Schedule 3—Amendments to the National Rental Affordability Scheme
3.1
This chapter discusses Schedule 3 of the Social Services Legislation
Amendment (Housing Affordability) Bill 2017 (bill), which proposes amendments
to the National Rental Affordability Scheme Act 2008 (NRAS Act). The
view of the Senate Community Affairs Legislation Committee (committee) is
provided at the end of the chapter.
Background
3.2
The National Rental Affordability Scheme (NRAS) was introduced in 2008, via
the NRAS Act, to encourage large-scale investment in housing to address housing
affordability issues by both increasing the supply of affordable rental housing
and to reduce rental costs for low and moderate income households. To achieve
this, the scheme provides approved participants with a financial incentive for
a period of 10 years to rent dwellings to eligible tenants at a rate of at
least 20 per cent below the market rate.[1]
3.3
The scheme has been the subject of a number of reviews. The Australian
National Audit Office (ANAO) reviewed the scheme in 2015 and again in 2016.[2]
The 2015 ANAO report highlighted the need for 'effective planning and sound
administration if Government programs are to be successfully implemented and
are to achieve their objectives and expected outcomes.'[3]
The 2016 ANAO report further examined the effectiveness of the administration
of certain aspects of the NRAS by the Department of Social Services (DSS), and
concluded:
The regulatory framework governing the administration of the
National Rental Affordability Scheme could be reviewed to clarify the operation
of aspects of the Regulations.'[4]
3.4
In 2016, DSS initiated a consultation process to 'explore how the NRAS
Regulations and administrative practices could be further improved while
continuing to promote rental affordability policy outcomes.'[5]
3.5
In his second reading speech for the bill, the Hon. Christian Porter MP,
Minister for Social Services (Minister), noted that over 30 submissions were
received to the DSS' NRAS consultation, including a submission from the
Commonwealth Ombudsman which noted 'the need to improve transparency for
investors in the scheme' and made 'recommendations on measures to strengthen
the integrity and compliance of the scheme.'[6]
Following the consultation, DSS 'commenced a review of the scheme to address
the concerns raised by the ANAO, the Ombudsman and NRAS stakeholders' which
resulted in some regulatory amendments being made in January 2017.[7]
3.6
In introducing the bill, the Minister stated:
The amendments introduced in this bill clarify what were
ambiguous provisions in the NRAS Act and lay the foundation to strengthen and
simplify the future operation and administration of the scheme.[8]
Proposed amendments
3.7
Schedule 3 introduces four key changes to the NRAS
Act, to address existing provisions which 'have been identified that are
ambiguous in their application'.[9]
Amendments in Schedule 3 seek to the address this ambiguity to 'provide clarity
to approved participants and other relevant stakeholders.'[10]
The proposed changes impact: the rent being charged; the transfer of NRAS
allocations between dwellings; allocation vacancy periods; and, conditions of
NRAS allocations.[11]
3.8
Submitters expressed support for the proposed amendments to the NRAS Act
and welcomed the intent of the amendments to remove ambiguous elements and improve
existing operations of NRAS. For example, Darebin City Council submitted its
strong support for the 'removal of current ambiguous provisions' regarding NRAS
rent charged and the transfer of NRAS allocations to other dwellings. Darebin City
Council observed that these amendments 'directly meet the bill's stated
objectives.'[12]
Rent charged
3.9
A key objective of the NRAS is to reduce rental costs for low and
moderate income households by requiring that rents charged for NRAS allocated
dwellings are at least 20 percent lower than the market value rent for the
dwelling.[13]
There is some ambiguity in the current provisions, in that the below market
rate could be determined by averaging rents over the course of the whole year.[14]
3.10
The proposed amendment requires that every time rent is charged, whether
that is weekly, fortnightly, monthly or on any other basis, that rent must be
at least 20 per cent below the market value rent.[15]
3.11
DSS explained that the proposal would 'protect eligible tenants from
being subject to a higher rent at any time during the year by preventing the
approved participant from charging a higher rent for part of the year, and then
a lower rent for other parts of the year to compensate.'[16]
3.12
National Affordable Housing Providers Ltd. (NAHP) expressed support for
affordable housing rent charged at below market rent, however, contended that
the amendment did not go far enough in clarifying the ambiguity of the 20 per
