AHURI POLICY ANALYSIS

Increasing the supply of affordable housing for low income tenants

What is the policy issue?

Between 1996 and 2011, the absolute shortfall of private rental properties that were affordable and available to Q1 households deteriorated from a deficit of 150 000 homes to 271 000 homes. Over the same time period the number of Q1 households renting in the private market rose from 221 000 households to 347 000 in 2011 (a 57% increase).

The scale and long-term nature of such a failure in housing supply by the private rental market, represents a structural problem in the supply of housing for low income households. The effects of this long-term supply failure can also be seen in the on-going strong demand for public housing, with 153 989 householders on public housing waiting lists in June 2015, while only 21 410 new households were assisted in the year 2014–15.

Housing graph
Figure 1. Shortfall in availability of affordable homes for Q1 tenant households in 1996 and 2011

Source: Hulse, K., Reynolds, M., and Yates, J. (2014) AHURI Final Report no. 235 Changes in the supply of affordable housing in the private rental sector for lower income households, 2006–11.

The long-term failure in affordable rental housing supply can be seen in the fact that between 1996 and 2011, across Australia, the number of private rental market properties affordable to Q1 households fell from 173 000 to 159 000 dwellings (an 8% decrease).

Policy development options

Despite the tax concessions, which are argued to stimulate supply (e.g. negative gearing), the shortage of affordable housing available to low income households has worsened since 1996. That this shortage has deteriorated over such a long time period implies a failure of the private rental market to supply housing to this market segment.

Options for Australian Federal and state/territory governments to increase the supply of affordable housing include:

  • developing the affordable housing industry
  • imposing regulatory planning/inclusionary zoning controls on developers to increase supply of affordable housing
  • increasing public housing supply.
1. Explanatory statement

A mature affordable housing industry, which both supports and includes the not-for-profit community housing sector, would comprise:

  • competitive and viable not-for-profit and for-profit developers
  • financial intermediaries to channel institutional investment at scale, and reduce the cost of finance
  • a robust community housing sector to:
    • instigate and oversee development
    • undertake maintenance
    • manage tenancies, including the supply and/or coordination of specialist services such as drug and alcohol rehabilitation.
2. A real world example

This community housing sector has grown significantly in recent times. In 2004 it comprised 22 473 dwellings, and 11 years later there were 73 620 dwellings (a 227% increase). The number of community housing providers has consolidated somewhat, having dropped to 658 providers in 2015 from 959 in 2010.

3. Scope of the practice

For policy-makers, the question becomes what would it take to grow the affordable housing industry further to supply homes to low income households most economically and at scale? Developing an affordable housing industry will require Government initiatives such as:

  • Enabling financial systems and products designed to raise capital for affordable housing, such as an Affordable Housing Finance Corporation (AHFC), which would lower the cost of finance to community housing providers by raising money through low-yield, long-term bonds. The AHFC would source and raise large amounts of capital efficiently and, therefore, likely maximise the sustainable expansion of affordable housing stock. International examples show retail and institutional investors will invest in affordable rental housing given the right conditions. For example, Austrian Housing Construction Convertible Bonds (HCCB) have a yield 1% lower than capital market bonds, but when combined with a tax advantage, can offer an attractive long-term, low-risk investment. Since 1993 AUD$18 billion of HCCBs have been issued.
  • Transparent incentives and subsidies. For example, over the last decade the community housing sector has increasingly built CRA subsidies into the rents they charge low-income tenants; any changes to CRA allocation could jeopardise their business models.
  • Effective government regulations for charities and the not-for-profit housing sector to oversee the governance of the sector. This will assist in ensuring proper public accountability, developing performance standards, monitoring financial viability and giving assurance to private investors and governments
  • Transferring the ownership and/or management of state housing assets to the community housing sector who can then concentrate on growing the sector through efficient use of such assets by leveraging the necessary finance for expansion. The more assets community housing providers have to leverage against, the more money they can borrow and the more units they can deliver. Initially many in government and the community housing sector thought that transfer of property ownership was necessary, but more recently the guaranteed long-term cashflow generated by the rental income is considered of great importance (welfare tenants are, after all, guaranteed an income from government, even if it is low). Between 1995 and 2012, 21 279 public housing dwellings were transferred to community housing providers in Australia. While most transfers (72%) were for the management of the properties, 28% also involved the transfer of the property's title to a community housing provider.
4. Effectiveness/impact

The proportion of community housing tenant households in housing affordability stress was significantly greater than for public housing tenants. In 2015, 8.7% of lower income (i.e. those in the bottom 40% of income distribution) community housing tenant households paid more than 30% of their income in housing costs (i.e. were in housing affordability stress), while just 0.9% lower income public housing tenant households were in housing affordability stress.

