Public Rental Housing Policy: Learning the Lessons from Overseas


Research Paper 6 1997-98

Dugald Monro
Social Policy Group

Contents

Major Issues Summary

Introduction

The Australian Public Housing System in International Context

Germany

Social Housing
Cash Housing Assistance
Policy Developments

New Zealand

Public Housing
Accommodation Supplement
Policy Developments

United Kingdom

Public and Social housing
Housing Benefit
Policy Developments

United States of America

Public and Social Housing
Rent Assistance
Policy Developments

Australian Policy Developments

Implications of Overseas Experience for Australia

Affordability of Housing for the Recipient of Assistance
Shortages Of Available Rental Stock For Low Income Recipients
Rent Increases in the Private Rental Market
Housing Programs Reducing The Incentive For Recipients Of Social Security To Seek Work
Social Problems Caused By Increased Concentrations Of Very Low Income Earners In Public Or Social Housing Stock
Increases In The Cost Of Assistance To Governments

Conclusions

Endnotes

Major Issues Summary

This paper examines four overseas countries: Germany; New Zealand; the United Kingdom (UK) and the United States of America (USA). All of these countries have, like Australia, changed their housing policies in order to increase the emphasis on cash assistance for low income renters and reduce the reliance on the provision of public (or as it is called in some countries, social) housing. It is intended to see whether there are lessons from these countries for Australia in relation to any moves to further rely on rent assistance instead of the provision of additional public rental housing.

Considerable adverse consequences have been claimed as a result of the housing assistance policy changes in the overseas countries. These include:

  • housing becoming more expensive for the individual in receipt of assistance
  • shortages of available rental stock for low income earners
  • rent levels increasing in the private rental sector
  • housing programs reducing the incentive for recipients of social security assistance to seek work
  • social problems caused by increased concentrations of very low income earners in public or social housing stock, and
  • large increases in the cost of assistance to governments.

That increased reliance on rent assistance has produced affordability problems for recipients of assistance has been a been major concern in New Zealand and the USA, but not in Germany or the UK. This difference arises as the cash payment systems vary considerably. In Australia the rent assistance available to private tenants is less generous than the assistance offered through the public housing system, so a move to increase reliance on rent assistance could be expected to increase affordability problems. However the UK and German experience shows that it would be possible to change rent assistance to avoid this.

The production of shortages of rental stock for those on low incomes, and consequently increases in homelessness, has been a major criticism of housing policies in Germany, the UK and the USA. In all these countries the private sector was expected to expand as a result of increased reliance on rent assistance and the scaling down of public or social housing provision. Sufficient expansion of the private rental sector did not occur. In Australia some have argued that there is an adequate supply of private rental housing for low income earners. If this view is correct then a move to further reliance on rent assistance instead of the provision of public housing should not lead to shortages. However, should an expansion of rental stock prove to be necessary, the overseas experience suggests that the private sector would not supply it.

That increases in private sector rents have been caused by increased reliance on rent assistance payments has been a major criticism of overseas policy changes. In Australia rent assistance has been significantly increased since the early 1980s but this does not appear to have resulted in increases in private sector rents. Differences between the structure of rent assistance payments in Australia and the other countries is the likely explanation. Thus the overseas experience is not a guide to the results of further increases of rent assistance in Australia, unless major changes were made to the structure of the rent assistance payments, or shortages in private sector rental accommodation were produced.

Work disincentives have been seen as arising from housing programs where rent increases or reductions in housing assistance result from taking up employment. In Australia public housing tenants face slightly higher possible work disincentives than do recipients of Department of Social Security (DSS) Rent Assistance. In both cases possible disincentives are higher than the arrangements introduced in some overseas countries. This points to the importance of the design of assistance structures in any future changes to public housing policy.

Considerable concern has arisen in the overseas countries, as in Australia, about the results of having public housing estates entirely or mainly tenanted by very low income recipients. The overseas experience suggests that any move to further rely on assistance through the private rental market is likely to further increase this problem. Two broad solutions have been used overseas to attempt to overcome this problem:

  • encouraging a greater mix of income levels and family types in public housing estates so that very low income earners and those with special problems do not predominate; or
  • providing public housing in small developments so that it is well integrated into the broader community.

In the UK and Germany the moves towards assistance through cash assistance rather than the provision of a stock of public or social rental housing have been seen as resulting in large cost increases for governments. Two main reasons have been advanced. Firstly, that rent assistance pushed up rents in the private market, thus increasing the amount of subsidy required. Secondly, that increases occurred in the level of need. Where cash payments are paid on an entitlement basis, as in the UK, Germany and Australia, increased need results in increased expenditure. This does not necessarily occur with the provision of public rental housing as governments determine the level of funding. In Australia, rent assistance is paid on an entitlement basis but public housing assistance is not entitlement based, so a further move towards the provision of assistance through cash rent payments could result in cost increases, should need increase.

It is not possible, from the overseas experiences, to draw an unequivocal answer to the question as to whether Australia should continue further down the path of relying on cash assistance, rather than the provision of public housing, in order to assist low income renters. However the overseas experience does suggest that there are four points that should be considered in the implementation of any such policies in Australia:

  • close monitoring of the private rental market would be required to ensure that shortages of rental accommodation for low income earners did not occur
  • rent assistance payments would need to be carefully designed to ensure that financial hardship was not created, increases in private sector rents were not encouraged and that work disincentives were minimised
  • provision in the public or social housing sector would need to be made for low income recipients with special needs as the private market is unlikely to cater adequately for many such tenants
  • measures would be needed to reduce the social effects of the increased concentrations of disadvantaged tenants in public housing that such policies would produce.

Introduction

In recent years the Commonwealth Government has increasingly relied on cash payments for rent assistance to assist low income recipients with the cost of their housing. Rent assistance paid through the Department of Social Security (DSS) has replaced expenditure through the Commonwealth State Housing Agreement (CSHA) as the Commonwealth's major program of expenditure to assist low income renters. Since 1995 proposals for reform of public housing financing have been advanced which would take this process further by ceasing Commonwealth funding for the provision of public housing and making rent assistance payments the Commonwealth's contribution to assisting low income earners in both public and private rental housing.

Such proposals will not be implemented in the immediate future. The 1997 budget extended funding through the CSHA until 30 June 1999, the date the 1996 CSHA expires. Arrangements to replace the current CSHA when it expires have not yet been determined,

Despite the extension of the current CSHA the trend towards greater reliance on rent assistance is likely to continue. Currently discussions are being held between the Commonwealth and the States on possible reforms to public housing within the context of the 1996 CSHA. Such discussions appear likely to result, at least in some States, in an increased emphasis on the private rental market and rent assistance as the method of assistance for low income recipients. this could result in public housing becoming increasingly confined to those leaving homelessness and people with special needs, such as people with disabilities.

Australia is not alone in the trend towards relying on cash assistance to individuals instead of funding or subsidising the provision of public, or as it is known is some countries social, housing. Since the late 1970s a number of countries have moved in this direction. Given the likelihood of an extended debate on housing policy in Australia until decisions on the arrangements to apply after 30 June 1999 are taken, it is an appropriate time to examine the overseas experience and see what lessons there are for Australia.

This paper examines four countries which have increased reliance on cash assistance for housing: Germany; the UK; the USA and New Zealand. For the purposes of this paper 'social housing' is regarded as any rental housing funded or subsidised by government which is aimed at meeting a social need, such as the need of low income recipients for affordable and appropriate housing. This definition includes taxation measures which are tied to social purposes, for example taxation credits for rental housing in the USA which are restricted to developments with tenants who are below specified income levels. It does not include taxation measures for rental housing generally which are not tied to social purposes, such as the Australian measures providing depreciation for investment in rental housing or the provisions allowing 'negative gearing' (the ability to use losses on investment in rental housing to offset taxation on income earned from other activities). These measures are not restricted to rental housing aimed at meeting specific social needs, such as housing low income earners.

One difficulty in drawing conclusions for Australia from the countries considered is that changes to the structure of the housing assistance programs sometimes occurred together with changes to the total funding level being made available. Also changes to housing assistance have sometimes occurred together with changes to other programs. For example in the UK housing assistance changes were accompanied by a reduction in expenditure on housing assistance and by the removal of rent control in the private market. Similarly in New Zealand housing policy changes occurred together with overall reductions in welfare payments. Such factors make it difficult to isolate the results of the changes to the structure of housing assistance although attempts to do so have been made in this paper.

The paper commences with a general overview of how Australia's public housing system compares with that of the other countries considered. Then each of the other countries is briefly examined in turn. This is followed by a consideration of the major issues which have arisen in these countries as a result of the shift towards cash assistance in order to see whether these issues would apply to Australia.

