Big numbers and good intentions: Labor's Affordable Housing Plan

The Federal ALP conference is happening in Adelaide at the moment, and one of the big early announcements was a plan to build a lot of 'affordable' housing. This can probably be treated as the first big housing announcement of the coming election campaign. Check it out here.

It has been met with near-rapturous support from community housing providers and their supporters, like the Everybody's Home campaign. Others, like ACOSS have been more circumspect. And some on twitter have raised some concerns. Let's dig in to what the policy is, and what we might expect to deliver.,

At its heart, this would be a reboot of the National Rental Affordability Scheme launched in 2008 by the then ALP government. Originally intended to create 50,000 'affordable housing' dwellings, the program was ended in 2014 with less than 40,000 properties either delivered or approved. The first dwellings built are coming to the end of their 10 year commitment this month, making this announcement from Labour timely. This NRAS 2.0 follows a similar model, scaled up to creating 250,000 'affordable housing' dwellings, though with some notable exceptions.

NRAS	'NRAS 2.0' proposal
Open to individuals and corporations	Only open to corporations
Must be managed by an 'approved participant' - can be for profit or not-for-profit	Must be managed by a 'registered community housing provider' - most, but not all, are NFP
Leased to people on low to moderate incomes, at 80% or less of market rent	Leased to people on low to moderate incomes, at 80% or less of market rent
No restriction on resident's immigration status	Not open to "international students, foreign workers and other non-residents"
Scheme length: 10 years per dwelling.	Scheme length: 15 years per dwelling.
Subsidy in 2018/19 dollars - $8335.75 pa from federal government, and $2,778.58 pa from state governments.	Subsidy in 2018/19 dollars - $8,500 pa from federal government. No detail on whether state governments will also contribute.
TOTAL $111,921.30*	TOTAL $127,500 (plus any state contribution)

*It is open to the investor to exit the scheme at any time without penalty (apart from no longer being paid the subsidy) and we are aware of some instances where they did, or where the property stopped being eligible for the subsidy. It is unclear whether the proposal will operate similarly.


While a commitment to addressing housing issues is welcome, this is a limited model in a number of ways. There may be good reason to doubt whether it will deliver the 250,000 dwellings promised, and whether 80% of market rent is any kind of good way to ensure the dwellings are actually affordable.

The subsidy is very generous - anywhere on market rent of $815 or less receives more in subsidy than they give up in discount. At lower rents (anything below $407) the owner receives more than double the discount.

By closing access to private investors Labor are clearly hoping for more 'institutional investors'. This does not mean not-for-profit housing necessarily, nor necessarily better-behaved landlords. Just under half of the current NRAS properties are managed by for-profit providers.

There are a few obvious paths to funding. The federal National Housing Finance and Investment Corporation acting as a bond aggregator might lend to community housing providers for them to build and operate "NRAS 2" properties directly. The subsidy from this proposal would make the financial viability of those loans much easier to meet.

Inclusionary zoning models of the type able to be required under planning mechanisms like SEPP70 are also likely to utilise the proposal. Property developers in areas using inclusionary zoning rules will need to set aside some housing in large developments for affordable housing, and this payment will in many cases more than repay the lost revenue from that requirement. That's not an excellent result, as it is merely cost-shifting from the private sector to the public sector.

It is also very likely to form part of for-profit build-to-rent models because it will make those development propositions much more attractive.

There is a big question mark then over how many properties will actually be built. Labor promises to deliver 250,000 dwellings, but they aren't building them - the private sector is building. Labor has flagged the return of the National Housing Supply Council - a very welcome move - to help make sure properties are delivered in areas of need. But limiting properties to particular areas, and particular investors, means it is less likely that a match will occur and the right investor will be able to build in the right location. Will this limit how many properties actually get built?

What else can Labor do? Frankly it is an indictment of Australia's housing policy environment that they don't seem to be considering a large public housing build. Recent AHURI research demonstrated how much more sensible a publicly run housing program is, being by far the most cost-effective approach. And after development costs, directly running public housing is already cheaper than the rent. So why pursue such costly approaches?

In large part, it is because of a collective decision for an ongoing, bipartisan and cross-sectoral approach to housing which restricts access to social housing and casts its provision as welfare or even charity. While it is perhaps most enthusiastically pursued by conservative politicians, it is perpetuated by many in the not-for-profit housing sectors from advocacy to academia. One of the key ways this happens is by distinguishing 'affordable' housing from 'social' housing mostly along income lines. Because 'affordable' housing is only to be delivered by non-government organisations, this means that the non-government part of social housing can be subsidised by higher rents collected in affordable housing, but the government part cannot.

