The Henry Review review: part 4

Now we draw to a close our review of the Henry Review and, in particular, what it had to say about housing.

We'll do so with a summary of what it had to say about (1) the taxation of owner-occupied housing, (2) the taxation of rental housing, and (3) the provision of housing assistance in the forms of Rent Assistance and social housing.

In relation to each, we'll also note the response of the Government, and add a few words of our own.

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1. Taxation of owner-occupied housing.

Henry says: let's keep the preferential tax treatment of owner-occupied housing. In particular, let's keep exemption of owner-occupied housing from capital gains tax. (And let's not even consider the taxation of imputed rents – that is to say, the value of the housing services that owner-occupied housing produces and that is consumed directly by the owner.)

But, let's include owner-occupied housing in a reformed land tax regime.

And let's think about a bequest tax.

The Government said: we 'will not... at any stage... introduce land tax on the family home – this is a state tax and thus an issue for the States.' (And it goes without saying that we agree with Henry on keeping the exemption from capital gains tax.)

And we will not introduce a bequest tax at any stage, either.

The Brown Couch says: first of all, a general note: this was, literally, the Government's response to so much of the Henry Review's recommendations. Its press release of 2 May reads: 'In the interests of business and community certainty, the Government advises that it will not implement the following policies at any stage.' Thereafter follows nineteen dot points, of which land tax and the bequest tax are just two. We'll encounter a few more of these 'not at any stage' dot points.

As for the substance of the recommendations and the response: the preferential tax treatment of owner-occupied housing is a core component in the Australian house price bubble-making machine.

Now, this machine runs on a volatile blend of animal spirits and debt. It seems that at the moment, supplies of this fuel amongst Australian households may have been tapped dry: housing credit growth has stopped, and prices are flat and falling. We've heard from respectable commentators – that is to say, commentators who have long argued for reform of the taxation of housing to improve affordability – that including owner-occupied housing in the capital gains tax regime at this stage may be revenue-negative, because the gains aren't there at the moment and, as a necessary corollary, you'd also have to allow deductions for owner-occupiers' interest payments. And the latter aspect could well give a fillip to borrowing – at this stage. But, at some stage, there must come a time to start dismantling the house price bubble-making machine, including the tax-preferencing of owner-occupied housing.

Land tax reform, however, is something we could proceed on now – and the fact that it is a tax levied by the States does not mean that the Commonwealth cannot act on it. In particular, the Commonwealth should look at how it distributes, through the Grants Commission, its tax revenues to the States, and calculate the distribution on the basis that each States' own tax base will include a reformed land tax.

And the bequest tax – or unearned wealth tax, as we like to call it – let's do it!

2. Taxation of rental housing.

Henry says: investing in rental housing, shares, putting money in the bank – it's all saving, isn't it, so let's tax these different ways of saving more consistently. Let's tax the income from savings (whether it's rent, dividends, interest or capital gain) at a 40 per cent discount. In relation to rental housing, this means slightly more tax on capital gains, reduced tax for landlords who have a positive net rental income, and reduced losses deducted against other forms of income for landlords who have a negative net rental income – thus watering down the encouragement that Australia's unique negative gearing provisions give to big-borrowing landlords.

The Government said: we will not reduce the capital gains discount, or apply a discount to negative gearing deductions.

The Brown Couch says: negative gearing is financial alchemy, and when it's conducted in the crucible of the housing market, which is already subject to the tax preferencing of owner-occupation, you get a very volatile, bubbly brew. The reforms Henry recommends are mild; for a stronger reform, try quarantining rental losses from being deducted against other forms of income at all.

3. Housing assistance.

Henry says: as a form of housing assistance, Rent Assistance ticks a lot of an economist's boxes. We just need to lift the thresholds at which Rent Assistance maxes out.

Social housing, on the other hand, presents problems – but many of them are fixable, if you extend market rents and Rent Assistance to social housing tenants. For tenants with very high needs, there should also be a new additional payment, that goes to their landlord.

The Government said: we will not ask the States to charge market rents [subject to Rent Assistance] to social housing tenants.

The Brown Couch says: Like Henry says, lift the caps on Rent Assistance. And Henry makes some strong arguments about the problems with social housing's income-related rents. There's a number of forces converging on social housing rent policy that will change its shape – what do tenants and their advocates want to make of this?

