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.

Miscellaneous Provisions Bill misses provision

The Statute Law (Miscellaneous Provisions) Bill 2011, to which we referred briefly the other day, was passed by the NSW State Parliament without amendment to those bits of it which deal with residential tenancies.

We identified one problem with the Bill: tenants who have fixed term agreements of exactly two years will now be exposed to the prospect of a rent increase during the fixed term. This is because the provisions for rent increases during fixed terms in s 42 of the Residential Tenancies Act 2010, which originally applied to agreements for a term of 'more than two years', now apply to agreements for a term of 'two years or more'.

Now a Brown Couch reader alerts us to another problem.

(Esprit de l'escalier)

While it changes 'more than two years' to 'two years or more' in s 42, the Bill makes no change to a related provision in s 99 of the Act. This provision gives tenants under fixed term agreements a remedy if their rent is increased: they can terminate the agreement. This remedy is available if the agreement is for a fixed term of 'more than two years'.

So, if you've got an agreement for a fixed term of two years exactly, the Bill exposes you to rent increases - but doesn't extend to you the remedy of getting out of the agreement. You're stuck!

The Bill, though it has passed through the Parliament, has yet to commence. Hopefully this problem can be sorted out before it does.

But it's another reason why consultation before a Bill appears in Parliament would be useful.

Vale Agnes Borsody

We were sad to hear this week that Agnes Borsody, a long-time Member of the Consumer, Trader and Tenancy Tribunal, has died. The sadness is shared by all at the Tenants' Union, and throughout the network of Tenants Advice and Advocacy Services.

Member Borsody was not particularly 'pro-tenant'; better than that, she was fair. Tenants advocates appearing before her couldn't always be sure of getting the orders their clients wanted, but they could be sure of getting a well-reasoned result.

*

We often hear the complaint – usually by persons who have not set foot in the Tribunal, or by landlords who have failed to get what they wanted – that the Tribunal is 'pro-tenant'. Hardly. It's true that the Tribunal is better for tenants than the previous alternative – the NSW Local Court – in that tenants never asserted their legal rights in the Local Court, but they do sometimes go to the relatively accessible and inexpensive Tribunal. But landlords enjoy the Tribunal's benefits even more: their applications outnumber those by tenants by a factor of six.

The Tribunal is not 'pro-tenant': if anything, it is pro-expedition. It likes to wrap things up. In our judicial system, no court or tribunal except the NSW Local Court receives more applications, and the Tribunal gets the majority of applications listed for hearing within three weeks of lodgement, and finalises most applications at or before the first hearing. We sometimes hear of Members and conciliators who advocates say have applied undue pressure to parties – particularly tenants – to settle proceedings on terms that aren't really appropriate. We also sometimes hear of worse behaviour: Members who, faced with a seemingly uncontrollable torrent of applications, try to regain a sense of control and power by bullying the weakest persons who appear before them – again, the tenants.

Member Borsody was a terror to those who wasted the Tribunal's time with misconceived applications or foolish formality – but she directed her blasts particularly at the repeat players in the Tribunal, especially the real estate agents, the housing officers, and the tenants advocates. But even those who suffered a blast knew that she had a sense of humour. She'll be missed.

Statute Law (Miscellaneous Provisions) Bill 2011

There is a Statute Law (Miscellaneous Provisions) Bill currently before the NSW State Parliament, and it relates in part to residential tenancies legislation.

The Tenants' Union has made the following comment on the Bill, on its own behalf and that of the network of Tenants Advice and Advocacy Services.

The TU has no concerns about the proposed amendments, with the exception of those to s 41(1) and (2) of the Residential Tenancies Act 2010 (NSW). The proposed amendments go mostly to clarifying the operation of, and fixing potential problems in, existing provisions of that Act.

We note that the proposed amendments to s 41(1) and (2) would expose tenants under existing agreements for a term of exactly two years to the prospect of a rent increase, where otherwise their rent could not be increased. We submit that the Bill should be amended to include a transitional provision in relation to existing agreements to prevent this happening.

We note that proposed new s 89(6) does not fix technical problems identified in the operation of s 89(5), but it does not create any additional problems.

We have identified a number of other technical problems in the Residential Tenancies Act 2010 (NSW); had we been consulted prior to the introduction of the Bill we are confident that they might have been fixed too.

