REPORT ON HOUSING ASSISTANCE

Navigation: Previous Page | Index | Next Page

 

CHAPTER 2 - Forms of housing assistance

2.1 Approximately 70 per cent of Australians live in owner occupied homes (made up of 45 per cent outright owners and 25 per cent purchasers), 28 per cent live in rented accommodation. In 1996, the renters were made up of 21 per cent in private rental and 6 per cent in public housing. [1] Reductions in capital spending on public housing since 1996 could lead to the percentage of Australians living in public housing falling below 6 per cent in future. [2] The rest of the population live in other types of accommodation including renting from family, living in hostels, boarding houses and caravans or are classified as `homeless'.

2.2 In the past 50 years, governments in Australia have provided housing assistance through the following major channels:

• by giving various subsidies to home owners in order to facilitate home ownership;
• by providing capital funding for public housing particularly through the Commonwealth/State Housing Agreement (CSHA) and subsidising public housing tenants; and
• by providing Rent Assistance to those who rent privately.

The majority of the funds for this assistance comes from the Commonwealth government, although the States make a substantial contribution.

2.3 In discussing the issue of housing assistance, the Committee notes that the availability of housing, especially of the type of low-cost housing that is the focus of this report, is not influenced only by direct housing assistance in the form of the provision of rent subsidies through public housing or direct cash payments for Rent Assistance. Indirect financial assistance in terms of tax concessions for owner-occupied housing and depreciation allowances for private rental properties, for example play an equally important role in shaping the housing market.

2.4 Australia has one of the highest levels of home ownership in the world. The majority of immigrants to this country, coming as they did from countries where renting was the norm found that owning one's own home offered a degree of stability and security that they welcomed after leaving homelands that were often in the midst food shortages, political turmoil or the aftermath of war. For over 50 years, Australian governments have implemented policies that have assisted the majority of Australians to purchase their homes. This has been done through the subsidies listed in paragraph 2.5 below. The Committee considers that those housing policies have served the majority of the population well in the past and that governments should continue to encourage Australians to own their own homes.

2.5 Subsidies to home owners include:

1. tax concessions (exemption from capital gains tax and from imputed rents);
2. concessional loans at less than market interest rates (through `capping' of interest rates for home loans and through the Commonwealth's Home Purchase Assistance Program); and
3. exemptions from State and Territory stamp duty for first home buyers.

2.6 At various times in the past, including between 1983 and 1991 when the government operated the First Home Owners Scheme, subsidies to home owners also included direct financial assistance with home purchase deposits.

2.7 According to the Department of Social Security (DSS), in 1995-96 the Commonwealth provided $563 million to low and middle income earners in repayable loans under the Home Purchase Assistance Programs supported under the CSHA. The department also estimated that some $1.567 billion was paid to more than 369,000 households under the First Home Owners Scheme which operated between 1983 and 1991. [3]

2.8 The New South Wales Department of Urban Affairs and Planning and the Department of Housing argued in their submission that:

For many, especially first home buyers, access to home ownership in high cost regions such as Sydney remains restricted. Approximately two-thirds of the private rental market cannot afford home purchase. The gap between eligibility for social housing and affordable home purchase is substantial with large numbers of private renters unable to access either tenures. [4]

2.9 It is possible to gain a perspective on how housing assistance is distributed if one looks at the subsidy for each tenure type. In its submission to this inquiry, the Australian Institute of Family Studies (AIFS) referred to consultant J.Flood's 1993 analysis conducted for the Industry Commission's Inquiry into Public Housing. While cautious about the quality of housing data in the past and aware that the figures quoted are now six years old, that analysis still provides a useful guide to the way in which housing assistance is distributed in Australia.

2.10 Flood calculated the average subsidy for each tenure type by looking at service flows. Service flow is the actual benefit received by a group. It includes direct transfers (for example rent assistance), net tax expenditures and other housing-related assistance such as public housing subsidies (relative to market rents) and concessional home loans (relative to market interest rates).