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Thus ends our review of the Review. We look forward to the National Tax Forum on 4-5 October this year, and recommend you keep an eye on TaxWatch in preparation.

A final couple of observations: all those 'not at any stage' dot points happened not just one year ago now, but one prime minister ago, one hung parliament ago. And, having retired from the Treasury, Dr Ken Henry has recently taken up a part time job in the office of the Prime Minister. He won't be doing the photocopying and making the coffee.

Licensed residential centres - confined to the back room

Licensed residential centres for people with disability, or LRCs, or licensed boarding houses, comprise a small, dark corner of the New South Wales housing system. This weekend a report by the Sydney Morning Herald's Adele Horin sheds a little light on it.

Licensed residential centres are privately owned, for-profit operations that provide accommodation and, at least in theory, care, for people with disability. An historical hangover from the early phases of deinstitutionalisation, licensed residential centres were established in the 1970s and 1980s to house persons previously accommodated in asylums and hospitals – often by people previously employed at those same institutions. There used to be scores of these places; now there are just 31, housing less than 700 persons.

The decline of the LRCs is not to be regretted. All too often they are isolating, exploitative and downright abusive places.

It is not uncommon for LRC operators to collect 80 per cent or more of a resident's pension for rent and services – sometimes residents are left with $5 per week as 'comfort money'. For this many residents get only a shared room, sometimes with three or even five other residents. They are also supposed to get access to activities away from the boarding house, and independent advocacy – but our colleagues at People With Disability report that their attempts to get in touch with residents are frustrated and, behind the closed doors, punitive cultures flourish.

So, for example, in Horin's report, one LRC resident, elderly and mentally ill, describes being punished for swearing by confinement (except to take meals and go to bed) to the back room of the boarding house for a year.

It's not going too far to say that all LRC residents have been stuck in the back room of government policy for many years now. Over the last decade, the NSW Ombudsman has three times investigated NSW Ageing, Disability and Home Care, the department responsible for regulating LRCs, and found its licensing and monitoring practices wanting. ADHC has taken action in relation to the LRC in Horin's article: an investigation last year found 37 high-level breaches of licence conditions that placed residents at risk; and now an application to the Guardianship Tribunal for an independent guardian, rather than the LRC operator, to manage the affairs of residents. In the course of the present proceedings, three residents have been relocated for their own safety. The Chair of the Tribunal asks why action wasn't taken sooner.

Like other marginal renters, LRC residents have common law contracts with their landlords and lack really effective contractual rights or dispute resolution. Law reform for occupancy agreements that reflect some basic occupancy principles, as well as some standard terms devised particularly for LRCs, is one of the actions needed from the State Government to better protect these very vulnerable persons. Another, as recommended by PWD, is stronger monitoring and enforcement action by an independent quality assurance agency.

But the third and final action must be the eventual closure of all remaining LRCs. Privately owned, for-profit services should not have a place in the future provision of accommodation and support for people with disability. People with disability in need of support or care should receive it as of right – and this is compromised where it is paid for out of the pensions of low-income people with disability and delivered by a for-profit operator. Let's instead get these people housed appropriately with social housing providers, with support from funded not-for-profit disability service providers.

The TU supports the right of people with disability to live where they choose – including in boarding houses – and believes that the wider boarding sector needs some additional measures of government support to ensure its viability, but the LRCs – that small dark segregated corner of the sector that houses only people with disability – should be consigned to history.

Update: further reports and comment by Horin on LRCs (hat-tip to Anonymous for the links):

• $15 million bid for damages in boarding house case
• Victim's sister relives pain of boarding house case
• Sad truth behind closed doors
• Lambasted boarding house has 18 residents removed
  

Housing NSW Youth Scholarships - applications are open

Do you live in social housing or are on the waiting list? Will you be studying for the HSC at high school or TAFE next year?

If you answered yes to both those questions, you should consider applying for a Housing NSW Youth Scholarship, which pays a very handy $2 000 to help with your education.




(A scholarship means less time working at after-school jobs. Buster Keaton in College.)

Applications close 5 pm Friday 29 July 2011. Get on it, students!

(And good on Housing NSW.)

Residential parks to be registered

In the news this week: the NSW State Government has announced that it will establish a register of all residential parks in the State.


