National Rental Affordability Scheme (NRAS)
The National Rental Affordability Scheme (NRAS) is a partnership between
the Australian Government and the states and territories to invest in
affordable rental housing. It is a $6.0 billion initiative intended
to stimulate the supply of affordable rental homes across Australia.
In this chapter, the committee examines NRAS and its implementation.
NRAS aims to:
increase the supply of new affordable rental housing;
reduce rental costs for low and moderate income households; and
encourage large-scale investment and innovative delivery of
From its commencement in 2008, the scheme sought to address the shortage
of affordable rental housing. It was designed to bring forward additional
housing supply by offering annual financial incentives to private investors and
community organisations to build and rent homes to low and moderate income
households at a rate that was at least 20 per cent below market rates.
It should be noted that some community housing providers rent out their
properties at an even more generous rate. For example, Ms Croce noted that
members of the Community Housing Federation of Australia did not go above
74.9 per cent of market rates—which was linked to tax concessions and to maintaining
According to the Community Housing Council of South Australia, this reduced rent
meant that tenants were less likely to experience housing stress. Professor
Beer noted that NRAS in some ways tried to emulate the German financing model
by giving tax breaks and tax subsidies to support and underpin long-term
The annual incentives available to NRAS providers last for ten years,
are indexed annually for the rental component of the Consumer Price Index (CPI)
and comprise two parts. The incentive values for 2014–2015 were:
a Commonwealth Government incentive of $7,996 per dwelling per
year as a refundable tax offset or payment; and
a state or territory contribution of $2,665.
The total amount came
When announced, the original proposal was for an initial round of 50,000
incentives. If the scheme proved successful and investors came on board,
another 50,000 incentives were to be considered.
Mr Pisarski, National Shelter, argued that in order to get institutional
investment on board, that scale of program was needed to create the momentum to
Mr Pisarski, who was involved in the design of NRAS when it was first
under consideration, proposed NRAS as a national rental affordability incentive
rather than as a scheme. He observed that:
...as soon as you call something a scheme, people expect it to
do far more than it was perhaps ever designed to do. We called it an incentive
deliberately because it was supposed to be used in conjunction with other
things in our minds. It was not a stand-alone thing that was going to fix this
According to Mr Pisarski, NRAS was implemented differently from the
initial recommendations. He explained that the summit group's implementation
proposal intended the scheme to be applied 'more at scale in a portfolio
approach so that it worked with other things'.
We always thought that it would take at least six years to
generate institutional investment and that, in the first place, it would still
follow a pattern of mum and dad investors being the ones to invest, until we
could create the vehicles and sorts of banking processes that might agglomerate
some of that smaller investment into larger investments to really drive it more
as an institutional investment vehicle.
The summit group involved in the early discussion on the design of NRAS was
of the view that the government's targets should have been more modest: that
they were too ambitious. Even so, Mr Pisarski explained that NRAS had exceeded
the estimates that the summit group thought it would reach.
Support for NRAS
A diverse range of organisations and individuals supported NRAS including
community housing providers, researchers, academics, think tanks, state representatives
and organisations advocating for groups with particular housing needs such as older
Australians, those with disability and women experiencing domestic violence.
When explaining their reasons for endorsing the scheme, many witnesses
highlighted the scheme's achievements and the many examples of where it had
The Urban Development Institute of Australia (UDIA) was among the numerous
organisations that recognised NRAS' achievements in boosting the supply of
affordable housing. From the UDIA's perspective, NRAS had been successful in
providing tens of thousands of homes affordable to those on low incomes.
Likewise, COTA noted that NRAS had made 'a very useful contribution to increasing
the supply of affordable housing, particularly in locations close to services'.
In its submission, Regional Development Australia, Gold Coast supported NRAS'
Mr Schrapel, Uniting Communities, thought that by and large NRAS had produced
a very good result. He understood that, even though some cases indicated that
the scheme may not have been targeted as well as originally intended, it had brought
a lot of new properties into the market that would not otherwise have been
there for lower income households.