Annual service flow subsidy by tenure by household, 1990-1991 [5]:

public tenants	$2880
private tenants	$970
purchaser owners	$890
outright owners	$1890

2.11 Papers presented to the 1996 Council of Australian Governments (COAG) meeting quote the figures for the annual subsidy for public housing as being between $3500 and $4,000 per year ($90 per week) while private tenants receive on average a subsidy of about $1,600 (about $35 per week). [6] In its submission, ACOSS argued strongly that those figures did not reflect the real level of subsidy because:

The `average public housing subsidy' is an overestimate because it is based on dwellings not individuals. The Australian Institute of Health and Welfare estimates that, on average, 2.7 people live in each unit of public housing. Using the Commonwealth's own general estimates, this suggests that the average per capita level of assistance to public renters is in the order of $33 per week, not $90. [7]

2.12 The Committee notes that there are a number of different ways of measuring subsidies and that different results are obtained from such measurements. However, there is no doubt that under the current system, the public housing subsidy is considerably greater than the payment available to rent assistance recipients.

2.13 ACOSS also argued that it would be `more appropriate to compare the assistance given to people in public housing with that given to owner occupiers rather than private renters.' The Industry Commission report pointed out that `home owners in the highest quintile receive about twice the assistance of home owners in the lowest quintile [8] (because they benefit more from the government's concessions to home owners since they have higher tax rates and higher imputed rents). The Committee notes that looked at in this way, the subsidy to home owners would be within the same range as that received by people in public housing. Purchasers in the highest quintile also benefit from more assistance than other purchasers. [9]

2.14 In its submission, National Shelter stated that the Commonwealth provides housing subsidies to owner-occupiers and private landlords in the following ways:

• Taxation provisions for home owners and purchasers which exempt the principal place of residence from capital gains and do not subject the rental value of ownership to taxation;
• Depreciation allowance for newly constructed private (rental) dwellings; and
• Negative gearing provisions for private landlords. [10]

2.15 National Shelter also referred to the `marked vertical inequities' in the housing subsidy system and pointed out that `20 per cent of assistance goes to households on the highest 10 per cent of incomes'. [11] Although the figures quoted in paragraph 2.10 above give no more than an indication of the level of housing subsidy provided by governments to different types of households, they do provide an indication that the housing assistance system operates differently within each type of tenure.

Who receives housing assistance?

2.16 In the early 1970s, Professor Ronald Henderson conducted a wide ranging inquiry into poverty. He found at that time, that the majority of people in public housing were relatively well off and enjoying the benefits of a generous housing subsidy while many of those who were really in need of affordable housing were not able to access public housing. Two decades later, in its 1991 report on Public Housing, the Industry Commission found that direct assistance was increasingly better targeted to low-income households. [12] Better targeting of public housing is the result of policies followed at both Commonwealth and State levels since the early 1970s.

2.17 The evidence before the Committee in this inquiry certainly suggests that direct housing assistance is now distributed more equitably: the largest amounts of direct financial assistance for housing go to those who have the lowest incomes and level of assets. The majority of public housing tenants (the form of tenure that attracts the highest subsidy from both federal and state governments) have very low income. Nationally, 90 per cent of public housing tenants receive some social security benefits, 78.2 per cent relying on benefits as their main source of income. [13] Rent Assistance, the other form of direct housing assistance is only available to social security recipients who have been income-tested to assess their eligibility.

2.18 Nevertheless, a number of submissions expressed concern at the inequities between subsidies to public housing and low-income private renters on the one hand and subsidies to owner-occupiers and home buyers on the other. [14]

Direct and indirect housing assistance

2.19 The Committee has found it necessary in this inquiry to draw a distinction between those two types of housing subsidies referred to in submissions. The first type is direct housing assistancethrough the CSHAto the States for public housing or to private rental tenants through the Rent Assistance program. The other type of subsidy for housing is indirect housing assistance given to home owners and home buyers in the form of exemption from both Federal (capital gains tax and imputed rents) and State and Territory taxes (land tax and stamp duty). Expenditure for the first (direct housing assistance) is a matter of budget allocation for specific programs while the cost of the second can only be an estimate of foregone or `lost' revenue.

