Hear no evil, see no evil

Following the release of the social housing discussion paper last month, we've spent a little bit of time talking about the private rental market. We've felt a real need to, because the many issues we encounter in the private sector are apparently not within the scope of the discussion - even while it blithely assumes this market will pick up any shortfall caused by making social housing harder to get into and even harder to keep...

The department of Family and Community Services has decided to focus its attention very narrowly on the social housing system itself, rather than exploring just how it operates within - and is constrained by - the broader housing system.

But the paper does provide some opportunities to take the discussion down that more useful path. For instance, it says at one point that "while costs have increased, revenues under the income-based rent model have not kept pace with market rent and have declined relative to growing operating costs". Another way of looking at this is that, by their very definition, social housing rents have kept pace with incomes, but the private rental market has left low incomes behind.

We've talked about this on the Brown Couch, ad nauseam, but it seems it's time to go over it all again... We struggle to maintain a functional social housing system because of the way private housing works.

Here’s why:

1. Australian houses are a tax haven
Home owners don’t pay tax on any increase in the value of their homes, and landlords are allowed to offset rental losses against their taxable incomes. But everyone pays tax on savings and other capital gains, so anyone with the capacity to borrow is encouraged to pile into the housing market instead. Squirreling those excess dollars into savings, or investing in a new venture of some kind, is no way to make money – speculating on house price gains is. And the more who do it, the higher values can go. This is great news for anyone who can afford it... but not so great for those who can't.

2. Low taxed housing leads to fewer properties and higher rents
Landlords are encouraged to spend more borrowed money on holding property than they receive in rent. By doing this, they can reduce their taxable income, making day-to-day losses easier to wear. But the real incentive is the prospect of capital gains, or the idea that the value of property increases faster than the value of money. Landlords who follow this logic tend to buy properties that will quickly rise in value – usually established homes in well-served areas, and very rarely new built homes. They pass over low value/low gain properties when they come up for sale, so they drop out of the rental market. For tenants, such properties becomes harder to find, and more expensive to rent.

3. High cost housing leads to more people renting for longer
As property values rise many people are priced out of home-ownership, and remain in the rental market for longer – even though they may be on good incomes. Higher-income households compete with those on low-incomes for fewer properties to rent at low cost. They usually win. There are not enough affordable properties left over for low-income households, putting pressure on our social housing system.

4. High cost housing means social housing is expensive, too
With affordable housing disappearing from the private rental market, and demand for social housing on the rise, government investment is urgently needed. But with property values so high that's more easily said than done. Social housing has been in decline in New South Wales for the last two decades. We have a system that is difficult to expand and expensive to run, but easy to cash-in because of its value. We need investment and improvement, but we’re seeing sell-offs instead…

5. So social housing is monitored and rationed…
Social housing landlords are left to do more with less. Assistance is targeted to those with the greatest need for housing, which just restricts its availability while demand continues to grow. In this declining system social housing landlords become obsessed with monitoring performance and reviewing tenants’ needs, looking for every opportunity to put their resources to maximum use. In the result, tenants must be vigilant to promote their own needs as the most acute and chronic, or they might just lose their home.

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Unfortunately, the Social Housing in NSW discussion paper really just enforces our final point. It's yet another plea for our social housing system to do more with less, but it's difficult to see how tenant independence, and a fair and sustainable housing system, can be encouraged by turning the screws ever more tightly.

For more information on the changing shape of the private rental market - as referenced in our second point above - see this post from earlier in the year.