Getting the best from the private rental sector for lower income households

What is the policy issue?

Last updated 10 January 2020

The Australian Government spends billions of dollars each year on the private rental market—from Commonwealth Rent Assistance (CRA) direct payments ($4.438 billion in 2017–18) for low-income households needing help with rent to the indirect tax concessions of negative gearing ($3.296 billion in 2016–17)  and capital gains tax discounts for investors.

But what public benefit (such as safe secure housing for low-income households) is secured from this expenditure? Outcomes for low-income households in the private rental market are poor. For example, between 2006 and 2011, rental costs in the private market increased twice as much as incomes and by 2016, across Australia, 80 per cent of very low income households (384,000 Q1 Households) and 36 per cent of low income households (476,000 Q2 households) renting in the private market were in housing affordability stress. One consequence of ongoing high rents is that in June 2018 195,215 households were on the waiting lists for public, community and SOMIH housing.

Can government secure greater levels of public benefit from its expenditure in the private rental market to help lower income households while also reducing the demands on the social housing system? There are a number of innovative alternatives and strategies that governments can consider to make the private rental market more affordable and stable for tenants.

Background to the policy issue

Key fact

The Government does see a level of benefit from its commitment to funding CRA, the largest support program for eligible private renters receiving a pension or government benefit.

In 2017–18, 68.3 per cent of CRA recipients would have been in housing affordability stress if they hadn’t received CRA. However with the receipt of CRA that reduced by 28 percentage points. Nevertheless, a significant 40.3 per cent of all recipients still paid an unaffordable rent.

Policy development options

While not all lower income households have the same requirements from the private rental sector, changes to the sector that boost affordability, stabilise tenure and improve both access to, and the physical quality of private rental housing would go some way to providing benefits for the wider public.

As such, there are a number of measures governments could make to stengthgen the public benefits delivered by the private rental sector:

Table 1. Policy development options delivering public benefits to tenants in the private rental sector.

Affordability Tenure stability Access and physical quality
state and territory governments providing loans and grants such as bond assistance, rent payment, relocation assistance, etc. tax incentives to encourage landlords to invest long-term in the low-income market giving disabled tenants a degree of right, and landlords financial incentives, to modify rented dwellings
indexing CRA to rent rises rather than consumer price index increases (CPI)

rewarding landlords (such as through tax benefits) who deliver long term leases (up to the limit specified in tenancy law)

private rental brokerage programs to enable low-income tenants to access the private rental market

  legal protection for tenants in marginal housing systems, which include boarding houses, caravan parks and forms of split tenancies encouraging philanthropic real estate entities

Some policy options are presented here:

1. Explanatory statement

All Australian states and territories offer a number of different Rent Assistance schemes to help low-income households in the private rental market. This assistance may help with affordability directly, such as through relocation assistance, or with helping households to find, apply for, move into and maintain a rental tenancy.

Programs to assist eligble tenants to secure a private rental tenancy include:

Bond loan and advance rent are interest-free loans for part or full rental bond and advance rent. Some states require fortnightly repayments starting immediately,others only require that the bond be repaid at the end of the tenancy.

Tenancy guarantees help eligible tenants into private rental. State housing authorities provide private landlords or real estate agents with a formal guarantee to cover potential future rent arrears or property damage over and above the rental bond.

Relocation assistance provides a loan to assist eligible tenants to cover the costs of establishing a new private rental tenancy, such as removalist expenses and electricity/gas connection.

Private tenancy facilitation is short-term assistance to help people understand private renting, including property searches, collecting appropriate documentation and dealing with landlords and real estate agents.

Programs to assist tenants to maintain their current private rental tenancies include:

Private rental subsidies are ongoing or time-limited, and are targeted at priority applicants (such as women escaping family/domestic violence) who are waiting for a suitable social housing vacancy.

Private rental brokerage is assistance to access and sustain private rental tenancies, including monitoring of tenancies, through a mix of supports tailored to individual needs.

Arrears assistance is an interest-free loan or grant provided to eligible tenants at risk of eviction due to rent arrears.

2. A real world example

In 2017–18, 114,600 households received some form of rent assistance from a state or territory government. Just under two thirds (62%) of households accessing rent assistance received a bond loan.

Table 2: State or territory government rent assistance, 2018–18.