Don't bank on real estate agents

Further to the dodgy advice from agents discussed in our previous post, we've had our attention drawn to the following shocker. A Canberra agent is quoted in a Toowoomba paper (making us suspect that the piece may have appeared in other papers too) as advising money-conscious tenants:

They should increase the amount they pay in rent to their agent... by as much as they can afford until it hurts....

[The agent] puts the extra away in a bank account – say an extra $200 per week – and after two years they will have over $20 000 which is a big step in the right direction.

Here's the article, with the dodgy advice indicated.


Now, there is a time-honoured practice amongst some tenants of paying a couple of dollars extra each week so they don't have to worry about paying the rent over Christmas, but I don't think anyone does what this agent is recommending. And for good reason. Let us count the ways in which this advice stinks.

1. First, and probably least, it is a bit rich for real estate agents, as inveterate debt-pushers and spruikers (check the headline: 'Now is the time to buy'!) to presume to give tenants advice on establishing a savings culture.

2. Secondly, if you're handing over extra money as rent to an agent, it will go to the rent account, not into any other sort of account. It will not earn interest for you. Under section 47 of the new Residential Tenancies Act 2010, you are, happily, entitled to get overpaid rent paid back to you within 14 days of requesting repayment (but note: this is the New South Wales Act, and it does not apply, of course, to renter-savers in Canberra and Toowoomba).

3. Thirdly, if you're handing over extra money not as rent or some other legitimate charge under your tenancy agreement – don't. Put it in a savings account at the bank yourself – and if you don't trust yourself to keep in the habit, set up a scheduled transfer. Don't trust a real estate agent to do it for you. Quite apart from the risk of a rogue agent making off with the money themselves (and we note that in 2009-10, Fair Trading issued penalty notices to 83 agents, for a total of 99 offences, under the Property, Stock and Business Agents Act), you have to keep in mind: even an honest agent works for your landlord, not for you. You're not paying them to be your banker; don't expect them to act as one.

4. And handing over an extra $200 a week to your real estate agent? Why not just go ahead and ask for a rent increase?

We dips our lid to Delusional Economics at Macrobusiness for bringing this one to our attention.

Agents behaving badly - rent arrears and CTTT costs...

Tenants beware - real estate agents don't always get it right!

(Real Estate Agent School - not as easy as you might think.)

We've recently heard of some tenants receiving notices of termination for rent arrears that include threats of obtaining costs for eviction proceedings in the Consumer, Trader & Tenancy Tribunal (CTTT).

That this would happen once is alarming enough, but numerous instances occuring simultaneously across different parts of NSW smacks of an emerging industry practice. A dodgy one, at that. Let's hope not, but just to be sure, let's all be on the look-out for it...

The letters read something like this:

... You are in breach of your lease and we hereby give you notice of termination under section 88 of the Residential Tenancies Act.

We have lodged an application for termination with the CTTT. Costs for the application are $36 and we will hold you responsible for this cost regardless of whether or not we have to proceed with this application.

Should a hearing become necessary, we will seek further costs in the CTTT - including our preparation costs and our attendance fees of $xx.xx per hour.

You can only avoid termination by paying the rent or entering into an agreed payment plan within 7 days.

There are a few implications here that ought to be promptly addressed.

Implication 1 - real estate agents can easily obtain costs orders in the CTTT...

Implication 2 - tenants can be held responsible for real estate agents' CTTT application fees - even where the matter is resolved without having to attend a hearing...

Implication 3 - tenants cannot avoid termination for arrears unless they do exactly as the real estate agent tells them...
The view from the Brown Couch is, as you would expect, somewhat different. Let's look at each of these implications in turn:

1. Under the Consumer, Trader and Tenancy Tribunal Act 2001, parties to any proceedings are required to cover their own costs. The Tribunal does have the power to order one party to pay the others' costs, but only in matters where there are "exceptional circumstances" that would warrant it. In general terms, costs are difficult to obtain, and it is usually not even worth asking for them...

2. The Residential Tenancies Act 2010 stipulates that tenants can only be required to make certain types of payment to the landlord under their residential tenancy agreement. These are bond and rent, and in many instances charges for water consumption. Requiring a tenant to pay a CTTT application fee, absent a difficult-to-obtain CTTT costs order, would be in breach of the law, and could leave a landlord liable for a $2,200 fine.

