..



.

Business News

Rudd's rental affordability scheme was a $1 billion gift to developers; Abbott was right to axe it

  • Written by Brendan Coates, Program Director, Household Finances, Grattan Institute
image

Most Australians are spending more[1] of their income on housing than they used to, but low-income households are being squeezed the hardest.

Many are in poverty[2], and many more are suffering financial stress[3]. A growing number of Australians are becoming homeless[4].

A decade ago the Rudd federal government established the National Rental Affordability Scheme – NRAS[5]. The scheme paid incentives to developers and community housing organisations that built new homes and rented them out for at least 20% below market rents for 10 years.

The Abbott government axed the scheme in 2014. Labor promised to reintroduce it if won the 2019 election. Now advocates of affordable housing are calling on the Morrison government to do the same.

But new research published by the Grattan Institute today[6] concludes they are wrong. The NRAS was expensive, inefficient and mainly helped those not in greatest need.

Read more: On housing, there's clear blue water between the main parties[7]

Other policies, such as building social housing and boosting Commonwealth Rent Assistance, would be better targeted and waste less money along the way.

Poor value for money

The value of the NRAS subsidy[8] was set much higher than it needed to be.

NRAS developers still on the program receive about A$11,000 of public money per unit per year (the subsidy was set originally at A$8,000, but indexed).

The problem is, A$11,000 is much more money than the developers need to cover the cost of the rental discount.

In 2016 the value of the 20% rental discount was slightly less than A$4,000 a year in the typical suburb in which NRAS properties were built.

Read more: Ten lessons from cities that have risen to the affordable housing challenge[9]

The leftover value of the subsidy – about A$7,000 a year – was essentially a windfall gain for developers.

We estimate it provided windfall gains to private developers of at least A$1 billion, or roughly one-third of the total cost[10] of the scheme.

Community housing providers also received windfall gains, although they would have reinvested the funds into more affordable housing or deeper rental discounts for tenants.

The scheme was also poor value for money because the subsidy didn’t vary depending on location or type of dwelling: the same subsidy was offered for a one-bedroom apartment or a three-bedroom home. Not surprisingly, the scheme ultimately funded[11] a lot of small, cheap-to-build units.

Not directed at those most in need

The eligibility criteria were far too loose.

Someone can qualify to live in one of the NRAS dwellings left on the scheme with an income of up to A$50,000[12] – a good deal higher than the median income[13].

A couple can qualify if their household income is below A$70,000.

It means about half of all households that rent can qualify to live in an NRAS subsidised home. Half of them would be ineligible for Commonwealth Rent Assistance because their incomes are too high.

Only one-third[14] of the households living in an NRAS home at the scheme’s peak in 2016 had gross household incomes below A$30,000 a year, whereas one-third had incomes above A$50,000 a year.

No extra housing

There’s also little evidence the NRAS led to much more housing being built than otherwise.

Government subsidies don’t create extra housing if they crowd out housing that would have been built anyway. Crowding out is most likely when supply is already constrained, as it is in major Australian cities where land-use rules prevent greater density[15] in established suburbs. International research suggests affordable housing crowds out[16] private housing.

No useful stimulus

Nor was the NRAS a useful stimulus. It began in 2008 at the height of the global financial crisis, but most NRAS properties were only approved[17] between 2013 and 2015, by which time housing construction was already booming[18].

Administrative difficulties[19] and a complex design made housing constructed through NRAS anything but timely.

Better alternatives

Instead of reinstating the NRAS, state and federal governments should focus on policies that will do the most (at least cost) to better house low-income Australians.

A Rudd-era policy the Morrison government should introduce is the Social Housing Initiative[20], which built 20,000 new social housing units and refurbished another 80,000 over two years at a cost of A$5.6 billion.

The economic hit was immediate: construction approvals spiked within 12 months of the announcement. A repeat today would provide a more effective boost to declining housing construction than a reinstated NRAS.

Read more: Australia's social housing policy needs stronger leadership and an investment overhaul[21]

Boosting[22] Commonwealth Rent Assistance by 40%, and indexing it to changes in rents typically paid by people receiving income support, would be a fairer and more cost-effective way to help the much larger number of lower-income earners struggling with housing costs.

It shouldn’t push up rents much[23] because only some of the extra assistance will be spent on housing.

The states should also fix planning rules[24] that prevent more homes being built in inner and middle-ring suburbs of our largest cities. It would help a bit to make housing cheaper to buy and rent. Reforming tenancy rules would make renting more secure.

Read more: To make housing more affordable this is what state governments need to do[25]

There is a powerful case for governments to do more to help house low-income Australians. But unless we learn from past mistakes, we will wind up with another expensive housing policy that does little to help those who most need that support.