Ms Croce, Community Housing Federation of Australia, described the scheme as:
...a significant driver in the supply of affordable housing to
people who do not qualify for public housing or who are not going to get in
because they are too low on the waiting list but who are struggling to pay high
rents in the private rental market.
Likewise, the City Futures Research Centre acknowledged NRAS as:
...the most significant local policy innovation so far,
generating as it has considerable investor demand and a momentum for a new
public private co-financed model of affordable rental supply.
The Tenants Union of Victoria held the view that NRAS was one of the
important supply side interventions that made a positive difference. In other
words, NRAS addressed the allocation problem and dealt with affordability.
Ms Young stated that NRAS had been very successful as a tool in a number of
For a start it did deliver a housing construction industry
where there was none. It did stimulate the economy. It did save a number of
developers. It did increase housing supply in a period in which there was a
huge downturn at that time. It was very successful just for that alone—it gave
people jobs in construction. It did increase the supply of housing. What are we
up to—35,000 or something approvals right now? That is housing that probably
would never have been delivered without that program. And there are people who
are very grateful for the opportunity to be able to rent a home, have a home,
at 75 per cent of market rent, where they would not have been able to afford
one otherwise. Hopefully those people are also saving to buy their own homes,
because that is the outcome that we also wanted out of that. I think it was
Ms Palumbo argued that NRAS was a desperately-needed subsidy to provide
social housing. It provided innovative ways for the community housing sector to
form partnerships and to achieve genuine results that added value to the
As chair of the Community Housing Council of South Australia, Ms Palumbo gave
the example of a building that was close to completion:
That building cost $15 million, with 52 apartments. The
government's contribution was 60 per cent, and Common Ground's contribution has
been 40 per cent. So, of the 52 apartments, 20 of those have come from private
funding. Fifteen of those are because of NRAS—with NRAS, we have been able to
finance 15 of those units—and five of them have come from the corporate sector.
So there are an extra 20 units going to homeless people that have come purely
from NRAS and corporate support, which then adds value to the government's
additional investment of 60 per cent of that building. That is a simple example
of bringing together as many incentives as you can, to be innovative about
products to meet demand.
She noted, however, that NRAS should not replace government investment in
affordable housing, which would always be needed.
Mr Myers, National Affordable Housing Consortium, told the committee
that NRAS had delivered 2,800 dwellings in Queensland in the last five years,
all with private investment and well above the average of delivery on a per
capita basis. He explained:
We borrow other people's capital and make the affordable
housing equation work...I can tell you right now that, because we operate under
that system, 26 per cent of people in NRAS housing in our portfolio are on a
disability support pension...A third of those people were also on the public
housing waiting list. So we can demonstrate that this is the gap in the market
that we keep saying needs much more sophisticated filling so that people can
move into products that are more suited to their income and household needs.
The committee has referred to the Penny Lane Key Worker housing
apartments. The City of Perth noted that the viability of its investment in
this development 'was underpinned by the receipt of NRAS funding'.
Delivering diversity of housing
NRAS has been able to support the building of affordable housing for a
range of Australians from essential service workers on low to moderate incomes
to people on a pension. Dr Burgmann, NSW Federation of Housing Associations,
stated that New South Wales had a lot of the NRAS projects approved for
community housing and included a small amount of capital funding from the state
government as well:
So it was part of a package that [was] allowed to deliver
social housing as well as affordable housing, and perhaps some for sale.
Curiously, though, the NRAS part is what allows there to be some housing
developed for the very low income. The projects that are entirely around key
workers or perhaps a mix of properties for sale and some retained for
affordable housing are the ones that might still be able to attract direct
private investment with some of the larger community housing providers in the
absence of NRAS.
Dr Burgmann argued that NRAS allowed the housing industry to meet that
broader suite of needs.
Along similar lines, the Community Housing Council of South Australia noted
that community housing providers had 'used the NRAS to develop mixed models of
housing that promote social inclusion and community benefit'.