2.20 Since subsidies to owner-occupiers and home buyers operate through the taxation system, they result in those on the highest income receiving the highest subsidy because higher income earners tend to have the most valuable properties from which they can make the biggest capital gains and the biggest savings on imputed rents. Until recently, that group would also have benefited more than their counterparts with less expensive homes and lower incomes from the government's cap on mortgage interest rates. A number of submitters to the Committee argued that such a system was not equitable either towards home buyers on moderate incomes or towards those more needy low income people who receive a (relatively lower) direct cash payment for Rent Assistance. [15]

2.21 Those submissions also argued that if the subsidies for home ownership and home buying were scaled back to a lower level or abolished altogether, there would be increased funds available for direct housing assistance. [16] This would permit an increase in the current stock of public housing and in the level of Rent Assistance in order to alleviate the dual problems of long waiting lists and affordability faced by lower income people. As discussed in the next paragraph, although revenue from taxation could be seen as a source of funding for public housing, there is no guarantee that such revenue would in fact be spent on housing.

A taxation reform issue

2.22 Although the arguments presented in submissions may appear on the surface to involve a simple transfer of funds from one relatively well heeled group of people receiving higher levels of housing assistance to a low income needy group which receives less assistance, in fact, it raises more complex issues of how budget allocations should be made within the social welfare portfolio. Funds raised through any increases in taxation on housing will not necessarily be spent on housing. Once the funds have gone into Consolidated Revenue, they may be allocated to any portfolio area and it may prove difficult to ensure that they are spent on housing assistance.

2.23 The Committee considers that the whole area of indirect housing assistance provided to owner-occupiers and owner-buyers impacts directly on questions of inequities in the taxation system and is too broad and too complex to discuss in detail within the terms of reference of this inquiry. They are issues that should be raised in the context of the current debate about taxation reform. The Committee notes that issues of depreciation allowances for rental property and the impact of negative gearing arrangements on the rental market have already been raised in the debate. [17] The Committee will return to those latter issues in Chapter 6 of this report.

What constitutes housing need?

2.24 The issues canvassed above indicate the complexity of the task facing the Commonwealth and the States in attempting to reform the current system of housing assistance. The Committee considers that if reform is to be successful in this area, it has to be based on a sound evaluation of current practices in order to ascertain which aspects of the system are worth retaining and which aspects need to be improved or discarded. In a policy area where so many different governments are involved (Commonwealth, States and Territories) it is important for common goals to be established so that all participants agree on the outcomes they wish to achieve. This has not only proved difficult in this area in the past but all the players have yet to reach agreement on what constitutes `housing need', let alone how best to meet that need.

Public housing waiting lists

2.25 There were references in submissions to public housing waiting lists under the heading `housing need'. [18] The Committee took the view that although the length of public housing lists are often quoted to indicate a severe shortage of affordable housing, they are a poor indication of housing need levels in any particular state, not least because people remain on them even after they are no longer seeking public housing in that State.

2.26 Nationally, around 12 per cent of applicants wait more than five years for public housing but that figure conceals wide differences between regions. For example the Committee was told that in Victoria, an older person could have a wait of up to 10 years for public housing [19] and in Sydney a witness with a disability (who presumably qualified for the priority list told the inquiry that he had had a wait of five to six years. [20]

2.27 Housing policy within a state may impact directly on how many people choose the public housing option. Thus in 1995-96, 24 per cent of South Australian households on that state public housing waiting lists had been waiting for five or more years while in Queensland, less than 1 per cent had had such a long wait. [21] These figures reflect the fact that in South Australia, there are no specific (upper) income limit to be eligible for public housing whereas in Queensland, households must be earning less than $55,000 to qualify for public housing.