3. Tenants should not rely on the advice of a real estate agent. Agents are, after all, there to work for the landlord, not the tenant. Don't be fooled or intimidated into leaving the property without a CTTT hearing - particularly if you disagree with the arrears claimed, or if you've made an offer to pay by installments that the landlord wont agree to. It's always a good idea to get advice from a Tenants' Advocate before deciding what to do.

Taking all of this into account - real estate agents who hand out this kind of notice of termination are perhaps putting themselves in harm's way. The information included with the notice may be seen as misleading or even unconscionable, and a complaint to Fair Trading could be made on this basis. Contact your local Tenants' Advice service for more information about making such a complaint.

The Henry Review reviewed: part 3

The Henry Review was more than a review about Australia's tax system: it was a review about Australia's tax and transfer system, so as well as looking at the money the Government takes in, it also looked at the payments, subsidies and other forms of financial assistance that the Government pays out to individuals.

We'll consider what Henry says about housing transfers – in particular, Rent Assistance and public housing – below.

(Ken Henry contemplates the effective marginal tax rates associated with public housing rent rebate policies)

But first, a final word on what Henry says about tax.

We've noted in the previous two parts of our review that the taxation of income from savings (which, on Henry's definitions, includes property speculation) is a focus of the Henry Review, and in his recommendations Henry develops the theme of treating different means of savings more consistently, particularly by taxing most forms of savings income at a 40 per cent discount to the saver's other income.

As always, the question arises: if you tax savings incomes less heavily than labour incomes, who benefits? Virtually by definition, the wealthy benefit.

Henry gives an indication of just how skewed is this benefit in the preliminary discussion paper to the Review, which shows just how skewed is the distribution of wealth – and hence, the distribution of labour incomes and capital incomes (ie what we've been calling savings incomes: interest, net capital gains, net rent, dividends and trust incomes).

In 2005-06, the bottom 50 per cent of Australian taxpayers received 17.6 per cent of total labour incomes, and 15.8 per cent of total capital incomes. On the other hand, the top 10 percent (keep in mind, this is a much smaller group) received 28 per cent of labour incomes, and 53 per cent of capital incomes.

To really make the point, an even smaller group – the top one per cent of tax payers – received 5.3 per cent of labour incomes, and 28.5 per cent of capital incomes.

In other words, the better off you are, the stronger the mix in your income of capital income to labour income. And Henry would generally tax capital incomes lightly, and labour incomes relatively heavily.

Henry doesn't give a strong justification of of this basic bias in the tax regime he proposes. He does, however, make a suggestion that would go a little way towards mitigating it: a bequest tax. The tax Henry has in mind would apply only to inheritances above a 'substantial threshold', so as to fall on the wealthiest 10 per cent of households, and then apply simply as a low flat rate.

'You mean "death duties"!' gasp the decadent bourgeoisie. That appellation is fine by us here at the Brown Couch, though a bequest tax could probably be even more accurately called an 'unearned wealth tax'.

It should be noted that the Henry Review does not go so far as to positively recommend a bequest tax – it just spells out the benefits of one, then invites a community discussion of the issue. Good luck with that.

*

On to housing transfers.

First up, Henry gives a strong statement – albeit in the peculiar language of economists – of support for housing assistance:

A key function of national government is the prevention of capability deprivation — that is, the absence of fundamental capabilities that enable people to participate fully in society. Income support is a major mechanism for achieving this end. It provides people with resources to maintain an adequate standard of living and supports their participation in the community, including the workforce.... There is a further need for specific housing assistance in recognition of the special role it plays in supporting wellbeing.

And in similar terms, Henry states his general principle for the provision of housing assistance:

Housing assistance should be provided in a way that is equitable, does minimum harm to participation incentives and gives recipients choice in the housing they occupy.

Now we turn to the actual lie of the land. In Australia, Henry observes, 'there are two major forms of housing assistance available to low-income earners: Rent Assistance and public housing. A person can access only one or the other.'