Facility for tenants to improve
The committee has discussed how people occupying social housing are
discouraged from gaining employment or working extra hours in case they lose
their eligibility for such housing and are forced into the more expensive and
less secure private rental market. Ms Croce explained that if a tenant in one
of their community houses remained above the income threshold for a period of
time then they were required to vacate. She explained that community housing
providers try to find such tenants another property within their portfolio, so
they are not totally being moved out of the community-housing organisation. Thus,
because of the diversity of housing provided through NRAS, this scheme offered
the potential to encourage mobility from social housing to affordable private
rental properties, even home ownership. Ms Croce elaborated:
The idea at the beginning of NRAS was that we would have a
big enough portfolio so that when somebody became income ineligible you could
move the incentive to another location for somebody who was eligible, so the
person would not have to leave their property.
Ms Croce acknowledged that this broad objective had not eventuated
because the industry had not had the time to accumulate that kind of stock or have
the flexibility, in the way it was administered, to do that.
In this regard, it should be noted, as Ms Coleman observed, that it was:
...pretty rough to critique something which went out into the
market on the assumption of attracting private investment right at the time
that the private investment market pretty much collapsed with the global
Mr Somerville, NRAS Providers Ltd, also drew attention to the fact
that the scheme was introduced in the middle of the Global Financial Crisis (GFC)
at a time when the banks were very hesitant and valuers were very negative. In
It took some time to overcome that inertia. Certainly, there
has been criticism of the design and the management of the scheme, but the
actual delivery of over 20,000—at the last published records, and we are
guessing in the high 20,000s now—we believe is successful.
He concluded that 'the tenancy demographics from that are very, very
strong, straight out of the textbook'.
Building partnerships and
attracting private investment
The Community Housing Federation of Australia suggested that one of the
benefits of NRAS had been the partnerships it had facilitated across the
not-for-profit, for-profit, development, and financial sectors.
Ms Croce from the Federation noted that many NRAS projects were joint ventures
with different developers and mixed tenure. She stated that they were able to
build sustainable communities with some private sales, some NRAS and some
According to Ms Croce, NRAS brought direct private investment into the
affordable housing arena and significantly increased the community housing
providers' engagement with financial institutions—it brought them into the
arena. In her words, financial institutions saw 'our capacity to be able to
manage and build affordable housing'.
Mr Somerville, who represented NRAS providers, indicated that they
were all very much aware of the highly publicised failings of the NRAS scheme.
As an association they were very strong supporters of the scheme, convinced that,
as a supply stimulus, NRAS had been 'incredibly effective':
It has created a mechanism which has enabled a combination of
private equity, the private sector, community-housing providers and the
government to work in collaboration. We believe that the delivery of NRAS under
that [model] was successful, given that it had a substantial amount of inertia
to overcome in its initial stages.
At a regional level, Ms Kerrie Young, a non-executive director of
Horizon Housing, also spoke of the effective partnerships that developed
between community housing providers and developers. She cited the comments
contained in a report based on stakeholder consultation and feedback indicating
that two-thirds of the respondents felt that the supply of affordable housing
on the Gold Coast was improving due to the work of the not-for-profit groups
and NRAS. Giving evidence in Brisbane, she explained:
The increase in supply of affordable housing on the Gold
Coast was actually promoted by the non-for-profit groups, particularly Horizon
Housing, which is located on the Gold Coast. They made sure that they partnered
with private developers while that stock was being delivered, and they got
approvals on behalf of developers. So the awareness down there I think was
probably quite good, given that the partnerships that were created by the
not-for-profit community housing organisations. Also the Gold Coast City
Council is a shareholder of Horizon Housing, so they were partners also.
Ms Young observed that Horizon Housing was a very early adopter of NRAS
in Queensland, with over 200 approvals during the early rounds which increased
to 1,400 approvals being managed by the organisation. She noted that 'a lot of
people who were on unemployment benefits and disability pensions were occupying
the NRAS housing'.
