The Rudd government introduced the National Rental Affordability Scheme (NRAS) in 2009 purportedly to increase the supply of affordable housing. However, the Australian economy as a whole is dependent on housing prices remaining inflated to maintain land values and to finance the system of consumer debt. Housing prices sit at seven times the average annual wage. Consumers remain in debt as a lifestyle and the government props up the housing market with grants and tax breaks. Thus a significant minority of people are in continuous housing stress.
The House Standing Committee on Family, Community, Housing and Youth’s Inquiry into Homelessness Legislation reported in November that a 17 per cent increase in family homelessness and a 10 per cent increase in adult homelessness between the 2001 and 2006 censuses reflect issues associated with a decline in affordable housing and the private rental market. The definition of homelessness in the Supported Accommodation Assistance Act includes people who are at risk of eviction because their house or flat is too expensive. With 22.5 per cent of Australian households in housing stress (spending more than 30 per cent of their household income on housing and household debt) in 2005–06, and household debt increasing from $795 billion in June 2006 (RBA) to around $1.1 trillion in September 2008 (ABS), it seems that a growing number of people may fall under this definition. The number of Australians at risk of homelessness may number in the millions rather than the official figure of 105,000.
Now the homelessness sector is failing significantly to meet the increasing demand placed on it. The Salvation Army’s Crisis Housing Service says that it is seeing increasing numbers of middle class people who need crisis accommodation. Wesley Homelessness Services says that the Transitional Housing system is so clogged that people must stay in crisis accommodation in motels for months before they can move to transitional housing and there is simply nowhere for many people to go except back to the streets or horrendous boarding houses.
Figures only give us a partial picture. When people fall into homelessness they can approach a homelessness service. If they are a family and the service has funds, they may be placed in a motel. Anyone who saw the confronting Four Corners program ‘Last Chance Motel’ will understand the nightmare this presents for families: living in one room together, unable to cook, to have privacy, nowhere for the kids to play. So to be faced with the prospect of living this way for months at a time is a recipe for despair. This is now the reality for the homeless who are lucky enough to get placed. Wesley Homelessness Services sees 350–400 clients per month, placing twelve in transitional housing in 2009. There is a real problem.
Under the NRAS, the Commonwealth Government has pledged funds to support the development of 3000 dwellings in Victoria. The NRAS offers an annual National Rental Incentive of $6000 per dwelling per year refundable tax offset or payment and the State or Territory Government Incentive of $2000 per dwelling per year in direct or in kind financial support for a period of ten years. Participants include private land developers, real estate agents, non-profit organisations and local government, who will receive these payments in return for supplying dwellings to be rented at least 20 per cent below the market rate to eligible low and moderate income households.
Tenants who are eligible for the Scheme are those who qualify for rent assistance because they receive income support payments or Family Tax Benefit Part A, regardless of their housing affordability situation. The maximum incomes of those eligible range from $39,000 for a single age pensioner to $80,000 for a working family with three children under twelve. The dwellings will be managed by a Tenancy Manager, which would include private landlords and real estate agents. They will be subject to reporting requirements in relation to tenancy selection and management and continuing compliance.
Unfortunately according to the Victorian government Office of Housing these funds would need to be provided for ten consecutive years to clear the public housing waiting list. In Victoria the waiting list grows ever longer, increasing from 34,500 families in 2006 to more 39,000 and somewhere around 200,000 Australia-wide. The inadequacy of the scheme is hidden behind rhetoric which draws on the nation-building of the past—home ownership, the Australian Dream—but the times have changed. Today governments are too much in league with business to ever be able to provide housing as a social need rather than a commodity.
In a speech last year RBA Governor Glenn Stevens explained the way that speculation sets the price of housing rather than need. He argued that rents were rising at a rate higher than the CPI because there was strong demand for rental accommodation, and rents as a yield to the supplier had been unusually low. Earlier in the decade, Stevens explained, housing prices were increasing fast and capital gains returns were good, thus rents remained low. As housing price increases slowed, however, so did capital gains, so investors needed to increase returns. They did this by raising rents quickly. (Just prior to this, the Real Estate Institute and the Property Council of Australia conducted a media campaign ‘predicting’ large rent rises.)
We have a housing system where either rents need to be high or prices need to be increasing for stakeholders (that is developers, real estate agents and investors) to be satisfied, resulting, not surprisingly, in unaffordable housing. By its own logic this system will never deliver sufficient affordable housing for everyone.
Stevens went on to argue that higher interest rates will eventually slow demand, and in due course it will get more difficult to raise prices. This does not seem to have been born out over the last twelve to eighteen months. In the June 2009 quarter, house prices rose 4.2 per cent and, in the September quarter, the housing affordability index dropped 3.3 per cent. The sting in the tail is that higher interest rates mean greater housing stress and increases in homelessness.
