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Last year’s affordable housing green shoots have withered

Posted by on May 22nd, 2018 · Affordability, Affordable housing, Economy, Finance, Government, Housing, Social housing

By Chris Martin and Hal Pawson. This article was originally published on John Menadue’s Pearls and Irritations.

Budget 2018 fails the 1.5 million Australian households living in unaffordable rental housing or officially homeless, despite the urgent need for Commonwealth leadership on affordable housing policy.

On Budget night 2017 Treasurer Morrison announced a ‘comprehensive plan to address housing affordability’. In last week’s budget he said next to nothing. The 2018 package does nothing to build on last year’s small but positive steps, and fails the 1.5 million Australian households living in unaffordable rental housing or officially homeless.

The case for Commonwealth leadership on affordable housing policy is no less urgent. Last month Anglicare’s Rental Affordability Snapshot showed that a person on Newstart could afford just three properties (not three per cent – just three properties) advertised to let across the whole of Australia. Now so low that even John Howard would raise it, Newstart, along with similarly inadequately indexed Rent Assistance, barely keeps recipients in the low end of the rental market, where properties have become scarcer and less cheap for moderate income working households too.

Moreover, in our Australian Homelessness Monitor report published this week by Launch Housing we reveal the scale of recently rising homelessness in our capital cities. As shown in our analysis of ABS data, the sharpest increases have been in Sydney (up 48% 2011-2016), in Darwin (up 36%) and in Brisbane (up 32%). This pattern underscores that it is the intensifying shortage of affordable housing in pressured urban housing markets that is the main driver of the rising homelessness numbers seen nationally since 2011.

In his Budget speech, the Treasurer uttered the word ‘housing’ once only – in relation to funding for remote Indigenous housing in the Northern Territory (failing to mention that such funding would not be extended in Queensland, South Australia and Western Australia).

The Commonwealth’s contribution to the States’ and Territories’ social housing sectors will continue under the National Housing and Homeless Agreement (NHHA) only at present levels, which do not account for the continued growth in need for affordable housing arising simply from our expanding population, nor for past decades of under-provision.

This level of funding is a starvation ration. For the public housing authorities, it does not even fill the gap between the rental income received from low-income tenants and the reasonable cost of operations – far less does it provide any support for vitally needed portfolio expansion. For the non-government community housing sector, where rental revenues are modestly boosted by Rent Assistance payments, current arrangements appear sufficient to generate small operating surpluses and capacity for limited growth, but still leave community housing providers (CHPs) in a position where long term financial sustainability remains a constant challenge.

So what’s become of the 2017 initiatives, one year on?

The National Housing and Homelessness Agreement

Last year’s budget indicated that this refreshed framework for federal-state funding of social housing and homelessness services would also set a broader agenda of affordable housing reforms. It held out the prospect of effective Commonwealth pressure being exerted on the states and territories to up their game in this arena, including through the purposeful use of land-use planning powers (sometimes termed ‘inclusionary zoning’ but in practice generally value capture), through public housing renewal, and through further public housing transfers to CHPs, potentially making a modest contribution to supplythrough leveraging revenues and asset values.

As an overarching discipline, states and territories would be expected to commit to targets for social and affordable housing expansion within the context of broader aggregate supply objectives.

A year on, however, there is concern in the social housing sector that Commonwealth commitment to these reforms has waned, and that the NHHA agreements – still under negotiation between the two levels of government – may fall far short of what was apparently envisaged in May 2017.

The National Housing Finance and Investment Corporation (NHFIC)

In line with a Budget 2017 pledge, a new statutory agency is being set up to facilitate enhanced access to private finance for affordable housing development. This entity, the NHFIC, will incorporate a bond aggregator facility, enabling CHPs to secure debt at cheaper rates and on better terms than can be obtained for bank finance.

Welcomed by the affordable housing industry, NHFIC-channelled finance would not, however, overcome the problem of weak rental revenues (partly due to inadequacy of Newstart and Rent Assistance) and the insufficiency of ongoing subsidies under the NHHA. Unless this remaining ‘funding gap’ is addressed, NHFIC may provide little more than a one-off benefit, allowing existing debts to be refinanced but unable to fulfil its potential to help facilitate portfolio growth through new construction.

Due to commence 1 July 2018, the NHFIC’s establishing legislation is currently before the Senate. Considering its bi-partisan support it is to be hoped that – while Treasurer Morrison has so far failed to commit resources to fill the funding gap – Labor will step up to the plate should they form government after the next election.

Private investment in affordable housing

Aside from NHFIC bonds, Budget 2017 also sought to advance equity investment in affordable housing by offering an additional 10% discount on capital gains tax for properties let at affordable rents through a CHP. The government especially sought to engage institutional investors, and to that end proposed legislation allowing Managed Investment Trusts (MITs) to invest in affordable rental properties (of particular relevance to overseas investors, since disbursements through MITs attract a lower rate of withholding tax than other payments).

However, the legislation would have effectively restricted MITs from investing in non-‘affordable’ residential rental – which, according to the government, merely reflects the current law. This is challenged by proponents of Australia’s nascent ‘Build to Rent’ sector, who have been looking to MITs as an investment vehicle and are alarmed at the door being legislatively shut. For the moment, the government has not proceeded with the MIT amendments, but maintains that the current law precludes MIT residential investment, to the frustration of Build to Rent advocates.

Meanwhile, the associated Capital Gains Tax discount legislation is before the Senate, although a capital gains-based incentive (enhancing the discount from 50% to 60% for affordable rental housing) appears to sit uneasily with the CHP business model, and may not be useful to them.

Is this any kind of strategy?

There are a few positive, if relatively minor, housing measures in the Budget. These include a move against land banking, by denying tax deductions for land holding costs. There are also funds for the ABS to improve housing data collection, for AHURI to continue housing research, and for a review of the national regulatory scheme for community housing.

But, as demonstrated by the 2018 Budget beyond all doubt, the Commonwealth still lacks anything remotely resembling a coherent, comprehensive strategy to address the increasingly stressed condition of Australia’s housing system. Regrettably, the past 12 months has seen regression rather than progress.

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