The Australian Public Housing System in International Context

The Australian public housing system is relatively unusual internationally. Australia has a dual system of assistance with private tenants receiving cash assistance through the DSS (total expenditure $1.6 billion in 1995-96) and public tenants receiving assistance through 'rebated' rents. Funding for public housing is provided by the Commonwealth Government through the CSHA ($1.1 billion in 1995-96). The Commonwealth provides grants to the States which the States use for the construction or purchase of public rental dwellings. (Commonwealth grants can also be used for other purposes including renovation of existing public stock and short term assistance such as help with bond payments). States charge rents based on a proportion of the tenants income up to, in most States, a 'ceiling' level based either on market levels or the cost of provision. The 'rebate' is the theoretical difference between the rent paid by the tenant and the 'ceiling' rent for the dwelling. It is not a cash payment to the tenant.

The basis of the assistance differs between the two systems so a public tenant on a similar income and in a similar house to a private tenant is likely to receive a different amount of assistance. Rents in public housing vary between the States but generally a public tenant pays around 20 per cent of his or her income as rent. By contrast, the formula for the DSS Rent Assistance received by a private tenant does not result in a rent based on a percentage of income. Up to set levels of private rent (currently between $71.60 and $139.60 per fortnight, depending on family composition) no DSS Rent Assistance is paid. Once the minimum rent levels are reached, assistance is available which equals 75 per cent of the difference between the minimum rent levels and the rent actually paid. The amount of assistance is subject to maximum amounts, which are currently between $70.60 and $98.90 a fortnight, depending on family composition. This system results in the effective rent (rent paid less rent assistance received) varying as a proportion of income with the level of rent paid and with the income of the recipient.

In most circumstances the level of assistance is higher for public tenants. The DSS has calculated that on average DSS Rent Assistance recipients receive around $1,600 a year while the average value of the subsidy to public tenants is around $4,000 a year.(1)

None of the other countries considered has the Australian arrangement. The most common arrangement overseas is for rents in public housing to be at fixed levels, i.e. the rent stays the same irrespective of the tenant's income. Assistance to enable low income public renters to afford these rents is provided through cash assistance which is calculated in the same way as that available to private tenants. Of the countries considered, Germany, the UK and New Zealand have this system. In Germany and the UK public or social housing rents are calculated on the cost of providing the housing, while in New Zealand the rents reflect market values.

The USA public housing system is currently the closest to Australia in regard to the delivery of subsidies to public tenants. As in Australia cash assistance is available to private renters while public renters pay rents on an income related basis. However the system differs from Australia in that assistance in the private rental market is not available on an 'entitlement' basis as in Australia (there is an automatic entitlement to assistance provided the applicant meets the eligibility criteria) but is limited by the total amount of funds made available by the federal government. As a result, in the USA assistance in the private market is subject to waiting lists. Also, unlike in Australia, in the USA the level of assistance provided to individuals in the private market is broadly comparable to that provided in public housing. The USA has two systems of subsidised rental housing. In what is known as 'public housing' rents are set as a proportion of the tenants income. The second system, called 'affordable housing', operates more like social housing in the UK or Germany than public housing Australia. In 'affordable housing' government subsidies are provided for rental housing for low income earners. Rents do not vary with the tenants income but are at fixed levels, generally below the market levels.

As well as differences in the way subsidies to low income tenants are organised there are differences between the countries considered in the type of organisation which provides public or social rental housing. In Australia, State governments are the main providers, although since the late 1970s a small community housing sector with dwellings provided by local governments and non-profit non-government organisations has developed. A more marked trend away from the provision of public or social housing by governments towards provision by the non-government organisations, including profit making as well as non-profit bodies, has occurred in some overseas countries, particularly the USA and the UK.

In the USA governments, usually local, were the original providers of subsidised rental housing. However since the early 1980s a range of programs has provided subsidises to non-profit organisations and/or the private (profit making sector). There is now more subsidised housing for low income earners provided by private and non-profit organisations than provided by governments.

In the UK traditionally local governments were the main providers however housing associations (non-profit non-government organisations) have, since the 1980s, been the main providers of additional social housing. As a result of earlier provision the majority of stock is still held by Councils. A recent development has been to allow private profit making companies as providers, although very little of this has yet occurred.

In Germany most social housing has always been provided by the non-government sectors, both for profit and non-profit organisations. In recent years the private for profit sector has been actively encouraged over the non-profit sector.

New Zealand is similar to Australia with governments (both national and local) being the main provider, although a small non-profit sector has developed.

The following table shows the proportion of public or social housing provided by non-government providers (profit-making or non-profit) in each of the countries considered. Differences in definitions and measurement techniques makes fine comparisons between the countries difficult, so the table should be treated as indicative only.

Table 1: Percentage of Social Rental Housing Provided by Non-Government Organisations

        Country                     %            

Australia                            8 *         

Germany                            100           

New Zealand                          3           

United Kingdom                      20           

United States of                    60           
America                                          


Source:(2)
* This is based on the Industry Commission definition which encompasses a broad concept of community housing, including housing provided under Aboriginal and Torres Strait Islander programs and crisis accommodation programs as well as housing programs.

Another major difference between the countries considered is that of the size of the public or social housing sector. Measuring the size of the public or social housing sector by the proportion of the total housing stock that is public or social housing shows that both the UK and Germany have a considerably larger public or social housing sector than Australia. However in both countries the proportion of the stock which is social housing has fallen in recent years. The social housing stock in New Zealand and the USA, is, like Australia's, considerably smaller than that of the UK and Germany. As was the case with the composition of the social housing stock discussed above, differences exist in the definitions of public or social housing and the techniques used for measurement. Accordingly the table below should be treated as indicative only.

Table 2: Percentage of Total Housing Stock that is Social Rental Housing

          Country                     %            

Australia                             6            

Germany   (former West               18            
   Germany only)                                   

New Zealand                           9            

United Kingdom                       22            

United States of America        less than 5 *      


Source:(3)
* Figures from the USA on a consistent definition with the other countries are not available. The US Bureau of the Census gives a figure of 5.3% which includes rental voucher and certificate assistance, some of which is in the nature of rent assistance, not subsidies to providers. When these cases are taken out, the figure is likely to be under 5 per cent.

Germany

Social Housing

In Germany social housing is provided by non-government organisations including both profit making and non-profit organisations. The non-profit organisations include large scale 'cooperatives' owned by unions which operate nationally.

Financing for social housing is provided by the federal government in the form of low interest loans, and, in some States, cash subsidies to providers. Terms of the loans are thirty years, although loans can be paid out earlier. While the loans are being paid back (or the cash subsidies received) the dwellings are regarded as 'social housing'. While regarded as social housing rents are controlled and based on the cost of provision. Tenants of a project may be chosen by the local government. Once the loans are paid back (or cash subsidies cease), the dwellings become regarded as private rental housing. Then rents may be increased, although limits apply as to how quickly rents may be increased for existing tenants. These limits apply to all private rental housing, not just former social housing. However, on vacancy the landlord can charge any rent the market will accept. Also, once the dwelling becomes private rental the landlord chooses the tenants. All private tenants in Germany are guaranteed security of tenure. This means that a tenant can stay in a dwelling as long as they like and only be evicted following a court order. These are made only in defined circumstances such as:

  • non-payment of rent
  • damage, anti-social behaviour
  • dwelling is needed for occupation by the owner or immediate family.

This contrasts with the situation in Australia where private tenants normally only have a guaranteed right to stay until the end of a lease, usually not more than one year.

The provision of social housing is organised by local governments. The Federal Government enters into Agreements with the State governments to provide funding for a program of Social Housing. State governments then enter into agreements with local governments which have the responsibility for organising the provision of the housing. In some States additional State funding may also be provided. The local government decides which organisations shall provide the housing, allocates tenants to social housing and is generally responsible for oversighting its operation, including the setting of rents while the dwellings remain as social housing.

Cash Housing Assistance

The German Federal Government funds a housing benefit ('wohngeld') to low income recipients. Tenants of both social housing and private rental housing are eligible for the payment, as are home purchasers. The payment is made by local governments which act as agents of the Federal Government and receive a fee for administering the payment on behalf of the Federal Government. The Federal Government determines eligibility requirements, and the payment schedules. The payment schedules are quite complicated as the payments vary with income, family size, size of rent or mortgage payment and geographic location. Generally recipients pay around 20-25 per cent of their income in rent or mortgage repayments.

Policy Developments

The general trend in Germany since the 1980s has been to increase reliance on the private rental market to provide housing for those on lower incomes. However there was a revival in the provision of social housing from 1989 as a result of the housing situation in Germany at that time.