2.28 While recognising that the length of public housing lists is a source of great frustration for people in need of that form of housing, the Committee has found it more useful to canvass other aspects of `housing need'.

Lack of data

2.29 The major submissions to the inquiry pointed to the problems posed by the absence of an agreement on how to measure housing need in order to identify who should have priority in receiving the assistance being offered. The Director of Ecumenical Housing, expressed the view that:

In this country we do not yet have agreement about who is in housing need, nor about whether that housing need should be measured simply by an affordability instrument or benchmark or whether there needs to be some degree of appropriateness. Until such time as all levels of government and the community agree upon that, we do not really know what we are talking about in terms of a housing assistance strategy. [22]

2.30 Similarly, National Shelter's submission stressed that the lack of consistent measurements impeded the development of sound housing assistance policy:

The lack of a clear understanding and measure of housing need means that there is no agreed strategy for achieving appropriate and well targeted housing assistance. This presents a major difficulty in evaluating housing policy, in particular housing assistance measures. [23]

2.31 Whatever model is developed to measure the complex concept of `housing need', it entails making value judgements on behalf of other people about what is `appropriate' or `affordable' housing. The basis on which those judgements are made can be challenged. This raises the fundamental issue of the quality and reliability of the data on which to base those value judgements. A number of submissions suggested that the housing indicators currently used presented a problem. The Australian Institute of Family Studies' (AIFS) expressed concern about:

The limitations of that [the housing indicators approach] style of analysis, which is currently in fairly wide use in housing policy circles through the Productivity Commission, the Institute of Health and Welfare, and indeed in the Department of Social Security... the housing indicators as a set of research tools are fairly poorly developed and provide a fairly imprecise basis for the development of a sound housing policy. [24]

2.32 The Australian Institute of Health and Welfare's submission supported the AIFS's assessment that the housing indicators available were not standardised and could be unreliable. The submission noted that data quality presents a problem and that different surveys appear to come up with different number of households in receipt of assistance. [25] The situation is further complicated because:

A significant issue in examining housing assistance is the unit of analysis, also referred to as the counting unit. Current data systems use different units and there is no agreed standard unit of analysis for housing assistance. [26]

In the Institute's view, the data collection methods used must be consistent so that the final product is one on which reliable comparisons both between States and between types of housing assistance can be made. [27]

2.33 Lack of reliable data was also the theme of the presentation made in Melbourne to the Committee by the Australian Housing and Urban Research Institute (AHURI). AHURI argued that this impeded any analysis of the effectiveness of housing assistance for particular disadvantaged groups and the ability to compare the relative situation in various States and Territories:

We do not believe we know enough about the differentiation of rental submarkets in Australia on either the demand or the supply side, especially with respect to income, demographically and culturally induced lifestyle factors and location ... We think there are related to that large data gaps at the moment which hinder us researchers, policy advisers and governments from being able to do the necessary research. [28]

2.34 The Committee strongly supports the call for more research to be carried out. It notes, however, that research projects currently being conducted by AHURI itself (and to which it refers in its submission to the Committee), by the National Centre for Social and Economic Modelling (NATSEM) and data collected by the Australian Institute of Health and Welfare attest to the fact that the situation is infinitely better than it was a few years ago.

2.35 The evidence put to the Committee suggests that there is still room for improvement in the quality of housing data currently being collected. In particular, those bodies involved in the collection of housing data need to ensure that they reach agreement on the methodology to be adopted.

Recommendation 1: The Committee recommends that the Commonwealth government continue to support the expansion of research and data collection in all areas of housing, particularly those relating to the private rental market.

In particular, the Committee recommends that additional funds be allocated to develop consistency, uniformity, standards (including a definition of `housing need') and benchmarks for analysis and evaluation purposes in all areas of research concerning public housing.

