Big Housing Build (BHB), which is the biggest Victorian Government investment in social housing ever. 

It is important that Homes Victoria manages this project well and is on track to achieve its objectives.

Our key findings

Our findings fall into 3 key areas:

Understanding demand and existing assets

Homes Victoria needs a strong evidence base to effectively plan and deliver social housing. 

Homes Victoria has a comprehensive, data-driven understanding of demand for social housing and the condition of its existing assets. It knows that demand for housing outstrips supply and this gap is likely to grow due to:

• population increases
• decreasing affordability of private housing.

Homes Victoria has developed a useful data model, which is called the portfolio optimisation model, to forecast the expected level of future demand in specific local government areas (LGA). 

As of 2023, 3 per cent of all dwellings in Victoria were social housing. Homes Victoria estimates that to maintain this percentage, replace ageing homes and keep pace with population growth, the state needs to build an additional 22,000 social housing homes by 2036.

Homes Victoria's strategic planning

The Department of Treasury and Finance's (DTF) Resource Management Framework says agencies should plan their work and set short, medium and long-term goals to help them achieve their objectives. 

In March 2024, Homes Victoria's chief executive officer approved the internal Social and Affordable Housing Portfolio Strategy: 2024–2029 (the strategy). 

The strategy has 6 high-level strategic objectives, including objectives to: 

• 'grow public and community housing'
• 'locate housing in the right areas'. 

However, the strategy only has 2 specific, measurable goals to help Homes Victoria monitor if it is achieving its 6 objectives. 

Homes Victoria told us it is preparing a supply and delivery plan to accompany the strategy. It said the plan, which is due mid-2024, will have more detail on how it will deliver its objectives. 

Homes Victoria has also developed an implementation and embedding plan to align its business processes and activities with the strategy's objectives. For example, it outlines how Homes Victoria will align its future planning work with statewide objectives and considers how to develop building targets.

Identifying where to build future homes

There is demand for social housing throughout Victoria. 

However, Homes Victoria's portfolio optimisation model shows that the level of demand varies significantly across LGAs.

The model shows that as of 2021, the LGAs with the highest demand were the City of Casey, Wyndham City, Shire of Mornington Peninsula, City of Boroondara and City of Melbourne. 

The data predicts that by 2036 the greatest demand will be in the City of Casey, City of Melbourne, City of Wyndham, City of Whittlesea and Melton City Council.

The strategy acknowledges that demand varies across the state. But it does not rank or prioritise LGAs by their level of demand. 

Homes Victoria told us the strategy does not rank or prioritise LGAs because it is a high level strategic document. It also told us it is developing a supply and delivery plan and local area asset plans that will include more detailed information on local building priorities. 

However, until this work is finalised there is a risk that Homes Victoria may not be using a statewide view of housing demand to inform and prioritise its local decision-making. 

Financial challenges

Homes Victoria understands the financial challenges it faces as the state's public housing owner and manager. These challenges include:

• limited rental income
• growing maintenance costs
• the need to replace homes nearing the end of their useful life.

Homes Victoria has the following costs to manage the state's public housing: 

• operating expenses of around $710 million, including costs for day-to-day maintenance and managing tenancies 
• capital expenses of around $350 million (based on asset depreciation estimates), including costs to upgrade and replace end-of-life assets.

Homes Victoria gets around $75 million each year from the government for capital expenses. This leaves a renewal gap of approximately $275 million.

Homes Victoria does not get ongoing funding from the government for operational expenses. 

Initiatives to address financial challenges

Homes Victoria has explored a range of options to improve the financial sustainability of public housing. 

These options include: 

• exempting Homes Victoria from paying local government rates on social homes in metropolitan Melbourne and the regional cities of Geelong, Ballarat and Greater Bendigo
• changing how it assesses tenants' income to make sure all tenants pay the same percentage of their household income in rent. 

The government has approved only one initiative to date, which requires tenants living in homes with bulk water meters to contribute to the cost of their water. 

Homes Victoria estimates it will receive an additional $6.1 million per year through this initiative.

Homes Victoria's financial position

It is important that Homes Victoria has a plan to make sure it is financially sustainable as an organisation so it can continue to deliver social housing.

In June 2020 the government announced Homes Victoria as a new entity to manage public housing. At the same time it announced funding for the BHB. It also laid out a reform package to build Homes Victoria's governance and organisational capacity. 

Homes Victoria has completed or is working on many of these reforms. 

It has done an external forensic audit and improved its corporate governance and oversight processes. However, it has not developed a financial sustainability plan, which the government required as part of the reform package. 

