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?

I scream, you scream: reflections on an inequitable Budget

In today's guest appearance, legendary tenants advocate and now Older Tenants Project Officer at the TU, Dr Robert Mowbray, reflects on the Federal Budget.

My favourite gelato is scoops of panna cotta and hazelnut from Bar Italia in Norton Street, Leichhardt. But I always wondered what was planned for the long-time empty Harold Hawkins Court, a former aged care facility. It's smack-bang in the centre of the cafe strip along Norton Street and I look across at it everytime I indulge in my favourite gelato.

Just over a year ago, Leichhardt Council announced it was forming a partnership with UnitingCare Ageing to develop affordable housing in Leichhardt. The initial focus was providing accommodation for older people with intellectual disabilities and mental health issues. Old aged care facilities, such as Harold Hawkins Court and Annesley House (just around the corner), were to be given new leases of life through the National Rental Affordability Scheme (NRAS). That's really great!

But when I opened the Sunday paper after the Federal Budget, I found that the new round of NRAS funding has been scrapped. That means no NRAS funding for the proposed UnitingCare affordable housing in Leichhardt and elsewhere.

Although no one will feel the blow torch of this Budget more than the young unemployed with no family support who are being fast-tracked to homelessness, there are hidden in the Budget are other surprises for older persons, often struggling to meet housing costs. The Commonwealth-State agreement for concessions and discounts on travel, electricity and rates will be terminated. Financial planner Louise Biti says:

"It will hurt pensioners the most. This will cost $1000 to $2000 a year. No one was expecting that ... ''

Also cut: a voice in government for people with disability. The Coalition Government has announced that it will not fund a separate Disability Discrimination Commissioner at the Human Rights Commission when the term of the current Commissioner, Graeme Innes (ex-Residential Tenancies Tribunal Member), ends in July. This is despite the fact that 37 percent of discrimination complaints relate to disability, and those is so much more for a Disability Discrimination Commissioner to do.

Welcome to 'The Age of Inequality' – the paradigm for a future Australian society. We will see the wedge between the 'haves' and the 'have-nots' widen dramatically. High-income earners are barely affected: 'someone earning three times the average wage will lose just 0.9 per cent of their take-home income. And further up the income scale, 'the latest tax statistics show 75 ultra-high-earning Australians paid no tax at all in 2011-12':

It isn’t only millionaires. Tax Office figures show there are 1095 Australians earning in excess of $150,000 who pay no tax. Half of them sought tax advice and shelled out an impressive total of $98 million, which works out to $223,000 each. Their biggest lurk is negative gearing. Most lose large sums on properties they rent out in order to destroy their taxable incomes, hoping to make it up later when they sell the properties for a lightly taxed profit.

I wonder what high income earners will think should they sit down for a gelato at Bar Italia and just happen to look across the road at the empty Harold Hawkins Court?

Federal Budget 2014

The Abbott Government has delivered its first Budget. Usually, a Federal Budget doesn't deliver a whole lot for us to talk about here on the Brown Couch - but this one is an exception.

Here's a quick rundown of the things that matter:

Axing of the National Rental Affordability Scheme

The final round of the National Rental Affordability Scheme (NRAS) will not proceed. That's the scheme where private investors are given tax credits, over a ten year period, if they build and supply housing to people on low incomes at below market rents.

According to the Minister for Social Services, Kevin Andrews, "the scheme will be reviewed to address ongoing issues and ensure remaining incentives meet the scheme's original aim". We look forward to hearing more about that.

Essentially, this means a reduction in the supply of affordable housing. But more than that, it is the loss of a key mechanism by which the private market could be inclined towards affordability.

National Shelter said in its media release this morning: "Over the past five years the housing and homelessness sectors, including NGOs, business, and governments, have made significant reforms that are making a difference to supply and affordability, and reducing homelessness. We now risk losing that momentum. For modest government outlays NRAS was delivering significant boosts to affordable rental housing supply. It could have been adjusted to a new government's standards. It is the large reform we have now lost".

As far as we are concerned, NRAS has not been without its flaws. But as we said when NRAS hit the headlines a couple of months ago: NRAS delivers new supply of affordable housing, which is a lot more than can be said of the tax subsidy for negative gearing, or for capital gains tax.

Continued funding for Homelessness Services

We'll leave it to our colleagues in the Homelessness Services sector to provide the detail on this, but it appears funding under the National Partnership on Homelessness will continue - at least for now.