From the late 1970s the West German Federal Government reduced funding for the provision of new social rental housing. For much of the 1980s there was essentially no funding for new social housing. The intention was to rely on the private market to increase the supply of rental housing, and the housing benefit payments to achieve affordable results for those on low incomes. However a housing shortage developed by the late 1980s and funding for social housing recommenced in 1989. Since 1990 substantial funding has been provided for additional social housing with DM 18 billion being provided between 1991 and 1996.(4) Possible causes of the housing shortage in Germany are discussed later in this paper (pp. 20-21).

The unification of Germany was another factor leading to an expansion of social housing funding with about one-third of federal funding since 1991 going to the former East Germany, as much social housing in the East was in poor condition and rehabilitation work was required.

The German Government has, since 1988, moved to involve the private sector in the provision of housing for those on low incomes through the privatisation of existing social housing. As a result the private rental sector officially increased its share of the housing market, even though the housing may still be owned by the same organisations. In 1988 non-profit organisations providing social housing were treated the same as profit making organisations. Before 1988 non-profit organisations received taxation concessions and in return were subject to controls on rent and on selection of tenants which continued after the low interest loans were paid back (or subsidies ceased). After 1988 the taxation concessions were removed and the non-profit organisations were free, once loans had been paid back, to increase rents (subject to the same laws as applying to the private rental sector) and choose tenants without restrictions. This housing is now regarded as private rental housing. Thus the proportion of housing officially regarded as private rental housing increased, and will continue to do so, as much social housing, including that provided by non-profit organisations, reverts to private housing. This trend has been accelerated by changes introduced in 1980 and 1982 which make it easier for loan repayments to be discharged earlier. The moves to convert non-profit housing into private rental housing in part occurred as a result of a corruption scandal involving one of the largest non-profit providers of social housing.(5)

Another aspect of the move towards involvement of the private sector is a preference for private (for-profit) landlords over non-profit organisations. This can particularly be seen in the former East Germany where many housing units owned by housing associations and cooperatives are gradually being privatised. Private investors can receive grants and taxation concessions for this.(6)

New Zealand

Public Housing

Most public housing in New Zealand is provided by the National Government through Housing New Zealand although some is provided by local government. There are also a few community housing organisations. Rents for Housing New Zealand dwellings are set at market levels. Rents in local government and community housing are determined by those bodies. Recent reductions in the subsidies they can receive have forced increases in their rents.(7)

Accommodation Supplement

This payment is available to low income recipients. Public and private tenants, and home purchasers are eligible. Renters receive no assistance unless they are paying more than 25 per cent of their net income in rent. They then receive 75 per cent of the difference between 25 per cent of net income and the rent they pay. For mortgage payers the system is similar except that they receive no payment until they are paying more than 30 per cent of their income for housing. They then receive 70 per cent of the difference between 30 per cent of net income and their housing payments. For both renters and mortgage payers there are maximum limits on the amount of assistance which vary according to the part of the country in which the recipient resides. The accommodation supplement is paid directly by the National Government to the recipient.

Policy Developments

Major changes occurred in New Zealand in the early 1990s. These aimed to increase the use of the private market to provide housing for low income earners and to provide equitable assistance between public and private renters. As a result the current system of market rents in public housing and a cash payment available equally to both public and private tenants, was introduced in 1993. Before then New Zealand's system was generally similar to Australia's, with rents in public housing related to income. The maximum rent payment in public housing was 25 per cent of income in rent. A separate, generally less valuable, cash payment was available to low income tenants in the private sector.

One result of the changes has been to reduce the public housing stock. The stock has decreased from 70 234 dwellings in June 1993 to 67 031 dwellings in June 1996.(8) This reduction has come about as a result of sales, both to tenants and to others. Only about one third of sales was to tenants.(9) Sales occur as dwellings, in order to meet requirements for housing in some areas, in other areas are sold.

Some recent changes have occurred as a result of concerns that the system introduced in the early 1990s had created difficulties in affordability for low income renters. An interim rent freeze on rents in public housing applied from December 1996 to 30 June, 1997 while a review of rents and the accommodation payment was carried out. From 1 June the freeze on rents was lifted and rents increased, however the accommodation supplement was also increased. Prior to 1 June, 1997 the supplement paid 65 per cent of the difference between 25 per cent of income (or 30 per cent in the case of home purchasers) and housing payments. After 1 July the rate was 70 per cent of the difference. Maximum amounts payable in some areas were also increased.(10) These changes followed the 1996 New Zealand election and the coming to power of a coalition government.

United Kingdom

Public and Social Housing

Council housing provided by local governments is still the major form of social housing in the UK. Housing associations (non-profit non-government organisations) have been expanding in recent years and now comprise about 20 per cent of social housing sector. Almost all increases in the social housing sector now occur through housing associations.

Rents in housing associations and council housing are set by the association or council on the basis of their costs. Thus the way they are funded by the government is crucial in determining the rent charged. Since 1988 housing associations have been financed for new dwellings by a capital grant for a proportion of the cost, and expected to borrow on the private market for the rest. Rents need to cover the running costs of the housing (administration, maintenance and rates) and the repayment of the private funds borrowed. This means that the amount of the capital grant provided is crucial in determining the level of rents. The British Government regards the level of subsidy as enabling rents that are below market levels.(11)

Council Housing was financed by loan funds. The national government pays operating subsidies in order to enable rents to be at 'affordable' (below market) levels. Again the level of subsidy is a major determinant of rent levels.

Housing Benefit

This is paid by the national government to low income public or private renters. The benefit pays, for low income earners, the entire cost of rent up to locally determined amounts based on average private rents in the area. Above that level 50 per cent of the difference between that level and rent is paid as benefit (from October 1997 the area average will be the maximum amount). The benefit is means tested.

Policy Developments

Major changes in housing policy occurred in the UK from 1980 onwards. The previous Conservative Government aimed to:

  • reduce the Council housing sector
  • encourage home ownership
  • expand the private rental market
  • promote housing associations instead of Councils as the providers of social rented housing, and
  • increase rents in social housing so as to reduce subsidies to those not on low incomes.

The reduction in the Council housing sector was achieved both by restrictions on Councils activities which meant that the provision of new Council housing virtually ceased and by encouraging the sale of Council houses. One aspect of the sale of Council housing is the 'right to buy' provisions which gives tenants the right to buy their Council houses, often at a highly concessional price. The level of Council housing has also been reduced by the transfer of Council stock to housing associations, which has been encouraged by the government. Such transfers require the agreement of the affected tenants.

The 'right to buy' given to public tenants was not simply aimed at reducing the Council housing sector but was also a key part of the former government's strategy for encouraging home ownership.

Private rental housing was encouraged, in part, by the removal of restrictions on the sector. Up until 1988 rents were controlled in the UK, and tenants had the right to stay in their housing as long as they liked. These restrictions were removed in 1988.

Housing associations were encouraged through increased funding as well as by the transfer of some dwellings from Councils to associations. The proportion of social rental housing provided by housing associations increased from around 6 per cent in 1979 and around 20 per cent in 1996. This increased proportion came about both through increases in the housing association sector and through reductions in the amount of Council housing as a result of sales.

Another recent development in the composition of the social rental stock in the UK has been to open up the possibility of private for profit companies supplying social housing. Under changes introduced by the previous government in 1996, private companies are able to compete with housing associations for funds to provide additional social housing. They are subject to the same conditions as housing associations and would be expected to provide dwellings at below market rents.(12)

An intention of the former British Government was to increase rents in social housing to make them closer to market levels in order to reduce subsidies to tenants who were not most in need. It was noted above that rents in social housing in the UK are largely determined by the level of subsidies provided by government. From 1988 onwards the subsidies provided to providers were reduced in order to increase rents. Low income recipients in social housing were protected from the rent increases as they received 100 per cent of the rent increase back in the form of increased housing benefit. However a change of direction occurred in 1995 when the previous government decided that social housing rents should not be increased so that the rents equalled market rents but should remain a little below market levels. The reasons given for this were:

  • it was considered that subsidising local authorities could be cheaper over time than paying housing benefit on a market rent over several decades;
  • incentives for tenants to undertake work were improved if an increase in income did not lead to the tenant having to pay full market rents; and,
  • should these work incentives encourage tenants into work and off social security benefits the total cost to government might be reduced.(13)

One major result of the policy changes in the UK since the early 1980s has been a reduction in the social rental housing sector from 31 per cent of housing stock in 1979 to 22 per cent in 1995. (14) This occurred despite the increased funding given to housing associations as the sales of Council housing were greater than the additions to housing association stock.

Another consequence of the changes has been to shift funding for rental housing assistance away from subsidies for providing dwellings to assistance through the housing benefit. While payments for social housing provision fell, housing allowance payments almost tripled between 1980-81 and 1986-87.(15)

The increase in the cost of the housing benefit led to alterations in the payment in order to reduce the increasing cost to government. A system of limiting the maximum amount of benefit by reference to average local rents was introduced in 1996. (above p. 8) Before 1996 100 per cent of the rent could be paid to levels higher than the average local rent.(16)

In most respects the election of the Labour Government in 1997 appears unlikely to change the general direction of UK housing policy. An exception is that the new government has partially reversed the policy of favouring associations over Councils by allowing Councils to replace some of the dwellings sold using the proceeds of the sales.(17) This may result in some increase in the Council housing sector.

