NRAS should be restored with improvements: Senate Affordable Housing Inquiry
Despite design and administrative shortcomings that overshadowed the National Rental Affordability Scheme (NRAS), they in no way warranted the scheme's discontinuation, according to the Senate Inquiry into Affordable Housing.
NRAS is a partnership between the Australian Government and the states and territories to invest in affordable rental housing with property investors.
It is a $6 billion initiative intended to stimulate the supply of affordable rental homes across Australia aimed 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 affordable housing.
But while evidence to the Senate Standing Committees on Economics indicated clearly that a range of individuals and organisations strongly supported NRAS, the inquiry found some difficulties with its implementation:
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 students;
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 committee concluded.
From its commencement in 2008, the annual incentives available to NRAS providers were to last for ten years, 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 $2,665.6 The total amount came to $10,661.
When announced, the original proposal was for an initial round of 50,000 incentives, though 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.
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, building sustainable communities with some private sales, some NRAS and some social housing.
The committee noted NRAS brought direct private investment into the affordable housing arena and significantly increased the community housing providers' engagement with financial institutions.
The committee heard it created a mechanism which has enabled a combination of private equity, the private sector, community-housing providers and the government to work in collaboration.
Despite the strong support for NRAS, a number of witnesses drew attention to weaknesses that have undermined its performance.
JELD-WEN indicated that some NRAS incentives had been allocated to tenderers that did not have sites for the commencement of rental housing, saying it was implausible that NRAS incentives could be approved without tenderers submitting proposed developments on actual sites.
JELD-WEN also criticised NRAS for poor accountability. It referred to 'a glaring need for a report card on the cost-effectiveness.
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.
Grace Mutual Limited referred to delays in processing applications and unclear, complex and poorly drafted regulations and law that 'hurt the program'.
Some argued 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.
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.
The Tenants Union of Victoria held the view that NRAS was one of the important supply side interventions that made a positive difference.
The committee did believe the review of NRAS was warranted.
It noted lessons needed to be learnt from NRAS such as the need for clear and tight eligibility criteria and better targeting to areas of need.
But the cancellation of round 5, however, "was a very different matter."
"This cessation has set back the scheme just as it was gaining the trust and support of the private sector and beginning to make a material contribution to the supply of affordable housing.
"Not only has it undermined investor confidence in this scheme, it has also fed into the general uncertainty that has engulfed the national policy on affordable housing.
"The committee is firmly of the view that the government should start immediately to rekindle the confidence that institutional investors were starting to show in investing in affordable housing and to provide greater certainty in order to attract such investors."
The Senate committee recommends that:
in the absence of any credible alternative scheme designed to increase the supply of new affordable housing and considering steps have already been taken to improve the administration and implementation of NRAS, that the Australian Government continue with NRAS round 5;
the Federation White Paper process look at the Queensland NRAS model, which appeared to have much tighter controls over eligibility, as a means of determining where further improvements or fine-tuning could make the system more robust and effective;
the Federation White Paper process look at how NRAS or a replacement scheme could be reframed to take account of the particular housing circumstances of regional Australia and ensure that NRAS housing was better targeted to areas in most need; and
as part of the Federation White Paper process, a thorough cost benefit analysis of NRAS be undertaken, and that any such analysis include comparison of forgone revenue from demand subsidies such as the first home owners grant, and negative gearing and capital gains tax.