Homes Victoria told us it is working with DTF and the Department of Premier and Cabinet on a 'report back' to the government that provides clear, evidence-based advice on the full cost of providing public housing and the options available to address current challenges. 

Homes Victoria plans to submit a report on the current financial state of the public housing sector by mid-2024. It then plans to report an analysis of potential options to improve financial sustainability by December 2024. 

BHB's completion schedule 

Homes Victoria has either started or finished building more than 72 per cent of the 12,949 homes under the BHB. As at March 2024, this includes: 

• 5,310 homes under construction (41 per cent of planned homes) 
• 4,049 completed homes (31 per cent of planned homes).

Homes Victoria is on track to complete around 80 per cent of homes by 31 December 2026. The remaining homes are due to be finished by 2028–29. 

There are several reasons for the delay, including:

• town planning issues 
• labour and construction material shortages
• COVID-19 pandemic impacts, such as lockdowns, supply chain disruptions and the uncertain position of builders and subcontractors. 

Progress against the budget

Despite rising cost pressure, Homes Victoria is on track to deliver the BHB within the original budget of $5.3 billion. 

In October 2022, Homes Victoria advised the government that the BHB was facing cost pressures, including: 

• unexpectedly high inflation 
• strong post-pandemic demand for labour and building materials. 

In April 2023, Homes Victoria developed 2 options on how to complete the BHB project.

Option 1, which Homes Victoria did not recommend, was to deliver the BHB as originally planned, at an estimated additional cost of $806 million.

Option 2 recommended an alternative delivery approach that would provide the same overall number of homes but: 

• increase the number of homes that community housing providers would build and manage
• reduce the number of projects on land owned by Homes Victoria and other government agencies.

The Victorian Government approved option 2, which means that while the BHB will deliver the same overall number of homes as intended, Homes Victoria will now build and own fewer public housing homes than it planned while using all its original budget.

Selecting BHB sites

Selecting sites for the BHB is an ongoing progress. 

To date, Homes Victoria has used sound criteria to decide if a site is suitable for the BHB. It has also followed a well-documented, consistent assessment process. 

Homes Victoria's criteria for BHB sites includes: 

• Location: is a site close to education and health services, transport, shops, and employment opportunities?
• Demand: is a site in an area where Victorian Housing Register data shows strong demand for social housing?
• Bedrooms: can the site be used to build homes with the number of bedrooms housing applicants need?

These criteria help Homes Victoria make sure sites address existing demand and provide homes in locations where people can easily fulfil most of their everyday needs. 

Some BHB delivery channels have additional criteria to meet the needs of specific community groups. 

For example, Homes Victoria is delivering projects that focus on regional areas, Aboriginal and Torres Strait Islander peoples, young people and people living with mental illness.

Using site selection criteria

We examined 31 BHB sites to test if Homes Victoria (and DTF for some projects) consistently used its criteria to select them. 

We found that Homes Victoria and DTF fairly and consistently applied the criteria for all the sites we tested.

Cohort targets

In addition to the overall homes target, the BHB has targets for specific cohorts, such as homes for Aboriginal and Torres Strait Islander peoples and homes in regional areas. 

Homes Victoria is on track to meet these targets, except one target for homes for people living with mental illness. 

The 2021 Royal Commission into Victoria’s Mental Health System recommended that Homes Victoria deliver the 2,000 BHB homes allocated for people living with mental illness as supported housing. 

Supported housing includes a home as well as access to individually tailored mental health treatment and support services. 

The 2021–22 Budget committed $38.513 million over 4 years to provide the support services to go with these 2,000 homes. Homes Victoria told us that this funding has yet to be distributed. 

In December 2023 the Minister for Housing approved Homes Victoria's plan to fulfil the Royal Commission recommendation for 2,000 homes for people living with mental illness through a mix of new and existing social housing dwellings. 

The Minster for Housing is responsible for delivering the housing component of this commitment. The Minister for Mental Health is responsible for delivering the support services. The Minister for Mental Health has not approved the approach yet.

Homes Victoria is preparing to deliver the supported homes. This has included setting up a new priority category in the Victorian Housing Register called ‘mental health with support’ to identify existing social housing tenants who are suitable to transfer into the supported housing program.

Government-endorsed objectives

In August 2021, the government endorsed the following high-level objectives for the BHB:

• 'improved confidence, economic growth and recovery for Victoria' 
• 'improved access to social and affordable housing for Victorians who need it' 
• 'improved community connectedness, wellbeing and independence for vulnerable and low to moderate income Victorians'.

Homes Victoria is evaluating the BHB against these objectives in staged reports from 2022 to 2027. 

In 2023 Homes Victoria noted in an internal report that so far the BHB has increased the number of social and affordable housing dwellings in the state and generated economic value through construction work.