NRAS and the states
Ms Young noted that while NRAS was a federal government overarching
structure, each state was responsible for administering the scheme in its
jurisdiction and as a consequence, each state had a different experience.
As an example, Queensland supported and adopted the scheme 'very strongly at
According to representatives from the Queensland Department of Housing
and Public Works, NRAS had been 'particularly successful and well targeted' in that
Mr Somerville, NRAS Providers Ltd, agreed with this assessment. In his view,
the Queensland Government had a much higher level of control, with far more
rigid requirements through the application and management processes. Mr
Somerville noted that the state government also embraced the scheme and
contrasted Queensland's keen acceptance of it with the more tentative approach
taken by some other states.
He explained that a number of the other states said, 'Let's just see how
it goes and then test it out.'
According to Mr Somerville:
South Australia, for example, said, 'We're limited with the
amount of money we've got so we'll only take seven per cent.' I think Western
Australia said, 'We're 10 per cent of the population so we'll take 10 per
cent.' Victoria said, 'We're not sure.' They held back in some of the earlier
rounds. They did not participate in the shovel-ready at all. Queensland said,
'We'll take all the surplus.'
In summary, Mr Somerville noted:
When the floods [in Queensland] occurred they [Queensland
Government] said, 'We'll have another 5,000 NRAS.' So they had the additional
numbers, the additional resources, and it was much more tightly managed.
Mr Walker, Department of Housing and Public Works, Queensland, was of
the view that NRAS in Queensland had been particularly successful and well
targeted. He informed the committee that:
As at the end of August 2014, Queensland had 10,503 approved
NRAS incentives and had delivered 8,483 NRAS dwellings. Some 10,180 households
have benefited from NRAS tenancy since commencing in 2008 and of these over 76
per cent were on incomes of less than $50,000 per annum and 37 per
cent earnt less than $30,000 per annum. Twenty-eight per cent of those NRAS
clients had been listed on the housing register here in Queensland for social
housing, with over 50 per cent with high or very high housing need.
According to Mr Walker, as well as income limits set by the Australian Government,
Queensland established additional eligibility criteria for NRAS tenants to
ensure the new supply of affordable housing was well targeted. In Queensland, NRAS
tenants must meet residency requirements, not own residential property and be
under liquid asset limits. Queensland has a single register of applicants for
NRAS properties and fair and accessible processes for eligible households to
register as prospective NRAS tenants. Furthermore, Mr Walker explained that most
applications were submitted through efficient online forms; and its NRAS
tenancy management had the flexibility to determine which applicant was offered
an NRAS property.
Mr Walker stated that, as a result of these additional measures, Queensland
avoided situations that were occurring in some other jurisdictions where
taxpayer subsidised NRAS properties were being occupied by international
The Community Housing Council of South Australia stated that in South
Australia, the NRAS program had meant 'significant growth in both affordable
and high needs dwellings, which would not have been possible without the NRAS subsidy'.
Despite the strong support for NRAS, a number of witnesses drew
attention to weaknesses that have undermined its performance.
Efficiency in delivery
According to NRAS Providers Ltd, both the government and providers
acknowledged there was room to improve efficiency in delivering NRAS dwellings.
It referred to the need for better alignment of government assessment and
JELD-WEN indicated that some NRAS incentives had been allocated to tenderers
that did not have sites for the commencement of rental housing. In its view, it
was implausible that NRAS incentives could be approved without tenderers
submitting proposed developments on actual sites.
The Central Highlands Local Area Service Network maintained that the
challenge for NRAS was to ensure that proper controls were instigated and
monitored according to the scheme's intended purpose. Reflecting on the
implementation of the scheme, the Network suggested that strict eligibility
should have been implemented when assessing the proposed tenants for NRAS
It suggested that had NRAS kept to its intended purpose the scheme could have
delivered much needed affordable housing.