Consider that if instead social housing eligibility was opened back up to moderate incomes the cost to both construct and maintain would become much easier to manage. This is far better for all residents. The need for a complicated model such as 'affordable' housing would disappear, as would the stigma attached to social, and particularly public, housing. This is not an easy shift, as it would be important to ensure those on the lowest incomes aren't jettisoned, but with commitment it could happen.

Public housing has many advantages over the private market - it can be built where it is needed, without having to wait for the private sector to determine market conditions are favourable. It can be built in the type most suited - both dwelling structure and size - to the local conditions, rather than to what works out best for an investment manager. It has disadvantages too - shared with other social housing providers - of being a large bureaucracy that can struggle to respond to individual needs and often has nothing to offer tenants in being part of decision-making processes.

What is needed is a real conversation about the ways in which Australia can be housed, and a real vision for our housing system. Who can deliver that?

Renting with bats, mice and squirrels in the wild Midwest USA

Today we have a special guest appearance from Chloe Schumacher, an intern from the USA working at the TU. As Australia considers the possibilities offered by 'build-to-rent' landlords, she presents a timely example of the need to look past the marketing promises of 'institutional' or corporate landlords. This experience is not a one off - recent research found many housing advocates raising concerns about the approach corporate landlords take in the USA.

The first time I had ever rented a home was with five friends back home in Iowa. We are all in college and renting a home off campus is very normal after your first year in college. It was mid summer when we all moved in, and the first night I spent in the house was when the problems began.

I woke up around 3:00am to something hitting my chest. My hand hit something off my bed and that is when the fluttering started. I had woken up to realize there was not one, but several bats flying around in my room! My first terrified thought was to get out, but when I opened the door the pack flew into the kitchen and throughout the rest of the house. 

After this incident my roommates and I tried to call the rental company’s complaint and emergency hotline, but received no answer. Due to receiving no answer we all went into the office the next morning to sort out how to get rid of the families of bats living in our home. We explained the situation and our concerns – bats can carry rabies, their bite can’t be felt, and their faeces is a health hazard. After the story and explanations of concern, I was told that it was bat season; therefore there was nothing that they could do!

After being told that there was nothing that our renting company could do to rid our house of the infestation, we decided to be hopeful and leave our front door open to try and let them fly out on their own. This didn’t end up working; instead the bats went to sleep, hanging from the living room ceiling away from the door, due to it being so hot outside. They liked our house because it was nice and cool!

We had numerous run-ins with the bats. There were many times when one would be hanging inside the door frame and then when the door was shut, it would accidentally be smashed and injured or killed. Due to being concerned about rabies and other diseases, we decide to keep a few of the dead bats to send to be tested. After receiving positive results for the bats caring diseases, we became increasingly concerned and continued to seek out our landlord for help. The battle lasted for over 2 months and included several sessions of the five of us planting ourselves in their office and asking to speak to manager or company head. We even resorted to bringing in and leaving the bats in the office that had died in our home to try and prove a point.

We could go no longer go into our basement and finally after the two-month plea for someone to come out and do something about our bat invasion, our landlord sent over a maintenance crew.  These two men had no idea what to do about bats and were only trained in carpentry; they claimed they couldn’t find any bats. Since our landlord had sent someone out as we had asked, they acted as if they had done all they could to help.

It wasn’t until a few days after the carpenters had visited that a police officer was called and he kindly collected all of the bats in our living room and removed them. This process took him over two hours to catch and release the creatures, because they are protected in Iowa and much of the United States.

Even though our bat problem had been solved, we continued to have animal problems in the home throughout the rest of our tenancy. There was a large nest of mice living in the basement and they would also get into cupboards, but when we complained about this we were told the house is old and that is to be expected. If we wanted anything done about the mice, we were told we’d have to figure it out ourselves. Later we had squirrels and mice in our walls and again we received no help and were told it is just part of living in Iowa and in an older home. So, we dealt with the scratching noises that they created at night in the walls. Another problem we had was the power would randomly go out. When we complained about this, we were told it was due to the mice chewing away at cables and they weren’t responsible for such instances, even though we had complained about the mice problem previously!

The company we rented from was unhelpful and eventually became rude whenever any of my roommates or myself even entered the office building. We were treated more as a nuisance than customers, or even tenants. All of our requests for help were met with excuses and explanations of “that’s just how it is.” Unfortunately this isn’t an uncommon scenario in my college town, because a single company owns a very large majority of the homes and apartments for rent in the area. This allows the company to provide unsatisfactory tenancy experiences but still not go out of business. This is a huge problem where I am from and the company has been taken to court on many different occasions for their actions (or inaction). In fact, they would often only respond to tenants who were paying rent above a certain grade and the rest of the tenants who didn’t pay as much were never helped or even received a response to complaints or maintenance requests. Students have even come to expect that they will never see their deposit money back, even if they were perfect tenants and did not damage the home at all.