However, the proportion of community housing tenants under housing affordability stress is still much lower than the 29% of lower income tenants in the private rental market who were in housing affordability stress (in 2011).

Community housing tenants were more likely than public housing tenants to be satisfied with their housing provider. The 2014 National Social Housing Survey shows that 80% of community housing tenant households are satisfied with the overall services (such as day-to-day and emergency maintenance) provided by their housing organisation, compared with 73% of public housing tenants who are satisfied.

5. Guide to evidence

Evidence on the creation of an Affordable Housing Finance Corporation and products designed to raise capital for affordable housing is found in AHURI Final Report no. 220 Enhancing affordable rental housing investment via an intermediary and guarantee and in AHURI Final Report no. 188 Housing Supply Bonds—a suitable instrument to channel investment towards affordable housing in Australia?

Evidence on the scale and effectiveness of public housing transfers to the community housing sector is found in AHURI Final Report no. 215 Public housing transfers: past, present and prospective. and on understanding the operations of community housing providers is found in AHURI Final Report no.237 Strategies of Australia’s leading not-for-profit housing providers: a national study and international comparison.

1. Explanatory statement

There are two main approaches to building affordable housing through the planning process. The first is the mandatory model which requires that a number of affordable homes are included in developments as a condition of planning approval. The number of potential affordable homes developers are obliged to build is determined by either negotiated agreements made between a developer and planning authority during the planning assessment process, or fixed requirements specified as a proportion of housing or development value, often described as ‘inclusionary zoning’.

The second approach is the voluntary incentive model, where new affordable housing is encouraged by reducing costs for developers. Types of planning incentives include: modifying planning standards based on performance criteria—for example, increasing site yield to encourage low cost housing like boarding houses, student accommodation, and retirement villages in designated areas; bonus systems which relax specified development controls, typically height, density, setback or parking controls, in exchange for constructing dedicated affordable housing; and planning process incentives where projects that include affordable housing attract special treatment in the planning process, such as fast track approvals, reduction, exemption, or refund of application fees, infrastructure charges or rates.

2. A real world example

The Housing Plan for South Australia, introduced in 2005, mandates that 15% of new dwellings in all significant development projects be affordable, including at least 5% for high-needs groups. Initially, the affordable housing requirement was applied to government land releases on the urban fringe; however, the policy is now being applied to urban renewal sites.

3. Scope of the practice

The 2013–18 Housing Strategy for South Australia revealed that the 15% requirement as part of the Housing Plan has delivered 1223 affordable home by 2013, with a further 2793 affordable homes committed to be built in future developments.

4. Effectiveness/impact

A panel of experts from the public and private housing sectors (including developers and government departments) found that land values within inner suburbs and around transport hubs were too high for developers to provide housing affordable for low–moderate income groups without planning system intervention or tax incentives. The panel believed the key to ensuring that building affordable housing is profitable for the developer—and therefore happens—is through density bonuses or fast-tracking approval processes to deliver cost savings.

However, schemes that rely on fast-tracking approval or over-riding density constraints are politically vulnerable.

5. Guide to evidence

Evidence on the effectiveness of inclusionary zoning and planning scheme interventions to build affordable housing is found in AHURI Final Report 193 Delivering diverse and affordable housing on infill development sites; AHURI Final Report 195 Affordable housing, urban renewal and planning: emerging practice in Queensland, South Australia and New South Wales; and AHURI Final Report 120 New directions in planning for affordable housing: Australian and international evidence and implications.

1. Explanatory statement

Public housing is housing that is owned and managed by state and territory housing authorities. It is provided to householders who have special needs (i.e. households that have either a household member with disability, a principal tenant aged 24 years or under, or 75 years or over, or one or more Aboriginal and Torres Strait Islander members) or are on a low income. Public housing rents are subsidised for eligible low income tenants so that generally they pay no more than 30% of their gross income on rent.

The demand for public housing in Australia is strong; in 2013–14, for every two households living in public housing there was another one household who wanted to be in public housing.

Table 1: Public housing households, Australia, 1996, 2010 and 2014
Year Public housing households (not including community housing) All Australian households Public housing as % of all Australian households Households on waiting list

1996

326,898 6,281,817 5.2% n/a
2010 325,726

8,400,000

ABS 4442.0

3.9% 171,344
2015

314,963

9,072,188 3.5% 153,989
2. A real world example

While demand for public housing has remained strong over time, the proportion of households in public housing has dropped from 5.2% of all Australian households in 1996 to 3.5% in 2015.