This keeps a promise made by the Coalition before the election, and is intended as a preparatory step to making good on other election commitments, such as a licensing regime for park operators, and a review of the Residential Parks Act 1998.

Very good! Registration presents only the very lightest of regulatory burdens and has the potential to improve policy-makers' information about, and liaison with, the residential parks sector – a good thing.

We could apply this idea to a related area of housing policy too. A register would be a good thing for the marginal rental sector - particularly boarding houses. In this case, not only would it improve information and liaison, it could also help prospective residents tell the legitimate operators from the shonks and, in the long term, be worked up into an accreditation or licensing system that gets operators better skilled and residents better served.

All part of the plan for reforming marginal renting!

NAIDOC Week 2011

It's NAIDOC Week!


Originally named for the National Aborigines and Islanders Day Observance Committee, it was found that there was too much in our indigenous cultures worth celebrating to fit into a single day – hence NAIDOC Week.

We've noted previously how most Aboriginal households rent. Many of these households will find little about their housing to celebrate – but here's something worth celebrating: the excellent work of the NSW Aboriginal Tenants Advice and Advocacy Services.

Between them, these four services cover all of New South Wales, so each of them serves a large number of people, over large – in some cases, huge – geographic areas. The good workers at these services sometimes drive for a day to attend a Tribunal hearing for a client. And when they're not in the car, they're on the phone giving information and advice to Aboriginal tenants, or they're out in their communities, educating tenants about their rights, and practicing a quiet, insistent diplomacy with Aboriginal Housing providers to get them to lift their game.

Koori tenants advocates: good on you, and happy NAIDOC Week.

'Underoccupancy' in public housing

There's an interesting article in today's Daily Telegraph about the 'underoccupancy' of public housing – though the article is rather let down by the insulting heading 'What a waste of space'. (Insulting, and ironic, considering how much of the Tele's cybernetic real estate is devoted to photos of the Duchess of Cambridge's sister and losing contestants on Dancing with the Stars.)

Reports the Tele:

NEARLY 50,000 NSW Housing dwellings are under-occupied, with almost 11,000 people living on their own in houses with more than three bedrooms.

An investigation by The Daily Telegraph can reveal that while 43,335 people are stuck on waiting lists, thousands of NSW Housing tenants are living in homes too big for them.

Of all tenants living on their own, 25 per cent have a house with more than one bedroom, with 20,215 the sole occupant in a house with more than two bedrooms, 10,881 with more than three bedrooms and 914 with more than four bedrooms.

Making the top five suburbs of empty bedrooms are the Sydney CBD as well as Waterloo, Redfern, Maroubra and Glebe.

'Luxury'! Actually, it's interesting because it helps us consider a couple of perspectives on current housing policy issues – quite apart from the Tele's perspective of faux-outrage.

An historian of public housing might say: well, yes, this reflects the remarkable changes in public housing eligibility and, hence, demographics, over the last two or three decades. This is the point made in the article by the Housing NSW spokesperson:

"Housing NSW does not currently have enough one and two bedroom properties (into which) to move tenants who are under-occupying," she said.

"In the early 1970s, over 70 per cent of housing applicants were couples with children, and only 12 per cent elderly singles. Today, 40 per cent of applicants are single, another 30 per cent are single parents and only 8 per cent are couples with children."

In fact, in the early 1970s single persons (other than Age Pensioners) weren't even eligible for public housing! (They've been eligible only since the early 1980s.) The population housed in public housing has changed a great deal since then – faster than the stock of houses in which they are housed has changed.

An economist might say of these figures: well, yes, these tenants are evincing economically rational behaviour. Because of public housing's income-related rents, tenants maximise their utility by staying as long as they can in the roomiest properties in the most desirable locations. If there was some utility in taking less roomy or less desirably located properties – in particular, cheaper rent – more tenants might available themselves of that benefit, rather than rooms or location.

And a student of inter-tenurial comparisons might say: well, so what? When you look at all households in Australia, the large majority of lone-person households live in properties with two or more bedrooms – in fact, 86 per cent do, compared to public housing's 25 per cent. Most of these underoccupiers would be owner-occupiers – are they wasting space too, or are they instead kindly, family-minded folk who like to have spare room for when the kids and grandkids come round?

Want to stay housed? Stay poor.

