Final Report: Detailed Analysis
F5. Housing assistance
Two major forms of housing assistance are available to low-income earners: Rent Assistance and public housing. A person can access only one or the other.
Rent Assistance is a component of the Australian government's income and family support systems. Eligibility for Rent Assistance requires eligibility for income support or more than the base rate of Family Tax Benefit Part A and rental costs that exceed a minimum level. Assistance is paid for rents above this level at 75 cents per dollar of rent up to a maximum cap (details at Table F5-1). In 2007–08, Rent Assistance was provided to around 940,000 recipients at a cost of $2.3 billion.
Table F5-1: Rent Assistance per fortnight
Rates and proportions as at September 2009
|Recipient type||Minimum rent for
eligibility for assistance
|Rent at which maximum
|Proportion of all
|Single||sharer with no children||$99||$199||$75||15|
|alone with no children||$99||$248||$112||38|
|with one or two children||$131||$306||$131||18|
|with three or more children||$131||$329||$148||4|
|Couple||with no children||$162||$303||$105||9|
|with one or two children||$194||$369||$131||11|
|with three or more children||$194||$391||$148||5|
Source: Centrelink 2009 and FaHCSIA unpublished.
Public housing is an in-kind benefit that operates independently of the income support system. Eligibility is determined by State housing authorities and based on income combined with other criteria indicative of housing need. Rents are typically set at a maximum of 25 per cent of tenant income, with the assistance equal to the difference between the charged rent and market rent. At 30 June 2008, there were around 330,000 households in public housing, who received an aggregate subsidy of around $1.6 billion. Through the National Affordable Housing Agreement, the Australian and State governments provide around $1.3 billion in annual funding, including for both ongoing and some capital costs, to public housing authorities.
These arrangements are depicted in Chart F5-1 for a recipient with no private income.
Chart F5-1: Current arrangements for housing assistance
Community housing is also a form of housing assistance for around 30,000 low-income households. Community housing organisations are non-government organisations that provide subsidised housing funded through government grants and private donations. Eligibility for community housing is determined by the provider, but is generally based on criteria similar to those for accessing public housing. Community housing tenants can receive Rent Assistance. In general, providers set rents at 25 per cent of their income. Increasingly, community housing providers set rents to include all the Rent Assistance their tenants receive. In 2007–08, the Australian Government provided grants of around $68 million to a range of not-for-profit providers of housing to disadvantaged people.
As set out in Table F5-2, a number of other housing assistance programs focus on different aspects of housing need. The Review has assessed neither these programs in detail nor alternative supply- or demand-side policies.
Table F5-2: Housing assistance programs
|National Affordable Housing Agreement||Australian Government||In addition to providing funding for public housing, the National Affordable Housing Agreement provides untied funding to states and territories for housing and homelessness services. It replaced the Commonwealth State Housing Agreement (including identified programs such as the Crisis Accommodation Program and the Aboriginal Rental Housing Program) and the Supported Accommodation Assistance Program. It is supported by National Partnership Agreements on social housing, homelessness and remote Indigenous housing.||
NAHA — $6.2 billion over five years.
National Partnerships — $7.1 billion over 10 years.
|Nation Building — Economic Stimulus Plan Social Housing Initiative||Australian Government||Provides funding to states and territories for the construction of new social housing and repair and maintenance to existing public housing dwellings.||$5.638 billion over three and a half years, including $400 million for repairs and maintenance.|
|First Home Owners Grants||States (ongoing) and Australian Government (one-off supplements)||The First Home Owners Grant was introduced with the introduction of the GST to compensate non-home owners for the increase in the cost of housing arising from higher construction costs of new homes. To provide short-term assistance to the housing sector, the Grant has been increased temporarily in 2001–02 and through the First Home Owners Boost introduced in October 2008.||
First Home Owners Grant — $1.3 billion in 2008–09.