Type of assistanceNumber of households
Bond loans71,184
Rental grants, subsidies and relief38,516
Relocation expenses262

Source: AIHW Data Tables: Financial assistance Table 6

3. Scope of the program

In 2017–18, $130.3 million was spent on rent assistance by state and territory governments. The majority of the money ($76.9 million or 59%) was spent on bond loans, while rental grants, subsidies and relief consumed $48.6 million.

Table 3: Amount of private rent assistance received, 2017–18

Private rent assistance typeAverage annual amount of assistanceValue of assistance
Bond loan$1,075$76,920,000
Rental grants, subsidies and relief$1,253$48,600,000
Relocation expenses$262$70,000

Source: AIHW Data Tables: Financial assistance Table S1

4. Effectiveness of the program

There are no formal evaluations of the effectiveness of state and territory government rent assistance programs. Indeed, AHURI research identifies that there is

‘an absence of shared, concise and systematic measures of the success of private rental support programs. This absence has arisen due to a dearth of evaluation processes, the focus of evaluations, data collection difficulties and challenges in making comparisons across jurisdictions. While useful, existing evaluation processes nevertheless have difficulties in unravelling market processes and program organisation, and are not always referenced to the stated aims and outcomes of the programs.’ AHURI Final Report 86

5. Guide to evidence

Evidence on state and territory government loans and grants is found in AHURI Final Report no. 262 Housing assistance need and provision in Australia: a household-based policy analysis and AHURI Final Report no. 86 A review of private rental support programs.

1. Explanatory statement

The twice yearly increases to Commonwealth Rent Assistance (CRA) are linked to CPI increases. However, house rents have been increasing at a faster rate than CPI. This means that CRA is less able to help low-income households afford a private rental property in areas that increasingly are becoming more expensive.

In addition, CRA is paid at a uniform rate across the country, which means recipients in high rent areas receive the same assistance as those in low rent areas. As a result, recipients living in higher rent areas, such as inner city suburbs, can be disadvantaged by the setting of national rules. This increases the likelihood of low-income households locating to areas where rent is lower and where there are potentially lower prospects for employment, which in turn exacerbates the risk of these householders not finding or being able to maintain employment in areas

2. A real world example

The 2010 Henry Tax Review proposed that CRA be increased based on increases in rents (rather than CPI), but that it be made available only to people receiving an income support payment (such as aged pension or disability pension).

AHURI research modelled the impacts of CRA changes and concluded that almost one-third of current CRA recipients would become ineligible and lose all their CRA entitlements upon introduction of the Henry Tax Review’s reforms. Households that become ineligible are typically younger families with at least one parent employed and with incomes further up the income distribution than typical for CRA recipients.

3. Effectiveness of the practice

The research modelling showed there is a substantial improvement in the housing affordability position of those who keep their eligibility status. Indeed the proportion of private renters in housing stress drops from 37 to 29 per cent following introduction of changes to both thresholds and eligibility criteria. Overall, the proposed CRA reforms would reduce Commonwealth spending on rent assistance for private renters by around 20 per cent.

The Henry Tax Review recommended increasing family payments conditional on the age of children to help offset losses for families who would lose CRA eligibility under the proposed CRA reforms.

4. Guide to evidence

Evidence on potential changes to CRA is found in AHURI Final Report no. 175 The impacts of the Henry Review recommendations on the private rental market—Savings income discount and rent assistance.

1. Explanatory statement

Tax incentive schemes such as the Low Income Housing Tax Credits (LIHTC) program in the US create incentives to develop affordable housing by offering developers annual taxation subsidies for a given period of time on the condition that the dwelling meets the affordability requirements of the scheme.

Australia’s former NRAS shared many characteristics of the LIHTC.

2. A real world example

The LIHTC program is an indirect subsidy from the federal government, jointly administered through the US Department of Treasury’s Internal Review Service (IRS) and local and state housing finance agencies.

Tax credits are awarded to developers of eligible projects and may be claimed annually over a ten-year period. These credits are usually sold to investors to raise capital (or equity) for the projects, thereby reducing the funds which need to be borrowed to complete the project. The reduced debt on the project enables the developer to offer lower, more affordable rents.

Tax credits are calculated as a percentage of costs involved in developing the affordable rental dwelling. Investors benefit by receiving a dollar-for-dollar credit against their federal tax liability each year over a 10-year period.

3. Scope of the program

Since its inception in 1986, the LIHTC has produced 2.6 million units of very-low-income rental housing.