United States of America

Public and Social Housing

'Public' housing is provided mainly by local governments and is funded by the federal government, and in some cases by State and local governments. Rents in public housing are related to income and set as 30 per cent of adjusted income, subject to minimum and maximum levels.

Other low cost housing (called 'affordable' housing) is provided by non-profit, community and private (for-profit) organisations. This housing is funded through a range of federal, state and local government grants and by low cost loans and tax credits. Generally projects in receipt of assistance are required to house specified percentages of low income recipients and to meet criteria relating to rent levels. Rents do not vary with income and in some cases federal rent assistance may be used in conjunction with these programs.

Rent Assistance

Unlike the other countries being considered, the USA does not give low income recipients an 'as of right' entitlement to cash assistance to assist in meeting high rental costs in the private market. Subsidies are available for low income private renters, but these are limited in number and have waiting lists. The subsidies take the form of vouchers or certificates which are provided to the tenant. The tenant finds a property and the local public housing authority then subsidises rent. The assistance provides the same assistance as does public housing. Rents are reduced to 30 per cent of adjusted income.

Policy Developments

Since the early 1980s the emphasis on the provision of assistance for low income renters has moved away from the provision of public housing towards assistance through cash subsidies to rent other housing. There has also been a reduction in the total amount of assistance provided. From 1997 there have been no funds for the expansion either of the number of people on rental assistance or of the stock of 'public' housing provided by municipal governments. The only area where there has been any growth has been in the subsidies available for 'affordable' housing provided by non-government organisations.(18) One major result of the changed emphasis on assistance since the early 1980s is that in 1993 there were more households in receipt of rent assistance vouchers or certificates than there were living in public housing.(19)

The increased emphasis on assistance through private landlords has led to changes being introduced to limit the level of rents landlord can charge to tenants in receipt of cash assistance through vouchers, and thus limit the cost of vouchers to government. Currently rents can be above market levels. High rents, subsidised through vouchers, were originally allowed in order to provide incentives for private investment into rental housing for low income recipients. However proposals currently before Congress would prevent rents being above market levels.(20)

One reason for the move away from public housing has been the poor reputation of public housing in the USA with social problems in public housing estates caused by large concentrations of the most disadvantaged. As a response to this, measures are currently being considered by Congress which would to some extent broaden the income range of those eligible for public housing in order to encourage a greater social mix in these areas.(21)

Other recent changes to social housing provision reflect changes to general welfare policy in the USA. Recent changes to the welfare system in the USA have been aimed at encouraging or forcing welfare recipients into work. To support this a number of programs now operate in conjunction with public housing in order to:

  • provide support services
  • improve transport to areas of employment for public housing tenants, and
  • encourage economic development in public housing areas.

There are currently proposals being debated by the US Congress which would prevent rent increases for eighteen months for a public tenant after he or she entered employment. The aim of these proposals is to reduce the disincentive effect on seeking work of rent increasing as income increases.

Australian Policy Developments

Australia, like the other countries considered, has moved the emphasis away from funding the expansion of social or public housing towards the provision of cash assistance for individuals. Since the early 1980s there have been increases in the levels of rent assistance paid to social security recipients who rent in the private market, and an expansion of the categories of recipients eligible for rent assistance. This has resulted in rent assistance becoming the major program of Commonwealth expenditure for low income renters, exceeding expenditure on the CSHA from 1989-90.

Figure 1
Figure 1 Source: Housing Assistance Act Annual Reports and Department of Social Security Annual Reports

Proposals for more radical reform of Australia's public housing system have been considered in recent years. From 1995 proposals for a radical reform of the public housing system were developed through the Council of Australian Governments (COAG). These involved:

  • the Commonwealth funding rental subsidies for both public and private tenants
  • the Commonwealth ceasing to fund the States for the expansion of the public rental stock, and
  • the States being responsible for the provision of public rental housing.(22)

These proposals were first brought forward by the former Keating Government(23) and were continued by the Howard Government after its election.(24) Reasons put forward for these changes included:

  • greater equity in the amount of assistance received by public and private tenants
  • greater choice for tenants of dwelling type and location by being in the private market
  • increased clarity in Commonwealth and State roles and responsibilities.(25)

The proposals received criticism, especially from community organisations. Major criticisms included that:

  • reliance on private rental housing would not give low income renters the security of tenure they received in the public sector,(26) and
  • increases in private sector rents and shortages in the availability of low cost private rental housing were likely as a result of the proposals.(27)

A fuller account and a discussion of the reform proposals discussed by COAG can be found in Current Issues Brief No. 31, Reforming Public Housing.(28)

Currently the reform proposals discussed above are in abeyance. In the 1997-98 budget the current CSHA was guaranteed funding until 30 June 1999 when the 1996 Agreement expires. At this stage the arrangements to replace the 1996 CSHA have not been determined. In the meantime discussions have been taking place on the reform of public housing within the framework of the CSHA.(29) Victoria announced changes to public housing on 7 June 1997. The Victorian changes involve:

  • eligibility criteria for public housing being the same as for DSS Rent Assistance;
  • an increase in public housing rents from 20 per cent of income to 23 per cent for existing tenants and 25 per cent for new tenants
  • the introduction of a segmented waiting list which would give priority on the basis of need, and
  • the abolition of life long security of tenure in public housing for new tenants, to be replaced by three or five year leases which would be automatically renewed provided the tenant continued to meet the eligibility criteria.(30)

On 17 October, 1997 Queensland announced a package of reforms to public housing which are broadly along the same lines as those introduced by Victoria. The Queensland changes include:

  • reduced eligibility limits for public housing, for example the maximum income limit for a couple with more than two children will be reduced from $55 000 a year to $41 922
  • fixed term tenancies for new public housing tenants: after six months the tenancy will be reviewed and if there are no problems a twelve month lease will be allocated. After 12 months of good tenancy, a three year lease will be granted
  • rents for new tenants (but not existing tenants) increased to 25 per cent of household income.(31)

Whether other States will follow Victoria and Queensland's lead in changes to their public housing is not yet clear.

Perhaps the most significant of the above changes are the introduction of a segmented waiting list (Victoria) and changes to security of tenure (Victoria and Queensland). Under the Victorian segmented waiting list proposal, preference would be given, in order, to applicants:

  • who were homeless
  • who had special needs such as a disability, and
  • who were on low incomes but had no other problems.

This system would result in those in the third category, low income recipients without other problems, facing increased waiting times for public housing. Thus the private rental market would be expected to play a larger role in housing low income recipients.

The changes to security of tenure represent a major departure from past practice as public housing has, in Australia, given tenants the right to stay in their dwelling as long as they wish, irrespective of any improvement in their circumstances. They would change the concept of public housing from being a permanent option to one of temporary assistance. In practice, however, the changes may not have a great impact. For example the Victorian Office of Housing expects only a small number of people to be affected by the change in Victoria.(32)

The increases in rent levels are relatively small, and as there are variations in the rent scales in public housing between the States at the moment, these changes do not represent major departures from current practice.

The changes to the eligibility criteria are unlikely to have a large impact as it is likely that most public housing applicants will meet the new Victorian and Queensland eligibility limits. This is shown by the fact that some 83.5 per cent of tenants currently pay a rebated rent as a result of low income.(33)

Implications of Overseas Experience for Australia

In all four countries considered (Germany, New Zealand, the UK and the USA) there has been an increased reliance on cash assistance to individuals instead of the provision of low cost dwellings to meet the housing needs of low income earners. Some criticisms have been directed at these policies and their consequences. The main areas of concern about the overseas policies include:

  • housing becoming more expensive for the individual in receipt of assistance
  • shortages of available rental stock for low income earners
  • rent levels increasing in the private rental sector
  • housing programs reducing the incentive for recipients of social security assistance to seek work
  • social problems caused by increased concentrations of very low income earners in public or social housing stock, and
  • large increases in the cost of assistance to governments.

Not all of these problems have arisen in all the countries considered and they may not necessarily apply in Australia. The current and proposed Australian policies differ in detail from the policies in other countries and different economic, social and housing market conditions can mean that the same consequences do not always flow from the same policies when adopted in different countries.

Affordability of Housing for the Recipient of Assistance

Of those countries considered New Zealand and the USA are where most concern about higher housing costs leading to hardship for individuals has been expressed.