Homes Victoria plans to do further work to quantify the BHB's impact on employment and Victoria's economy. It is too early to tell if the BHB has improved social housing tenants' wellbeing. 

Locating sites in priority areas

When Homes Victoria started the BHB in 2020 it was using the 2019 Housing Asset Strategy – growth and demand (the 2019 strategy) to guide its work.

The 2019 strategy listed 30 LGAs to prioritise over the next 5 years. It also listed redeveloping inner-Melbourne's high-rise public housing towers as a priority.

Of the 10,088 sites Homes Victoria has planned and completed as at February 2024, around half (5,024) are in these 30 priority LGAs.

The BHB is redeveloping another 999 homes in existing inner-Melbourne public housing estates. While these homes are not in priority LGAs, this work aligns with the 2019 strategy's focus on redeveloping public housing estates. 

This means that around 60 per cent of BHB sites planned and started align with the priorities in the 2019 strategy. 

What is social housing? 

Social housing includes:

• public housing, which Homes Victoria owns and manages
• community housing, which not-for-profit community housing providers own and/or manage.

Victoria has approximately 88,189 social homes. This includes:

• 73,156 homes owned or leased by Homes Victoria (64,993 of these are public housing)
• 15,033 homes owned by not-for-profit community housing providers. 

DTF's Registrar of Housing oversees the community housing providers.

Homes Victoria also provides some affordable housing to people on low-to-moderate incomes for below market value rent.

Evidence base for making decisions

To effectively plan and deliver social housing Homes Victoria needs to understand:

• its existing assets
• demand for social housing
• the gap between housing supply and demand. 

Homes Victoria has a strong evidence base to guide its decisions. It has also developed a useful data model to forecast future demand. 

Homes Victoria's data shows that: 

• demand for housing outstrips supply 
• despite the BHB, this gap is likely to continue to grow. 

Data on housing demand

Homes Victoria has a comprehensive understanding of current demand for social housing.

The Victorian Housing Register is its major source of information about demand for social housing. It records applications from people seeking social housing and includes their preferred location and number of bedrooms. The Victorian Housing Register shows that demand for housing outstrips supply. 

The number of social housing dwellings in Victoria has remained broadly steady from 2017 to 2023 at between 86,418 and 88,189.

As at December 2023 there were:

• 50,732 applications from people seeking a new social housing dwelling
• 9,832 applications from people already living in social housing seeking to move to another social housing dwelling (which are known as transfer applications).

Homes Victoria also uses other data sources to understand and forecast demand. These sources include Australian Bureau of Statistics data on population growth, geographical information on the socioeconomic status of different locations and rental affordability statistics. 

Homes Victoria expects that demand for housing will continue to grow due to:

• population increases
• decreasing affordability of private housing.

Data on existing housing assets

Homes Victoria has a good understanding of its existing assets and their condition. 

It assigns a property condition index to each property, which it records in its asset register, so it can understand current and future maintenance needs. 

The Department of Families, Fairness and Housing (DFFH) is currently doing an internal audit on Homes Victoria's preventative maintenance program.

Homes Victoria's asset register also records an 'intent' for each property, which signals its future plan for a site. An asset's intent may include 'keep and maintain', 'keep and improve', 'redevelop' or 'sell'. 

Homes Victoria periodically updates its asset intent data. Staff in its local offices can also refer a site for reassessment when it becomes vacant, aged or damaged. 

Homes Victoria then does an asset intent assessment that considers a site's future based on:

• information from its asset register
• data on current and projected housing supply within the LGA
• Victorian Housing Register demand data.

Forecasting future demand

In 2022 Homes Victoria developed the portfolio optimisation model to help it forecast future housing demand. 

The model integrates several data sources, including data from the Victorian Housing Register, Homes Victoria's asset register and the Australian Bureau of Statistics, and uses weighted criteria to identify which LGAs are a priority for future social housing sites. 

The model is not a live tool; its main output is several spreadsheets that rank LGAs in order of demand across several years. This means the model is designed to be an input into Homes Victoria's decision-making process, rather than a tool that can pinpoint specific sites where Homes Victoria should build. 

Homes Victoria plans to annually update the model's data to capture changes in demand and demographic or economic trends.

Growing gap between housing supply and demand

As of 2023, 3 per cent of all dwellings in Victoria are social housing. 

Homes Victoria estimates that to maintain this percentage and keep pace with population growth, the state needs to build an additional 22,000 social housing homes by 2036. 

Homes Victoria based this estimate on: 

• its data on current and future housing demand
• its asset register, which estimates that over 13,700 existing homes will reach the end of their useful life by 2036.

