Key issues:
- Current regulatory systems in some States and Territories are fundamentally sound and could be a basis for a national system.
- There is a range of possible frameworks for national regulation.
- There are different elements of regulation that may be appropriate for different levels of government. These include accreditation; setting minimum standards, ongoing monitoring of providers and prudential requirements.
- Minimum standards that must be regulated include standards of Governance, Financial Management, Asset Management and Tenancy Management.
- Time frames and transitional arrangements must ensure the not-for profit sector is supported through a period of restructure and growth.
4.1 Options for national regulation
While State and Territory regulatory systems are not consistent and do not provide national coverage, their features are fundamentally sound and have been based on extensive community and sector consultation. Achieving national regulatory coverage should build on this experience and expertise, while providing the underpinning for the growth of a national market.
Options for national regulation that allocate different elements across levels of government should be considered, where they are capable of delivering a seamless system that ensures standards of governance, financial management, asset management and tenancy management are met.
The option of accreditation, connecting to a consistent regulatory system that ensures ongoing standards are maintained, should also be considered. In the context of this discussion, accreditation is defined as independent evaluation of performance against agreed national standards. Eligibility for accreditation could include compliance with appropriate prudential systems.
4.1.1 Option 1: National Accreditation combined with State/Territory regulation
This model would aim to add value to existing regulatory and prudential systems, with specific provisions relevant to the delivery of affordable housing and support for growth across state borders.
The Commonwealth could accredit affordable housing providers against standards that ensure:
- Governance, financial management and viability standards, according to scale and nature of operations
- Effective information systems and transparency in reporting
- Compliance with other regulatory and prudential systems.
States and Territories would retain responsibility for regulations that relate to
- Asset management and upkeep
- Codes of practice
- Tenant rights and support
- Specific program compliance
- Jurisdictional interest in property.
Under this approach, a national accreditation body would provide accreditation for all not-for-profit housing providers with the requirement that they are compliant with appropriate State and Territory regulations. Accreditation would provide eligibility for Commonwealth funding and, through mutual recognition, relevant State and Territory funding.
It is expected that the accreditation standards would be determined to give confidence to financial institutions. It is likely that financial institutions would only lend to organisations that have achieved accreditation.
This would require the development of Commonwealth legislation and funding to create a new national accreditation body. It would also require States and Territories to adopt regulations and codes of practice where none currently exist and agree to mutual recognition of those standards and regulations.
The benefit of this approach would be realised through a universal accreditation system, prudential controls and compliance with State and Territory regulations. Possible drawback could occur with a system split between levels of government and consideration would need to be given to whole-of-government mechanisms to provide effective coordination.
4.1.2 Option 2: Commonwealth Regulation of National Housing Associations
This model would provide Commonwealth support for large-scale affordable housing organisations that can operate across jurisdictions. The aim of this model would be the creation of a new class of providers derived from current growth providers, mergers within the community housing sector and/or new entrants from the not-for-profit and private sectors. With adequate support and investment, these organisations could grow to operate on a par with providers such as Defence Housing Australia and the State and Territory Housing Authorities.
The Commonwealth would provide for accreditation as for Option 1, but for growth providers only, as well as:
- ensuring compliance with new national standards for asset protection and management standards specific to these providers
- protection for investors and tenants against the risk of organisational failure
- eligibility for direct Commonwealth investment – for example through the National Rental Affordability Scheme and the National Affordable Housing Agreement.
States and Territories would retain all regulatory responsibility for those providers that do not seek Commonwealth accreditation. While this means there would be no comprehensive or consistent regulation of small and medium providers at the State and Territory level, the practical problems of this would be considerably reduced, as almost by definition small and medium providers do not operate interstate.
This option would provide support for the development of large-scale national providers, allocating responsibility for these to the Commonwealth. Agreement between the Commonwealth, States and Territories would focus on the pre-eminence of Commonwealth regulation of these providers and the implications of this for States and Territories in their own dealings with them.