Affordability benchmarks

2.36 The concept of affordable housing involves making value judgements about what proportion of household income can be spent on housing without endangering that household's capacity to meet its needs for other essential items of consumption for day to day living. Inevitably, different groups hold different views about what is the fairest way to approach this evaluation. In the early nineties, the National Housing Strategy (NHS) proposed the adoption of an overall benchmark of between 25 and 30 per cent of income as a maximum that households should spend on their housing. [29]

2.37 Social housing programs in other countries, notably in Canada, also used a 25 per cent to 30 per cent benchmark for housing affordability. The National Housing Strategy was particularly concerned to point out that those income units in the lowest 40 per cent of gross income distribution could not be expected to pay more than 25 per cent of their income in rent if they were to be left with sufficient funds to meet their other needs adequately. [30] The NHS approach has been criticised in some quarters as being too rigid and unrelated to what different households, especially those in crisis, need to spend on essential non-housing costs. [31]

2.38 Housing affordability is not a concept that can be viewed in isolation from housing adequacy. A household has many needs, one of which is a need for shelter. The proportion of income spent on satisfying the need for shelter directly affects the amount left for meeting other essential needs. Those include the need to be fed and clothed but also accessibility to health, educational and other services. ACOSS was one of many welfare organisations to point this out in its submission to the Committee:

Affordability benchmarks are the maximum amount that low income tenants can afford to spend on housing if they are to be left with sufficient income to meet other reasonable needs. As such, they are a measure of non-housing costs. [32]

2.39 For those on very low incomes, including social security recipients, the cost of housing (and what it leaves them to live on) is a crucial determinant of whether or not they live in poverty. In discussions about housing need, a distinction is sometimes made between basic need and housing-related need. Basic need is usually assessed in relation to the Henderson poverty line to which number of submissions to the Committee have referred.

2.40 The Australian Institute of Health and Welfare set out the relationship between the types of need and the Henderson poverty line in the following way:

Households with net incomes below the Henderson [33] after-housing poverty line are considered to be in basic need: to have insufficient income to maintain a minimal or basic standard of living and to have no capacity to pay housing costs. Households are considered to be in housing-related need if their current housing costs are greater than that deemed affordable, or they are overcrowded and cannot afford housing of an appropriate size or both. [34]

2.41 The Committee notes that the Department of Social Security rejected the Henderson poverty line approach stating that `judgements of what constitutes poverty' in that context are `arbitrary'. [35] In the Committee's view, the important question is whether the household has both enough finance to meet adequately both its housing and essential non-housing needs (such as access to essentail services).

2.42 In its more recent work in the area of housing affordability, the Australian Institute of Health and Welfare (AIHW) has developed a more sophisticated model taking into account differences in the size of the household, its composition and location in determining the proportion of income that that household can afford to spend on housing. While the AIHW model has much to recommend it because of its sensitivity to differences in the financial situations of low income households, the Committee recognises that the adoption of such a model would pose major problems of administration for a government department.

2.43 Nevertheless, regional differences in the private rental market suggest that a more flexible system of determining affordability might be called for in future. While State Housing Authorities operate on the basis of the 25 per cent benchmark and a number of public housing tenants pay 20 per cent or less of their income in rent, affordability remains a major issue for low income renters in the private market. The Department of Social Security's Rent Assistance program seeks to address problems of affordability. The Committee will discuss the issue of Rent Assistance (RA) payments in more detail in Chapter 4.

2.44 The Committee also stresses that it sees an adequate standard of housing as being an essential aspect of the concept of `housing need'. If a tenant is not paying more than 30 per cent of his income in rent but has to contend with substandard housing and cannot expect the landlord to carry out any necessary repairs, it can hardly be said that that tenant's need for affordable housing is being met. Issues relating to tenants' rights and advocacy on behalf of disadvantaged tenants will be discussed in Chapter 5 of this report.