References

  1. ^ spending more (www.abs.gov.au)
  2. ^ poverty (www.acoss.org.au)
  3. ^ financial stress (grattan.edu.au)
  4. ^ homeless (blog.grattan.edu.au)
  5. ^ NRAS (www.dss.gov.au)
  6. ^ published by the Grattan Institute today (blog.grattan.edu.au)
  7. ^ On housing, there's clear blue water between the main parties (theconversation.com)
  8. ^ value of the NRAS subsidy (www.dss.gov.au)
  9. ^ Ten lessons from cities that have risen to the affordable housing challenge (theconversation.com)
  10. ^ total cost (www.anao.gov.au)
  11. ^ funded (www.dss.gov.au)
  12. ^ up to A$50,000 (www.dss.gov.au)
  13. ^ median income (blog.grattan.edu.au)
  14. ^ one-third (www.dss.gov.au)
  15. ^ prevent greater density (grattan.edu.au)
  16. ^ crowds out (www.sciencedirect.com)
  17. ^ only approved (www.dss.gov.au)
  18. ^ already booming (grattan.edu.au)
  19. ^ Administrative difficulties (www.anao.gov.au)
  20. ^ Social Housing Initiative (www.nwhn.net.au)
  21. ^ Australia's social housing policy needs stronger leadership and an investment overhaul (theconversation.com)
  22. ^ Boosting (grattan.edu.au)
  23. ^ shouldn’t push up rents much (grattan.edu.au)
  24. ^ fix planning rules (theconversation.com)
  25. ^ To make housing more affordable this is what state governments need to do (theconversation.com)

Authors: Brendan Coates, Program Director, Household Finances, Grattan Institute

Read more http://theconversation.com/rudds-rental-affordability-scheme-was-a-1-billion-gift-to-developers-abbott-was-right-to-axe-it-122854

Digital Agency

Business Daily Media Business Development

Accor and Visa form global partnership

Accor, a world-leading hospitality group, and Visa (V: NYSE), the global leader in digital payments, yesterday (the 18th of February) announced a global partnership to bring new payment expe...

Media Release - avatar Media Release

Cruise Guru Celebrates CLIA Award Win with Offer for Australian Travellers

Leading Australian cruise agency, Cruise Guru, has been named ‘2019 Online Cruise Agency of the Year’ at the 19th Annual Cruise Industry Awards hosted by Cruise Lines International Associati...

Rhea D'souza - avatar Rhea D'souza

Exciting Things About Sydney

Sydney is one of Australia’s largest cities that boasts a population of over 4 million people. It is a city that is famous for its picturesque views, multicultural people, superb weather, ...

News Company - avatar News Company

Accor announces new partnership with Grab to help members Live Limitless

Accor has announced a new strategic partnership between its new lifestyle loyalty programme, ALL - Accor Live Limitless and South East Asia’s leading super app, Grab. The deal brings toget...

Accor Pacific - avatar Accor Pacific

Upgrading to Deep Pocket Sheets

So, you have this amazingly comfortable bed that has a built-in topper and you are struggling to find the right bedding. You need to look for a sheet called deep pocket sheets or mega fi...

News Company - avatar News Company

Food you need to try in Beijing

Beijing is a beautiful and interesting destination for any kind of traveler. However, foodies will find a new heaven and will be able to try out tasty, flavorful and sometimes very special...

News Company - avatar News Company

Business Daily Media Business Reports

Di Jones real estate recognises high achievers

Di Jones celebrated its outstanding performers on Saturday (24 February 2018) evening at the Di Jones Real Estate Annual Awards.                               The bla...

Helen Hull - avatar Helen Hull

Eclipse Travel Expands Operations to New Zealand

Eclipse Travel, specialists in key adventure destinations such as Antarctica, the Arctic, Africa and Latin America, have announced today their expansion of operations to ...

Yvonne Kong - avatar Yvonne Kong

How medical professionals can benefit from an overall wealth management solution

As a health care professional, you have made it your life's work to focus on the care and health of the general public. While this kind of work can be extremely rewarding...

News Feature Team - avatar News Feature Team

Why Pinterest Should Be Part of Your Marketing Strategy

Pinterest is a growing social media platform that can deliver significant traffic to your website and new followers to your brand. With it’s steady growth and outrageous ...

Greg Nunan - avatar Greg Nunan

The top reasons why gyms fail

Steve Grant is a Business Coach and Founder of GymHub.com.au   Every month thousands of new trainers walk out of their 6-month course with the qualifications needed ...

Steve Grant - avatar Steve Grant

WHITE LABEL NOBA’s Winter 2016 season: Earth + Country

Taking cues from the warm winter colours of tobacco and caramel, and combining them with the strength of navy and the embracing lightness of whites and creams; and then...

Kath Rose - avatar Kath Rose

Former Etihad boss brings substantial event insight to PMY Group Board

Paul Sergeant PMY Group, the architects of the digital insurgency occurring at major venues across Australia and New Zealand, are delighted to welcome 35 year even...

Annie Konieczny - avatar Annie Konieczny

More training for coffee making than property sales: REINSW

Sydney 9 May 2016. An overhaul of education and training standards for the real estate profession must take place to help prevent illegal activities, according to the Rea...

Helen Hull - avatar Helen Hull