In New Zealand it has been claimed that the change from income related rents in public housing to market rents and the payment of a cash accommodation supplement has resulted in large increases in the number of people paying a high proportion of their income in rent. For example the New Zealand Council of Christian Social Services reported that, of clients receiving assistance from foodbank, (an organisation providing food for the needy), the percentage of State house (public) tenants who were spending half or more of their income on their housing costs increased from 37.5 per cent to 58.8 per cent. At the same time, also only looking at those receiving assistance from foodbank, the percentage of private tenants spending half or more of their income on rent increased from 58.9 per cent to 62.7 per cent.(34)

Concentrating on those receiving emergency food assistance does not necessarily give the whole picture. When all tenants are considered, not just those receiving emergency food assistance, it is apparent that while the changes in New Zealand have increased the proportion of public tenants paying high percentages of their income in rent they have decreased the proportion of private tenants paying high proportions of their income in rent.

Table 3: Proportion of Rent to Net income, New Zealand

0-30%
30-39%
40-49%
50-59%
60+%
Total
PRE-REFORM
Public
47
47
4
1
1
100
Private
13
39
30
13
5
100
POST-REFORM
Public
23
52
15
5
4
99
Private
22
44
21
8
5
100

Source: New Zealand Ministry of Housing -unpublished, in Foster, Some Housing Reform Myths, National Housing Action, No 12, No 2, December 1996, p. 47.

This result is not surprising as the changes in New Zealand decreased assistance to public tenants but increased assistance to private tenants. By structuring the accommodation supplement to pay a proportion of the difference between 25 per cent of income and rent, up to regionally determined maximum amounts, the New Zealand Government made it inevitable that tenants would pay more than 25 per cent of their income in rent. By contrast the proposals discussed through the COAG process in Australia were based on the principle that no public tenant would pay more than 25 per cent of their income in rent.(35) This shows that the design of cash assistance payment is crucial to the results for the tenant in terms of the affordability of housing.

In the USA concerns have been expressed that many Americans, including those in employment, cannot afford to rent a home. For example the American Federal Government Housing and Urban Development Department (HUD) has reported that:

'...between 1991 and 1993, the number of poor households with the most acute housing needs-those who live in seriously substandard housing and/or pay more than half their income for rent-grew by 400,000, to a total of more than 5 million households'(36)

Of the 5 million households in acute housing need, around two million are employed, with 1.2 million working full time.(37)

This situation has come about, not as a result of the structure of cash assistance payments in America, but as a result of there being no entitlement program of rent assistance, and the limited number of rent assistance payments available. While 15 million households qualify for Federal housing assistance in the USA, only 4.5 million receive it.(38) Those who do receive assistance pay no more than 30 per cent of their income in rent.

Another factor contributing to the level of housing affordability difficulties in the USA is that minimum wage levels have fallen in real terms since 1981 while rents have risen. Workers on minimum wages are not able to afford the cost of a one-bedroom unit at Fair Market Rent (an officially determined rent standard that indicates the rent necessary to obtain an adequate dwelling) in any State in America. In 45 States and the District of Columbia, families would need to earn at least double the minimum wage in order to afford a two-bedroom unit at Fair Market Rent.(39)

In Australia the presence of the entitlement to rent assistance is some protection against the level of affordability problems present in the USA. However it should be noted that currently rent assistance in Australia is not available to people who are not receiving a DSS pension or benefit or a family allowance payment. Thus people working on low wages, without dependent children, are not eligible. While this group is not currently a concern in relation to housing affordability in Australia, should there be a marked change in the relationship between the level of wages and rents in Australia, consideration might need to be given to extending rent assistance to such people.

In contrast to New Zealand and the USA, affordability problems, at least for those on low incomes receiving housing assistance, have not been seen as a major consequence of housing policy changes in Germany or the UK. This is despite increases in rents brought about by those policy changes. In both countries the housing allowance payments have met all or most of the increased rent for those on low incomes.(40)

The main conclusion from the international experience is that in any move to replace the provision of public housing with cash assistance, the structure of the cash assistance payments is crucial to whether affordability problems are created or not.

Shortages Of Available Rental Stock For Low Income Recipients

That the changes in public or social housing policy have led to shortages of rental stock for those on low incomes, and consequently increases in homelessness, has been a major criticism of policies in Germany, the UK and the USA. The reduction in the provision of public or social housing has been seen as the main reason for these shortages.

In Germany the provision of new social housing virtually ceased in the 1980s. As noted earlier, by the 1990s there was a severe shortage of housing. This resulted in a considerable homelessness problem.(41) The West German Government explained the shortages as being the result of the influx of refugees from eastern Europe into West Germany that occurred in the 1980s.(42) However not all observers have accepted that this was the sole reason for the shortages. For example Harloe suggested that the German policy required the expansion of private rental housing and that this did not happen to a sufficient extent.(43) Another example is Volker Kreibich who pointed to increasing numbers of young people requiring housing and the loss of cheap social housing without its replacement as being factors in causing the housing shortage.(44)

In the UK shortages of rental housing for low income earners have grown since the housing policy changes commenced in the 1980s. This led, in the period 1979 to 1991, to a doubling of homelessness to more than 150 000 persons a year.(45) It was noted above (p. 10) that there had been a considerable reduction in the social housing stock during this period. While since 1988 the British Government has attempted to encourage the expansion of the private rental sector housing by measures such as the deregulation of private rental housing, there has only been a small revival in the private rental sector in Britain and it still represents no more than 10 per cent of Britain's housing stock.(46) Thus, as in Germany, shortages of rental housing for those on low incomes have been attributed to the decline in social housing not being offset by a sufficient expansion of the private rental market.(47)

In the USA a lack of affordable housing and homelessness are regarded as major problems.(48) The problem is not confined to those on welfare benefits as about one fifth of the homeless have jobs.(49) The reductions in additions to public housing and the number of rent assistance payments available has been seen as a major factor in these shortages.(50) The American Government did attempt to encourage the provision of low cost housing by the private sector through the provision of taxation incentives and subsidies.(51) As well as not preventing a housing shortage (although they have provided some additional housing) these subsidises have not ensured that investors meet their obligations. For example some have failed to provide safe, decent and affordable housing. As a result the Federal Government has launched a program to 'get tough' and prosecute private investors who have been cheating on the conditions of their subsidies.(52)

It is too early to tell if the 1991 to 1993 policy changes in New Zealand will cause housing shortages. Some commentators suspect that they will, and have claimed that there has been no increase in private rental housing despite expectations that this would occur if public housing no longer provided subsidised rents.(53)

The above brief accounts of the experience in the countries considered suggest that moves to reduce the reliance on the provision of public or social rental housing and rely instead on cash assistance in the private market have not resulted in any significant increase in the supply of rental housing in the private market. This appears to have contributed to rental housing shortages in Germany, the UK and the USA.

Despite this overseas experience it is not clear if further moves to rely on rent assistance instead of the provision of public or social housing would produce housing shortages in Australia. To be successful, the changes introduced in Germany, the UK, and the USA required the private sector to increase its provision of rental housing for those on lower incomes. That an increase in private rental housing would be necessary was not assumed by the proponents of the reform proposals discussed by COAG. Instead the view was put that the problem in Australia is essentially one of affordability. It was argued that there is currently sufficient suitable private rental housing in Australia, but that many tenants had difficulty in affording it.(54) In other words the result of increased rent assistance would be that private tenants would stay in their current dwellings and not seek improved housing (public or private). Thus no expansion of the stock would be necessary.

If this is indeed the case then, in the short term at least, a further move to increase rent assistance and reduce additions to public rental housing should not cause problems of shortages of rental housing for those on low incomes. The situation for the longer term is more difficult to assess. If the expansion of public housing ceases entirely some increase in the level of private sector provision would be necessary or shortages would eventually occur. Whether the private sector would supply the necessary increased level of rental housing is open to question. The overseas experience suggests that increased rent assistance payments and reductions in the provision of public or social housing have not, by themselves, triggered sufficient increased provision by the private sector. While different market conditions could lead to a different result in Australia, it would seem prudent to closely monitor the supply situation in the private market to ensure that shortages did not arise.

Rent Increases in the Private Rental Market

That increased reliance on rent assistance payments and less reliance on the provision of public or social housing has led to increases in private sector rents has been one of the major criticisms of the overseas policy changes. Harloe, for example, concluded that the USA and European experience indicated that housing allowance schemes promoted rent increases.(55) Howenstine reached similar conclusions.(56) However an examination of the situations in the countries considered shows that the circumstances in Australia differs suggesting that overseas experience may not apply.

There are major differences between the UK and Australia in the structure of rent assistance payments. In the UK a tenant faced with a rent increase may receive all of that increase through increased housing benefit, provided the rent does not exceed regionally determined limits. In Australia the tenant has to meet 25 per cent of any rent increase. This difference suggests that the British experience may not be applicable to Australia as the structure of rent payments has been regarded as a major factor in rent increases in the UK.(57) This points to the importance of the design of rent assistance payments in any policy to further rely on this method of assistance.