The implication is that there is a great divide in Australian housing assistance policy. There is, but with respect, Henry doesn't quite define the divide exactly right. Rather than 'public housing' he really ought to have referred to 'social housing', which is a larger category that also includes community housing organisations. True, it's only a slightly larger category: in 2008, there were about 30 000 community housing tenancies, compared with 330 000 public housing tenancies (and, for the record, about 940 000 Rent Assistance recipients). Still, I don't think this is nit-picking, and we'll return to the complicating factor of the community housing organisations further below. Henry notes their existence, but otherwise he refers to public housing.

So how does that general principle of housing assistance go, either side of the great divide?

Rent Assistance
Rent Assistance is paid by Centrelink to recipients of other Centrelink payments (eg Age Pension, Disability Support Pension, Newstart), and recipients of Family Tax Benefit Part A (where paid at more than the base rate), where the recipient pays more than a certain threshold amount of rent. These thresholds vary according to the recipient's household type (ie single or couple, and number of kids). The amount of Rent Assistance paid is 75 cents for every dollar of rent above the threshold, subject to a maximum amount, or cap. These caps also vary according to household type.

Generally speaking, Henry likes Rent Assistance. For Henry, it's equitable, in that it is well-targeted to need (the thresholds rule out about 40 per cent of Centrelink recipients, who pay no or low rents). It's okay in terms of work participation, because the amount paid is independent of the amount of the recipient's other Centrelink payment. This means, for example, that the recipient who does some work and earns a bit of money might have their Newstart payment reduced, but not their Rent Assistance – which is less of a discouragement to working than if both the Newstart and the Rent Assistance were hit at once. It also means that the rate at which income support is withdrawn is the same for renters and owner-occupiers – which is important in terms of equity.

And, in terms of choice, Rent Assistance recipients can choose which houses to apply for, and when to move. Henry also observes that because Rent Assistance works as a 'co-payment' - that is, you and the Government go 25/75 in paying the rent above the threshold amount – there is an incentive for receipients to economise and choose lower cost rental housing (about 30 per cent of Rent Assistance recipients receive less than the maximum amount).

For Henry, the main problem with Rent Assistance is one we've discussed before on the Brown Couch: the amounts at which it's capped are too low. Henry's solution is the same as we discussed: lift the caps. In particular, Henry would set the cap for each of the various household types at the 25th percentile rent for a dwelling of suitable size. (In other words, take all rental dwellings of the same size, rank them according to the amount of rent: the 25th percentile is more expensive than 25 per cent of dwellings, and cheaper than 75 per cent.) And looking ahead, Henry recommends that the caps should rise in line with rents, rather than the CPI, as is currently the case.

As we discussed previously, one possible objection to increasing the maximum amounts of Rent Assistance is that this may cause rents to rise – that is, landlords will simply eat up the increase. Henry doubts this would be a problem, noting that Rent Assistance recipients comprise a minority of the market... and anyway, would it be such a bad thing if the rents paid by Rent Assistance recipients increased? This would be (in economist-speak), 'a market signal to suppliers of rental housing to shift toward provision of the type of housing demanded by Rent Assistance recipients. Suppressing price signals is not conducive to promoting increasing supply over the long term.'

That's how much Henry likes Rent Assistance. What about public housing?

Public housing

Says Henry:

Public housing is a significant mechanism for providing housing to disadvantaged groups. It has become the primary source of housing for people who cannot access appropriate or adequate housing in the private market such as people with a mental illness and Indigenous Australians who still too often face discrimination in the housing market. Social housing (public housing and community housing) provides a valuable stock of houses in the context of Australia's housing supply difficulties, and in some areas such as remote Indigenous communities is the only viable source of housing.

(You can feel a 'however' coming, can't you?)

However, there are a number of areas where social housing is not adequately supporting the Australian households that rely upon it for adequate housing.

Thereinafter, Henry conducts a thorough demolition of the way public housing delivers housing assistance – particularly the way it delivers rebated rents (in most cases, rebated to 25 per cent of household income) to tenants of certain publicly-owned dwellings.

This is, Henry says, inequitable. Public housing rent rebates deliver a much greater level of assistance to public housing tenants than Rent Assistance delivers to tenants of like means in private rental. And within the public housing system, the level of assistance is inequitable because it is the same, regardless of the relative amenity of the particular dwelling with which it comes (that is, person pays the same rent, whether they're in a roomy house by the beach, or a pokey bedsit in the sticks), and regardless of any other costs (transport, etc) that go with that. It is also inequitable because it is the same for those in greatest need (eg those who were previously homeless, those whose health is at risk) as for those who are not but who are on a low income. Rather, public housing differentiates between these levels of need by giving preferential placement to those in greatest need on its waiting list.