The advantage of this approach would be in reducing the time taken to develop the regulatory and prudential supports for a large-scale national market. Possible disadvantages could arise from dividing the sector on the basis of size and capacity and consideration would need to be given to how organisations continue to interact and how they transition between the two levels of regulation.
4.1.3 Option 3: Referral of All Regulatory Powers to the Commonwealth
This option would provide for all accreditation and regulation to be undertaken at the national level, building on the best features of current State and Territory systems.
This approach would require:
- referral of State and Territory powers
- the development of national regulatory and prudential standards for all levels of operations under a tiered system that is proportional to size and risk
- a single, national regulatory body that has both a national and regional presence.
The advantages of this option would be derived from the certainty and clarity of a single national system and consistency across jurisdictional borders. Disadvantages may arise in the complexity of introducing the system, as well as the time required to put such a system in place.
4.1.4 Option 4: Harmonised State and Territory Regulation
Harmonised regulation across jurisdictions would provide a nationally consistent approach to regulation.
This model would require:
- cooperation between jurisdictions to amend legislation, regulation and contractual terms in line with a national regulatory model
- implementation of regulation in those jurisdictions that do not currently have such a system
- mutual recognition of regulatory legislation and other administrative arrangements.
The advantage of this approach would derive from continuity of regulation in those jurisdictions where regulations are now in place and gradual harmonisation over time of key principles. Disadvantages could arise in the length of time taken to achieve a consistent national system including the development of regulatory legislation in those States where there are none at present. Unless this option included agreement on mutual recognition, the multiple systems would require organisations to register separately in each jurisdiction in which they wished to operate, albeit under substantively identical conditions.
4.1.5 Option 5: A State - hosted National Regulator
This option would see either Option 1 or Option 3 implemented through a host State rather than the Commonwealth, building on experience and expertise already developed by the jurisdiction.
The model would require:
- nationally agreed regulations and standards
- agreement between jurisdictions on referral of authority
- Commonwealth support and assurance for the host State
- the need for a cross-jurisdictional management process.
This option provides greater ownership of the delivery of regulation by States and Territories and may be a timely process for achieving national consistency. Disadvantages could be encountered through the jurisdictional barriers to a harmonised approach as has been the past experience in this area.
4.2 Transitional arrangements to be considered
The community housing sector in Australia is largely composed of small providers with 88 per cent of providers managing less than 50 dwellings.26 Of the larger organisations, the top 4 per cent manage 43 per cent of all tenancies.
Only a select number of providers have pursued an active growth strategy. The emerging industry view appears to be that the ideal size for sustainable growth is 5000 dwellings per housing provider. No organisation in Australia has yet reached their full potential using this measure, however there is scope to manage the future transfer of properties or develop business models to maximise the capacity to upscale existing organisations.
If the trends already apparent in the sector continue further aggregation and consolidation will occur without additional intervention. The current drivers of this restructuring are, however, jurisdiction-specific and will not provide for the emergence of large-scale national providers. Transitional support for sector consolidation and growth is therefore likely to be needed to address:
- the costs of merger and up-scaling
- the challenges of acquiring expertise in large commercial enterprises and more complex financial management
- implementation of new information and reporting requirements.
Consideration could be given to establishing a government supported and funded advisory council and a development fund for affordable housing providers. This could take the form of a ‘centre of excellence’ to advise on leveraging models, development partnerships, availability of finance and financial models and/or a development agency to provide both expertise and funding for the costs of restructure and growth.
Questions:
What is the optimal scope of national regulation? Should it be limited to governance and prudential standards, or extend to tenant management standards?
Should the national framework include industry standards on matters already provided for by most States? How should the standards to be applied at national level be determined?
What does national regulation mean for existing relevant state regulation?
What are the best yardsticks/KPIs for (1) governance and (2) organisational health?
Should a national regulatory framework include accreditation? What is the minimum size or value of not-for-profit housing organisations that the Australian Government should seek to accredit?
Is accreditation just as important as regulation? Does accreditation cut down on the scope of legislation necessary?
What is the optimal balance between accreditation and regulation?
What developmental support would organisations require to support growth? How could this be delivered?