The structure of rent assistance is not the only factor that suggests that the UK experience may not be applicable to Australia. Unlike in Australia, control over private sector rents remained in the UK until 1988. The government then removed rent control as it wished to expand the private rental sector. As a result it is difficult to determine the extent to which rent rises reflect the removal of rent control or changes to housing assistance.

In the USA, as in Britain, the structure of allowance payments is different to that in Australia. As was discussed earlier some schemes of assistance have provided subsidises which allowed rents to be charged which were above market levels. Such schemes could be expected to lead to rent increases. This situation does not occur in Australia. Another factor which could lead to rent increases in the USA is that rent assistance schemes have a structure similar to that of the UK in that a tenant can to receive 100 per cent of a rent increase through increased housing assistance payments.

The existence of the housing shortages that have occurred in Germany, the UK and the USA could be expected to cause rent increases. To the extent that the shortages were a consequence of policy changes, then the policy changes could be seen as contributing to the rent rises. It was concluded above that housing shortages would not necessarily be a consequence of moves to increase the reliance on rent assistance for housing assistance in Australia.

The results of the policy changes in New Zealand on private rent levels is not, at this stage, clear. Laurence Murphy has stated that '...it can be argued that the existence of a supplement has underpinned the rise in rentals in the low-income sector of the market'. He recognised that '...it is difficult to attribute the degree to which recent rent increases are a product of market cycles or housing policy shifts' but suggests 'it must be acknowledged that, following international experience, supplements can induce rent increases.'(58) Given the differences between different countries noted above, there does not appear to be clear evidence to attribute the rent rises to policy changes rather than market cycles.

The evidence that is available from Australia does not support suggestions that increases in cash assistance to renters cause increases in rents in the private market. Rent assistance has been significantly increased since the early 1980s, both in terms of the maximum amount of assistance available to individuals and the total amount paid by the government. However during that time, while rent levels have undergone cyclical fluctuations, they have generally risen less than the overall rate of inflation.(59) This suggests that, to date, the move towards relying on cash assistance instead of the provision of public housing has not, in Australia, to date had a significant impact on private rent levels.(60)

While it is difficult to predict what the result of a further move in this direction would be, there is little evidence to support expectations of a different result. The percentage of private renters currently receiving rent assistance is likely to be high enough to suggest that, if increases in rent assistance were going to cause rent increases, this should have been evident in the figures to date. While it is not possible to determine what percentage of private renters currently receive rent assistance as a result of the design of the program, over a quarter of private renters receive their main income from social security pensions, benefits and allowances, and most of these would be eligible for rent assistance.(61)

A move to charge market rents to all public housing tenants (with public tenants receiving rent assistance) should not, by itself, have any market effect as public housing rents would be linked to movements in the private sector and not determined independently. However should future policy changes go beyond reducing the rate of expansion of the public housing stock and result in a large reduction in the size of the stock through sales to the private sector, the situation could be different, especially if sales were for owner occupation. There is no Australian experience of the results of this type of action. As discussed earlier overseas experience suggests that a reduction in the public sector stock could cause an overall shortage of rental housing resulting in increases in private sector rents.

Housing Programs Reducing The Incentive For Recipients Of Social Security To Seek Work

An issue that has been present in housing policy debates overseas is that of possible work disincentives caused by housing programs. Work disincentives have been seen as arising as the additional income as a result of taking a job can lead to rent increases or reductions in housing assistance received. This has led to some policy changes in the USA and the UK.

In the UK the housing benefit payment is income tested and reduces by 65 pence for every additional pound of income earned above a threshold amount. Thus on taking a job most or all of the rent payment can be lost. One measure taken by the government to attempt to reduce the impact of this possible disincentive was to keep rents in social housing below market levels (above p. 10). By having rents in social housing below market levels the value of the housing benefit lost through taking employment is less than if the social housing rents were at market levels.

In the USA rents in public housing, and the rent assistance vouchers and certificates for assistance to private renters, result in tenants or recipients paying 30 per cent of their income in rent. This means that should income increase, for example through taking a job, 30 per cent of the increased income would be absorbed by an increase in rents or a reduction cash assistance for rents. Concerns that this effect could act to deter social security recipients from seeking employment, led to the Department of Housing and Urban Development proposing that rents in public housing, and the effective rents paid by recipients of cash assistance, not increase for eighteen months after a tenant who has been unemployed for a year or more obtains work.(62) In this way a cushion against rent increases would be provided which may help encourage the unemployed into work. This measure is currently before the Congress.

In Australia a public housing tenant pays an income related rent, generally of around 20 per cent of income in rent. Thus any increase in income results in a 20 per cent increase in rent. The net result for a public tenant receiving social security payments also depends on the social security treatment of additional income. Should the tenant be receiving a pension or benefit which is reduced by 50c for every dollar of non-pension income then the rent will rise by 10 per cent of the additional earned income. (Net income rises by half of the earned income increase as a result of the reduction in social security payments). The total benefit to the tenant from earning additional income can be further reduced by the effect of increased income on tax payments.

The tenant receiving rent assistance paid by DSS can receive a slightly higher increase in net income as a result of an increase in earned income than does the equivalent public tenant. This is because the rent assistance payment is paid as part of the total social security payment and thus does not vary separately as non social security income increases. Thus there is no additional loss of income over the rate of withdrawal of social security payments. The rent assistance recipient facing a 50 per cent reduction in social security payments as a result of increased income loses 10 per cent less of that income than does the public tenant.

From the above it can be seen that the changes discussed by COAG could slightly increase the incentives to take paid employment as public tenants would no longer pay an increased rent on top of their reduction in social security payments. The rent they would pay, being market levels, would not vary as their income changed. However the loss of earned income would still be fairly high. An eighteen months freeze on effective rent increases, as is proposed in the USA, could be considered as a measure to reduce the disincentive to undertake paid employment to a greater degree than would the changes considered by COAG.

Social Problems Caused By Increased Concentrations Of Very Low Income Earners In Public Or Social Housing Stock

Considerable concern has arisen in other countries, in particular the USA, about the results of having public housing estates entirely or mainly tenanted by very low income recipients, especially those on social welfare benefits. The placing of large numbers of very poor people especially 'multi-problem families' into public housing estates has been seen as creating crime and disorder in those estates. In a number of countries the policies of relying more on assistance in the private market has been seen as contributing to these problems.

In the UK the 'right-to-buy' scheme in particular is seen as having concentrated the poorest families into social rental housing, living in poorer quality housing projects. The scheme provides incentives for those tenants who can afford to do so to buy their houses, and not surprisingly generally the better quality housing has been sold. Thus the poorer tenants are left in the poorest houses. The reduction in the size of the social housing sector has also been seen as concentrating the poorest into social housing as there are now less non poor tenants in public or social housing.(63)

In Germany policy changes which have reduced the role of social rental housing and the size of the sector are perceived to have concentrated the poorest households and 'problem families' into social housing estates, often those on the peripheries of cities. As less social housing became available, more of it was allocated to the poorest households.(64) The same criticism has been levelled in the USA, although there problem estates are likely to be in the inner city areas.(65)

Similarly it has been suggested that in New Zealand the restructuring of housing policy with its increased emphasis on assistance in the private market has resulted in public housing being targeted on poorer and needier households.(66) While such a process may increase the assistance available to the poorest households, it does raise questions about the social consequences of such concentrations.

In Australia concerns about the social results of concentrating low income households in large public housing estates are not new. Since the mid 1960s, estates such as the 'Green Valley' developments on the outskirts of Sydney have been seen as breeding grounds for deviant behaviour, including pack rapes and debt dodging.(67) The Victorian Housing Commission's high rise estates similarly attracted criticism from the 1960s onwards as the slums of the future.(68) Since at least the 1970s the proportion of public housing tenants in Australia who receive low income has been steadily increasing so the potential for social problems caused by concentrations of low income recipients will also have been increasing. The following chart illustrates the increase in low income recipients in public housing by showing the proportion of tenants receiving rebated rents as a result of having insufficient income to pay the full rent.

Figure 2
Figure 2
Source: Housing Assistance Act Annual Reports

The proposed policy changes for public housing assistance in Australia do run the risk of furthering the trend towards concentrating the most disadvantaged in public housing, and increasing the potential social problems. The Victorian proposal to introduce a 'segmented' waiting list with priority for the homeless and those with special needs does have the potential to produce concentrations of disadvantaged people similar to those blamed for producing problems overseas. The overseas experience also indicates that policies of relying on cash assistance in the private rental market rather than the expansion of the public or social rental stock is also likely to increase concentrations of the disadvantaged in public housing.