cent below market rate provision. NAHP suggested that ambiguity still exists
for affordable housing providers calculating rent at 20 per cent below market
rate and outlined examples of instances where approved participants could fall
afoul of the rule.[17]
3.13
The Housing Industry Association (HIA) expressed support for the
clarification of rental discount and emphasised:
[I]t would be entirely counter to the objective of NRAS to
provide affordable housing to those otherwise in housing stress if the provider
were able to charge above the rental discount level at any stage during the
year.[18]
Transfer of allocations to other
dwellings
3.14
The EM outlines that from the inception of the NRAS it was predicted
that NRAS allocations may need to be transferred from one dwelling to another,
in order to address situations where an NRAS allocated dwelling was sold and
the new owner did not wish to participate in NRAS. Without the ability to
transfer allocations, such cases would lead to a significant reduction in the
stock of affordable housing provided under NRAS. The EM outlines the proposed
change would provide 'express legislative authority for the NRAS Regulations to
provide for the transfer of an allocation to another rental dwelling in certain
circumstances.'[19]
3.15
DSS submitted this proposed measure 'will provide clarity by giving
express legislative authority for the NRAS Regulations to provide for the
transfer of an allocation from one rental dwelling to another' and is 'crucial
to achieving the objects of the Scheme.'[20]
3.16
In introducing the bill, the Minister stated:
The ability to substitute dwellings is crucial to achieving
the object of the scheme, being to increase the supply of affordable rental
dwellings. As investors exit the scheme, the ability to substitute a
like-for-like dwelling ensures the level of NRAS housing stock is maintained.[21]
3.17
Submitters to the inquiry emphasised the importance of being able to
transfer allocations. NAHP informed the committee that 'it is essential to have
a clear transfer policy in place to retain the maximum number of dwellings in
[NRAS]' and noted the result of a recent survey it conducted suggest that 28
per cent of respondents were planning to, or considering, leaving NRAS prior to
their incentive ending. NAHP called for clarification of the transfer allocation
provisions to ensure the maximum number of allocations remain within the NRAS.[22]
3.18
New South Wales Federation of Housing Associations (NSWFHA) suggested a
clear transfer policy was essential to 'retain the maximum number of dwelling
in the Scheme [NRAS] and continue to provide affordable housing homes for
eligible households.'[23]
3.19
HIA submitted it was 'particularly pleased' with the proposed amendment
to enable the transfer of allocations to other dwellings. HIA observed:
This measure will ensure that the Scheme can meet its maximum
capacity to deliver affordable housing solutions over the intended lifetime of
the program.[24]
Vacancy periods
3.20
The current vacancy period provisions of the NRAS prescribe two types of
maximum vacancy periods. The first period covers one year and the second covers
a continuous period that crosses two years. The EM states the existing vacancy
period 'limits the Scheme's ability to adapt and develop in response to
emerging issues and demands and is contrary to the initial intent in relation
to how the Scheme should be administered.'[25]
3.21
The Minister stated the proposed change would 'assist in the future
administration of the scheme should changes be required on how the maximum
vacancy periods are to operate.'[26]
3.22
The issue of the vacancy period was raised during the 2016 NRAS
consultations undertaken by DSS. NAHP and NSWFHA submitted to DSS that approved
providers where unduly disadvantaged when a vacancy period spanned two NRAS
years, because even if there was a minimal crossover of the vacancy period to
the second NRAS year, the approved provider would receive nil incentive payment
for both years.[27]
3.23
Both NSWFHA and NAHP expressed support for the amendment proposed in
Schedule 3 to the bill.[28]
NAHP submitted to the committee that this amendment is a positive step to
reduce the prescriptiveness of the current provisions and to enable a more
flexible approach vacancy periods.[29]
Ms Carol Croce, Policy Officer, NAHP, explained:
We feel that this stops penalising approved participants for
a timing quirk of when the vacancy occurs and it appropriately addresses the
situation, particularly in rapidly changing rental markets such as some of the
former mining communities.[30]
Conditions of allocation
3.24
As outlined in the EM, proposed paragraph 8(ba) seeks to provide clarity
that amendments to the conditions of allocation can be made by NRAS
Regulations. The proposed amendment would provide a clear legislative authority