In Victoria's infrastructure strategy 2021–2051 Infrastructure Victoria recommends that the government increases the state's social housing supply to keep up with the national average of 4.5 per cent of all dwellings being social housing. 

It set a baseline target to achieve this figure by 2031. 

The government supported the intent of the recommendation but said it needed to further investigate the timeframe for meeting the goal. 

Importance of strategic planning

DTF's Resource Management Framework guides public sector agencies on budgeting, planning and financial management. It notes that planning:

• helps agencies prepare for future opportunities and challenges
• can help improve service delivery
• ensures an agency's work is aligned to the government's priorities
• should include short, medium and long-term goals.

Without a clear plan for how it will use its resources, an agency risks not meeting its objectives.

The strategy reflects a strong understanding of the gap between housing supply and demand. 

However, the strategy only has 2 specific, measurable goals. 

Without specific, measurable goals for all its objectives, Homes Victoria cannot assess if its work is meeting demand or addressing the housing needs of the most vulnerable in our community.

Social and Affordable Housing Portfolio Strategy: 2024–2029

In March 2024 Homes Victoria's chief executive officer approved the strategy. 

The strategy outlines the principles Homes Victoria will use to guide its future decisions on growing and reshaping the social housing portfolio.

The strategy has 6 strategic objectives:

• grow public and community housing
• foster affordable housing
• locate housing in the right areas
• reshape the housing portfolio
• maintain a resilient and fit-for-purpose housing portfolio
• embed self-determination of Aboriginal and Torres Strait Islander housing outcomes.

Homes Victoria has developed an implementation and embedding plan to go with the strategy. This plan is designed to embed the strategy's objectives into Homes Victoria's business processes and activities.

The implementation and embedding plan also includes a commitment for Homes Victoria to review the strategy's objectives against other government priorities and plans. This includes the Plan for Victoria, which the Department of Transport and Planning is developing to guide long term housing development across the state.

Measurable goals to achieve the strategy's objectives

The strategy includes 22 'directions' that outline how it plans to achieve its 6 objectives. 

However, only 2 of these directions have a specific and measurable goal or target. These are:

• deliver 13,000 new social and affordable homes over the next 5 years
• build 300 social and affordable dwellings per year to address growing demand and incorporate an ongoing allocation of 10 per cent to Aboriginal and Torres Strait Islander housing.

Homes Victoria is on track to deliver both of these targets under the BHB. 

The strategy's other 20 directions do not have specific actions for how Homes Victoria will achieve the related objective or measure success.

Supply and delivery plan

Homes Victoria told us it is preparing a supply and delivery plan to accompany the strategy. It said the plan, which it expects to complete by mid-2024, will have more detail on how it will deliver its objectives over the next 5 years.

An August 2023 draft version of the plan proposed that Homes Victoria will develop local area asset management plans for each of DFFH's 17 geographical areas, which cover the whole of Victoria. 

These plans will: 

• outline Homes Victoria's long-term plan for each local area 
• identify opportunities to build new homes, redevelop existing housing or sell surplus land/housing.

It is not clear if these plans will include targets for the number of new homes in each area. 

The implementation and embedding plan notes that Homes Victoria plans to develop a process to make sure statewide objectives inform its local asset planning work. It also says that Homes Victoria is considering how to develop building targets.

Identifying where to build future homes

Homes Victoria has a good understanding of current and future demand for housing. But it does not always use this information to identify the areas with the highest need. 

While there is demand for social housing throughout Victoria, Homes Victoria's data shows that the level of demand is not equal. 

If Homes Victoria does not use this data when it selects where to build, it risks missing the areas with the greatest need. 

The 2019 strategy listed 30 LGAs to prioritise over the next 5 years to help grow the social housing portfolio. 

Homes Victoria's new strategy does not include location-based targets. 

While the demand for social housing is higher than supply throughout the state, Homes Victoria's data shows that as of 2021, the LGAs with the highest demand are the City of Casey, Wyndham City, Shire of Mornington Peninsula, City of Boroondara and City of Melbourne. 

The data predicts that by 2036 the greatest demand will be in City of Casey, City of Melbourne, City of Wyndham, City of Whittlesea and Melton City Council.

Homes Victoria told us the strategy does not rank or prioritise LGAs because it is a high-level strategic document. 

It also told us it is developing the supply and delivery plan and local area asset plans that will include more detailed information on local building priorities. 

However, until this work is finalised there is a risk that Homes Victoria may not be using a statewide view of housing demand to inform and prioritise its local decision-making.

Using available data

Homes Victoria's portfolio optimisation model brings together a range of datasets to help it decide where to build. But Homes Victoria does not have a have a clear procedure for when and how staff should use it in their project assessments. 

