Housing and federalism – Is it time to change direction?
Adrian Pisarski, Executive Officer, National Shelter
The Abbott Government has announced a Federation White paper to be completed in 2015. Its objectives are to clarify the respective roles of the states and the commonwealth and to ensure the future of the federation is better understood by citizens, reduces duplication, enhances governments’ autonomy, accountability and flexibility and supports growth and economic competitiveness.
National Shelter developed this paper to offer commentary and raise questions in anticipation of the review and the following objectives as stated in the White Paper to:
- Clarify the respective roles of the State and Commonwealth Governments;
- Ensure the future of the Federation is better understood by citizens;
- Reduce duplication;
- Enhance governments’ autonomy, accountability and flexibility; and
- Support growth and economic competitiveness.
An exclusive housing and homelessness review announced by Minister Andrews will now be incorporated into the Federalism Review. In relation to housing, the above objectives are of critical importance to National Shelter as is how to proceed with housing and homelessness policy and funding arrangements. The White Paper will put forward the idea of limiting the Commonwealth Government’s role in housing as it is identified in Section 51 of the Constitution. The roles are limited to those imaginable in 1899, do not include a direct role in housing for the Commonwealth and have little similarity to the systemic housing issues of the modern day.
Section 51 of the Constitution requires the Commonwealth Government to have a role in social security and therefore it will retain its responsibility for Commonwealth Rent Assistance (CRA) as an income support supplement. The central proposition made in the White Paper reflects a major policy shift in that the Commonwealth Government will not fund capital works (new construction) or financially support State housing authorities but instead restrict its role to the direct funding of tenants by extending CRA to public housing tenants who are currently ineligible.
If these ideas are implemented, they would herald the end of seventy years of Commonwealth Government involvement in State housing policy and funding through the provision of capital and operational subsidies. The question for National Shelter is whether or not these changes will make better sense of housing policy and programs or simply cause low income households to experience housing stress, increase poverty in a market that does not meet their housing needs and fail to provide an adequate supply of social and affordable housing.
It is important to understand why the Commonwealth Government became involved in housing initially to make an accurate judgment about where housing fits within the Federation and if it is timely or sensible to change this arrangement.
Historically, the main instrument of Commonwealth Government involvement in housing was the Commonwealth State Housing Agreement (CSHA). The CSHA was introduced in 1945 to address a housing supply shortage, identified as 300,000 properties in 1943. At the time the Australian population was approximately 7 million. The CSHA originally only supported rental housing with 50% of its provision directed at ex-defence personnel while later agreements included home purchase assistance via low interest loans. Much of the funding provided was based on debt financing but in 1973 some grant funding was introduced and low income households were targeted with limited sales of CSHA-funded housing.
The early CSHAs (1945 and 1956) also saw different approaches by States as they had greater leeway in the way they set public housing rents, tenant eligibility criteria and funding levels and some States built a larger number of homes to support manufacturing communities (as in South Australia). In 1978 more restrictive tenant eligibility criteria were introduced, targeting households experiencing high and complex needs in terms of the support they require to maintain their tenancies and head leasing and other forms of assistance were introduced along with a requirement for States to match Commonwealth funding dollar for dollar.
In 1981 formal requirements for States to match Commonwealth funding were introduced and Commonwealth Government contributions were further targeted to high need households and the removal of restrictions on untied grants. In 1984 specific programs like rental housing for Aboriginal people, rental housing for pensioners, crisis accommodation, local government and community housing and mortgage and rent assistance replaced previous arrangements and a set formula for public setting public housing rents was established. In the mid 1980s CRA was introduced and was initially about 25% of the level of CSHA funding (CRA is now approximately triple the level of NAHA funding).
In 1989 the CSHA provided a boost to the level of public housing stock and also required a 50% State matching of untied grants, moving to grant funding and away from the loan funding of the past. Some States however, still carry significant debt to the Commonwealth Government from loans.In 1996 the CSHA emphasis moved to a model based on achieving outcomes for low income households, away from addressing the levels of housing supply and began its current focus on accountability by the States to the Commonwealth, introducing formal outcome targets and measures. The focus on outcomes was further strengthened in 1999 when the ‘security of tenure for duration of need’ clauses were removed.
The 2003 CSHA continued the same trends until it was replaced by the NAHA in 2008 which also removed State matching requirements, limits on stock transfers to the community sector and became an agreement in perpetuity not requiring the regular renegotiation of previous agreements.
In 2012 the National Housing Supply Council, formed alongside the NAHA, estimated a housing supply shortage of 539,000 affordable homes available to households in the lowest 40% of incomes.
The latest Commission of Audit also recommended that the Commonwealth Government withdraw from direct funding, that public housing tenants be made eligible for CRA and charged market rents to improve transparency and accountability between the Commonwealth and the States.
These changes appear to follow the logic developed by Jeffery Harmer, head of FaHCSIA at that time, in his 2009 review and Ken Henry, head of Treasury in 2012 in the Tax Review. Harmer and Henry point to the inadequacy of CRA in meeting rental affordability need and the workforce disincentive in social housing linked to income based rents. Both called for CRA to be paid to public housing tenants and for pubic tenants to be charged a market-related rent. However they also discuss a relationship to market rent rather than a full market rent and Henry recommends an additional high needs payment to housing providers to meet the additional needs (employment connection, health, other support) of high needs tenants.
