How can landlords be incentivised to provide long term leases to low-income tenants?

Tasmania plans to pay investors up to $13,000 a year to make their properties available to low-income tenants

Last updated 23 April 2018

The Tasmanian Housing Minister, Roger Jaensch MP, has indicated that the Tasmanian Government plans to pay investors up to $13,000 a year if they make their properties available to low-income renters, in a new bid to address that state's housing crisis. The housing assistance plan aims to enable low income households to secure affordable rental properties with 12 month leases at an affordable rent.

Recent AHURI research examined a parallel strategy. The report, Australian demographic trends and implications for housing assistance programs, investigated a ‘secure lease’ proposal whereby governments would offer private landlords a rent premium if they provided five-year leases for low income families or single persons currently on, or eligible to enrol on, state housing authority waiting lists.

As part of the scheme, landlords would be able to raise rents by no more than the CPI increase during the five-year lease term and would not be allowed to sell the property (even if they could get better financial returns elsewhere). It is for this reason that governments would offer a rent premium to the landlord.

Using HILDA data, the researchers estimate that over 650,000 Australian lower income households (654,974 households or 1,035,863 persons) would be eligible for a secure lease, which is equivalent to one in three Australian households who are currently living in private rental housing (1,541,656 private rental households in 2016 Census).

The average one-off rent premium would be $14,891 (in $2010) or, on an annual basis, $3,498 for each year of the five-year lease. The estimated $3,498 annual payment has a present value of $14,891 when discounted at a rate of 8 per cent per year, which is the estimated marginal return for private capital in Australia over the past four decades. If the premium were paid on a yearly basis, the annual equivalent budget cost would be $2.38 billion—an amount that is less than the total actual cost of CRA payments ($3.1 billion) made in the financial year 2010–11.

Secure lease tenants would continue to receive Commonwealth Rent Assistance (CRA), provided they remain eligible. The central idea is that secure leases would offer more stable housing, while CRA and ‘light’ rent regulation (through CPI-based rent capping) would help keep the rents affordable. In addition, as rents are capped, the average annual CRA payments will also remain unchanged. Over five years the CRA bill will add up to $7.4 billion under secure leases, instead of $8.6 billion under status quo conditions of uncapped rents. This $1.2 billion budget saving can be deducted from the estimated $10.1 billion budget cost of instituting the secure lease program for five years (equating to approx. $2.4 billion per year).

The report can be downloaded from the AHURI website.