to vary conditions of allocation that are prescribed by the NRAS Regulations 'to
enable the Scheme to continue to respond to emerging issues that arise from
time to time.'[31]
3.25
The EM further outlines two key aspects of the proposed change:
-
the power to vary conditions of allocations cannot be used to
vary the conditions specifically provided for under the NRAS Act, to ensure the
NRAS Regulations cannot override the operation of the NRAS Act, and
-
a condition provided for by the Scheme may be imposed on an
allocation after it is made, to address emerging issues such as a safety
requirement to use certain non-flammable materials, or replace existing
dangerous materials.[32]
3.26
NAHP argued that the amendment to the conditions of allocation give DSS
a 'wide ranging power to significantly change the conditions of the allocation'
and recommended that parameters be included in the bill to indicate where it is
appropriate for DSS to significantly amend the conditions of allocation. NAHP
remarked of the amendment:
[T]his broad authority will result in investor uncertainty
and distress if there is an ongoing possibility that the conditions of
allocation can be varied and imposed at any time. Compliance with the new
conditions of allocation could result in unanticipated costs and possibly a
partial loss of the incentive if it proves difficult to comply with the new
conditions in a timely manner.[33]
3.27
DSS submitted that these new provisions will 'reduce the risk to the
Commonwealth when varying or imposing new conditions on allocations, such as
provisions to protect NRAS investors for the first time.'[34]
3.28
HIA expressed its support for the amendments to the conditions of
allocation and considered:
With the program [NRAS] extending for ten years it is
desirable to be able to adjust the scheme promptly to address unforeseen
changing market conditions.[35]
Investor safeguards
3.29
Whilst not directly related to a provision in the bill, the committee
received evidence from Mr Paul Donovan, Director, MDS Legal,
and Mr Neil Henson, Director, Henson Property Management Pty Ltd, concerning
the conduct of some NRAS approved participants.[36]
3.30
The committee notes that on 18 November 2017, the NRAS Regulations were
amended to specifically require an approved participant to pass on incentives
to an investor in a timely manner.[37]
The amendments to the NRAS Regulations enable investors to request the
Secretary transfer their allocation from the relevant approved participant to
another approved participant if the Secretary is satisfied on several stated grounds,
including when the relevant approved participant has:
-
failed to pass on an incentive to an investor;[38]
-
provided false or misleading information regarding NRAS to the
investor;[39]
and
-
acted in such a way in relation to the allocation as to
contravene consumer protection law.[40]
Committee view
3.31
The committee notes the government's commitment to improving the supply
of affordable housing. The committee welcomes the measures proposed in Schedule
3 of the bill.
3.32
Submitters to the inquiry supported the bill's proposed amendments to
the NRAS Act and noted the amendments seek to address ambiguous elements of
NRAS and support the bill's stated objectives. The committee notes some
submitters called for more flexibility in the application of the NRAS '20 per
cent below market rate' provision, and the committee would support further consideration
of this provision by DSS. The committee also recognises some submitters raised
concerns regarding the proposed amendment to 'conditions of allocation' via the
NRAS Regulations; however, the committee is satisfied the amendment proposes an
appropriate mechanism for the government to ensure NRAS operates as intended.
3.33
The committee was concerned to receive evidence from some submitters regarding
some NRAS approved participants potentially acting contrary to the intent of NRAS,
and to the detriment of NRAS investors and their property managers. The
committee would support consideration of the use of 'fit and proper person'
criteria in the assessment of applications for allocations. However, the committee
anticipates that the recent amendments to the NRAS Regulations will provide
effective safeguards for the concerns raised by submitters. The committee welcomes
the amendments to the NRAS Regulations and considers that NRAS now provides
more equitable protections for investors.
3.34
Reviewing, consulting on and amending the NRAS regulatory framework in
response to emerging market conditions and stakeholder feedback is an example
of good public administration. The committee anticipates NRAS will operate more
effectively as a result of the bill's proposed amendments.
Recommendation 5
3.35
The committee recommends that the bill be passed.
Senator Slade Brockman
Chair
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