Two broad types of solutions have been advanced to meet the problem of concentrating low income recipients and 'problem' tenants in public or social housing:

  • encouraging a greater mix of income levels and family types in public housing estates so that very low income earners and those with special problems do not predominate
  • providing public housing in small developments so that it is well integrated into the broader community.

The USA currently provides an example of the first approach. Proposals currently before Congress would allow a broader mix of income ranges in public housing than is currently the case. These moves have been criticised by some community organisations on the grounds that they would make it harder for those most in need to gain assistance as some dwellings would go to those less in need.(69) In the USA there are no plans to enlarge the stock in order to enable more low income recipients to be housed.

An example of the second approach is provided by the UK. The previous British Government acknowledged that it was undesirable to have estates of entirely low income earners and aimed to develop mixed communities with balances of tenure (home ownership, private and public renting), and income levels. A favoured method for creating such communities was to transfer estates to new landlords who could operate commercially and encourage mixed public and private developments.(70) This approach involves the selling into private ownership of some of the existing stock so as to promote a mixture of tenures.

Increases In The Cost Of Assistance To Governments

The UK and German experience suggests that the move towards assistance through cash assistance rather than the provision of a stock of public or social rental housing has resulted in large increases in the cost to governments of assistance. This is a result of increases to the cost of rent assistance payments being larger than any savings in the cost of the provision of public or social rental housing.(71) The situation in New Zealand is less clear with some commentators claiming that change to cash assistance has resulted in cost increases,(72) and others disputing this.(73)

Two main reasons have been given for increased costs as a result of a move to cash assistance rather than the provision of public or social housing. One is that this pushes up rents in the private market, thus increasing the amount of subsidy required. The other reason for increased expenditure is that an increased level of need for assistance automatically increases the cost of assistance.(74) Where cash payments are paid on an entitlement basis increased need results in increased expenditure. On the other hand the supply of public housing is determined by the funds made available by governments. Thus if providing public housing is the method of meeting housing need, increased need does not automatically lead to increased expenditure. However, if funds are not increased in response to need, the number missing out on assistance will increase.

This situation is illustrated by the USA where rent assistance payments are not made on an entitlement basis. As the total amount of assistance is limited, the cost to government is determined by the government's budget allocations. The result of limiting expenditure in the USA has been an increase in the number of people eligible for assistance, but not receiving it (above pp. 15-16).

In Australia a further move towards the provision of assistance through cash rent payments instead of the provision of public housing could result in cost increases should there be an increase in the level of need. In Australia rent assistance payments are made on an entitlement basis although the provision of public housing is not. Thus a move to increase reliance on rent assistance payments would result in an automatic increase in cost should need, and thus the amount of rent assistance payments, increase. With public housing an increase in the level of need would not automatically increase the government's expenditure on public housing, although should a decision be taken not to increase expenditure the levels of unmet need, and thus the length of public housing waiting lists, would be likely to increase.

The other reason advanced for a further move to rent assistance increasing costs, ie. that this would produce an increase in rents, was discussed above (pp. 18-19) and it was concluded that this was less likely to be a factor in Australia.

Conclusions

It is not possible, from the overseas experiences, to draw an unequivocal answer to the question as to whether Australia should continue further down the path of relying on cash assistance, rather than the provision of public housing, in order to assist low income renters. The differences between conditions in Australia and other countries, and the detailed differences between policies in Australia and other countries, make it unsafe to assume that the same consequences will follow. For example increases in rent assistance payments do appear to have increased private sector rents in some countries, although there is no evidence that they have done so in Australia. However, overseas experience of policies of placing increased reliance on cash assistance payments for housing assistance do suggest that there are a number of issues that need to be considered when similar policies are being examined in Australia and lessons that can be learned when the details of policies are being considered. The main issues raised by the overseas experience are:

1. An adequate supply of private rental accommodation for those on low incomes is essential.

Any policy of relying on cash payments instead of the provision of public rental housing has to be backed by the assurance that there is an adequate supply of rental accommodation for low income earners. Overseas experience, especially in Germany and the UK, has shown that the private market can not be relied upon to increase supply to replace the provision of public or social housing. In Australia those arguing for policies of relying on the private market have assumed there is an adequate total stock of rental housing available (public and private) and that an increase in supply is not needed. In the light of the overseas experience it would, in the event of the implementation of policies relying totally on cash assistance in the private market, seem wise to closely monitor the supply of rental housing for low income earners. Should some additional supply turn out to be necessary, the countries considered illustrate a range of options that could be considered, as well as funding traditional public housing. Overseas examples include:

  • provision through non-government organisations (Germany, UK, USA)
  • private (for-profit) firms providing social housing (Germany, USA, and now the UK), under these arrangements conditions relating to selection of tenants and rents to be charged may apply, funding may be through grants, concessional interest loans or taxation concessions.

In Australia, options which could be considered include changes to the taxation provisions relating to investment in residential property, i.e. allowing negative gearing in respect of residential property and a depreciation allowance for residential property. These provisions could made available only in respect of dwellings housing low income recipients. In considering such a move the possibility of adverse effects on the rental property market as a whole would need to be examined. Even if investment in respect of low income renters increased, reductions in investment in respect of higher income renters could reduce the total amount of investment into residential property. Should this occur, shortages and rent increases for the market as a whole are likely, and thus any advantages in gained terms of rental housing for those on low incomes might be lost by overall market movements.

2. The design of the rent assistance payments is crucial if adequate assistance is to be available to those who need it and incentives for landlords to increase rents avoided.

Experience from New Zealand shows that if care is not taken, a change to rent assistance payments from income related rents in public housing can cause financial hardship for some tenants. On the other hand experience from the UK shows that, while financial hardship was largely avoided, increased reliance on housing benefit caused rent increases, as the UK benefit could pay all of a tenant's rent increase. There seems no reason why a rent assistance system should not be able to avoid both of these problems provided that it is designed carefully. The current Australian DSS Rent Assistance could form the basis of such a system. Currently rent assistance pays 75 per cent of the difference between specified benchmark levels and rent paid, up to the maximum amounts of payment. This structure avoids the problems of meeting all of a rent increase and, provided the benchmark levels are carefully selected, can result in reasonable percentages of income being paid as rent. However currently the maximum limits result in many renters paying high proportions of their income in rent.

3. Low income recipients with special needs could face difficulties through the private market not catering for them unless specific provision is made

Experience from all of the countries considered in this paper shows that, when greater reliance is placed on assistance in the private market, the very poor and those with special needs, for example those with disabilities or psychiatric problems, become concentrated in the remaining social or public housing. This indicates that the private market has not been good at meeting the needs of people with special needs. Possible reasons for this include discrimination and a lack of suitable stock in the private market for people with special needs, such as those with disabilities. As a result the position of those with special needs would need to be protected in any policy of further relying on the private market to meet the housing needs of those on low incomes. Possible approaches include:

  • funding sufficient public and/or community housing to provide for those with special needs
  • providing subsidies or taxation benefits to private investors for rental housing for those with special needs.

4. There is a danger of increased social problems in public housing if public housing becomes increasingly tenanted by those with special needs

Considerable concern has arisen in other countries, especially the USA, about the consequences of concentrating low income recipients, and especially those with special needs, in public housing estates. As noted above overseas experience suggests that policies of increasing reliance on assistance in the private market is likely to produce this result. The recent policy changes in Victoria, such as the introduction of a 'segmented' waiting list for public housing which gives preference to applicants with special needs, are also likely to increase the concentrations of the most disadvantaged in public housing estates. If the problems involved with such concentrations that have become evident overseas (and in Australia) are to be avoided it would seem desirable that large public housing estates should be avoided and be replaced by smaller estates better integrated with the broader community.

While large estates are no longer being developed in Australia many such estates remain. There have been some examples, both in Australia and overseas, of breaking up existing estates by techniques such as selling existing stock and replacing it with more dispersed stock or by redevelopment of the estates. Such redevelopments, which can involve the demolition of the existing buildings, are sometimes carried out in conjunction with the private sector under arrangements which include the sale or transfer of a proportion of the stock to the private sector. The result is a mixture of public and private stock. The expansion of these types of activities in Australia may need to be considered.

Endnotes

  1. Senator Jocelyn Newman, Housing Reform Kit, 24 September 1996. There are a number of different methods of calculating the amount of subsidy received by public housing tenants, which give different results. DSS used the difference between market rents for the properties, and rent received. Another method is to look at the costs of providing public housing. Using this approach the Inner Urban Regional Housing Council has calculated the average subsidy in Victoria as $2800. (Submission to the Senate Community Affairs Committee Inquiry into Housing Assistance, 1997, p. 7 )
  2. Sources: Australia: Industry Commission, Public Housing, AGPS, 1993, vol. 2, p. 263.