Homes Victoria told us that the team responsible for managing the model is often present in evaluation meetings to select future project sites, including sites for the BHB. 

However, we did not see evidence of this when we tested how Homes Victoria selected BHB sites, which we discuss in Section 2. This is because Homes Victoria had already selected most of the BHB sites before it finished the model in 2023. 

We have seen some documentation that shows staff planning new projects in 2024 are requesting information from the team responsible for the model to inform their decisions.

Homes Victoria plans to better integrate the model into its decision-making process, including developing dashboards to make the data more accessible for staff. 

10-Year Strategy for Social and Affordable Housing

When the government announced the BHB in 2020 it also committed Homes Victoria to developing and releasing its 10-Year Strategy for Social and Affordable Housing in 2020. This strategy is in addition to Homes Victoria's internal strategy.

The 10-Year Strategy for Social and Affordable Housing was intended to: 

• be a public document with input from community housing providers
• outline a broader vision for social and affordable housing in the state – beyond what Homes Victoria owns and funds. 

Homes Victoria completed stakeholder consultation for the 10-year strategy and issued a discussion paper in 2021.

It told us it has paused its work on the 10-year strategy while it works with the Australian Government on its social housing commitments. It is not clear when Homes Victoria plans to finalise the 10-year strategy. 

Public housing costs

Homes Victoria understands the financial challenges it faces as the state's public housing owner and manager. In particular, the growing gap between rental income and maintenance costs.

Its annual public housing costs include:

• operating expenses of around $710 million, including costs for day-to-day maintenance and managing tenancies
• capital expenses of around $350 million (based on asset depreciation), including costs to upgrade and replace end-of-life assets.

Homes Victoria gets around $75 million each year from the Victorian Government for capital expenses. This leaves a renewal gap of approximately $275 million.

In May 2023 Homes Victoria informed the government that it has been using its cash balance to pay for urgent upgrades.

Funding sources for public housing 

Homes Victoria receives limited funding for public housing operating expenses. 

Its main funding sources are: 

• rental income (about $520 million per year)
• Australian Government funding through the National Housing and Homelessness Agreement (about $190 million per year).

Homes Victoria gets no ongoing funding for public housing operating expenses from the Victorian Government. 

Since 2008, Victorian public housing tenants pay rent of no more than 25 per cent of their total assessable household income. 

However, some parts of a tenant's income are calculated at a lower rate or are not included in their income assessment. For example, carer allowance is not included. 

In 2023, Homes Victoria advised that its maintenance costs: 

• are growing at double the rate of its rental income growth 
• make up around 50 per cent of its total operating costs.

Initiatives to improve financial sustainability 

Homes Victoria has submitted several options to the government to improve the financial sustainability of public housing. 

These options include: 

• exempting Homes Victoria from paying local government rates on social homes in metropolitan Melbourne and the regional cities of Geelong, Ballarat and Greater Bendigo
• changing how tenant income is assessed to make sure all tenants pay the same percentage of their household income in rent. 

However, the government has only approved one initiative to date, which requires tenants living in homes with bulk water meters to contribute to the cost of their water. 

Homes Victoria estimates it will receive an additional $6.1 million per year through this initiative. 

Creating Homes Victoria

The government set up Homes Victoria in November 2020 as a new entity to manage public housing. At the same time, Homes Victoria was required to implement several reforms to strengthen its governance and financial management. 

The aim of these reforms was to make sure Homes Victoria had the organisational capability to deliver the BHB on time and within budget. 

Homes Victoria has now implemented or is working on many of these reforms, including: 

• commissioning and implementing recommendations from an external forensic financial audit 
• a new Homes Victoria advisory board, which includes a financial sustainability and investment committee
• starting regular financial and performance reports
• improving its risk management processes. 

Financial sustainability plan 

In May 2023 the government directed Homes Victoria to develop a financial sustainability plan for it to consider in September 2023. 

The government expected this plan to underpin Homes Victoria’s future funding arrangements and present options to improve its financial position. 

While Homes Victoria has improved its governance and financial reporting, which has improved its understanding of its financial position, it does not have a financial sustainability plan. 

Homes Victoria told us it is working with DTF and the Department of Premier and Cabinet on a 'report back' to government that explores potential structural and policy reforms for the public housing sector. 

Homes Victoria expects the outcome of this work will be clear, evidence-based advice on the full cost of providing public housing and the options available to address current challenges. 

Homes Victoria has committed to advising the government on:

• the funding and operational requirements it needs to meet the government's existing policy commitments
• the costs of different potential projects and saving initiatives timelines for implementing actions to improve the sustainability of public housing. 

