Dugald Monro
Social Policy Group
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
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.
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 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.
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)
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.
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.
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.
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
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)
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

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.
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.
- 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 )
- 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.
- 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.
- Press and Information Office of the Federal Republic of
Germany, Housing and urban
development,http://bundesregieurung.de/ausland/economy/econ0501.html
(14/7/97).
- M. Harloe, The People's Home, Blackwell, Oxford, 1995,
pp. 465-74.
- Press and Information Office of the Federal Republic of
Germany, op. cit.
- Roberts and Robinson, 'Housing Reform in New Zealand,' p.31,
National Housing Action, vol. 12, no. 2, December 1966,
pp. 25-38.
- ibid. p. 30.
- ibid.
- McCully and Sowry, $58 m Additional Spending On Housing
Assistance, New Zealand Executive Government News Release,
21/5/97.
- J. Gummer, Our Future Homes, HMSO, London, 1995, pp.
26-27.
- ibid., pp. 29-30.
- ibid., p. 26.
- ibid., p. 13.
- M. Harloe, op. cit., p. 423.
- J. Gummer, op. cit., pp. 24-25.
- H. Armstrong, (Minister of State, Department of the
Environment, Transport and the Regions) House of Commons
Hansard Debates, 17 June 1997.
- Jason DeParle, 'Slamming the Door', The New York Times
Magazine, October 20, 1996, p. 52, 94.
- 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)
- USA Department of Housing and Urban Development, The FY
1998 Budget of the U.S. Department of Housing and Urban
Development, February 1997.
- USA Department of Housing and Urban Development, Public
Housing Management Reform Act of 1997, s. 202.
- Senator Jocelyn Newman, op. cit.
- P. Keating, Community and Nation, Department of
Housing and Regional Development 1995.
- Senator Jocelyn Newman, op. cit.
- ibid.
- 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
- 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.
- Greg McIntosh, Reforming Public Housing, Current
Issues Brief No. 31 1996/97, Information and Research Services, 16
June 1997.
- Senator Jocelyn Newman, Senate Hansard 27 May 1997, p.
3410.
- Office of Housing, Victoria, Reshaping Public Housing,
June 1997.
- Dr David Watson, Minister for Public Works and Housing, Media
Release Housing Reforms to Benefit All, October 17,
1997.
- ibid.
- Australia. Department of Social Security, Housing
Assistance Act Annual Report, 1994-95, p. .
- Campbell Roberts and Bonnie Robinson, 'Housing Reform in New
Zealand', National Housing Action, vol. 12, no. 2,
December 1996, p. 28.
- Senator Jocelyn Newman, Housing Reform Kit, op.
cit.
- 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.
- Jason DeParle, op.cit., p. 53.
- ibid. p. 52.
- 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).
- 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.
- Press and Information Office of the Federal Republic of
Germany, op. cit., p. 1.
- ibid.
- M. Harloe, op. cit., p. 471.
- Volker Kreibich, 'Housing Needs Now And In The 1990s',
in Low Income Housing in Britain and Germany, Anglo-German
Foundation, 1991, pp. 63-82.
- 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.
- J. Gummer, op.cit., p. 6.
- 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.
- Jason DeParle, op. cit., p. 52.
- National Coalition for the Homeless, op. cit., p. 2.
- Jason DeParle, op. cit., p. 52.
- Terry Burke, 'Low Income Housing, A Brief Overview of Trends
and Policies from an International Comparative Perspective,'
Growth, March 1994, p. 146.
- 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.
- See for example Campbell Roberts and Bonnie Robinson, op cit.,
p. 30.
- See Senator Jocelyn Newman, Housing Reform Kit, op.
cit.
- Michael Harloe, Private Rental Housing In The United States
And Europe, Croom Helm, Andover, 1985.
- E. Howenstine, Housing Vouchers: An International
Analysis, Centre For Urban Policy Research, Rutgers
University, New Brunswick, 1986.
- C. Foster, 'Some Housing Reform Myths', National Housing
Action, vol. 12, no. 2, December 1996, p. 47.
- 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.
- Australia. Department of Social Security, Overview of the
Australian Private Rental Market, 1996, p. 29.
- 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.
- Australia. Department of Social Security, Overview of the
Australian Private Rental Market, Canberra, 1996, pp.
30-33.
- USA Department of Housing and Urban Development, Public
Housing Management Reform Act of 1997, s. 104.
- M. Harloe, The People's Home, op. cit., p. 429.
- ibid. pp. 467-468.
- ibid. pp. 447.
- L. Murphy and R. A. Kearns, 'Housing New Zealand Limited:
privatisation by stealth', Environment and Planning A,
1994, vol. 26, p. 628.54
- M. A. Jones, Housing and Poverty in Australia,
Melbourne University Press, 1972, p. 186.
- ibid. p. 180.
- 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.
- J. Gummer, op. cit., p. 35.
- M. Harloe, The People's Home, op. cit., pp.
422-433.
- 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.
- C. Foster, op. cit., p. 47.
- M. Harloe, The People's Home, op. cit., p. 422.