Which leads us to work disincentives. The waiting list is the site of a major discouragement to work, because to stay on the list you've got to stay poor. Henry refers to research that reports that rates of unemployment are 11 per cent higher for men, and 5 per cent higher for women, when they are on the public housing waiting list, compared to when they are in public housing.

But when in public housing, these persons face another round of work disincentives. As Henry points out, public housing's income-related rents mean that if you do some work and earn a little money, your rent goes up, while your Centrelink payment goes down. In terms of effective marginal tax rates, public housing's 25-per-cent-of-income-rents straightforwardly add 25 per centage points on top of the effective marginal tax rates ordinarily associated with increasing work and incomes.

This too is something we've discussed on the Brown Couch before, and illustrated in the following charts. Each gives the effective marginal tax rates faced by one of three typical public housing households, based on their Centrelink payments and Family Tax Benefits being withdrawn, and their rent, income tax and Medicare levy being increased, as their income from employment increases. (The data is from 2008, but the general shape of things will be similar today).

(Click on each for a better view)

Our focus then was on the effect of a variation on income-related rents that's peculiar to New South Wales: the moderate income rates, which slide your rent up to 30 per cent of household income and stack on even higher effective marginal tax rates. Henry doesn't mention this particular policy: for him the underlying policy of 25 per cent income-related rents is bad enough.

As for choice: public housing tenants don't really get a choice about their housing. Receipt of a public housing rent rebate is tied to occupation of a public housing dwelling, and they get the dwelling that's offered to them – and they better take it lest they spend even longer on the waiting list or, worse, get kicked off the list. Once in public housing, a person can move around and take their assistance with them, but here too public housing's systems make a mess of persons' choices.

For one thing, public housing authorities place restrictions on moving around (eg you have to be eligible, as if you're on the waiting list). Another thing: because the rent is the same regardless of amenity and location, tenants have, as Henry puts it, 'an incentive to maximise their "in-kind subsidy" — that is, they try to stay in larger and better houses than they would normally occupy if they had to pay directly for their housing.' And public housing landlords lose the benefit of receiving 'effective price signals' about what sort of housing stock tenants would really prefer to occupy, and so labour with a public housing stock that is poorly matched to public housing households.

It is, as I said, a demolition job. There are a couple of points at which Henry probably overdoes it. The fact that unemployment is higher on the waiting list than in public housing may be attributed, as Henry does, to the work disincentive effect of having to maintain eligibility, but you could also make the case that unemployment is lower in public housing because the relative stability and security of the tenure helps get people work-ready and back into employment. (The authors of the research cited by Henry suggest both factors are at work).

Henry also suggests that income-related rents may contribute to 'intergenerational poverty' in public housing, because they assume a contribution from children's incomes. He does not, however, consider that the children of tenants in private rental housing might also make such contributions, and in larger amounts, considering the generally lower level of assistance that Rent Assistance provides. If there's a problem of intergenerational poverty in public housing, it is not so directly the result of including children's incomes in the calculation of income-related rents.

Still, even if you're a committed defender of public housing and income-related rents, Henry's is a critique that you'll have to come to grips with.

So how would Henry cure the ills of public housing? Firstly, with the benefits of Rent Assistance. Henry proposes that public housing tenants should receive Rent Assistance and pay market rents to their public housing landlords:

As recipients of social housing would receive Rent Assistance, the amount they pay to their landlord should reflect the market rent of a dwelling. A dwelling's rent reflects the range of benefits it provides, such as the building's size and quality and the location's proximity to employment, services or nearby amenities. Charging market rents would allow recipients to make trade-offs between these aspects of housing and other elements of their consumption. It would also provide signals to social housing providers about the housing that is valued by their clients. In combination, Rent Assistance based on market rents should encourage the provision of social housing that is of value to tenants.