Homes Victoria plans to submit a report on the current financial state of the public housing sector by mid-2024. It then plans to report an analysis of potential options to improve financial sustainability by December 2024. 

Overview of the BHB 

In June 2020 the Victorian Government announced the BHB as part of its efforts to support the state's economic growth and recovery during the COVID-19 pandemic. 

In total, Homes Victoria has received $5.3 billion in Victorian Government funding for the BHB. This is the state’s largest investment in social and affordable housing to date.

Homes Victoria plans to deliver:

• 9,300 social housing homes, which includes replacing 1,100 public housing units 
• 2,900 affordable and private homes. 

As part of this, the BHB aims to:

• allocate 10 per cent of new social housing for Aboriginal and Torres Strait Islander peoples 
• prioritise 2,000 homes for people living with mental illness 
• deliver 1,000 homes for family violence victim survivors
• boost the state's social housing supply by 10 per cent 
• support the creation of 10,000 new jobs per year over 4 years.

BHB delivery channels

The government approved a multi-channel delivery strategy for the BHB due to the project's scale and complexity. 

The BHB’s 4 delivery channels are:

• delivery channel 1: developments on land already owned by Homes Victoria
• delivery channel 2: developments on land owned by other government agencies
• delivery channel 3: developments built and managed by community housing providers
• delivery channel 4: spot purchases and partnerships on stalled developments.

Figure 1 shows the target number of homes for each delivery channel.

Progress against timeframes 

The BHB is around 3 years behind schedule. 

Homes Victoria was originally due to finish building all homes by 31 December 2026. But the expected completion date is now 2028–29.

There are several reasons for the delay, including:

• town planning issues 
• labour and material supply shortages. 

Despite the delay, Homes Victoria has robust project monitoring to identify and address risks as they emerge. 

As of December 2023, Homes Victoria's internal reporting shows that delivery channels 1 and 4 are on track. But delivery channels 2 and 3 have an amber rating, which means Homes Victoria is monitoring new risks that may affect their delivery timelines. 

Homes Victoria told us the delay to delivery channel 2's main project at Rosanna railway station is due to a power utility provider doing expansion works. It said it is monitoring the project to minimise any further delays.

Homes Victoria told us it is working with community service providers to keep delivery channel 3 projects on schedule.

Managing cost pressures

In June 2020 the Victorian Government allocated $5 billion for the BHB. 

In August 2021 it added the Building New Homes to Fight Homelessness project to the BHB, which already had $209 million in funding. 

In October 2022 Homes Victoria told the government the BHB was facing cost pressures, including: 

• unexpectedly high inflation
• strong post-pandemic demand for labour and building materials. 

For example, in a submission to the government Homes Victoria said the cost of constructing freestanding dwellings had increased by 0.8 per cent in the year to June 2020 compared to 19.8 per cent by June 2022.

In April 2023 Homes Victoria told the government it would not be able to deliver the BHB within the approved budget of $5.3 billion. It said the Minister for Housing would report to the government in May 2023 with a plan to complete the BHB.

Alternative delivery approach 

Homes Victoria has introduced an alternative project delivery approach for the BHB to address rising cost pressures and complete it within its original budget. 

This approach means that Homes Victoria will own fewer social housing homes than originally planned. But the same number of homes will be built overall. As a result, Homes Victoria is now on track to deliver the project within the original budget.

In April 2023 Homes Victoria developed 2 options for the government to consider for completing the BHB. 

Figure 2 shows that both options proposed keeping the same overall number of homes. But option 1 would exceed the original BHB budget that the government approved in June 2020.

Figure 2: Overall cost and number of homes for BHB options 1 and 2 

Note: The total costs include $335 million for owners' costs. Homes Victoria has an internal BHB target of 12,949 homes. The government's commitment is to deliver 'over 12,000' homes.
Source: VAGO, based on Homes Victoria's BHB completion plan 2023.

Both options proposed to deliver the same overall number of homes. But option 2 recommended changing the number of homes in each delivery channel. Option 2, which Homes Victoria recommended:

• increased the number of houses built and managed by community housing providers
• reduced the number of homes built on land owned by Homes Victoria and other government agencies
• increased the number of affordable homes.

Figure 3 shows the differences in the number of homes in each delivery channel for options 1 and 2. 

Under option 2, Homes Victoria will deliver:

• 440 less homes in delivery channel 1
• 1,111 less homes in delivery channel 2
• 1,505 more homes in delivery channel 3
• 46 more homes in delivery channel 4.

In May 2023 the government approved option 2.

Homes in delivery channel 3 have a lower average cost to Homes Victoria because they do not need the same amount of state funding. This is because community housing providers can access other funding sources, including funding from philanthropists and the Australian Government. 