This company is the backbone of the renting industry where I am from, which allows them to get away with their mistreatment of tenants. Students are forced to just deal with their tenancy problems – like living in a pest menagerie –, because we have no other option of places to rent from within in a reasonable distance from campus. 

Building to let

The concept of "building-to-let" seems to be gaining some traction as a solution to Australia's housing affordability woes. As the name suggests, building-to-let happens when a developer builds residential dwellings - presumably apartments - with the intention of renting them out rather than selling them off once complete. As circumstances (aka house prices) are forcing many of us to re-imagine the great Australian dream, this is just the kind of blue sky thinking we need.

Imagine...! A landlord who is interested in a relationship with tenants rather than property! Who won't cringe at the thought of picture hooks, curtains, a new light fitting. Who will let you keep a pet, subject to reasonable by-laws. Who won't put the rent up just because everyone else is doing it. Who won't kick you out because they want the place for their kids, or to sell it, or simply for no reason at all.

Just imagine!

Perhaps the reason this would appeal to so many Australian renters is that it is the polar opposite of what our private rental market currently delivers. As we discussed in a recent post, Australia's landlords are

... mostly one-off or small-time investors, "mums and dads" who are more interested in property for its capacity to generate wealth than providing homes for families. They'll hang onto a property for maybe five years or so then sell it, banking the gains or putting them towards their next investment. For the most part, Australian landlords are not interested in building large portfolios, and they don't want to concern themselves with the day-to-day workings of property investment. They tend not to engage with things like renting laws, tribunal procedures, or tenants' rights unless they have to. Many are happy to ignore these aspects of investment altogether, handing them all over to real estate agents who know only too well they won't have anyone looking over their shoulder as long as the rent rolls in and the outgoings stay under control.

Building to let offers a genuine counter to this. At least, it does in theory.

But there's a problem, and it's one of culture. Australia's approach to housing is built on the assumption that you rent when you're young, then you buy a home, and then you buy an investment property. There's been a recent shift in this assumption, at least for some, so that you rent when you're young and then buy an investment property so you might be able to afford a home when you retire.

No doubt the sudden emergence of this build-to-let discussion is an indicator that whatever underpins these assumptions is faltering. That in itself is a very interesting development. But it will take a great deal more to change Australia's values when it comes to renting versus owning your own home for the long term. This is important, because it affects the rules and regulations under which our rental markets operate, and how they might change.

The establishment of "build-to-let" schemes could aide in the evolution of Australia's renting laws, as a new class of landlord emerges with interests that are somewhat less in conflict with tenants' than our millions of "mum and dad" investors' are. On the other hand, pushing against long-established cultural norms may prove all too difficult, or even undesirable, for such landlords. As always, the proof will be in the pudding.

Institutional investment does not mean investment in tenants' interests. For all the good they may do, consider the dearth of support from community housing landlords for a simple proposal to make renting fair: more than eighty organisations from across New South Wales are calling on the Government to end unfair evictions by removing no-grounds notices of termination and expanding the list of reasonable grounds available for landlords to use when a tenancy must be brought to an end - but socially responsible, not-for-profit landlords are notably absent from that list. You might think institutional landlords with a mission to improve outcomes for the households who need it most would be the first to engage with such ideas, but evidently the status quo suits.

So when you read statements from major developers who say things like

I believe, and based on the experience in other parts of the world, institutional grade multi-family housing tends to streamline the process of renting by providing tenants with the stability to live long term in rental property, should they elect to do so, without the risk of the owner selling, greater reaction time to any repairs and maintenance, access to modern properties within sought after locations and security in tenure over the property

Or

Creating a sustainable, affordable housing market in NSW means providing a diverse range of housing options and build to rent could be a viable choice to provide certainty and security of tenure to people who want to rent rather than buy

... without reference to tenancy law reform, it should be taken with a grain of salt. If we can't even get our social housing landlords to commit to improved security of tenure for renters, what hope do we have for the private sector?

Consider comments attributed to Treasurer Dominic Perrottet while discussing the NSW Government's possible support for build-to-let schemes recently, that "finding ways to give renters that security without excessively curtailing the rights of property owners is a fine line to walk". Evidently the build-to-let solution has already surrendered to Australia's established housing culture.

Again, the proof will be in the pudding. We're aware that some developers in Sydney are already building to let - we know this because we sometimes hear from their tenants. What we're hearing are stories of unlawful, non-refundable "pet licenses", and evictions without grounds.

We'd like to see building to let flourish in New South Wales. A genuine market intervention from institutional landlords could be just what many of Australia's long-term renters need. Unfortunately, for the time being at least, it looks like it would be just another sideline for developers.