First Home Owners Boost — $934 million in 2008–09.
|National Rental Affordability Scheme||Australian Government with States||Assistance to housing providers to encourage supply of housing that is rented out to low- to moderate-income earners at below market rents.||$72 million in 2008-09 (growing to $357 million in 2011-12)|
|Housing Affordability Fund||Australian Government||To reduce the cost of charges levied by State and Territory and Local Governments on homebuyers, by providing an incentive for reform of inefficient processes and a contribution towards infrastructure costs.||$512 million over five years.|
|First Home Saver Accounts||Australian Government||To assist young Australians save over a number of years for their first home, through low tax savings accounts that the Government contributes to each year.||$245 million over five years from 2008-09.|
|Home purchase assistance for Indigenous Australians||Australian Government||The Home Ownership Program (HOP) and the Home Ownership on Indigenous Land Program (HOIL) assist low income Indigenous households to purchase their own homes.||
HOP — $552 million in outstanding loans at 30 June 2009.
HOIL — $1.3 billion in approved loans in 2008-09
|Home purchase assistance||States||To assist low- to moderate-income households with the costs of home purchase, including direct lending, deposit assistance and mortgage relief.||$22 million of interest rate assistance and mortgage relief and $1.1 billion of direct lending in 2007–08.|
|Private rental assistance||States||To assist low-income households who have difficulty securing and maintaining rental accommodation.||$25 million in rental grants, subsidies and relief payments and $47 million in bond loans in 2007–08.|
As the current system provides assistance according to tenure, the following assessment of assistance considers Rent Assistance, public assistance and assistance for low-income mortgagors.
The structure of Rent Assistance is appropriate
In a number of ways, Rent Assistance aligns with the principles for delivering housing assistance.
Basing Rent Assistance on the recipients' rent levels means the payment can be well-targeted to need. By paying assistance above a rent threshold, around 40 per cent of income support recipients who could otherwise be eligible for Rent Assistance do not receive the payment because they pay low or no rent. Further, paying assistance at 75 cents per dollar of rent in excess of the threshold means the recipient faces a co-payment of 25 per cent for their rent.
Around 30 per cent of people receiving Rent Assistance are paid less than the maximum rate, which suggests that the co-payment provides recipients with some incentive to economise on their rental costs.
The maximum rates of Rent Assistance are different depending on whether a person is single, in a couple or sharing with others. This approach allows maximum Rent Assistance to be reduced in line with the economies of scale that can be achieved through sharing or living with a partner. Reducing assistance in these circumstances is consistent with the principles of a targeted system and lowers the overall cost of assistance.
For adults without children, Rent Assistance is included as an integrated component of income support. In terms of means testing, Rent Assistance is added to a recipient's base payment so that, as recipients' private means increase, their base income support is withdrawn before Rent Assistance is reduced. Though this extends the income range over which Rent Assistance recipients face payment withdrawal, it results in withdrawal rates determined by base payments alone. This means status as a renter does not influence withdrawal rates, which are set to reflect workforce participation objectives. Further, the alternative of 'stacking' — withdrawing base payment and Rent Assistance simultaneously — would create higher withdrawal rates and deter people from entering the workforce. This is particularly important because a substantial proportion of housing assistance recipients are single parents. When surveying empirical results, Wood et al. (forthcoming) state that 'the weight of evidence suggests that Rent Assistance has only small, negative impacts on employment outcomes'.
However, the maximum level of assistance is low and indexed inappropriately
The rent caps where maximum Rent Assistance is paid are set at low levels of rent. For singles, the cap of $124 per week represents the bottom 10 per cent of one-bedroom dwellings rented in capital cities. Across the country, around 220,000 dwellings rent for less than the couple rent cap of $151 per week, well below the number of childless households who receive Rent Assistance. At June 2009, the average rents of Rent Assistance recipients are $147 per week for a childless single (non-sharer) and $198 per week for a childless couple.
Because the maximum rate of Rent Assistance is reached at relatively low levels of rent, many recipients divert their base income support payment from other expenses in order to acquire an adequate level of housing. As an indicative example, renting a dwelling for $165 per week28 leaves a single pensioner with around 68 per cent of their base payment and a single Newstart Allowance recipient with 52 per cent of their base payment for other living expenses.