Eligible LIHTC projects include the new construction, acquisition and/or rehabilitation of affordable rental housing. Eligible applicants and/or recipients include for-profit and non-profit developers.

To qualify for LIHTCs, a project partnership must assure that:

  • at least 40 per cent of units are rent-restricted and leased to households with incomes no greater than 60 per cent of Area Median Income (AMI); or
  • at least 20 per cent of units are rent-restricted and leased to households with incomes no greater than 50 per cent of AMI
  • rents are restricted to low-income households.
4. Effectiveness of the program

In the LIHTC program, the housing asset is privately developed, owned and operated—privately financed through lenders and equity investors, and privately managed by developers from both the non-profit and for-profit sectors.

In 2015 the annual tax expenditure on the LIHTC program was US$7.6 billion. The tax expenditure is estimated to be US$9.6 billion in 2019.

However, the fall in the tax rate for corporations from 35 per cent to 21 per cent in 2017 also means the value of LIHTC deductions to corporations will drop. While tax credits remain at 100 per cent of the LIHTC investment, the change in tax law means an investor now gets $21 for every $100 invested, rather than the $31 received previously. This could equate to a loss of about $1.7 billion or more each year, which translates into the loss of 200,500 to 212,400 affordable rental homes over 10 years.

5. Guide to evidence

Evidence on tax incentives for investment in low-income housing is found in AHURI Final Report no. 267 Housing assistance need and provision in Australia: a household-based policy analysis.

1. Explanatory statement

Private Rental Brokerage Programs (PRBPs) aim to help vulnerable households to access and sustain private rental tenancies.

The programs usually do this through advice, information, introductions and timely support, in order that clients can compete successfully for rental properties in a competitive market and sustain their tenancies over the longer term. The assistance offered is shaped by, and tailored to, the client’s particular circumstances. Programs are provided by a diverse range of government and non-government organisations.

Private rental brokerage programs are found within both government and non-government agencies. The term ‘brokerage’ is used to describe the forms of support offered by PRBPs, whose role is to ‘broker’ the specific assistance needed by individual clients.

2. A real world example

Examples of private rental brokerage programs include the RentConnect service in Queensland, the Private Rental Brokerage Service in NSW, the Private Rental Liaison Program in South Australia, the government/community partnerships underpinning Housing Connect in Tasmania and the Housing Establishment Fund in Victoria.

Other brokerage work is undertaken by the non-government sector. Responsibility for the design, delivery and administration of the brokerage function is driven by their parent organisation and shaped by their funding arrangements, such as from philanthropic funds or subsidized by other income the agency receives.

The SA Housing Authority (previously the South Australian Housing Trust) operates a Private Rental Liaison Program which provides advice, referral and practical assistance to private renters to help them find a property, understand their rights and responsibilities as a private tenant and link them to relevant community and social supports. It also provides assistance with bonds, rent in advance and rent in arrears.

3. Scope of the program

The South Australian Housing Trust 2018–19 annual report details that the Private Rental Liaison Program helped 457 households to secure housing.

To be eligible for the program, applicants may:

  • lack financial skills but have sufficient financial resources, and are willing to engage with the appropriate supports (e.g. financial counselling) to address their issues
  • experience socio-cultural issues and need advocacy or support to overcome difficulties with landlords or real estate agents
  • lack the social skills to negotiate with landlords or real estate agents
  • have no rental history
  • be renting through the supportive housing program or renting public housing and seeking private rental accommodation.
4. Effectiveness of the program

While it is not possible to isolate the costs of the Private Rental Liaison Program, the SA Housing Trust 2014–15 annual report records that the cost of providing Private Rental Assistance (i.e. providing financial assistance such as bonds and rent grants, information, referral, advocacy and counselling to eligible households in the private rental market) was $33.3 million. This cost included $19.7 million paid out in grants, bonds and subsidies. However, $9.6 million was returned (which included the repayment of grants and bonds), which meant the total cost of the Private Rental Assistance program was $23.7 million.

Of those clients who applied for the SA program in 2014–15, 548 customers (43.2 per cent of eligible customers) successfully secured private rental housing under the guidance of a Private Rental Liaison officer. If part of the rationale for the program is to divert people off public housing waiting lists then the program can be seen as effective.

5. Guide to evidence

Evidence on providing private rental brokerage programs is found in AHURI Final Report No. 263 The role of private rental brokerage in housing outcomes for vulnerable Australians.

