Bills Digest no. 49 2008–09
National Rental Affordability Scheme Bill 2008
WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.
CONTENTS
Passage history
Purpose
Background
Financial implications
Main provisions
Concluding comments
Contact officer & copyright details
Passage history
Date introduced:
24 September 2008
House: House of Representatives
Portfolio: Families, Housing, Community Services
and Indigenous Affairs
Commencement:
1 July 2008
Links: The
relevant links to the Bill, Explanatory Memorandum and second
reading speech can be accessed via BillsNet, which is at http://www.aph.gov.au/bills/.
When Bills have been passed they can be found at ComLaw, which is
at http://www.comlaw.gov.au/.
The purpose of
the National Rental Affordability Scheme Bill 2008 (the Bill) is to
establish together with the National Rental Affordability
(Consequential Amendments) Scheme Bill 2008 the National Rental
Affordability Scheme (the NRAS), which seeks to assist low and
moderate income households in rental accommodation by encouraging
large scale investment in rental housing through conditional
incentives to providers of new rental properties.[1]
The Commonwealth would offer institutional
investors and other eligible bodies an annual incentive, for up to
10 years, provided the investor complies with the proposed NRAS s
conditions.[2] They
include that the renter meets an as-yet-unspecified income test,
and that the rent is at least 20 per cent below the market
rate.[3] The value of
the incentive will initially be $6 000 per dwelling annually.
The proposed NRAS would contain several types
of incentives to investors:
- exemption of capital gains from tax
- a (Commonwealth) tax offset or payment to the investor,
and
- the non-assessability for tax purposes of State or Territory
contributions to the investor (see below).
The tax offset would apply where the investor
is liable to pay tax, whereas a Commonwealth payment would apply
where the investor is not eligible to pay tax, for example, a
not-for-profit housing body.
Figures provided in the 2008-09 Budget
indicate how much the payment and the tax offset are expected to
cost the Government over the forward estimates. As the following
table shows, the vast bulk of the incentive to investors will be in
the form of a tax concession.
| |
2008-09
|
2009-10
|
2010-11
|
2011-12
|
|
Payment ($m)
|
13.0
|
25.2
|
35.6
|
55.1
|
|
Tax offset ($m)
|
10.5
|
47.0
|
134.5
|
301.7[4]
|
State or Territory governments would, also for
up to 10 years, contribute an annual amount by way of financial or
in-kind support. Initially the State or Territory contribution
would be $2 000 per dwelling per year.[5]
Both the Commonwealth and State contributions
would be indexed to the rental component of the consumer price
index.
Under the NRAS, occupants of homes which
attract the incentive would, in effect, be receiving a rental
subsidy in the form of rent at a rate at least 20 per cent below
the market rate.
While renting is often associated with low
income, living in a rented home can also be seen as a
cost-effective alternative to home ownership. The advantages of
renting include greater flexibility of lifestyle and the
opportunity to invest money elsewhere.
Nearly 30 per cent of Australian households
are renters. The proportion of Australian households renting
increased slightly from 26.9 per cent in 1995 96 to 28.5 per cent
in 2005 06. During that period, the proportion of households
renting from State/Territory housing authorities remained
relatively stable, at close to 5 per cent of all households. Over
the same period, the proportion of households renting privately
increased from 19 per cent to 22 per cent.
In 2005 06, over 1.7 million households were
renting from private landlords and 369,000 households rented from
State/Territory housing authorities. A further 147,000 households
(2 per cent of all households) were renting from other landlords
such as employers (for example, the Defence Housing Authority).
Renters tend to be a younger group than
owner-occupier households and the proportion of households renting
decreases with age. There was little change in the proportions of
households which were renters for most age groups over the ten
years to 2005 06. The exception was the 35 44 years group. The
proportion of these households which rented increased from 27 per
cent in 1995 96 to 32 per cent in 2005 06.
Rental rates also differ according to
household composition. Rates of renting are higher among
unpartnered people.
In general, lower income is associated with
higher rates of renting, and as income rises, the likelihood of
renting falls. The general exception is for households where the
occupants are aged 65 years and over. Although it is often the case
that renting is associated with lower income, there are a
considerable number of high income households which, by choice or
circumstance, are renting. In 2005 06, there were 349,100 renter
households in the highest quintile (20 per cent) of equivalised
disposable household income[7] accounting for 15 per cent of all renters. High income
renters tended to be younger and considerably wealthier than other
renters.