This is - er... 'good' news, because with the loss affordability drivers in combination with some other things, demand within the Homelessness Services sector might well start to rise.

Limits on Access to Justice

The decision to cut funds from Community Legal Services, and withhold promised enhancements to Legal Aid funding, will impact upon tenants as well.

For one thing, it will have a negative effect on some of the services in which the (state funded) Tenants' Advice & Advocacy Services operate - Community Legal Centres.

But a recent report from the Law & Justice Foundation of NSW suggests it might go further than that. The report - Are renters worse off: the legal needs of public and private tenants - concludes that "survey respondents living in rented accommodation were more likely to experience legal problems than were others. Renters also reported a higher rate of adverse consequences resulting from their legal problems. While renters reported the highest rates of handling their legal problems with formal advice from legal advisers, they also reported the highest rates of experiencing barriers when they tried to obtain advice. Private renters had the highest rate of reporting that their advisers were too expensive."

Changes to income support

Again, we'll leave the details of this to our colleagues in the sector but the long and the short of it is that income support will be harder to get, and there will be less of it. Given that 70% of people with an income of $400 per week or less live in rented accommodation of some kind, it's fair to say that this will affect tenants more than homeowners or mortgagors.

There are two things to take note of here.

The first is that the rental market is already a worrying place to be. Tenants are concerned about covering the rent and hanging onto their tenancies. Reducing the rate at which income support increases - or worse, taking money directly out of recipients' pockets - will not only add to their worries, it will make it significantly harder for them to meet their commitments. How will your landlord react to the news that you've lost your job, and can't get on the dole for another 26 weeks? Expect more rental-stress, more evictions, and more worry.

The second thing is that the social housing sector derives a considerable amount of revenue from rents that are based on tenants' incomes. Slowing the growth of income support and/or reducing tenants' incomes will affect the bottom lines for social housing landlords, too. And as we saw from the Auditor-General's report last year, they're already struggling to keep in touch with the demand on their services.

No change to housing and taxation
The tax treatment of negative gearing and capital gains, which encourages inflationary speculation in housing, reduces access to home ownership, and distorts the rental market to the disadvantage of low-income tenants, remains unchanged. For more of our thoughts on tax and housing, see our previous posts on negative gearing and the real housing supply problem, and our review of the Henry Review of taxation.

What the Commission of Audit says about housing

The much anticipated report of the National Commission of Audit was released yesterday.

 (Chair of the National Commission of Audit, Tony Shepherd)

Of the comment generated so far, we reckon Fairfax's Peter Martin has nailed it with his criticism of the partial nature of the Audit: it looks at government spending, but not really at tax, and certainly not at tax expenditures.

Martin gives the example of retirement incomes; we can also see the flaw in the Audit in what is says about housing.

The Audit zeroes in on spending on Rent Assistance ($3.6 billion pa), affordable housing – in particular, the National Affordable Housing Agreement ($1.3 billion pa), which funds social housing, and the National Rental Affordability Scheme ($1.5 billion over four years) – and alleviation of homelessness ($159 million pa). It frames these as 'programmes that duplicate State responsibilities' (on the basis that 120 years ago, it did not occur to the drafters to include 'housing' in section 51 of the Australian Constitution).

The Audit notes the 'limited success' of these programs in delivering affordable housing and reducing homelessness, and so considers that the Commonwealth should pull back and 'limit its involvement in this area to providing rent assistance to income support recipients'. That includes social housing tenants, who'd henceforth be paying market rents. There'd be no housing agreements or grants to the States and Territories for social housing or affordable housing; the National Rental Affordability Scheme would go too.

The Audit mentions the Henry Review in support of the case for extending Rent Assistance and market rents to social housing; it does not mention, however, that the Henry Review also recommended an additional payment for 'high needs clients' of social housing.

And that's it. Because it doesn't really look at taxes, and certainly not tax expenditures, the Audit misses the really big housing subsidies: the $30 billion pa benefit for owner-occupiers effected by not taxing their capital gains, imputed rents or land values; and the $7 billion pa benefit for landlords effected by not taxing income spent on the costs of speculation (negative gearing) and only half-taxing the gains of speculation.

