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.

Save your money. Don't use 'My TICA File'

Tenancy database operator TICA Pty Ltd is offering to rip you off with a new service it calls 'My TICA File'.

(Blacklisted? Blackmailed, more like)

Please: don't sign up for this 'service' and don't give TICA any of your money.

You are entitled to know if you are listed on a tenancy database.  And you're entitled to a copy of the listing free of charge.

If you apply for a rental property and the landlord or agent finds that you are listed on a tenancy database, they are obliged to tell you that you're listed and who listed you (section 211 of the Residential Tenancies Act). If they don't say anything, ask them directly if they've found a listing, and remind them of their obligation.

The landlord or agent who listed you is obliged to give you a copy of the listing (section 216(1) of the Residential Tenancies Act). The copy must be given to you free of charge and within 14 days; if they don't comply, they're liable for a $2 200 fine.

It should be noted that TICA is also obliged to give you a copy of the listing (section 216(2)). The Act allows it to charge a fee for doing so, but the fee must not be 'excessive' (section 216(3)(a)).

TICA charges fees for each of its methods of giving a copy of the listing – $5.45 per minute by phone; $19.80 by mail; $33 by fax; $55 by My TICA File – and we reckon each is excessive, considering that it costs nothing for an agent to call up a listing and every other database operator manages to provide copies free of charge.

So if you absolutely must deal with TICA directly, write and tell them that their fees are excessive and consider complaining to Fair Trading about it.

New Minister for Fair Trading

Congratulations to The Hon Matthew Mason-Cox MLC on his appointment this week as NSW Minister for Fair Trading.

Minister Mason-Cox is from Queanbeyan, so he'd know that the lack of affordable rental housing, and the resulting insecurity and worry felt by tenants, are not just Sydney problems.

The chart below shows the incidence of rental stress (that is spending more than 30 per cent of income on rent) for households on very low incomes (that is, incomes less than half the median income), low incomes (incomes 50-80 per cent of the median) and moderate incomes (80-120 per cent of the median) in Queanbeyan, Sydney and all New South Wales.

(Source: Centre for Affordable Housing, Local Government Housing Kit Database (2011 Census). Median income in Sydney result is median income for Sydney; median income in Queanbeyan and New South Wales results is median income for New South Wales. Click on image for a better view.) 

As you can see, almost all very low-income tenants are in rental stress – whether you look at Queanbeyan, Sydney or all New South Wales. Low-income tenants in Queanbeyan are even more likely to be in rental stress (76 per cent) than low-income tenants in Sydney (69 per cent) or all New South Wales (62 per cent). On the other hand, the incidence of rental stress for moderate-income tenants in Queanbeyan (34 per cent) is lower than in Sydney (43 per cent). Still, the fact that one in three moderate-income households is paying more than 30 per cent of their income in rent is a problem – indeed, a worry, and it discourages tenants from asserting their legal rights.

Discrimination is not funny

... except this one time:




As the reporter says, discrimination on grounds of race in the provision of housing is against the law. If it has happened to you, get advice from your local TAAS, your local community legal centre, the Australian Human Rights Commission, or the NSW Anti-Discrimination Board.

(Hat-tip to Nick.)

Worried, and paying for it - our Housing Affordability Survey

Anglicare's annual Rental Affordability Snapshots tell us there has been a scarcity of affordable rental housing in Sydney over the last few years. But that doesn't stop people from living in unaffordable housing. It just means they're worried. We probably didn't need our Affordable Housing Survey to tell us that, but we've just released the results and they're pretty convincing.

We can lock it in. Tenants are worried about affordability and security.

57 per cent of our survey respondents rent because they can't afford to buy.

64 per cent of them worry about paying the rent.

92 per cent of them worry about what would happen if they had to move.

Nevertheless, many do move - sometimes as frequently as once a year.

Many express satisfaction with their homes, and few claim to have a bad relationship with their landlord. But landlords don't always keep to their end of the bargain, and tenants often put up with problems in order to ‘stay under the radar’. Many worry that if they ask for repairs, the landlord might increase the rent – or worse, give notice, and make them move out.

At the same time, large numbers of tenants are paying significant amounts of their income on rent. In fact the only people whose rent averages less than 30% of income are older tenants on high incomes.

The survey suggests that things are especially bad for older, low-income renters. But wealthier tenants, younger tenants, and tenants in relatively secure social housing are all worried about security and affordability in the rental market.

Tackling some of the tax policy settings that restrict housing affordability, and giving tenants greater assurance of security would go a long way to alleviating some of this worry.

Whenever we try to have these conversations, we're told not to rock the boat. We're told landlords will take their money out of the housing market and invest it in other things. We're told that would be a disaster for renters.

But with over a decade and a half of booming house prices and rising rents, landlords have been onto a pretty good thing. Perhaps it’s time we did ask them: what's in it for us?

View the full Affordable Housing Survey report here.

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.

How landlords lost nearly $1.2billion in a single year

The Australian Taxation Office has just released its tax statistics for the 2011-12 financial year. The headline figure is that the 806,890 taxpayers who declared income from a rental property in New South Wales accrued a collective loss of almost $1.198billion.

That's an average loss, across the year, of almost $1500 for each landlord. Now, we have to take that number with a bit of a grain of salt, because some landlords will have an interest in more than one property, and some landlords will have only a partial interest, perhaps sharing their property with a partner, sibling or friend. But an average loss of $1500 per landlord is not insignificant. After all, it's the cost of a modest kitchen upgrade, or perhaps some much needed structural work, or new guttering and drains. Even spread out over two or three properties, that kind of money should be making quite a difference to tenants' comfort and amenity. We shouldn't get our noses out of joint about these losses, should we? Surely we should be saying 'thank you, dear landlord, for all the money you spend!'

Well, let's not get carried away...

The tax stats include a handy breakdown of rental property expenses claimed over the year. So - for your quick reference, here are the top five costs of being a landlord in New South Wales:

1. Interest on loans: a deduction claimed by about 73% of NSW's landlords, at a cost of just over $7.29billion.

2. Body Corporate fees: claimed by almost 40% of NSW's landlords. This comes in a very distant second, at around $718million.

3. Council rates: claimed by nearly 94% NSW's landlords, at a collective cost of $673million.

4. Repairs and maintenance: claimed by 74% of NSW's landlords, at a little under $647million.

5. Property agent fees/commissions: claimed by nearly 72% of NSW's landlords, at a cost of $623million.

Clearly, it costs a lot of money to be a landlord in New South Wales.

But, because they can offset rental losses against their own taxable incomes, while holding out for capital gains, we expect they're not too worried...

Not as long as they've got a tenant, that is.

Tenants were very good to their landlords in 2011-12, generating about $11.5billion in rental income. Without this rental income, landlords would have sunk.

It's a shame more of that rent wasn't put back into the properties we've been paying the mortgage on.

And, with an estimated 92% of landlords' borrowed money going towards the purchase of established dwellings, rather than new construction, those rent funded mortgages aren't contributing to a whole lot of new supply, either.