The minimum rent thresholds below which Rent Assistance is paid are the same for each payment type, irrespective of the recipient's base payment. This means that people on allowances must use more of their base payment to get an adequate standard of housing than recipients of pensions.
One reason that the maximum Rent Assistance is reached at a low rent level is that it is indexed by consumer price index (CPI) changes. Significant short-term fluctuations in real rents do occur. Over the past three years, average rents have grown at an annual rate of around 10 per cent, outstripping growth in the maximum rate of Rent Assistance at 2.7 per cent per year as well as average wages (Chart F5-2 Panel A). The yield obtained by rental property investors is determined by combination of a range of factors in addition to rent, such as expected capital gain and potential tax advantages. This combination is not stable over time, as shown by the movement in rental yield over the past 25 years (see Chart F5-2 Panel B). Not indexing assistance to rents exposes recipients to the risk of structural shifts in yield that can be driven by market forces and policy changes. Recipients of housing assistance are less likely to be able to bear the risk of large changes in housing costs than others in the community.
The composition of the CPI basket also means that it is a poor reflection of the housing costs of low-income renters. Around 6 per cent of the CPI basket is rent, while rent represents around 35 per cent of income for Rent Assistance recipients.
Inadequate indexation leaves fewer resources available for other expenditure and harms the overall wellbeing of recipients. From 2004 to 2009, overall real income support for Rent Assistance recipients (after rent) has fallen by around 23 per cent for Parenting Payment Single recipients and 36 per cent for recipients of Newstart Allowance.
Chart F5-2: Variation of rents over time
Panel A: Rent to average weekly earnings
Source: REIA (2009) and ABS 6302.0.
Panel B: Rental yields of three bedroom houses
Source: REIA (2009).
Rent Assistance in respect of children and for families
For families who rent, the housing assistance paid in respect of their children is not coherently designed. The number of children in a household is taken into account when determining the maximum level of Rent Assistance. For example, the maximum rate for a single person with one or two children is $131 per fortnight, $20 per fortnight more than a childless single. In addition, all parents receiving income support also receive the Family Tax Benefit (FTB) Part A family payment. FTB Part A recognises the direct costs of children, including housing costs, and is paid at the same rate to all parents regardless of tenure. As it is not clear that income support recipients who rent face greater marginal housing costs from children than non-renters, there is no obvious rationale for providing additional assistance to renters in respect of these costs.
The current approach for providing Rent Assistance to families blurs the roles of income support and family payments. As set out in Section F1, income support reflects the needs of adults with limited means, while family payments should assist with the direct cost of children (discussed in Section F3 Family and youth assistance). Families whose income makes them ineligible for income support still receive Rent Assistance as long as they receive more than the base rate of FTB Part A (which has a higher income cut-off). For these parents, their continued eligibility for Rent Assistance is effectively due to their status as a parent. This structure involves a trade-off between the coverage of low-to-middle income families and the adequacy of assistance.
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.
However, there are a number of areas where social housing is not adequately supporting the Australian households that rely upon it for adequate housing.
Differences in assistance do not target need well
Public housing confers a greater average level of assistance to recipients than Rent Assistance. This is inequitable but can also lead to poor long-term outcomes for recipients.
Setting public housing rents as a proportion of incomes results in the average level of support being around $220 per fortnight, while average assistance is only around $90 per fortnight for Rent Assistance recipients. Rationing of public housing through queues is a key indicator of the difference in levels of assistance between the two types of tenure. At 30 June 2007, around 176,000 applicants were on waiting lists for public housing (that is, current demand exceeded supply by around half). In 2006–07, around 30 per cent of tenants allocated to public housing had waited for two years or more. There is also significant variation in assistance within public housing, as the level of assistance depends on market value of the dwelling to which a recipient is assigned.
Public housing also provides greater tenure security than is available to many people in the private market. Tenure security can be important for tenants29 as it provides greater certainty in their lives and saves on moving costs, which may be significant for some recipients (such as those with disabilities). Around 75 per cent of public housing tenants have been with their provider for five years or more. Long levels of occupancy reflect the fact that tenure is for life in most States, although this may also be influenced by public housing eligibility rules.