1. Explanatory statement

‘No grounds eviction’ laws mean if the dwelling is rented through a fixed-term lease the landlord can give the tenant 30 days notice to move out of the premises at the end of the lease, and if the lease is a periodic agreement, the landlord can give the tenant 90 days notice to move out at any time.

Abolishing no grounds eviction’ laws means households can be secure in making a home in a rented property and staying there for reasonable periods if they wish to do so, provided that they meet their legal obligations (such as paying the rent and respecting the property). Knowing when the lease is to expire gives households time to plan for what they might do next, whether that is to stay put or relocate to elsewhere.

2. A real world example

In a comparison of private rental sectors across 10 countries reveals that Belgium, Canada, Germany, Ireland, Scotland, Sweden and Spain do not allow eviction without grounds and that only Australia, New Zealand, the UK (England and Wales) and some US jurisdictions allow ‘no grounds’ eviction.

Table 4: Security of tenure: Australasia, Europe, North America (select countries)

CountryGrounds for termination by landlordFixed term and periodic tenancies
AustraliaNo-grounds termination allowed; Victoria has proposed legislation to remove the ‘no specified reason’ groundShort (6–12 months), fixed-term and periodic tenancies
BelgiumTermination at end of fixed term allowed9-year fixed terms, but most are 3-year terms
CanadaMostly prescribed grounds only; some allow termination at end of fixed termMostly short (6–12 months), fixed-term and periodic tenancies
GermanyPrescribed grounds onlyLittle use of fixed-term tenancies
IrelandPrescribed 6-year cycle with lesser restrictions on termination in initial 6 months, then prescribed grounds onlyShort fixed-term and periodic tenancies
New ZealandNo-grounds termination allowedShort (6–12 months), fixed-term and periodic tenancies
SwedenPrescribed grounds onlyLittle use of fixed-term tenancies
SpainTermination at end of and, in limited circumstances during, fixed term3-year fixed terms with some provision for early termination
United KingdomNo-grounds termination allowed (England and Wales); prescribed grounds only (Scotland)Short (6–12 months), fixed-term and periodic tenancies
United StatesVaries by state and municipality: most allow termination without grounds, a few large cities allow termination on prescribed grounds onlyShort fixed-term and periodic tenancies

The countries represent a considerable range of regulatory approaches: from those that are strongly protective of tenants (e.g. Germany and Sweden) through to those which only offer moderate protections (Australia and New Zealand).

Most countries that afford tenants greater security do not use fixed term leases to provide that security. For example, in Germany most tenancy agreements are for no fixed period. Instead, security for tenants is assured by laws that require landlords to show reasonable grounds for termination. Similarly in Canada, short fixed terms (6–12 months) are commonly used, but security is assured by a reasonable grounds justification, which in most cases do not include termination at the end of the fixed term.

3. Scope of the program

Not applicable

4. Effectiveness of the program

Even countries that have the strongest laws protecting tenants’ rights have private rental sectors where the majority of landlords are smallholding private individuals (i.e. ‘mum and dad investors’), as is the case in Australia. Of the 10 countries studied, only in Sweden are housing companies the most common provider of rental housing. In Germany, where tenant rights are strong, 65 per cent of rental housing is provided by individual private landlords.

The international experience suggests that the rights of both landlords and tenants can be accommodated in a healthy private rental sector and that individual landlords can operate without undue difficulty in private rental sectors that are more strongly regulated than in Australia.

5. Guide to evidence

Evidence on 'no grounds' evictions is found in AHURI Final Report No. 292 The changing institutions of private rental housing: an international review.

Background to the policy issue

For low-income households, the benefits of getting into social housing are affordable rent (usually set at 25% of income);  stable tenancy; dwellings able to be modified for disabled tenants; and, in some regional areas, social housing may be the only existing form of rental housing. Weaving some of these benefits into the private rental market (and in particular those sections that benefit from government concessions) may go some way towards reducing the need low-income households have for government-provided housing (either through public, community or SOMIH housing).

Evidence in action

Recent research on this issue

The AHURI Inquiry ‘The future of the private rental sector’ investigates the contemporary drivers and dynamics of institutional change in the Australian private rental sector and the consequent opportunities and challenges for improving the performance of the sector for the future, with a particular focus on lower income households.

Relevant AHURI research