In the 1930s, when the conservative NSW State Government of Premier B S B 'Bertie' Stevens was considering what to do about housing policy, it looked to Britain. Premier Bertie dispatched himself on a study tour of 'Housing, Slum Clearance and Abatement of Overcrowding in England' (1937), and returned to establish the shortlived Housing Improvement Board, which built the happily much longer-lived Erskineville public housing estate.

Now, a conservative British Government is considering making reforms to social housing tenancies there, including allowing British social landlords to adopt a policy familiar to public housing tenants here in New South Wales: fixed term tenancies, with reviews as to the tenant's continuing eligibility.

And the TU has appeared in the thinking Briton's newspaper, the Guardian, to warn why this is a terrible idea.


Fixed terms subject to reviews as to eligibility have been part of New South Wales public housing policy since 2005, when they were introduced along with increased rent rates for so-called moderate income earners. Both discourage public housing tenants from working.

We've discussed the work disincentive effect of public housing rent policies a couple of times previously (and see the TU's paper, too). This effect is particularly acute in the 'moderate income' band (the dollar amounts that define the band vary according to household type), because over the band the rent rate slides up from 25 per cent of household income to 30 per cent – and, in marginal terms, that means about 50 cents in every additional dollar earned in the band goes to Housing NSW in rent. And then there's income tax, reduced Centrelink benefits, and so on.

The reviews as to eligibility also refer to the moderate income band. If at the end of the fixed term of your tenancy (two years, five years or 10 years, depending on your circumstances) your household income is above the higher end of the moderate income band, you are ineligible to continue in public housing, and you can expect to receive a termination notice on that ground. You don't just lose so much of your earnings – you lose your house altogether.

The work disincentive effect of losing eligibility cannot be measured so readily as that of the rent rates in terms of effective marginal tax rates. But we can measure it in terms of actual results – and the actual result is that just about no-one in public housing in New South Wales earns so much as to lose eligibility. In the first 10 months of conducting reviews in 2007-08 (these are the only figures available), Housing NSW reviewed 3 514 tenancies – and just 28 were found to be ineligible. That's less than one per cent.

The whole point of this policy was to move moderate income earners out of public housing, so as to move people in from the waiting list. But in fact there's barely been any movement, and negligible benefit to the people on the waiting list. One might speculate whether more people might have moved out under their own steam, and more from the waiting list moved in, if tenants were not discouraged from working by high effective marginal tax rates and the prospect of losing their home at a time not of their choosing .

And tenants' decisions about work aren't the only decisions affected by this policy: it also bears on decisions about whether one's young adult children stay at home or must move out, or whether one's girlfriend or boyfriend takes the next step and moves in as a partner (because if your grown up kids or partner earns too much money, you'll lose your home). This is an odious interference in what should be personal decisions.

It should be said that there is another explanation for the failure of the policy to generate any movement of tenants and applicants: that is, that just about everyone comes in the higher end of the moderate income band because it has been set too high. But this explanation does not stack up. Housing NSW's 'moderate incomes' are quite modest. You can get a sense of this from the following tables, which show for various household types on incomes just above the respective moderate income band whether median rents for appropriately-sized private rental premises across Sydney of appropriate are affordable (ie less than 30 per cent of income), unaffordable (ie more than 30 per cent – the benchmark for 'housing stress') or very unaffordable (more than 50 per cent – 'housing crisis').

These tables update the tables in the TU's paper, linked above, with median rents data for the March 2011 quarter, and Housing NSW's current moderate income thresholds. ('Andy', 'Beth' and 'Cass' appear in the paper as typical households.)

(Inner ring Sydney LGAs)

(Middle ring Sydney LGAs)

(Outer ring Sydney LGAs)

As well as indicating the modesty of a 'moderate income', these tables also give a sense of how the policy bears on decisions about work. You can see how a public housing tenant who is giving thought to working and earning more might take a look at what they'd pay in the private market if they became ineligible... and in the inner and middle rings, just about nowhere are median rents affordable, and even median rents in most outer ring LGAs are unaffordable too. And you can see why they might take pains to stay right where they are.

We understand that British social housing landlords are to be given a choice as to whether they adopt this policy. Let's hope they choose not to, and instead try to ensure that social housing is a place where people are not afraid of enjoying the stability it gives them to get educated, and get employed. And let's hope the NSW State Government does the same for public housing tenants and applicants here.