In addition, between 2010 and 2015, the amount of money allocated to public housing by Australian governments fell. In 2014-15, Australian state and territory governments spent $3.5 billion on recurrent expenditure and capital funding to supply 321 627 public housing dwellings for 314 963 households, whereas in 2009–10 they spent $7 billion on recurrent expenditure and capital funding to supply 333 383 dwellings for 325 726 households. (Much of this 2009–10 funding was as part of the Australian Government's Social Housing Initiative, which provided funding of $5.6 billion between 2008-09 and 2011-12.)

3. Scope of the practice

The number of extra public housing dwellings wanted or needed by Australian households is open for debate. The 2011 Census data revealed there were 287 724 lower-income households who rented privately and were paying 30% or more of income in rent. Combining these households with households already in public housing, shows that 8.4% of all Australian households were eligible for public housing in 2011.

More conservatively, if we combine the number of households already in public housing with those on the waiting list we find 471 574 households want to live in public housing. This equates to 5.2% of all Australian households wanting public housing, the same proportion as was in public housing in 1996.

4. Effectiveness/impact

To house those households on the waiting list would require a large building or acquisition program, with a consequential significant increase in funding demands upon government. For example, the Social Housing Initiative built 19 699 new dwellings at an average price of $286 000 (in $2012) per dwelling. At that average price it would cost $47.5 billion (in $2015) to build sufficient dwellings to house the 154 566 households on the waiting list. [As a comparison, the Australian Government 2014–15 Budget allocated $29.3 billion to the Department of Defence for the year 2014–15.

5. Guide to evidence

Evidence on the effectiveness of public housing is found in AHURI Final Report no. 231 Thirty years of public housing supply and consumption: 1981–2011 and AHURI Final Report no. 215 Public housing transfers: past, present and prospective.

Background to the policy issue

A key driver of the current expansion of the role of the community housing sector stems from a 2009 COAG Housing Ministers Conference commitment that the community housing sector would comprise up to 35% of social housing by 2014. Although this target hasn't been achieved yet, the sector has grown such that it comprised about 16% of all social housing in 2014. In addition, by 2014 charitable not-for-profit community housing organisations had produced over 11 000 affordable rental dwellings under the NRAS since 2008—amounting to 63% of all NRAS housing produced to that date.

Between 2008 and 2014, the number of households in community housing rose by 88%, from 35 667 to 67 046. Over the same time period the number of households in social housing rose by just 4%, from 379 178 to 393 844.

Table 2: Changes in social housing households (public housing, community housing and SOMIH), 2008 to 2014
Year Social housing households (i.e. public, community & SOMIH) Households in public housing Households in community housing SOMIH (State owned/ managed Indigenous housing)
2008 379,178 87% 9% 3%
2014 393,844 80% 17% 2%
Difference 2008 – 2014 14,666 (4% increase) 4% decrease (–14,128) 88% increase (31,379) 21% decrease (–2,585)
Households in social housing graph
Figure 2. Households in social housing: changes in public housing, community housing and SOMIH from 2008 to 2014
Source: Australian Government Productivity Commission (2015) Report on Government Services 2015 VOLUME G: Housing and homelessness.

During the time period 2008–2014 the Social Housing Initiative (SHI) operated, which resulted in the building of 19 669 dwellings. Of these, 5822 dwellings were built by state housing authorities and are being managed by community housing providers. Another 5006 were built by state housing authorities and ownership was transferred to community housing providers. In addition, the SHI directly funded community housing providers to develop around 1400 dwellings in Queensland and 2400 in Victoria. When combined with the supply of NRAS dwellings, this indicates that around 25 600 dwellings were acquired by the community housing sector due to government initiatives since 2008.

Evidence in action

Research in progress on this issue

The current AHURI Inquiry, 'Building the affordable housing industry in Australia', is investigating how governments can further develop strategies and initiatives to build capacity in the affordable housing industry so as to substantially improve housing outcomes for low income households.

The Inquiry takes a broad view of the term 'affordable housing industry’ and includes non-government organisations that produce and manage housing subject to affordability requirements set by government, namely:

  • registered community housing providers, Indigenous community housing organisations and other affordable housing providers; and organisations working with them, including:
  • government funders and regulators, industry and consumer groups, professional associations, financiers, developers, consultants, training providers, and joint venture partners.

The Inquiry is assessing how Canada, US, Austria and Germany have shaped their affordable housing industries through strategies involving stock transfer, privatisation and third sector development. In Australia, the Inquiry is focussing on the transfers of public housing currently underway in Queensland, South Australia and Tasmania to reveal the lessons learned and probe the financial implications.

Ultimately the Inquiry will advance plans to guide the future development path of an affordable housing industry in Australia.

Relevant AHURI research