Ms Findlater Smith, National Council of Women of Australia, referred to
the apparent lack of accountability, where in some cases little was known about
what the NRAS money was actually being spent on. She questioned the
accountability of schemes where:
...the Commonwealth hands over the money and does not say, as
with any good governance, 'What have you done with it? Show us where you spent
it and we'll see if it is worthwhile giving you the next lot.'
JELD-WEN also criticised NRAS for poor accountability. It referred to 'a
glaring need for a report card on the cost-effectiveness of and outcomes
achieved from Commonwealth housing and related expenditure', including NRAS and
Ms Young agreed that more accountability was required—having someone with
development experience actually monitoring what is going on with the
In Mr Cant's view, grants, such as NRAS, must be made conditional on new
The Property Council of Australia made a number of observations about
NRAS including that some participants had been concerned about repetitious and
costly tendering processes in rounds 1–3. It noted further that applications
for new developments were often delayed by unnecessary bureaucracy, undermining
Australia's competitiveness and impeding housing affordability. Other issues
identified by the Property Council were concerned with there being no
formalised timeframes for tendering rounds and no set approval timeframes.
Ms Young, who personally put some NRAS proposals together on behalf of
developers and community organisations, also referred to the red tape involved.
Indeed, she found 'masses of paperwork' to complete.
Grace Mutual Limited referred to delays in processing applications and unclear,
complex and poorly drafted regulations and law that 'hurt the program'.
From the Queensland government's perspective, Mr Walker pointed to the
need for 'greater role clarity of funding and administrative simplicity between
state and Commonwealth governments, particularly around housing assistance'. He
also argued for better targeting, equity and subsidies received by low-
to-middle-income earners to improve access to affordable housing.
Anglicare WA indicated that NRAS remained overly complex and program
requirements created barriers to access for vulnerable people.
In its submission, the Property Council stated that the fundamental
problem with a single national NRAS incentive was that it applied a
'one-size-fits-all' approach across national property markets and building
types. It argued that policy goals such as increasing affordable housing in
specific locales or supplying more apartments were made more difficult because
of this model.
The Women's Housing Company suggested that the government could maximise
the benefits of NRAS for disadvantaged Australians with better targeting of the
program. It stated:
Greater consideration should be given to the geographic
location of the NRAS incentives granted to ensure those regions with the
poorest housing affordability and suitability for disadvantaged groups receive
more incentives. For example, in Western Sydney it is very difficult to rent
appropriate housing for single women as the housing stock is predominantly 3‐bedroom.
Mr O'Brien, Tenants Union of Victoria, also wanted to emphasise the
importance of the allocation process of housing supply. He argued there was a
spatial dimension to the problem with NRAS in that there was a need to find
ways to inject affordable supply into less affordable markets. He explained
that one of NRAS' shortcomings stemmed from it being geared around market rents—80
per cent of the market rent. In his view, this approach was less useful in
If you want to deliver affordable rents in high-value
suburbs, you need a deeper subsidy, so you probably need a different kind of
supply model to have affordable rents in those better amenity suburbs.
Mrs Julie Morris, National Council of Women of Australia, suggested that
if the Commonwealth were going to tie NRAS to dollars and outcomes, the scheme
needed to be targeted geographically to where constituents who need affordable
housing are located, particularly in cities. This specific targeting would mean,
for example, that older members of the community living close to the city would
not have to disrupt their lives to move out to suburbs on the fringes.
In her view, the Commonwealth should be setting such targets.
Professor Fiona Haslam McKenzie, Curtin University, noted that NRAS did
not have 'a substantial profile in rural, regional and remote areas of Western
Australia' and more generally had only a marginal effect on affordable housing
in those communities.
