AHURI NEWS

Better targeted rent assistance will improve housing affordability for low-income renters while generating cost savings: report

Policy and academic studies have raised concerns regarding the efficacy of the CRA system in promoting housing affordability, effective targeting and tenure security among low-income private rental tenants.

2 November 2020

One-third of low-income CRA households remain in rental housing stress (paying more than 30% of income in rent) even if all their CRA is put towards rent. At the same time, around one-fifth of low-income private rental households receive no CRA despite being in housing stress according to new research from the Australian Housing and Urban Research Institute (AHURI).

The research, ‘Demand-side assistance in Australia’s rental housing market: exploring reform options’, was undertaken for AHURI by researchers from Curtin University and UNSW Sydney and models a number of possible cost-effective reforms to CRA that could improve housing outcomes for low income renters.

The research found that changing the CRA eligibility criteria to reflect housing need, defined as low-income private renters paying rents exceeding 30% of their income, produced the best outcomes. This reform would mean CRA is best targeted at those who need it most, reducing the number of low-income private rental households in housing stress by approximately 370,000 (including some currently ineligible for CRA).

In comparison with comparator countries (Germany, Ireland, the United Kingdom, the United States and New Zealand), Australia’s CRA regime is distinctive in terms of being (a) restricted to certain categories of renters and generally excluding low waged employees; (b) regionally invariant; and (c) available by right, rather than cash limited. Aspects of comparator country frameworks that could be considered in more detail include:

  • extending eligibility to low waged workers
  • calibrating and uprating standard payment rates or limits according to local market circumstances, such as rates tied to some percentile of the local rent distribution
  • requiring recipient landlord compliance with defined minimum standards, as under the USA’s Rent Choice Vouchers program
  • regulating rents so that they may increase only in line with a declared rate.

While some 240,000 households would become eligible for CRA due to their housing need, 330,000 would lose their CRA entitlements as they are not in housing stress. This reform would generate annual cost savings of around $1.2 billion, while low-income private renters in Melbourne and Sydney would make up more than half of the beneficiaries.

‘While changing the CRA eligibility rules offers the greatest benefits from the perspectives of adequacy, better targeting and cost savings, there would be constitutional complications in implementing this reform,’ says Professor Rachel Ong ViforJ from Curtin University. ‘Currently the Australia Government is constitutionally limited to only paying CRA as a supplement to people who receive certain other social security benefits such as JobSeeker or the Age Pension.’

‘Nevertheless, there could be constitutional ways of overcoming these constraints, such as using the external affairs power to effect the internationally recognised right to housing; expanding the Australian Government’s constitutional powers to make provision for housing benefits; or reforming CRA as a Commonwealth-State and Territory program, with the Australian Government making grants to state and territory governments to pay rent assistance to eligible persons. Care would need to be taken to ensure it retains its form as a cash payment to tenants, not landlords.’

This research’s modelling also found that a 30% increase in the CRA maximum rate would move about 340,000 or 40% of low-income private rental households out of housing stress at a cost of $1 billion per year. ‘This would reflect a much-needed increase in CRA for low-income renters. CRA maximum rates simply have not kept pace with rent increases over time’, says Professor ViforJ.

However, the report warned that in some market contexts – especially severely disadvantaged areas – as much as one-third of increases in CRA maximum rates could be captured by landlords in higher rents. Previous AHURI research shows that the majority of new housing in Australia is concentrated in mid-to-high price brackets. These rent increases affect all tenants in disadvantaged neighbourhoods, including CRA-ineligible low-income workers. ‘Policies that increase the flow of new housing supply in low-value market segments would be important to counteract this effect’, says Professor ViforJ.

The report can be downloaded from the AHURI website at http://www.ahuri.edu.au/research/final-reports/342