The Rudd government’s feted stimulus package with its raft of housing grants for first home buyers and tax concessions has kept housing prices high, according to Professor Julian Disney. Real Estate Institute of Australia president David Airey announced that prices are rising because the number of first home buyers has increased from 15 per cent of all new home loans to 27 per cent, which has led to competition with investors for properties. Speculators, of course, like a bit of healthy competition. It keeps the market ‘buoyant’.
If the purpose of the NRAS is to bring down the price of housing, this will undermine the housing market which is based on attracting investors and developers into the market to make a short-term profit. These stakeholders have an interest in ensuring housing prices remain as high as possible. The paradox is that to attract private investment to build more houses to maintain supply, we need high house prices and high rents. This pushes everyone on a normal income out of the market, and creates more homelessness and housing stress. The only way that housing can be made more affordable is if the government, that is the taxpayer, foots the bill for the profits of developers, real estate agents and investors.
Other criticisms are made of the NRAS which further illustrate the problem of the public–private approach of Rudd’s housing policies. For one, ACOSS has grave concerns that the proposed system of valuations raises the potential for manipulation or inconsistency. There is a high likelihood that real estate agents and speculators will increase their rents on NRAS properties to accommodate the subsidies, thus undermining the purpose of the scheme. ACOSS suggests that market rents should be set by reference to area median rents. But if rents are already inflated and rising as a result of market mechanisms—read speculation—this will do very little. The purpose of the housing market is profit and speculation, not the provision of social services.
Further, the NRAS subsidy will increase annually in line with the rent component of the CPI. Given the expectation of continued rent increases, predicted in January this year as between 5 and 7 per cent by Australian Property Monitors, the level of assistance to developers provided by government increases continuously. The quantity of government money being gobbled up by voracious developers will mushroom out of control.
Another problem with the NRAS is that it will probably not assist as many people out of housing stress as is being claimed. Dr Rachel Ong and Professor Gavin Wood from the Australian Housing and Urban Research Institute (AHURI) have analysed the potential impact of the NRAS. They found that 11,512 households of 50,000 randomly selected eligible households were above the 30 per cent benchmark (30 per cent of household income being spent on housing and household debt). Of these, only 4,614 (40 per cent) would be brought below the 30 per cent benchmark after their rent was reduced by 20 per cent.
This situation worsens when looking at the poorest 20 per cent of households, where rates of housing stress are extremely high at 54 per cent of household income. The NRAS lowers average net housing costs to 34 per cent of income for these households. Barely one in four of the poorest households would be actually lifted out of housing stress. The NRAS is less effective in reducing rates of housing stress because the net housing costs of the poorest 20 per cent of NRAS eligible tenants are more likely to be markedly above the 30 per cent affordability threshold. AHURI has recommended that targeting the NRAS to lower-income households, rather than a random allocation to rent assistance-eligible households, would improve the Scheme’s capacity to alleviate the housing affordability circumstances of a larger number of households. As we have seen with public housing waiting lists, restricting access ends up in a blow-out in demand. As the market fails more people, increasing numbers of people are forced to seek access to the Scheme.
Conveniently, the NRAS could also be a means of cutting government expenditure. AHURI points out that one of the ‘rarely mentioned’ potential policy benefits of the NRAS is that it could create savings in rent assistance expenditure. Rent assistance payment rules could see some reductions in the amount paid to NRAS tenants. AHURI’s modelling estimates that rent assistance payments could be reduced by $21 million or 5 per cent. Unfortunately for the government, these ‘savings are somewhat smaller than might have been anticipated’ because 37 per cent of rent assistance recipients eligible for the NRAS continue to receive the same amount of rent assistance after the rent discount. ACOSS points out that if some tenants are ineligible for rent assistance or receive reduced payments they may be worse off under the NRAS. Again, this suggests that such public–private arrangements really do very little for creating affordable housing for people on low incomes.
Security of tenure remains an issue under the scheme. According to ACOSS, the NRAS does not provide tenants with longer leases or additional rights beyond those required by relevant landlord and tenant legislation. Dwellings occupied by very disadvantaged or high-needs households are more likely to need support to sustain their tenancies. Without that support, even if low-income and high needs households are given priority access to housing, they may be unable to sustain tenancies for extended periods. ACOSS raises doubts about the capacity of real estate agents to operate this type of housing. There is a real danger of these properties becoming hot spots for social problems and for the same people to continue to circulate through the homelessness system. Additionally, there is a genuine risk that, after ten years, private developers will simply sell off the stock and collect the capital gains, returning the housing stock to the open market and making a healthy profit.
A system where profit and speculation fix the supply and value of housing and where the government attempts to regulate this through indirect macroeconomic measures has resulted in housing that fewer and fewer people can afford to buy and rents that leave a large section of the population in housing stress and in danger of homelessness. People treat the housing market as a strange unpredictable beast, struggling to understand or calculate its next move. With increasing interest rates, many are now in danger of getting their heads bitten off. The government’s NRAS will do little to influence this monstrosity. In fact, I suspect, as with most PPPs, the government will simply end up paying out twice as much to private interests and the same people will continue to find themselves circulating through the merry-go-round of the housing system.