Henry allows a couple of qualifications on this. First, there would have to be 'carefully targeted transition arrangements, to prevent households from being forced into housing stress or pulling up roots and moving away from support networks. Secondly, there are some locations – particularly remote Indigenous communities – where there really is no housing 'market' and hence no 'market rents', and yet other locations – particularly mining towns – where even a reformed Rent Assistance (ie with higher caps) won't get low-income households anywhere near an affordable rent. In these locations, some limiting of public housing rents with reference to tenant incomes would be okay.

Secondly, in respect of 'high needs' clients, Henry recommends that there should be a new additional payment, made by the Commonwealth Government, reflecting the higher costs of housing such persons, which would go to their public housing landlord – or indeed, if they were to move, to another social housing landlord. (Henry specifies 'social housing', because that's where so many of the 'high needs' tenants are, but expressly leaves open the prospect of the additional payment being made available to private landlords.)

You'll notice that the term 'social housing', as distinct from 'public housing', has crept into the account; it does so in the Henry Review's recommendations, too. Let's turn briefly now to those other social housing landlords, the community housing organisations, and the way they complicate the picture of housing assistance in Australia.

Community housing

Let's be clear: the way it currently works places community housing, in very large part, on the same side as public housing in the great housing assistance divide. Most community housing tenants pay income-related rents, at a rate of 25 per cent of their household income, on very similar terms to public housing tenants, with all the implications for inequity, work disincentives and interference with choice that go with that.

However, by a peculiar dispensation of the Government, community housing tenants do receive Rent Assistance. They do so, however, on terms that avail them of none of the benefits that Henry identifies in Rent Assistance.

Here's how Rent Assistance works in community housing. The community housing organisation effectively says to a tenant: we do income-related rents, so give us 25 per cent of your income, not including Rent Assistance. Now, if that was your rent, you'd get so much Rent Assistance (according to Centrelink's usual thresholds). Let's count that Rent Assistance as income for our income-related rent purposes. This additional income means the rent will go up (by a small amount), and as your rent has gone up, so has your entitlement to Rent Assistance (by an even smaller amount). Repeat until the increasingly tiny increases approach their mathematical limit. Now give us all of the Rent Assistance.'*

So, the community housing organisation maximises and captures all of the tenant's Rent Assistance. The tenant has no incentive (or opportunity) to economise on their housing costs, and the community housing landlord receives no 'market signals' about their housing stock. Rent Assistance is becomes just another an operating subsidy to community housing orgainsation, albeit one that is directed through the bank ccounts of individual tenants, who bears all the risks associated with making sure Centrelink pays it in the amount expected by their landlord.

That's not the only potential problem with this odd arrangement. Community housing is the only growing part of the social housing sector, and this growth is increasingly being achieved through private financing – particularly debt financing. Community housing organisations are relying on those Rent Assistance payments to pay mortgages.

And they're involved in other financial innovations, too, such as the National Rental Affordability Scheme, which has created partnerships between community housing organisations and private investors that are supposed to turn a profit, within the strictures of a requirement that tenants pay not more than 80 per cent of the market rent. This too, raises questions about revenues, rent setting and housing assistance.

All of this is to say that housing assistance policy as we know it is under challenge on a number of fronts. The Henry Review indicates a number of them:

• efficacy – in particular, Rent Assistance as it is currently capped is often not effective in producing affordability;
• equity – in particular, income-related rents in social housing deliver to similar persons a higher level of assistance than Rent Assistance, and without regard to differences in need or the amenity of the dwelling also provided;
• work participation – in particular, the waiting list for social housing creates a work disincentive, and so do income-related rents and the high effective marginal tax rates to which they contribute.

And we've identified another: the financing of social housing – in particular, the new private debt and equity arrangements into which community housing organisations are getting, and the implications of these for reveues, rent setting and housing assistance.

These four fronts of pressure will change the shape of housing assistance policy. Henry's own vision of the new shape is an enhanced Rent Assistance, extended to social housing tenants, and supplemented by a new housing payment for persons with high needs. What do tenants and their advocates in the community sector think?

Next: a summing up of the Henry Review, and the Government's response.

____________________________________________________

* For the mathematically inclined, this iterative process can be reduced to a fairly simple formula.

RC = 4TC-3LT

where:
RC is rent charged to the tenant - that is, what they are actually expected to pay;
TC is the 'tenant's contribution' - that is, 25 per cent of the tenant's household income, excluding Rent Assistance;
LT is the lower Rent Assistance threshold.