As indicated in Chart F5-3, a significant minority of new entrants to public housing are assessed as having high housing needs, such as being homeless or having their health at risk. However, the variation in public subsidy is not directly targeted to tenants with assessed as in 'greatest need'30, who instead receive preferential placement, which results in shorter average wait times for access to housing. Tenants assessed as not being in 'greatest need' and who are eligible for public housing based on their low income alone, generally receive higher levels of assistance than people with similar means who rent privately.
Chart F5-3: New allocations to public housing by need category (2006–07)
Source: AIHW 2008.
The existence of large differences in the size and nature of assistance can also lead to poor outcomes for recipients. As public housing entitlements generally are not portable, the large gap with Rent Assistance discourages people from moving out of public housing. This has the potential to lock people in to depressed areas and to discourage moving for work. People may modify their behaviour to gain access to the immediate financial benefit of public housing in ways that have negative long-term consequences. To remain eligible for public housing, the incomes of prospective tenants must stay low while they are on the waiting list. Dockery et al. (2008) suggested that this was a significant reason why unemployment rates are 11 percentage points higher for prospective male tenants on public housing waiting lists, and 5 percentage points higher for females.
Barriers to workforce participation
Ensuring that the transfer system supports long-term capability development by doing minimum harm to workforce participation is of particular importance for housing assistance. The characteristics associated with high housing need — such as disability or addiction problems — are also likely to affect the participation prospects of housing assistance recipients. This heightens the need to ensure that the system does not fail vulnerable recipients by giving them incentives that fail to enhance, or even reduce, their self-reliance.
Employment rates among public housing tenants are low and have been declining over time (see Chart F5-4). While this reflects the fact that public housing is targeted toward people with poor participation prospects, public housing rent-setting also reduces incentives to work.
Public housing rents are generally set at 25 per cent of income. As this rent stacks on top of income support withdrawal rates, public housing tenants face an effective marginal tax rate that is 25 percentage points higher than if they privately rented or owned. Public housing rent-setting policies can also contribute to intergenerational poverty traps, as children of public housing tenants may also have to contribute 25 per cent of their income for rent.
Chart F5-4: Employment rates by tenure(a)
Panel A: Male employment
Panel B: Female employment
- Employment rates over this time period would have been affected by a range of factors including economic conditions, the increase in participation by females and the ageing of the population.
Source: Wood et al. (forthcoming).
There is strong evidence of the impact that public housing has on employment incentives. Modelling by Dockery et al. (2008) estimated that around 110,000 recipients are in 'employment traps' where high effective marginal tax rates discourage entry to the workforce. Wood et al. (2007) found employment by female public tenants (64 per cent of primary earners in public housing) was lower than that of equivalently skilled private renters.
State housing authorities use a range of programs to promote employment, perhaps in recognition of these incentives. For example, the Australian Capital Territory provides the Employment Rent Rebate Extension, which preserves below-market rents for the first six months of employment. In Victoria, the Public Tenant Employment Program provides tenants with training and advises them of job vacancies. While such programs may promote participation where they are used, they are unlikely to counteract the negative incentive effects inherent in the system.
Funding arrangements create poor incentives for effective use of the housing stock
Public housing has two sources of funding: rents from tenants and grants from governments. This system provides poor incentives to both recipients and providers of public housing and may not be sustainable.
Setting rents with reference to tenant income means there are no effective price signals governing the allocation of public housing. The rents providers receive give them no information about the type or location of housing their tenants prefer, which ideally should be reflected in their housing stock. Tenants with the same income pay the same rent regardless of the size, location, condition or general amenity of the house they occupy. This means they have 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. Whelan (2009) found that recipients of dwellings with higher market rent tended to have longer tenancies than equivalently sized households occupying cheaper dwellings. Many would use the value of the subsidy differently if they had the choice.