    Germany: A. Power, Hovels to High Rise, Routledge, London, 1993, p. 10.

    NZ: New Zealand Ministry of Housing, The New Zealand Housing Situation, http://www.govt.nz/housing/housesit/shtml (15/8/97)

    UK: H. Bisset, 'Some Lessons from Overseas', Impact, vol. 23, no. 6, July 1993.

    USA: USA Department of Housing and Urban Development, A Picture of Subsidized Households.

  3. Australia: Australian Bureau of Statistics, Australian Social Trends 1994, cat 4102.0

    Germany: Press and Information Office of the Federal Republic of Germany, Housing and urban development, http://bundesregieurung.de/ausland/economy/econ0501.html 14/7/97:1

    NZ: New Zealand Ministry of Housing, The New Zealand Housing Situation, http://www.govt.nz/housing/housesit/shtml 15/8/97

    UK: J. Gummer, Our Future Homes, HMSO, London, 1995, p. 13.

    USA: T. Grall, Our Nations Housing in 1993, US Bureau of the Census, US Government Printing Office, Washington DC, 1995.

  4. Press and Information Office of the Federal Republic of Germany, Housing and urban development,http://bundesregieurung.de/ausland/economy/econ0501.html (14/7/97).
  5. M. Harloe, The People's Home, Blackwell, Oxford, 1995, pp. 465-74.
  6. Press and Information Office of the Federal Republic of Germany, op. cit.
  7. Roberts and Robinson, 'Housing Reform in New Zealand,' p.31, National Housing Action, vol. 12, no. 2, December 1966, pp. 25-38.
  8. ibid. p. 30.
  9. ibid.
  10. McCully and Sowry, $58 m Additional Spending On Housing Assistance, New Zealand Executive Government News Release, 21/5/97.
  11. J. Gummer, Our Future Homes, HMSO, London, 1995, pp. 26-27.
  12. ibid., pp. 29-30.
  13. ibid., p. 26.
  14. ibid., p. 13.
  15. M. Harloe, op. cit., p. 423.
  16. J. Gummer, op. cit., pp. 24-25.
  17. H. Armstrong, (Minister of State, Department of the Environment, Transport and the Regions) House of Commons Hansard Debates, 17 June 1997.
  18. Jason DeParle, 'Slamming the Door', The New York Times Magazine, October 20, 1996, p. 52, 94.
  19. USA Department of Housing and Urban Development, A Picture of Subsidized Households, Summary of the United States, http://www.huduser.org/data/asthse/ststedata/hud2us3.txt (24/7/97)
  20. USA Department of Housing and Urban Development, The FY 1998 Budget of the U.S. Department of Housing and Urban Development, February 1997.
  21. USA Department of Housing and Urban Development, Public Housing Management Reform Act of 1997, s. 202.
  22. Senator Jocelyn Newman, op. cit.
  23. P. Keating, Community and Nation, Department of Housing and Regional Development 1995.
  24. Senator Jocelyn Newman, op. cit.
  25. ibid.
  26. For example see Eleri Morgan-Thomas, 'Is this The End of Public Housing' in The End Of Public housing? Urban Research program, Australian National University, 1996, pp. 33-34
  27. For example see Max Parker, 'The Industry Commission's Approach to Housing Assistance' in he End Of Public housing?, Urban Research program, Australian National University, 1996, p. 30.
  28. Greg McIntosh, Reforming Public Housing, Current Issues Brief No. 31 1996/97, Information and Research Services, 16 June 1997.
  29. Senator Jocelyn Newman, Senate Hansard 27 May 1997, p. 3410.
  30. Office of Housing, Victoria, Reshaping Public Housing, June 1997.
  31. Dr David Watson, Minister for Public Works and Housing, Media Release Housing Reforms to Benefit All, October 17, 1997.
  32. ibid.
  33. Australia. Department of Social Security, Housing Assistance Act Annual Report, 1994-95, p. .
  34. Campbell Roberts and Bonnie Robinson, 'Housing Reform in New Zealand', National Housing Action, vol. 12, no. 2, December 1996, p. 28.
  35. Senator Jocelyn Newman, Housing Reform Kit, op. cit.
  36. USA Department of Housing and Urban Development, The FY 1998 Budget of the U. S. Department of Housing and Urban Development, op. cit., p. 6.
  37. Jason DeParle, op.cit., p. 53.
  38. ibid. p. 52.
  39. National Coalition for the Homeless, Employment and Homelessness, NCH fact Sheet #4 February 1997, http://nch.ari.net/jobs.html p. 2 (4/2/97).
  40. For the UK see: C. Paris, The Community Housing Program In Melbourne: Discussion paper. http://www.infoxchange.net.au/rhchome/iurhc/paristoc.htm (1/8/97) For Germany see: Barbara Schmitter Heisler, 'Housing Policy and the Underclass', Journal of Urban Affairs vol. 16, no. 3, 1994, p. 214.
  41. Press and Information Office of the Federal Republic of Germany, op. cit., p. 1.
  42. ibid.
  43. M. Harloe, op. cit., p. 471.
  44. Volker Kreibich, 'Housing Needs Now And In The 1990s', in Low Income Housing in Britain and Germany, Anglo-German Foundation, 1991, pp. 63-82.
  45. Duncan Maclennan, Adrian Kearns, Kenneth Gibb, 'Housing Finance and Subsidies: The Context For Low Income Housing Policies in Britain', in Low Income Housing in Britain and Germany, eds. Norton & Novy, Anglo-German Foundation, 1991. p. 268.
  46. J. Gummer, op.cit., p. 6.
  47. For example See Jack Doherty, 'From the Front Line Directing the battle on homelessness and housing in the United Kingdom: an interview with Chris Holmes', National Housing Action, September 1996, p. 17.
  48. Jason DeParle, op. cit., p. 52.
  49. National Coalition for the Homeless, op. cit., p. 2.
  50. Jason DeParle, op. cit., p. 52.
  51. Terry Burke, 'Low Income Housing, A Brief Overview of Trends and Policies from an International Comparative Perspective,' Growth, March 1994, p. 146.
  52. USA Department of Housing and Urban Development, HUD and Justice Department Launch 'Get Tough' Partnership Against Bad Landlords Who Abuse Federal Housing Assistance In 50 Cities, Press Release, 24 March 1997.
  53. See for example Campbell Roberts and Bonnie Robinson, op cit., p. 30.
  54. See Senator Jocelyn Newman, Housing Reform Kit, op. cit.
  55. Michael Harloe, Private Rental Housing In The United States And Europe, Croom Helm, Andover, 1985.
  56. E. Howenstine, Housing Vouchers: An International Analysis, Centre For Urban Policy Research, Rutgers University, New Brunswick, 1986.
  57. C. Foster, 'Some Housing Reform Myths', National Housing Action, vol. 12, no. 2, December 1996, p. 47.
  58. L. Murphy, 'The New Zealand Experience of Public Housing Reform', in The End Of Public Housing, ed. R. Coles, Research School of Social Sciences, Australia National University, 1997, p. 8.
  59. Australia. Department of Social Security, Overview of the Australian Private Rental Market, 1996, p. 29.
  60. This view has been supported by a number of commentators, see for example C. Maher, 'The Private Rental Market', National housing Action, vol. 12, no. 2, December 1996, p. 21.
  61. Australia. Department of Social Security, Overview of the Australian Private Rental Market, Canberra, 1996, pp. 30-33.
  62. USA Department of Housing and Urban Development, Public Housing Management Reform Act of 1997, s. 104.
  63. M. Harloe, The People's Home, op. cit., p. 429.
  64. ibid. pp. 467-468.
  65. ibid. pp. 447.
  66. L. Murphy and R. A. Kearns, 'Housing New Zealand Limited: privatisation by stealth', Environment and Planning A, 1994, vol. 26, p. 628.54
  67. M. A. Jones, Housing and Poverty in Australia, Melbourne University Press, 1972, p. 186.
  68. ibid. p. 180.
  69. National Low Income Housing Coalition, The Public Housing Reform and Responsibility Act of 1997 Statement of Cushing N. Dolebeare Chair, Policy Advisory Committee, National Low Income Housing Co-alition, Before the Sub-Committee on Housing Opportunity and Community Development Committee on Banking, Housing and Urban Affairs, United States Senate. April 9, 1997.
  70. J. Gummer, op. cit., p. 35.
  71. M. Harloe, The People's Home, op. cit., pp. 422-433.
  72. L. Murphy, 'The New Zealand Experience of Public Housing Reform', in The End Of Public Housing, ed. R. Coles, Research School of Social Sciences, Australia National University, 1997, pp. 4-5.
  73. C. Foster, op. cit., p. 47.
  74. M. Harloe, The People's Home, op. cit., p. 422.

 

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