Challenges facing delivery channel 2

Homes Victoria has significantly reduced the number of homes in delivery channel 2. However, it is still exploring options to build homes on land owned by other government agencies either as part of the BHB or other future projects. 

For example, the Department of Transport and Planning is leading the strategic government land development opportunities pilot program. This program aims to identify underused government land in precincts and regional centres that can be used for social and affordable housing.

Progress against the BHB budget

As of November 2023, Homes Victoria had spent 42 per cent ($2.2 billion) of the BHB's total $5.3 billion budget. 

Delivery channels 2 and 4 are within budget and Homes Victoria does not expect this to change. 

Delivery channels 1 and 3 are experiencing some cost pressures. However, Homes Victoria is monitoring and reporting these risks to its internal governance committees. It told us it is also managing cost pressures through its existing contingency allocations. 

Homes Victoria's criteria for selecting BHB sites

Homes Victoria has sound criteria to decide if a site is suitable for the BHB, including: 

• location: is a site close to education and health services, transport, shops and employment opportunities? 
• demand: is a site in an area where Victorian Housing Register data shows there is strong demand for social housing?
• bedrooms: can the site be used to build homes with the number of bedrooms housing applicants need? 

These criteria help Homes Victoria: 

• address local demand for social housing 
• select locations where people can easily fulfil most of their everyday needs. 

But Homes Victoria assesses sites on a case-by-case basis, which means it does not always:

• assess sites in the context of statewide demand
• consider if other areas have a higher need for housing.

Some BHB delivery channels have additional criteria to meet the needs of specific community groups. 

For example, Homes Victoria is delivering BHB projects to build homes: 

• in regional areas
• for Aboriginal and Torres Strait Islander peoples
• for young people
• for people living with mental illness.

Assessing Homes Victoria's approach to selecting sites

We examined 31 sites to assess if Homes Victoria (and DTF for delivery channel 3) consistently uses its criteria to decide if a site is suitable for the BHB. 

We found that Homes Victoria and DTF fairly and consistently applied its criteria for all the sites we tested. 

Delivery channel 1's initial criteria 

Homes Victoria developed the BHB as an economic stimulus project during the pandemic, so it initially prioritised sites that were 'delivery ready'. 

For the first wave of sites it selected in 2020, Homes Victoria focused on homes it could build quickly. For example, it focused on redeveloping existing social housing estates, which it had already prepared plans for.

While its initial work focused on delivery-ready projects, Homes Victoria still selected sites in areas where Victorian Housing Register data showed high demand for social housing.

Project development framework 

In 2021 Homes Victoria developed a project development framework for the BHB, which includes more comprehensive criteria for selecting sites. 

The framework sets out clear processes for Homes Victoria to develop projects in delivery channels 1 and 2. This includes processes for selecting sites, developing business cases and planning procurement. 

Under the framework, Homes Victoria selected projects that aimed to:

• reduce the Victorian Housing Register waiting list
• address the current and projected gap between housing supply and demand
• replace outdated homes
• address gaps in social housing supply in different LGAs
• provide homes within 20 minutes of public transport and/or shops.

To assess demand Homes Victoria uses Victorian Housing Register data to understand the number of social housing applications in an area. It gives each location a demand ranking of high, medium or low. It considers this ranking when assessing a proposed site to include in the BHB. 

Homes Victoria also assess a site's liveability using benchmarks, such as distance to public transport and shops.

Delivery channel 3 and the Social Housing Growth Fund

Homes Victoria and DTF jointly manage the selection process for homes in delivery channel 3 that are built and managed by community housing providers. This is because Homes Victoria and DTF were already working with community housing providers to deliver social housing as part of the Social Housing Growth Fund (the fund). 

The Victorian Government set up the fund in 2017 to invest money and use the returns to finance community housing providers to build new social housing.

In 2020 the government added $1.38 billion to the fund for community housing providers to build BHB homes. 

To meet this target, Homes Victoria and DTF run funding rounds for community housing providers to submit applications to build homes. This includes rounds for homes for specific community groups, such as Aboriginal and Torres Strait Islander peoples and young people. 

In 2020 Homes Victoria and DTF set up the fund's steering committee to set funding criteria and approve projects for the BHB. These criteria assess:

• a project's need, which includes assessing if a planned project would reduce the Victorian Housing Register waiting list and provide housing close to essential services
• the applicant's capability to deliver the project
• the likelihood of the planned development receiving council planning approval
• the project's cost to the government
• the project's alignment with BHB's overall objectives and cohort targets.

In the sample of sites we tested, Homes Victoria and DTF fairly assessed delivery channel 3 sites against the criteria and followed a well-documented, consistent selection process.