Despite increases in housing costs over the
last decade, the incomes of renters after paying housing costs have
increased in real terms. In 2005 06, average housing costs for
private renter households before deducting Commonwealth Rent
Assistance (CRA) receipts were $224 per week; this had increased in
real terms from $190 per week in 1995 96, an average annual rate of
increase above inflation of 1.7 per cent. However, the average
incomes of renters increased over the period at a faster average
rate (2.2 per cent) than their housing costs. The net result was a
real increase in the average income after housing costs of renters,
from $570 to $720 per week (or 2.4 per cent per year).
While not all households who are renting are
suffering from so-called rental stress some will become home buyers
others, especially those on low incomes, experience difficulty in
paying rent. A range of schemes is available to help those falling
into this category.
A Senate
Select Committee recently examined housing
affordability.[8]
With respect to rental schemes, the Committee found:
This inquiry emphasises that the current supply
of rental housing is severely inadequate (chapter 10). Vacancy
rates are at record lows. The committee acknowledges the federal
government's National Rental Affordability Scheme and its notional
target of an extra 100 000 affordable rental dwellings with 50 000
by 2012. The Scheme will provide annual tax incentives over 10
years for investors in affordable rental housing. In the absence of
specific details as to how these incentives will be structured and
targeted, the committee will watch growth of the scheme with
interest.
The committee identifies other aspects of
rental housing that require attention:
- various organisations argued that the Commonwealth Rent
Assistance Scheme is inadequately funded and poorly targeted. There
were suggestions to target rental assistance in line with regional
rental prices and to broaden the payment to include home purchasers
in temporary financial stress; and
- public housing has been financially strained for more than a
decade as its client base has shifted from couples with children
(with many paying market rents) to people with mental health or
other social problems. There is a need to increase the stock of
public housing, facilitate the entry of a more diversified mix of
income earners and restore pre-1996 funding levels.[9]
The Commonwealth has, over the years, provided
financial assistance for rental housing mainly in the form of
capital grants to the States and Territories. Of these programs,
the largest grants have been Commonwealth State Housing Agreement
block assistance/base funding. State governments supply housing for
about five per cent of households, mostly at below-market rents.
The Commonwealth also provides rental subsidies to low income
persons who account for about one quarter of private
renters.[10]
With the commencement date of 1 July 2008, the
Bill is retrospective.[11] In addition, regulations under the Bill would also
commence retrospectively.[12] According to the Explanatory Memorandum, no rights will
be adversely affected by the retrospective commencement.[13]
For additional information, see the Bills
Digest for the National Rental Affordability Scheme
(Consequential Amendments) Bill 2008 [14]
On 13 August 2007, the Australian Labor Party
(ALP) issued a media
statement, which outlined a proposed NRAS.[15]
The measure was announced in the 2008-09
Budget on 13 May 2008:
The Government will provide $622.6 million
over four years for the provision of 50,000 affordable rental
properties across Australia for low and middle income earners. An
annual incentive of $6,000 per property for up to ten years will be
paid by refundable tax offsets for complying institutional
investors and by grants for not‑for‑profit housing
organisations that are exempt from income tax.
State and Territory governments have agreed to
provide annual support of at least $2,000 per annum per property
for up to 10 years. The state and territory contribution will take
the form of cash grants, concessions on stamp duty or the provision
of discounted land.
To access the Scheme, investors must rent
properties to eligible tenants at 20 per cent below the market rate
of rent for equivalent properties in the area.[16]
The Department of Families, Housing, Community
Services and Indigenous Affairs (FAHCSIA) would administer the
NRAS.[17]
On 2 May 2008, the Minister for Housing
released, for public consultation, a paper titled National Rental
Affordability Scheme technical discussion paper (the technical
discussion paper), inviting submissions (see below).[18] On 24 July 2008, the
Treasurer and the Minister for Housing released a
prospectus,[19]
calling for expressions of interest in the NRAS.
The NRAS is one of a $2.2 billion package of
several schemes designed by the Commonwealth government to improve
housing affordability.[20]
Various stakeholders lodged submissions in
relation to the technical discussion paper,[21] in which stakeholders generally
support the principle of the NRAS.
However, some stakeholders expressed the
following concerns that:
- the incentives would be insufficient to attract large
investors, particularly in cities such as Sydney[22]
- consequently, the NRAS would more likely be successful in
fringe urban areas[23]
- the State/Territory contribution is too low to be
meaningful[24]
- some households would not be able to afford to pay 80 per cent
of the market value of rent,[25] and
- the eligibility factors of prospective tenants would have a
negative impact on attracting key workers such as teachers, nurses
and police to certain areas.[26]
Notably, most of the comments relate to
details of the NRAS, about which the Bill is silent, as most of the
actual detail of the NRAS is to be prescribed in regulations to be
made under the regulation making powers proposed by the Bill.
