IPART review of social housing rents, etc

As part of the Future Directions for Social Housing strategy, former NSW Premier Mike Baird tasked the Independent Pricing and Regulatory Tribunal (IPART) with a review of social and affordable housing rent models. Earlier in the week IPART released its draft report, along with a number of draft recommendations and a call for further comments by early May 2017.

Now, it's important to keep in mind that this is merely a draft of the report, and even when finalised it will simply be making recommendations to Government... and who knows how all that will eventually play out? But there are four significant proposals in there that are likely to shape the development of social housing policy and practice in New South Wales.

1. Income related rents are the go, but tenants should pay more
First, there's the recommendation that social housing rents should continue to be calculated as a percentage of a tenant's income, rather than set against market rents or calculated in some other way. IPART found that housing affordability is declining across the board, as both house prices and private market rents are rising faster than incomes. In order to ensure affordability is protected within social housing it recommends its rents stay linked to tenants' incomes.

From IPART's draft report, page 14

IPART found no strong link between income-related rents and work disincentives for tenants, noting that a range of other factors contribute to tenants' abilities and incentives to take on paid work. It recommends continuing to set rents based on a 25%-30% scale, so that tenants on higher incomes pay proportionally more of their income as rent. This may also mean retaining the problem of higher effective marginal tax rates for income earners in social housing, as the scale does not increase progressively. Rather than a higher income earner's rent being based on 25% on the first chunk of their income, sliding up to 30% as each threshold is passed until reaching the market cap, the proportion is simply adjusted to reflect the rate payable at the relevant level of income. IPART hasn't specifically weighed in on this issue, and its modelling suggests members haven't turned their minds to it, but this is where any real work disincentive is currently built into social housing rents. It's not the most significant work disincentive for social housing tenants, though, and IPART's draft report does have a bit to say on policies around tenants' eligibility and renewal of tenancies with this in mind. We'll come to that in a moment.

Still on rents, though, and the draft report recommends some types of income that are currently excluded from rent calculations, or are calculated at a lower rate, should be included and/or brought up to the 25%-30% rate. This would bring a larger proportion of a tenant's Family Tax Benefit payments into their rent calculations, as well as previously untapped income such as the Pension Supplement. For some tenants rents would go up by around $8-$12 per week - netting social housing landlords an estimated $40million p.a. - and the draft report recommends limiting these increases to no more than $10 per week in any given year.

2. Back to the future on eligibility and reviewable fixed-term tenancies
The second significant thing is a draft recommendation to stop using fixed term tenancy agreements for social housing tenancies - that is, we should go back to using "continuous leases" and periodically review tenants' needs rather than their eligibility for assistance. The use of fixed term tenancy agreements that trigger reviews of tenants' eligibility is where the real work disincentive exist within our social housing system, as tenants who move into a higher income bracket are not only faced with increasing rents and higher effective marginal tax rates, they could actually lose their home if they earn too much.

IPART's draft recommendation includes "continuous leases to be reviewed at least every three years to assess whether the dwelling continues to be suitable for the tenant's needs and characteristics". While this leaves some wriggle room as to what exactly would happen if a review came back suggesting that a dwelling is no longer suited to a particular tenants needs, other parts of IPARTs report suggest this would result in relocation rather than eviction. Certainly an increase in a tenant's income would no longer be a factor, as the draft report suggests tenants who earn too much, and do not want to move into the private rental market - even with one-off assistance and a limited right of return - should pay an additional 5% above market rent for the privilege of a tenancy that offers greater security of tenure than can be achieved in the private rental market.

This is an interesting but unwelcome proposition. It plays into similar conversations happening in other parts of the rental housing sector advancing the idea of charging tenants a premium for a more secure tenancy. Of course we'd rather see tenancies made more secure across the board, by making some changes to our renting laws to remove landlords' rights to evict tenants without grounds - and we certainly think that would go much further as an incentive for working tenants to move out of the social housing system. But on this, the notion that social housing tenancies are more secure than the private rental market is a nice idea, but is probably not as true as we'd like it to be. There's a definite trend towards social housing landlords using no-grounds notices of termination when all else is deemed likely to fail. Curiously, IPART's draft report has made no reference to the Residential Tenancies Act in its recommendations or deliberations concerning the transition from fixed terms to continuous leases.

3. Choice based letting
Third on our list is the elusive notion of "matching households to the best housing for their needs", which is code for sorting out this apparent problem of "under-occupancy" within the social housing portfolio. Currently this is addressed through measures such as the vacant bedroom charge, which is applied to any tenant who declines to move to a smaller dwelling when asked to, and limiting additional occupants' rights to be recognised as a tenant if the original tenant goes to prison, or into rehab, or passes on.

IPART's draft report recommends a new approach - making it clear that eligibility for social housing is not tied to any particular dwelling, but to "a dwelling that meets their household's needs". Thus, social housing tenants whose household complements and needs change over time would expect to be moved around to make sure the portfolio can be put to maximum, efficient use. This would be coupled with a choice-based letting system as a way of softening the blow.

Choice based letting has been used in a couple of other places - IPART refers to a Canadian experiment but also notes it has been widely used in parts of Europe - but our experience of it in New South Wales is limited to relocations from Millers Point, Dawes Point and The Rocks. In those instances, some tenants referred to it as the "housing lottery" indicating that it can indeed be seen as something other than an exercise in agency and choice, particularly for those who apply for available properties and miss out.

Nevertheless, IPART's draft report provides quite a bit of detail about how a choice based letting system might work, and we'll spend some time looking over it. Significantly, it suggests tenants awaiting a transfer should be given priority over people on the waiting list, which would be a fair departure from the status quo. Presumably that would apply to tenants who have initiated a transfer as much as those who have been approached to relocate, provided the tenant's "eligibility" review has determined that their housing needs have changed, but this has not been made clear.

What's also not clear is how tenants who have been approached to relocate but decline to participate in the choice based letting scheme would be treated. Here again IPART has made no reference to the Residential Tenancies Act and gives us no indication of how tenancies will end - whether in the case of a tenant who doesn't comply with a request to move, or one who does.

4. Social housing isn't going to pay for itself
Last but not least is IPART's draft recommendation that the New South Wales Government implement a sustainable funding model for social housing providers, noting a current shortfall of close to $1billion. The draft suggests this should be paid to housing providers as an explicit subsidy, rather than an implicit subsidy as is currently the case. This is incredibly significant in the context of a national discussion in which the value of the National Affordable Housing Agreement is being called into question.

From IPART's draft report, page 34

The draft report also calls for the development and publication of a Social Housing Strategy, to be updated annually, outlining how, where and why new dwellings are to be added to the portfolio. It makes a further push for the management of social housing to be handled by community housing landlords, suggesting the role for government is to oversee construction of dwellings and set the policies under which social housing should be managed.

Interestingly, IPART's draft report suggests that the New South Wales Government should steer away from affordable housing programs, focusing on using its available resources to assist those with the greatest need instead. Given discussions at the national level around the development of an Affordable Housing Bond Aggregator, and the potential for Inclusionary Zoning policies to be introduced through a range of planning reforms, it may soon be possible for community housing landlords to pursue growth of their affordable housing portfolios without the direct involvement of a NSW State Government program. In any case, we're inclined to agree that if faced with a choice between growing affordable housing or social housing portfolios, it's social housing that should get the nod.

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IPART is calling for written responses to its draft report by 12 May 2017. They will hold a public hearing in Dubbo on 2 May 2017, and another in Sydney on 9 May 2017. For more information and details on how to contribute your own feedback, visit their website at this link here.