The NAHA currently costs the Commonwealth about $1.3b per annum with about $300m of that being for specialist homelessness services, so the base level of NAHA is about $1b. The cost of provision of CRA to public tenants is perhaps $1.25b resulting in an additional cost to the Commonwealth of $250m per annum compared to the NAHA.
CRA would need to rise significantly in order to meet the affordability threshold for public tenants if they were paying market rents. It is estimated that for a sole parent with two children under 6, the difference between their rent in public housing paying 25% of income and a market rent would be $6500 per annum including the current level of CRA. For a single aged pensioner the difference is approximately $5000 per annum. The additional CRA required to provide the same level of affordability would be at least $1.5b per annum. The higher needs payment would add a further amount depending on the level at which it was struck and the number of households who would be eligible. Alternatively the Commonwealth could require the States to meet the subsidy, meaning a cost shift to States of an additional $1.5b per annum. In New South Wales for example, this would mean the State finding $500m extra if they were to protect affordability for tenants at current levels.
A key reason for the Commonwealth considering withdrawing from housing and homelessness policy and funding reflects the ongoing debate between the Commonwealth and States about accountability and transparency. Currently under our Federation, the States are not required to provide their full accounts to the Commonwealth and an historic mistrust has developed. Simply stated, the Commonwealth is convinced that the States ‘hide’ the level of sales of public housing, and obscure the exact number of dwellings in their portfolios. The States argue that they spend in accordance with their agreement with the Commonwealth on a range of housing assistance measures in addition to spending on housing. The States also claim they are paying a subsidy for every public housing property. In Queensland it was estimated that the average rental subsidy per tenant was over $7,000 in 2009-10.
National Shelter agrees it is necessary to clarify the transparency and accountability of current NAHA arrangements. One way of achieving this would be to cease Commonwealth capital funding and use CRA for public housing tenants as an alternative to grant funding. However the same outcome could also be achieved via a national audit of property portfolios and a requirement in future agreements to specify net additions or losses and cash flow from sales.
The Commonwealth of Australia is also the signatory to the United Nations Covenant on Social Economic and Cultural Rights, which includes at Article 11, the right to adequate housing. The States are not responsible for meeting this obligation to the exclusion of the Commonwealth and changes to the historic Commonwealth-State housing agreements may weaken the responsibility for achieving human rights which the Commonwealth is obliged to meet.
States also face funding dilemmas of their own whereby they only collect some 40% of the revenue required to meet their costs and most States would struggle to meet any additional cost of housing under current revenue-generating arrangements. A decision for the Commonwealth to withdraw from housing may cause a wide variation in the quality and adequacy of housing between States as some are financially more able to meet housing costs and they already have different strategies to manage public housing.
Currently and increasingly States are shifting parts of their portfolios to community housing to enable the additional CRA to be collected in rent calculations whilst retaining their NAHA payment. Changes would require State housing authorities to optimise their rent calculations like community providers and would provide a more equal treatment of community and public housing tenants. It is likely there would be an additional cost to tenants in changing these arrangements and the change would not increase the ability of either States or community housing providers to add to the supply shortfall.
We return to the question about the role of the Commonwealth in housing and homelessness. In 1945 the Commonwealth began its involvement because of inadequate generation of supply. Along with its Section 51 responsibility for social security payments, including CRA, are tax responsibilities. Current tax settings (deductibility of expenses, including the difference between rent revenue and interest payments and capital gains tax exemptions for investors) arguably distort the market and add inflationary pressure by pitting investors against owner-occupiers. This inflationary pressure contributes to the supply shortage by advantaging established houses rather than new construction. Broad housing policy settings in the market and for overall supply therefore remain within the purview of the Commonwealth, regardless of how or if they choose to address affordability for tenants.
States also have a role in the supply of social and affordable housing with responsibility for land use, planning, land taxes and stamp duty and could introduce or strengthen measures to improve affordable housing supply. Local Governments also have a role to play in providing land, negotiating master plans, overseeing approval processes and setting infrastructure charges.
National Shelter has argued for many years that there is a vital role for all levels of government in housing and homelessness. Ideally, there would be a dedicated Federal Minister with broad responsibility for housing rather than the current limited role of the Community Services Minister around welfare housing. The authority and directive of a Federal Minister is required in order to utilise the full range of levers available to all levels of Government to meet the housing supply shortfall and to do so in the context of a National housing policy and strategy. Affordable housing programs, which are useful to a small degree, do not contribute to the overall supply of affordable housing.
The task of providing a sufficient supply of affordable housing in Australia began in 1945. Unfortunately the challenge of this task has still not been successfully met. The shortage may now be smaller relative to the total population but the task remains large and unwieldy in the current political environment. It is doubtful that sufficient additional funds will be found by either the Commonwealth or States to meet the increased cost of CRA required to maintain affordability for tenants while we experience budget constraint, without considering the need to generally lift the level of CRA for tenants in the private rental market. Should this increase occur it could also address the problem of insufficient supply through a process which would boost demand resources and increase competition for currently limited affordable housing availability adding to the existing inflationary pressure.
National Shelter raises these questions in anticipation of some of the potential arguments that may be put forward in a discussion about Federalism and housing and looks forward to contributing policy expertise to the policy and program implications of the Federation White Paper.