Although the Opposition has stated that it
does not oppose the Bill, it has said that it believes that there
are significant issues relating to the design of the NRAS.[27] These issues include
the following:[28]
- the proposed NRAS does not address major under supply issues in
the housing market
- proposed incentives are insufficient and do not make investment
from institutional and commercial investors viable
- proposed penalties are some of the risks that render the
proposed NRAS less viable for investors, and
- tenant eligibility criteria are too restrictive and ignore key
workers.
The Bill and the associated National Rental
Affordability Scheme (Consequential Amendments) Bill 2008 have been
referred to the Senate Community Affairs Committee for inquiry and
report by 20 November 2008.
Details of the inquiry are at the Committee s
webpage.
According to the Explanatory Memorandum, the
cost to the Budget (the fiscal cost) is estimated at $622.6 million
over four years as follows:
|
2008-09
|
2009-10
|
2010-11
|
2011-12
|
|
$23.5m
|
$72.2m
|
$170.1m
|
$356.8m
|
However it should be noted that the Bill
provides that if there is an acquisition of property from a person
otherwise than on just terms, the Commonwealth is liable to pay a
reasonable amount of compensation.
Clause 3 of the Bill sets out
the objects of the Bill, that is, to encourage large-scale
investment in housing by offering an incentive to participants in
the NRAS so as to:
- increase the supply of affordable rental dwellings, and
- reduce rental costs for low and moderate income
households.
Clause 4 contains various
definitions, including the following :
- allocation : in essence, an
allocation entitles an approved investor (participant) to receive
in an incentive period a 10 year period starting on or after 1 July
2008 an incentive for an approved rental dwelling if the
participant adheres to the conditions related to the dwelling.
- incentive : a Commonwealth
government incentive can take two forms, namely, either a National
Rental Affordability Scheme Tax Offset or an amount payable for an
NRAS year (this definition is particularly relevant to
clause 9 which deals with eligibility for
receiving incentives).
- rental dwelling : a dwelling for which rent is
payable, and includes:
- a part of a dwelling or building that is capable of being lived
in as a separate residence, and
- a unit that is a dwelling, and
- any dwelling prescribed by the regulations to be a rental
dwelling for the purposes of this definition.
However, the proposed definition excludes what
might be called mobile dwellings such as caravans and mobile homes.
In other words, the intention is that the dwelling must be in a
fixed location and incapable of being moved.
- unit in the definition of a
rental dwelling: a unit held under a strata title system (or
similar system), established under State or Territory law, together
with:
- any accompanying common property, and
- any permanent improvement (for example, a garage or storeroom)
associated with the unit.
The Minister, in her second reading speech,
stated that regulations to support the NRAS are being
prepared.[29]
Clause 5 specifies that the
regulations must prescribe a Scheme about the following
matters:
- the approval of participants by the Secretary:[30] proposed paragraph
5(a)
- the approval of rental dwellings by the Secretary:
proposed paragraph 5(b)
- providing incentives to an approved participant if certain
conditions are satisfied: proposed paragraph
5(c)
- a matter required or permitted by this Act to be included in
the Scheme: proposed paragraph 5(d), and
- ancillary or incidental matters: proposed paragraph
5(e).
Clause
6 deals with matters that may be included in the NRAS
such as:
- the application process for an allocation: proposed
paragraph 6(a)
- the assessment criteria for an allocation (which may vary):
proposed paragraph 6(b)
- the amount of an incentive: proposed paragraph
6(c), and
- how the market value rent for an NRAS year is to be determined:
proposed paragraph 6(d).
These discretionary matters have been
prescribed by the Draft Regulations.[31]
Clause 7 deals with making
allocations of entitlements to receive an incentive, based on the
following specific conditions that must be met:
- either the rental dwelling:[32]
- has not been lived in as a residence at any time before the
first day of the incentive period:[33] proposed sub paragraph
7(2)(a)(i), or
- had been unfit to live in, and since the day when it was made
fit for living in, the rental dwelling has not been lived in as a
residence between that day and the first day of the incentive
period: proposed subparagraph 7(2)(a)(ii),
and
- to the extent that the rental dwelling is rented during an NRAS
year[34] that falls
within the incentive period:
- the rental dwelling must be rented to an eligible tenant(s) as
prescribed by the regulations: proposed subparagraph
7(2)(b)(i) and
- the rent that is charged must be at least 20 per cent less than
the market value rent: proposed sub paragraph
7(2)(b)(ii), and
- to the extent that the rental dwelling is not rented during an
NRAS year that falls within the incentive period, the dwelling is
not vacant for a period greater than:
- that prescribed by the regulations: proposed paragraph
7(2)(c), and
- the continuous period prescribed by the regulations beginning
in the previous NRAS year and ending in the first-mentioned NRAS
year.