However, many public housing recipients have little real choice about the particular dwelling they occupy. Facing significant wait times and movement to the back of the queue if an offer of housing is declined, recipients have an incentive to accept whatever housing they are offered. Further, the type of housing available can be incompatible with a recipient's need. The public housing stock is dominated by three bedroom houses, yet most recipients are singles or couples without children, as illustrated by the Tasmanian stock in Chart F5-5.
Chart F5-5: Tasmanian housing stock
Public house sizes compared to room needs of tenants (2006–07)
Source: FaHCSIA 2009.
Public housing providers are financed through a combination of government grants — the Commonwealth State Housing Agreement to 2007–08 and the National Affordable Housing Agreement from 2008–09 — and the rents that public housing authorities charge recipients. For funding to be sustainable, it must at least meet the cost of providing the housing services.
Assistance being provided through grants enables housing services to be delivered at below market rents. Until the new funding agreement in 2008–09, grants had been declining over time in real terms, falling by around 25 per cent in the ten years to 2006–07. The lack of clarity in the roles and responsibilities of the Australian government and State governments may have affected funding levels, with each tier of government seeking to transfer the fiscal cost to the other.
Public housing has increasingly been rationed to recipients with high needs. However, the grants are not based on the likely need or number of such clients, nor on the overall quantity or quality of housing provided. The current grants are provided through block funding, based on the population in each State. This funding mechanism provides an incentive for States to transfer management of public housing to community providers. The tenants transferred to community housing become eligible for Rent Assistance and, with fewer tenants, the effective per-dwelling funding in the public housing stock increase.
The scope for use of tenant rental charges has declined in line with levels of employment in public housing. At 30 June 2008, around 88 per cent of recipients paid below market rents, with the remainder having their rent capped at the market level. With low private income, recipients pay their rents out of income support, the indexation and level of which affects the viability of providers. Providers receive a larger payment from pensioners than recipients of allowances (like Newstart Allowance) for providing the same dwelling. While growth in pensions through wage benchmarking generally outpaces CPI-indexed allowances, neither payment type is likely to move systematically with private market rents.
In aggregate, public housing rent setting and funding policies have led to a declining level of funding over time. From 1997–98 to 2007–08, public dwellings have decreased from 6 per cent to 5 per cent of the overall housing stock. Lower supply further contributes to unmet demand for public housing.
In 2005–06, around 300,000 (or 11 per cent) of income support recipients were repaying a mortgage.31 How mortgaged borrowers are affected through the tax and transfer system is not straightforward to assess.
Unlike renters, they do not receive assistance with their ongoing housing costs. The only direct assistance available to low-income earners with mortgages is provided through small direct lending and temporary mortgage assistance, which is available in only some States.
However, comparing means of mortgagors and renters is complicated by the fact that home equity earns a tax-free return and is not included in the means testing of income support. Depending on the level of equity in their home, this may confer greater assistance than Rent Assistance. For example, a single mortgagor on a part-pension with less than $116,000 of equity in their home would receive less assistance from the transfer system than if they were a renter.
The different levels of subsidy between tenants in different tenures, such as social housing and private rental, are inequitable and not well-targeted to need.
The current rent caps for Rent Assistance are too low and do not reflect an adequate level of housing for many recipients. Indexation of Rent Assistance to CPI means that assistance is less well targeted over time and exposes renters to housing cost risks.
In public housing, the use of queues to ration assistance and income-based rent setting discourage workforce participation. There is a need to reform public housing funding to better target assistance and encourage use of the housing stock in ways that reflect the needs of clients, and to make the funding model sustainable in the long term.
28 This is broadly equivalent to the 25th percentile of one-bedroom dwellings and the 5th percentile of two-bedroom dwellings.
29 In the 2007 National Housing Survey, around one-quarter of respondents nominate tenure security as a reason for moving into public housing (AIHW 2007a).
30 The greatest need standard includes households that at time of allocation were: homeless; their life or safety was at risk in their accommodation; their health condition was aggravated by their housing; their housing was inappropriate to their needs; or they had very high rental costs.
31 The proportion with a mortgage varies considerably by type of recipient. It is 6 per cent for Age Pension; 21 per cent for single parent pensioners or 16 per cent for those receiving Newstart Allowance.
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