Private Credit Steps Up as Housing Accord Targets Stall
Australia’s housing pipeline is falling well short of ambition.
The National Housing Accord targets 1.2 million new homes by 2029 but the National Housing Supply and Affordability Council forecasts a projected shortfall of 262,000, with no state or territory on track to meet its share.
Planning bottlenecks, labour constraints and elevated construction costs are widely cited as culprits.
One structural factor receives less attention: the withdrawal of major banks from the sub-$50 million construction lending segment over the past decade, and the consequences of that shift for the mid-market development projects most capable of addressing the shortfall.
Trilogy Funds head of lending Clinton Arentz said the segment was critically important yet rarely attracts the attention of tier-one builders or institutional capital.
“It’s this sort of below-$50-million lending for smaller apartment and townhouse projects that has been overlooked to some extent,” Arentz told The Urban Developer.
“A lot of these projects just don’t hit the press. They don’t have the marketing budgets to generate much profile, but the supply of all those units and townhouses go towards solving the housing supply problem.”
Why banks left the building (sector)
The mechanism behind the withdrawal is regulatory rather than commercial, Arentz said.
The Basel banking accords—international frameworks agreed in stages following the global financial crisis—require banks to hold significantly more capital against construction loans than against standard residential mortgages.
Faced with that capital cost, major deposit-taking institutions have redirected focus toward mainstream mortgage lending, large corporate finance and agricultural lending.
The result is a financing gap in the $10 million to $50 million project range: the townhouse projects, medium-density apartments and infill developments that collectively make up the bulk of Australia’s development activity.
Trilogy Funds has operated in this segment for more than 20 years, financing construction projects through the Trilogy Monthly Income Trust, which is a pooled mortgage fund that has returned distributions to investors monthly for 19 consecutive years1.
Financing gap extends beyond residential
Specialist disability accommodation, childcare and transport-oriented development are asset classes with genuine structural undersupply and government-backed demand but carry risk profiles that fall outside standard bank credit templates.
Banks designed their lending criteria around conventional residential projects. They were not typically as agile at responding to more innovative product types.
Arentz said non-bank lenders operating in these categories assess projects differently: on the merit of the underlying demand, the track record of the sponsor and the project’s fit within existing planning frameworks.
That can unlock financing at earlier stages of the project lifecycle. Pre-DA and pre-permit facilities allow developers to secure land and progress approvals before a bank would open a file.
Speed as a structural advantage
For projects in the 12 to 18-month delivery window, which is the typical timeframe for mid-market construction, the ability to move quickly at the acquisition stage can determine whether a viable project proceeds or stalls.
Given a well-prepared submission covering project information, approvals status, feasibility and cash flow, Trilogy can issue an offer within 24 to 48 hours.
Arentz explains how pooled funds such as the Trilogy Monthly Income Trust facilitate speed to market.
“Contributory fund structures don’t suit all developers, particularly in an industry where speed is critical,” Arentz said.
“Development opportunities are often time sensitive, and projects can’t afford to sit idle while capital is progressively raised or investor commitments are assembled.
“By contrast, a broad, investor-based pooled fund can deploy capital quickly, issuing funding at acquisition and at various stages of the project lifecycle as milestones are met.”
That speed and certainty of execution can be decisive in enabling a viable project to proceed rather than stall.
Arentz notes that despite Trilogy Funds’ ability to issue an offer quickly, each loan submission is considered against the lender’s comprehensive criteria and risk framework.
“You want to see a clear demand pattern for the product type, and that the project sits comfortably within the existing town plan,” Arentz said.
“We don’t take on rezoning risk, and we don’t do anything too long-term.”
Scrutiny is welcome
Increased regulatory scrutiny of the non-bank lending sector has accompanied its growth.
Rather than viewing it as a constraint, Arentz said it creates a clearer distinction between lenders with genuine compliance infrastructure and those operating opportunistically in a market that has expanded rapidly since the post-GFC regulatory shift.
“As private credit becomes more readily accepted in Australia, the regulation around it will mature and support good operators. I think the outlook for the sector is genuinely strong,” he said.
“A Virtuous Cycle”
The broader argument for private credit as a supply-side mechanism is structural.
Major banks are subject to the same Bank for International Settlements framework across all major Western economies. The retreat from mid-market construction lending is not an Australian phenomenon and there is little reason to expect it to reverse, Arentz said.
Private credit, funded by retail and wholesale investors seeking competitive returns and channelled through managed mortgage funds, provides a direct conduit between available capital and the projects most likely to move the supply needle.
“Private credit simply connects a supply of capital with a requirement to build housing,” Arentz said.
“There’s no other intermediate solution that can do that in the space the banks have left. It’s quite a virtuous cycle.”
1 Past performance is not a reliable indicator of future performance.
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