Noting that the scheme was 'premised on a level of demand and therefore scale derived
from economic efficiency', she indicated that some small, remote communities
could never achieve the required degree of scale to ensure viability at the
In Professor Haslam McKenzie's view, if programs such as NAHA and NRAS
were to have any bearing in rural, regional and remote communities, the
structure of programs would have to change significantly. She suggested that local
agencies do not have the capacity to coordinate or manage the processes for
In their submission, Dr Julie Lawson and Professor Mike Berry recognised
that while NRAS was a very important new tool for attracting investment, it was
yet to generate 'suitable levels of interest from long-term institutional
investors in the wake of the GFC and ongoing uncertainty of policy support'.
Mr Kerry Doss noted the Brisbane City Council's struggle to get take-up
of NRAS schemes. He explained that generally developers or other potential
partners were more interested in the ability to achieve better profit margins,
which outstripped the incentive the Council was able to offer. According to Mr
Doss, there were other disincentives:
We were putting in place a rental guarantee system, and I
know that, to get finance for those projects, there were limits on the periods
for which those rental guarantees could operate, and they had to be kept under
10 years; otherwise, the banks did not really want to provide finance to those
sites. The other thing was that to go and monitor that those units had been let
at the required rate below market value was difficult—and the ongoing
monitoring of that.
Ms Young referred to the development industry not understanding what was
involved with NRAS, so, in her view, better education was needed. She noted
that the federal government's tax incentive and the cash payment from the state
were acceptable to the private investors who bought those homes and put them
into the scheme.
Specific concerns—international students and trading incentives
Aside from the criticism relating to accountability, red tape, better
targeting and flexibility with a one-size-fits-all approach, some witnesses
were concerned about two specific matters—NRAS funding accommodation for
students from overseas and the trading of incentives. Indeed, the Department of
Social Services cited these as two particular areas where the implementation of
NRAS had given rise for concern.
The Tenants Union of Victoria noted that NRAS had played an important
role in bringing private finance to increase the amount of affordable housing
in Australia. But it also referred to recent negative media coverage reporting
allegations that NRAS had been 'rorted to provide accommodation for wealthy
international students, and that foreign investors, brokers and small time
investors' were exploiting NRAS tax breaks.
In this regard, Ms Hand, Department of Social Services, informed the
committee that on average in the past year, 58 per cent of student
accommodation allocated under NRAS went to foreign students.
She stated that the department was trying to ensure that, where relevant,
preference would be given to 'Australian students in need, particularly those
from low- to moderate-income families'.
Her colleague, Mr Bryan Palmer, understood that international students
occupied a high percentage of Monash University's NRAS accommodation.
According to Ms Hand, at the time of the scheme's design there was no
specific discussion or wording in the legislation around foreign students.
Clarifying this statement further, she explained that the current legislation
and regulations did not preclude students from overseas. She suggested that a
review of NRAS would be looking at ways to tighten up this area of the scheme
as part of its aim to enhance NRAS.
Mr Somerville stated quite clearly that he and all the members of NRAS Providers
were 'pretty devastated when the universities got entitlements because it just
seemed to be counter to the intention of the scheme'.
Mr Liam Foley, Urban Development Institute of Australia, conceded that the
allocation of NRAS to housing overseas students was an example of where the
scheme had not operated to its best but was not 'representative of the scheme
in its entirety'.
Mr Yates, COTA, observed that universities using NRAS to expand student
accommodation was probably not part of the scheme's original intention.
He suggested that COTA was keen for NRAS to be tightened up in terms of
its focus 'to support community, church and charitable organisations and so on'.
The Council would have had 'no difficulty with a tightening of the eligibility
criteria for NRAS tenants'.
Not all witnesses opposed the use of NRAS to house international
students. Mr Pisarski thought the situation 'a little bizarre' that Australia
wants to encourage foreign students to come to the country, take up
opportunities in Australian universities and contribute to the economy but then
exclude them from affordable housing. In his view, this was particularly relevant
given that most Australian cities have a major overcrowding problem in foreign
student housing. It seemed to him that there ought to be 'the possibility of
doing a proportion of student housing and foreign student housing within those
Professor Earl was concerned about the level of understanding around the
issue of NRAS being used to provide accommodation for students from overseas.
