Revised NRAS scheme suggested to overcome its lack of capital challenge

The Senate inquiry into housing affordability has been given an alternative National Rental Affordability Scheme (NRAS) structure.

It has been touted as an effective evolution in the event the Abbott Government considers extending the Labor Government scheme for affordable housing.

The submission by Andrew Tyndale, a director of Grace Mutual, suggested the scheme should be based on providing capital in the form of a 10-year, interest-free loan, rather than NRAS-like income support.

The current position is based on NRAS offering income support incentives to build new affordable rental properties, but Tyndale argues the greatest need is capital.

Capital for developers and housing providers - both debt and equity.

"The NRAS income support is generous and flexible, but it is difficult to turn into capital (tax offset & non-standard indexation)," Tyndale suggests.

"The biggest risk to the NRAS program is this lack of capital," he adds.

It's possibly the biggest overall challenge for Australia’s housing sector - whether for private or social housing.

Grace Mutual has put forward an alternate mechanism which they believe will cost the Government less.

"The Government’s affordable housing scheme should be based on providing capital in the form of a 10-year, interest-free loan, rather than NRAS-like income support.

"Capital meets the real needs of the housing industry.

"It adds certainty for forward planning and certainty on cost, reducing the likelihood of allocated incentives remaining unbuilt.

"The loan would be available as “take-out” finance, so the funding is only available on completion, as currently.

"Participating NRAS providers throughout Australian have indicated that this approach would be preferable to the income support approach.

"It is significantly (>26%) cheaper for Government: Government’s borrowing costs are lower than the industry’s, so there is much less “leakage” and more overall efficiency.

"Government can fix its forward costs by supporting a 10 year bond instead of carrying an unknown and uncapped 10 year exposure to indexation.

"This approach can also reduce Government’s cost of compliance management, shifting responsibility to third parties under a user-pay approach."

Tyndale believe the loan principal can be kept off the Commonwealth’s balance sheet.

Under the proposed structure, the Federal Government would be liable only for the payment of the coupon (interest) on the bond with the services provided by a new Affordable Housing Finance Corporation, over which Government could exercise control (but not consolidate).

"Investor capital would be protected by mortgages over completed NRAS dwellings.

"These services would be provided by a new Affordable Housing Finance Corporation, over which Government could exercise control (but not consolidate)."

Despite the flaws since its 2008 introduction, NRAS had resulted in significant numbers of affordable dwellings being constructed, Andrew Tyndale said.

The Senate inquiry provides a timely look at the operation, effect and future of the National Rental Affordability Scheme.

Last May the Labor government announced a new $1?billion round for the scheme with the aim of creating 10,000 further new properties for low to middle-income tenants by 2015-16.

news@propertyobserver.com.au

Jonathan Chancellor

Jonathan Chancellor

Jonathan Chancellor is one of Australia's most respected property journalists, having been at the top of the game since the early 1980s. Jonathan co-founded the property industry website Property Observer and has written for national and international publications.

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