Budget Review 2014–15 Index

Dr Matthew Thomas

The Government has determined not to proceed with Round 5 of the National Rental Affordability Scheme (NRAS), thereby achieving savings of $235.2 million over three years.[1]

The NRAS was introduced by the Rudd-Gillard Government in the context of the 2008–09 Budget as a part of its broader package to address housing supply pressures and as part of the stimulus package in response to the Global Financial Crisis (GFC). Under the scheme, the Australian Government provides an annual incentive to investors for up to ten years as a refundable tax offset or payment (a payment if the developer is a non-income tax paying organisation). This is augmented by a state or territory annual contribution which may take the form of cash grants, concessions on stamp duty or the provision of discounted land over the same period.[2] The tax free incentive is indexed each year to the rental component of the CPI. For the year 2014–15, the Australian Government contribution was to be $7,996, and the state or territory contribution, $2,665.[3]

Properties developed under the scheme are made available to low-income to middle-income earners at 20 per cent below market price for each of the ten years for which an NRAS incentive is received.

Initially, the NRAS was to provide $622.6 million over four years from 2008–09 for the development of up to 50,000 affordable rental properties across Australia by mid-2012.[4] If market demand was strong, the government was to deliver a further 50,000 properties from 2012 onwards. These figures were subsequently revised down to up to 35,000 new dwellings in the period up to 2014–15, with a further 15,000 dwellings to be supported beyond 2014–15.[5] 

As at 30 June 2013, 14,575 dwellings had been built and were either tenanted or available for rent under the scheme.[6] A further 23,884 incentives had been reserved—that is, the incentives had been taken up but not yet delivered. Hence, a total of 38,459 incentives had been allocated, were reserved or under offer throughout Australia. Clearly, these figures are below those originally anticipated.

The NRAS has had something of a difficult history.

Initial progress under the scheme was slow. Several reasons have been advanced to explain this sluggish progress. However, the main reason would appear to be that larger super funds and institutional investors—upon whom the scheme was to rely for its long-term viability—were not signing on. Instead, various consortia such as community housing associations and developers dominated the scheme.[7] Other reasons proffered for the scheme’s slow take up include: the GFC and an associated tightening of credit from banks for property investment; administrative hold-ups in assessing NRAS proposals that encouraged would-be investors to invest elsewhere; squabbling between state and local governments; and skills shortages faced by the construction industry.[8] Some commentators have observed that the proposed cuts to the scheme to help fund the Queensland flood relief fund—although they were subsequently vetoed—are likely to have undermined investor support for the scheme.[9]

More recently, the scheme has been the subject of some controversy, with media reports of universities having received NRAS incentives towards building accommodation for students. The reports argued that a significant proportion of NRAS dwellings have been allocated to university students, ‘and in many cases foreign students’, rather than to the low-income Australians for whom they were intended.[10] While the proportion of places calculated to have gone to university students under the scheme is likely to have been inflated, it nevertheless exposed what was, for some, an unintended outcome of the scheme. Further reports in The Australian revealed that two companies which had secured a substantial number of NRAS incentives to deliver properties in Western Australia had only delivered a relatively small number of properties thus far.[11]

While the NRAS has not exactly ‘taken off’ and does exhibit some problems it is, nevertheless, strongly supported by housing affordability peak bodies. It is widely recognised that there is a need to strengthen financial incentives to encourage investors to provide affordable private rental properties. And the strength of the NRAS in this regard is that it is the only Commonwealth taxation concession calculated to assist investment in private rental housing that actually links the tax concession to a consumer outcome.[12]

There is also some evidence that the NRAS could help to make inroads—albeit modest ones—into Australia’s housing affordability problem in the future. Modelling conducted by the Australian Housing and Urban Research Institute indicates that the scheme has the potential to lift a number of Australians out of their housing affordability problems.[13] It is important to note that a program similar to the NRAS that was started in the United States in the 1980s—the Low-income Housing Tax Credit—took seven years to attract institutional investors. The program, which started much like the NRAS with ‘mum and dad’ investors, has gone on to deliver more than 1.67 million units of affordable housing and is responsible for around 90 per cent of all affordable rental housing now created in the US.[14]

Australia’s housing affordability situation has been described as being in crisis.[15] Given that this is the case, arguably the nation can ill afford to lose the only federal housing program that provides for the construction of additional private housing stock made available at below-market rates.

The Budget provides $115.0 million to extend the National Partnership Agreement on Homelessness for 2014–15.[16] This will be welcomed by providers of homelessness services, a number of whom wrote to the Government earlier this year to warn of a crisis in service delivery should they not receive a guarantee of ongoing funding.[17] The one year extension of funding follows a similar commitment of $159 million by the Gillard Government for the previous year.[18] The Government has committed to working with state and territory governments and providers on future funding arrangements and providers will be hoping that these give longer term certainty.[19]

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