Delivery channel 4: Spot purchases and partnerships with developers

Homes Victoria has a consistent process for selecting delivery channel 4 sites. 

Delivery channel 4 aims to provide social housing in locations with good access to services by buying ready to build and already built homes.

Homes Victoria set up an independent advisory panel to approve partnerships with the private sector to fund stalled developments. Homes Victoria also has a pre-existing spot purchase policy that it uses for these projects. 

The independent advisory panel considers a range of criteria to select sites, including:

• social housing demand in the site's location
• a site's proximity to employment, transport and services
• if the proposed development meets Homes Victoria's design standards
• the builder or developer's experience and capability
• the cost to the government.

In the sample of sites we tested, Homes Victoria fairly applied its assessment criteria to all 11 delivery channel 4 sites. 

Homes targets 

Homes Victoria is on track to meet the BHB's commitment to deliver over 12,000 homes. Homes Victoria is working towards an internal target of 12,949 homes. 

As at March 2024, more than 72 per cent of homes have either started or finished construction. 

As Figure 4 shows, this includes 5,310 homes under construction (41 per cent of the target) and 4,049 completed homes (31 per cent of the target).

Cohort targets 

In addition to the overall homes target, the BHB has targets for specific cohorts, including Aboriginal and Torres Strait Islander peoples and people living with mental illness. 

As Figure 5 shows, Homes Victoria is making good progress towards most of its cohort targets. 

However, it still has work to do to achieve its mental health housing target. 

Homes for people living with mental illness

Homes Victoria is on track to meet these targets, except the target for homes for people living with mental illness. 

The 2021 Royal Commission into Victoria’s Mental Health System recommended that Homes Victoria deliver the 2,000 BHB homes set aside for people living with mental illness as supported housing. 

Supported housing includes a home as well as individually tailored mental health treatment and support services. 

The 2021–22 Budget committed $38.513 million over 4 years to provide the support to go with these 2,000 homes. Homes Victoria told us that this funding has yet to be distributed. 

In December 2023 the Minister for Housing approved Homes Victoria's plan to fulfil the Royal Commission recommendation for 2,000 homes for people living with mental illness through a mix of new and existing social housing dwellings. 

The Minster for Housing is responsible for delivering the housing component of this commitment. The Minister for Mental Health is responsible for delivering the support services. The Minister for Mental Health has not approved the approach yet.

Homes Victoria is preparing to deliver the supported homes. This has included setting up a new priority category in the Victorian Housing Register called ‘mental health with support’ to identify existing social housing tenants who are suitable to transfer into the supported housing program.

Government-endorsed objectives

In August 2021 the government endorsed the following high-level objectives for the BHB:

• 'improved confidence, economic growth and recovery for Victoria' 
• 'improved access to social and affordable housing for Victorians who need it' 
• 'improved community connectedness, wellbeing and independence for vulnerable and low to moderate income Victorians'. 

Homes Victoria has a clear plan to evaluate the BHB in stages from 2022 to 2027. 

In 2023 an internal report found the BHB has:

• increased the number of social and affordable housing dwellings in Victoria 
• generated economic value to the state through construction work
• created employment opportunities for people with disability, Aboriginal and Torres Strait Islander peoples and public housing tenants.

It is too early to assess if the BHB has improved social housing tenants' wellbeing. 

The internal report noted inconsistencies in how Homes Victoria records data from contractors and suppliers. This makes it difficult to reliably measure the BHB's impact on employment and the state's economy. 

Homes Victoria and DTF are looking for an appropriate methodology for future evaluation reports.

Locating sites in priority LGAs

When Homes Victoria started the BHB started in 2020 it was using the 2019 strategy to guide its work. But it has not reported against the 2019 strategy or considered how the BHB would contribute to its housing targets. 

The 2019 strategy listed 30 LGAs to prioritise for new social housing over 5 years. It also listed redeveloping inner-Melbourne's high-rise public housing towers as a priority.

To assess if Homes Victoria is meeting its strategic objectives through the BHB, we analysed the number of BHB sites located in the 30 priority LGAs.

Of the 10,088 sites Homes Victoria has planned and completed as at February 2024, around half (5,024) are in these 30 priority LGAs.

The BHB is redeveloping another 999 homes in existing inner-Melbourne public housing estates. While these homes are not in priority LGAs, this work aligns with the 2019 strategy's focus on redeveloping public housing estates.

This means that around 60 per cent of BHB sites align with the priorities in the 2019 strategy. 

While this result is positive, it is not due to Homes Victoria taking a statewide view of demand because it did not actively consider if BHB sites aligned with the 2019 strategy when it selected them.