These benefits have encouraged households with money (or credit) to spare to spend it on their own housing, or on speculating on rental housing, driving up prices and limiting the effectiveness of the Government's own spending on social housing and affordable housing and homelessness alleviation.

The Audit has missed the real problem in housing policy, and the opportunity of offering real solutions.

NRAS: the baby in the bathwater

The National Rental Affordability Scheme (NRAS) is in the news, with The Australian reporting that about 4 000 units constructed under the scheme are being let to university students.

Some perspective: in its five years of operation, NRAS has subsidised the construction of about 14 500 dwellings, with another 24 000 dwellings in progress. In return for the NRAS subsidy, these dwellings are let at a discount to market rents (80 per cent) for 10 years. They must also be let to persons or households whose income is below certain thresholds; these are set higher than the thresholds for social housing, but we know of one community housing provider who reports that 15 per cent of its NRAS tenants had previously been homeless.

So, NRAS has delivered new construction and reduced rents – which is a lot more than can be said of the tax subsidy for negative gearing, or for capital gains tax.

There's actually an affordable housing baby in the NRAS bathwater! Would the Government throw it out, while its other tax settings do nothing but encourage speculation and make housing unaffordable?

Proverbial multiple-bird killing spree

While the Easter holiday caused things to become a little quiet here at the Brown Couch, there has been plenty of news recently about renting. This post will be the single stone in my attempt at a proverbial multiple-bird killing spree.

First, a rarely-sighted headline, courtesy of the Herald:

Good news for renters in sought-after suburbs

Good news indeed – the Herald's economics writer and Brown Couch regular Jessica Irvine goes on to report:

THE tide has turned on Sydney's upper rental market, as properties lie vacant and landlords are forced to slice asking prices by as much as 20 per cent.

The figures are not exactly new – they come from the Rent and Sales Report released last month – and they are used rather selectively – the Housing Minister, David Borger, used the same report to claim that rents had increased by 20 per cent in western Sydney.

But what is interesting is the narrative; that there is now a story to be told about straightened demand (wage restraint, job losses, general caution) and even increased supply (as owners of unoccupied properties start to think they really should try to get a bit of revenue out of their 'investments') leading to expectations of lower rents.

Of course, nothing's affordable if you're out of work, and the Sunday Telegraph reports that Fujitsu Consulting estimates that if the unemployment rate rises to 7.5 per cent, up to 183 000 renting households (68 000 of them in New South Wales) will fall into arrears and face eviction. And if unemployment reaches nine per cent, those numbers increase to 216 000 and 79 000 households, across Australia and in New South Wales respectively.

The report seems to suggest that this is as much a tragedy for the landlords as it is for the tenants:

With many of Australia's 1.9 million landlords needing the rent to cover mortgage payments, few give the tenants much extra time to pay arrears and tenants can find themselves on the streets within weeks.

Indeed, landlord may be left with 'little choice but to evict the occupants' of their investment.

Well, maybe there are some other choices available. Maybe landlords can try reducing rents for tenants who become unemployed.

That's not such an outlandish suggestion. After all, if landlords do evict 216 000 households, to whom are they going to rent all these vacant properties? If they will rent only to employed persons, these persons will be faced with a considerably increased supply of available properties, and can expect to drive a harder bargain – hence lower rents. Or the property might be rented to another unemployed person, who can afford only a lower rent.

And finally, another report from Irvine in the Herald, this time about suggestions that house prices at the lower end of the market are being kept up not just by the First Home Owners Grant and Boost, but also by the Federal Government's National Rental Affordability Scheme (NRAS). The scheme pays developers a subsidy of $8 000 per annum for new rental properties that are let at submarket rents for 10 years. Reports Irvine:

Analysts warn that the scheme, intended to increase the supply of cheap rental accommodation, is contributing to a boom in house prices under $500,000, making home purchase more expensive.

I follow that argument, but there's a couple more things to keep in mind. The NRAS is a finite scheme: there's 50 000 subsidy 'packages' available, and a competitive application process to get them (contrast the FHOG and Boost, of which any number can be given away, just as long as you suspend your critical faculties and get in quick before 1 July!). The NRAS is also for new supply only (again, contrast the FHOG and Boost). Both these things should be counted against any inflationary potential.

But more importantly, NRAS delivers some much-need low-cost rental accommodation, and keeps it low cost for at least 10 years. The FHOG and Boost will end in tears; NRAS will make a much more positive contribution to the housing system.