To put a blanket over this and say all investment into
university housing is for international students is to draw a long bow. It
obviously did happen, but I think there could be some safeguards for those
kinds of students who are travelling from regional Australia to the cities for
Indeed, the University of Sydney drew attention to the 'acute shortage
of affordable housing within 3km of the University's main campus, resulting in
high levels of rental stress...'
The National Union of Students raised the need for more stringent means testing
to ensure that on-campus housing subsidised under NRAS went to students in
In early 2013, the media reported on concerns about the transfer of NRAS
incentives whereby the holders of unused incentives were trading them for
between $10,000 and $30,000.
In March 2014, the then Minister for Social Services announced that the
government would 'crackdown' on this practice of trading in NRAS entitlements.
In July 2014, Mr Palmer, Department of Social Services, informed the
committee that the problem with the trading of incentives involved excessive
fees in such a trade. He noted, however, that, at that time, the department had
no visibility on such transactions or any direct evidence. Nonetheless, according
to Mr Palmer, the department did have 'an awful lot of anecdotal evidence of
the practice of excessive fees being charged during the transfer of an
incentive'. Mr Palmer explained that in some cases the person entitled to hold
the incentive transferred it to another person for a fee. That person would
then bring their property into the scheme as a replacement for the original
incentive. In endeavouring to explain the practice of trading incentives, Mr
Palmer understood that the process sounded complicated.
Apart from this concern with the integrity of the scheme, he also noted
that the overall goal of increasing the housing supply could be undermined:
If you think about how houses are brought into the NRA
scheme, there is a tremendous benefit if we manage to bring houses into the NRA
scheme in a way that adds to the overall supply of housing in the entire
market. If as a result of the scheme a house is built that would not otherwise
have been built there is a tremendous benefit. We expand the housing market and
we bring a low-income house to the market. If a house that is brought into the scheme
does not do that, if it is something we spot purchase from a supply already
occurring or if it would have been built anyway then it does not add to the
overall supply of the market. So in a sense we are not helping overall market
affordability while we are bringing into the scheme a house that provides an
additional 20 per cent reduction on market rents and a house that is available
for someone who is low-income.
In other words, according to Mr Palmer, the intention to build houses
that would otherwise have not be built had not 'always worked out'.
A number of submitters outlined their understanding of the trading of
incentives. For example, Ms Young, Regional Development Australia, Gold Coast, explained
that projects that did not eventuate—that did not obtain bank funding to be
constructed—still had approvals attached to them. So people who had obtained an
approval for a particular project then put their hand up to say they could not
fund the build—it was not going to eventuate—and then sold the approval to
another developer. She agreed with the proposition that, in effect, the
entitlement to an NRAS incentive was being treated as a commodity, which was
never the intention.
Ms Young suggested that, from the delivery side of things, more control
was needed over the people who were participating and selling NRAS approved
She indicated that greater central control could be the answer rather than management
by the states as well as having performance indicators earlier in the process rather
than letting developments run.
Other submitters closely involved in the operation of NRAS and based on
their knowledge of the industry, also informed the committee of the practice of
trading incentives. In Mr Somerville's view, there was a need to understand
why this trading had happened, that is what had initiated the practice. He
That occurred because in round 4 of NRAS there was a massive
delay in the allocation of entitlements after the applications closed; it was
nine months. That was not the fault of bureaucrats; that was a hung parliament,
a change of government, changes of ministers and a protracted announcement. So
through that nine month period of time—assuming you made an application in the earlier
months when it was first opened—the allocation was 12 months down the
track. Within that period of time, developers sold their stock, and a huge
proportion of those that were applied for under that model were simply not able
to be delivered.
The department said, 'We will allow substitutions to be
made,' which was fair and reasonable at that point in time. But that
unwittingly created a massive amount of change requests. Again, it took an
extraordinary amount of time for the bureaucrats to assess the change requests
that came in for all of that round 4 stock. That then went for another four
months. So you could have easily had an application for a property which was
undeliverable, and then, by the time the assessment was made again, it was
undeliverable again. Those delays created a negative opportunity for people to
profit from that.