2.45 The CSHA provides an essential framework for the development of a National Housing Policy in Australia based on clearly defined proposals and specific outcomes. This policy would not only define respective State and Commonwealth roles and responsibilities but include a joint commitment and a shared vision. Development of a new national housing policy should, on occasions, include consultation with representatives of peak housing and community organisations, the building industry and from the real estate sector.

Recommendation 2: The Committee recommends that the Commonwealth and the States negotiate to reach agreement on affordability and adequacy benchmarks to be used in setting the common goals to be reached under the Commonwealth State Housing Agreement.

Navigation: Previous Page | Index | Next Page

 

FOOTNOTES

[1] Australian Bureau of Statistics, Housing Australia, A Statistical Overview, 1996 p. 17 and Submission No.261, p.3 (DSS).

[2] Note: In the 1997-98 Budget, the Commonwealth decided to reduce funding levels for the CSHA by $ 50 million per year. Portfolio Budget Statements, 1997-98, Social Security Portfolio, p. 160.

[3] Submission No.261, p.6 (DSS).

[4] Ibid.

[5] Submission No.79, p.4 (AIFS).

[6] Council of Australian Governments' Meeting, Communique, 14 June 1996, Canberra.

[7] Submission No.282, p.32 (ACOSS).

[8] Industry Commission, Public Housing vol 1:Report, Canberra, AGPS, 1993, p.21.

[9] Submission No.282, p.32 (ACOSS).

[10] Submission No.200, p.3 (National Shelter). Not subjecting the rental value of ownership to taxation refers to the fact that home owners do not pay rent for their accommodation whereas renters pay taxation on the income they use to pay rent. Taxing the value of the income that could be received if the dwelling was rented is sometimes called taxing `imputed rent' Negative gearing is where the income received from a rental property is less than the costs of the property, the main cost being repayments of loans used to purchase the dwelling. Investors may use the loss to offset taxation on income earned in other ways.

[11] Submission No.200, p.13 (National Shelter).

[12] Industry Commission, Public Housing vol 1:Report, AGPS, Canberra, 1993, p.21.

[13] Australian Bureau of Statistics (ABS) Renters Survey, AGPS, Canberra, 1994, p.28.

[14] Submission No.282, p.32 (ACOSS).

[15] Submission No.200, p.42 (National Shelter), Submission No.282, (ACOSS).

[16] Ibid.

[17] Laurence, M. `Good Bye Negative Gearing', Business Review Weekly, 22 September 1997, pp.50-54.

[18] For example, Submission No.237, p.1 (Council of Social Service of NSW).

[19] Transcript of Evidence, p.90 (Mr Fiedler).

[20] Transcript of Evidence, p.175 (Mr Harris).

[21] Steering Committee for the Review of Commonwealth/State Service Provision, Report on Government Service Provision, Melbourne, 1997, vol.1, p.244.

[22] Transcript of Evidence, p.72 (Mr Bisset).

[23] Submission No.200, p.22 (National Shelter).

[24] Transcript of Evidence, p.5 (Dr Winter).

[25] Submission No.184, p.3 (AIHW).

[26] Submission No.184, p.4 (AIHW).

[27] Submission No.184, p.5 (AIHW).

[28] Transcript of Evidence, p.3 (Professor Berry).

[29] The National Housing Strategy, The Affordability of Australian Housing, AGPS, Canberra, 1991, p 6.

[30] Ibid.

[31] Karmel, Rosemary `Some Issues in Estimating Housing Needs in the Private Rental Sector', Australia's Private Rental Market: Processes and Policies, Australian Housing and Urban Research Institute, Working Paper No.9, 1997, p.108.

[32] Submission No.282, p.25 (ACOSS).

[33] The 1973 Commission of Inquiry into Poverty chaired by Professor Ronald Henderson established a benchmark against which to measure family or individual income units. It became known as the Henderson poverty line.

[34] Australian Institute of Health and Welfare, Australia's Welfare Services and Assistance 1995, AGPS, Canberra, 1975, pp.50-51.

[35] Submission No.261, p.14 (DSS).