1. Overview of the National Rental Affordability Scheme
Governments, the business sector and community organisations recognise that housing affordability is now an issue of significant community concern. The growing cost of housing is having a serious impact on the ability of many Australians to meet their financial commitments.
Rental housing is becoming increasingly unaffordable. Increases in the Australian Bureau of Statistics (ABS) Rent Index for each of the last three quarters of 2007 are the highest since 1989 and vacancy rates in all capital cities have fallen well below the three per cent level which is widely used as a benchmark of fully-utilised supply.
New research by the National Centre for Social and Economic Modelling shows that 685,000 low and moderate income families are spending more than one third of their income on housing costs.
In recognition that an increasing number of Australians are experiencing housing stress, the Government, as one part of a comprehensive package, is establishing the National Rental Affordability Scheme (The Scheme).
The Scheme aims to address the shortage of rental housing and rapidly rising rents by facilitating the supply of lower-rent homes and offering an incentive to providers to rent the dwellings at below market rates for rent. It aims to facilitate large-scale investment by financial institutions and non-profit housing organisations in provision of this additional housing.
1.1 Key Features
The Scheme offers a National Rental Incentive (‘the Incentive’) to providers of new dwellings on the condition that they are rented to low and moderate income households at 20 per cent below-market rates.
The Incentive comprises a Commonwealth Government contribution in the form of a tax offset or grant, and a State or Territory Government contribution in the form of financial and/or other support. It will be provided annually for ten years on condition that throughout that period the dwelling is rented to eligible low and moderate income households for at least 20 per cent below market rates for each of the ten years. The usual eligibility rules for Commonwealth Rent Assistance will apply.
The dwellings will be managed by the Tenancy Manager in accordance with relevant State or Territory Government regulatory requirements. They will also be subject to specific reporting requirements in relation to tenancy selection and management, as well as to regular reporting for compliance purposes.
The Scheme is designed to pool significant resources from a range of participants including financial institutions, non-profit organisations and local government which, when combined with the incentives from the Scheme, will increase the supply of lower-rent housing. These resources could include loans; equity investments; capital grants by Commonwealth, State and Territory or local governments; donations by charities; free or discounted land by churches; or contributions by developers in accordance with planning requirements.
By requiring a reduction on market rent of 20 per cent, the Scheme will substantially improve affordability for tenants. This will be of benefit where, for example, households are currently paying as much as 50 per cent or more of their income on rent. It will also provide tenants with stronger security of tenure than is widely available to them in the current private rental market.
In some cases, it may be feasible and desirable to provide greater rent reductions than the minimum 20 per cent and/or to maintain the reductions for longer than the 10 year period that the Incentive will be provided.
1.2 Objectives and Implementation
The Scheme is a significant supply-side response to deal directly with rental property shortages and rapidly rising rents. The Scheme aims to:
- increase the supply of affordable rental dwellings;
- reduce rental costs for low and moderate income households; and
- encourage large-scale investment in and innovative delivery of affordable housing.
The Scheme will help create 50,000 affordable rental dwellings across Australia by 2012. If successful, and if demand remains strong, the Government will allocate an additional 50,000 incentives from 2012 onwards for a total of 100,000 incentives over the next decade.
The Scheme will be implemented in two phases:
- Establishment Phase
- from July 2008 to June 2010 involving 11,000 allocations.
- Expansion Phase
- from July 2010 to June 2012 involving 39,000 allocations
- from 2012 onwards, an additional 50,000 allocations subject to demand