Mr Somerville was aware of some examples where such fee-making activity
had taken place, citing Melbourne in particular where, at that time, there were
a number of large-scale developments. He explained that these developments:
...were being engaged in the city, for which the market was
pretty dead, so those developers found it opportune to be able to transfer an
NRAS entitlement onto those and make them NRAS dwellings.
At that point, Mr Somerville did not know how many incentives had
changed hands, because, in his words:
...fundamentally that market did not work for NRAS. Putting an
NRAS entitlement onto a one-bedroom Docklands apartment which is going to rent
for $600 a week does not work for NRAS. So they were never going to actually
make it work. I think there is a lot more noise around it than substance.
From Mr Myers' perspective, the trading that had been reported in the
media was not an accurate reflection. He explained:
We have sat down with the department and gone through this
line by line, because it is small-scale but it is damaging, so we want it out
of the way. We have made proposals on it. If we are an approved participant, we
cannot just give the incentive to somebody else. However, if [for example] we
have gone in for a deal with Mirvac on this development, and, by the time the
approval comes through, that development or stage is sold out and there is not
another stage, and if we go to another developer in a neighbouring area,
AVJennings, then what is a reasonable administrative fee for doing all the work
on that and having to do redo it all over on this—the same approved
Mr Myers agreed that certain requirements could be included in
regulations, including fee disclosure and the obligation to notify the
department of any change. Indeed, as Mr Somerville noted, change requests under
NRAS now required a statement of the fee model to be submitted with any change
Mr Pisarski told the committee that trading of incentives was not
supposed to happen, though in his opinion, the fact that it did demonstrated
that NRAS incentives were a valued commodity. He attributed the problem to 'the
small portfolio or the small allocation processes that had happened and a range
of other issues'.
He did not see the emergence of this practice of trading incentives as a reason
to end the scheme. Indeed, he did not necessarily see it as a problem, if it meant
that the affordable housing gets put on the ground in a more timely fashion.
In his view, the problem could be addressed easily and even disallowed if NRAS
were to continue.
Most importantly, according to Ms Croce, the problems with the trade in
incentives were 'administrative and seemingly fixable'.
Evidence indicated clearly that a range of individuals and organisations
strongly supported NRAS. When mounting a case for its continuation, they could
identify its achievements, citing in particular NRAS' positive contribution as a
supply-side intervention and its success in increasing the stock of affordable
housing. NRAS also promoted constructive partnerships between not-for-profit
and private sector investors and developers, and added value to the government's
investment. It delivered social housing as well as affordable housing in mixed
developments overcoming problems created by having social housing in
concentrated pockets. NRAS was looking to develop properties with the
flexibility that allowed people to improve their circumstances without
jeopardising their tenancy.
Undoubtedly, NRAS has experienced some difficulties with its
implementation, which are attributable to:
teething troubles, including administrative practices associated
with too much paperwork, delays in processing applications and slow response to
emerging signs of problems;
understaffing, inexperience and high turnover within the
department administering the scheme;
design inadequacies including a one size-fits-all approach which
failed to take account of, or appreciate, the housing circumstances of
particular areas with an identified need for affordable housing such as high
value suburbs and regional, rural and remote areas;
lack of clarity around the targeting of incentives and
eligibility, which allowed significant allocation of incentives to overseas
disclosure measures, which allowed the trading of incentives with
excessive fees to persist and ultimately to damage the perceived integrity of
the scheme; and
external factors, notably the global financial crisis which
created challenges in attracting private investment.
These design and administrative shortcomings have overshadowed NRAS'
success but, while they point to the need for refinement, they in no way
warrant its discontinuation.
The Department acknowledged that there were design flaws in the scheme.
In the following chapter the committee examines the government's response to
the reports of deficiencies in NRAS.
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