While the ALP s media statement of 13 August
2007 referred to the Commonwealth tax incentive to build new homes
or units this obviously covers completely new construction
proposed paragraph 7(2)(a) provides for the
conversion of existing buildings that were not previously rented as
dwellings to fall within the scope of the NRAS. According to the
Explanatory Memorandum it is intended that, in order for a rental
dwelling to be eligible under the NRAS, the rental dwelling must be
new and increase the overall supply of rental dwellings.[35] Subclause
7(3) provides that, for the avoidance of doubt, where a
dwelling or building has been converted to create additional
residences, then the part of the dwelling or building that is the
separate residence must not have been lived in as a separate
residence before the first day of the incentive period.
Clause 8 provides that the
NRAS may provide for the variation, transfers and revocation of an
allocation.
The Explanatory Memorandum discusses the
circumstances under which these changes to allocations are
envisaged.[36]
However the Bill itself is silent on these details.
Proposed paragraph 9(a)
provides that the NRAS must grant the power to the Secretary to do
the following:
- issue a certificate to an approved participant that states the
amount of the tax offset claimable in relation to an NRAS year:
proposed paragraph 9(a), and
- make a payment to an approved participant, of a kind provided
for by the NRAS, for an NRAS year: proposed paragraph
9(b).
Subclause 10(1) provides
that, if the Commonwealth government acquires property from a
person under the Act, other than on just terms, the Commonwealth
government must pay that person a reasonable amount of
compensation.
The constitutionality of such a provision
particularly the use of term reasonable amount of compensation
rather than compensation on just terms is indeterminate. It is
designed to be an insurance provision to cover possible breaches of
section 51(xxxi) of the Constitution (acquisition of property by
the Commonwealth must be on just terms). The wording is a form of
what used to be called a Historic Shipwrecks clause [37] and a clause using
similar wording is currently under challenge before the High
Court.[38]
The Government has said it has legal advice
that a provision to pay a reasonable amount of compensation gives
effect to the requirement for the payment of just terms
compensation under the Constitution.[39]
Subclause 10(2) provides that
in the event of a dispute as to the amount of compensation, the
person may commence proceedings in the Federal Court of Australia
to recover compensation.
Clauses 11 and
12 provide for the Minister s delegation and
regulation making powers respectively.
Concluding comments
The Bill contains only the bare outline of the
NRAS. There are significant details about the NRAS that are not
contained in the Bill, but have been included in the Draft
Regulations. For example, how the market value rent for a
particular dwelling would be determined and how the income test for
potential renters would be applied. Therefore, it is the Draft
Regulations that contain the details of the proposed NRAS.
In addition, in the second reading speech, the
Hon. Tanya Plibersek MP referred to institutional investors and
other eligible bodies as being eligible for the incentives. The
intent seems to be to exclude other private investors and thus
create a new (additional) category of investor. However, the Bill
is silent on who the eligible investors might be.
The Minister also stated that the NRAS would
create 50 000 new (that is, additional) rental properties at a cost
of $623 million in the first four years. As previously noted, new
in this context seems to encompass both the construction of
completely new dwellings and the conversion to rental housing of
properties that were not previously rented as housing. The NRAS
thus could, for example, include properties that were previously
owner-occupied but which are subsequently converted to
multi-occupancy tenancies. It is not clear how, or indeed if, the
Government intends to evaluate the effectiveness of the NRAS in
terms of determining the increase in the number of new rental
properties above that which would have happened in the absence of
the scheme.
The Government may need to take note of those
previously flagged stakeholder concerns that:
- the incentives provided for in the Bill and in the National
Rental Affordability (Consequential Amendments) Scheme Bill 2008
are insufficient and would not attract large investors, and
- many low income households would not be able to afford to pay
80 per cent of the market value in rent.
Failure to address those concerns may result in
the NRAS failing to meet its objectives.
Finally, it is noted that FaHCSIA Portfolio
Budget Statement for 2008-09 identifies the NRAS as an Administered
Item funded by Appropriation Bill No. 1.[40] The question arises as to whether
NRAS constitutes an activity that can be considered to be an
ordinary annual service of the government. In the normal course of
events a new program such as this must be funded either by special
appropriation or under Appropriation Bill No. 2, that is, other
than ordinary annual services.
[11]. National
Rental Affordability Scheme Bill 2008 proposed section
2.
[16]. Australian Government, Budget Measures
2008-09 , Budget Paper No. 3, Commonwealth of Australia,
Canberra, 2008, p. 172.
[37]. The clause arises from the Historic Shipwrecks Act
1976.
Richard Webb, Peter Hicks and Sharon Scully
21 October 2008
Bills Digest Service
Parliamentary Library
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