The Independent Pricing and Regulatory Tribunal of NSW (IPART) has released a draft review of rent models for social and affordable housing. The review recommends a number of changes to the current system of social housing in NSW to improve delivery of services to those in greatest need.

In January 2016, the NSW Government released its 10-year strategy, Future Directions for Social Housing in NSW. IPART’s review is one element of this 10-year strategy, focusing on the framework for setting rents for social and affordable housing and the policies and processes for allocating housing assistance in NSW.

At present, the benefits of the social housing system are offset by numerous challenges, including:

  • an income-based rent model that keeps rents affordable for tenants but may discourage them from seeking employment;
  • the revenues generated by the income-based rents do not cover the cost of providing social housing;
  • the demand for social housing is increasing, with almost 60,000 households now on the waiting list;
  • the supply of social housing is not keeping pace with demand, and the type of supply does not match the type of demand; and
  • that affordability in the broader private housing market is declining.

Draft Findings

IPART concluded that an income-based tenant contribution is the best option to ensure affordability for tenants. Additionally, it found that the current rates for tenant rent contributions (25%-30% of income), the thresholds at which they apply, and the thresholds at which tenants are no longer eligible for a subsidy are appropriate.

The draft review also determined that multiple factors influence tenants’ incentives for workforce participation, not only the rent model, and other measures are likely to be more effective in strengthening these incentives.

Draft recommendations

In response to the draft findings, 27 draft recommendations were made by IPART.

Key amongst these recommendations is a funding model where tenants pay a rent contribution equal to 25% of their assessable income, with previously exempt or concessionally treated sources of income included in the calculations to improve equity among tenants. This would result in the total tenant rent contribution increasing by approximately $70 million.

At present, there is a gap between the tenant contribution and the efficient costs of providing public housing that is only partly subsidised through funds provided by the Commonwealth and NSW Governments. The remainder is paid by the NSW Government through implicit subsidies and the housing providers themselves, through a combination of operating losses, deferred maintenance, unfunded depreciation and forgone returns on their assets. The draft report recommends that the best option to place social housing in a more financially sustainable position is for the government to fund the gap through explicit subsidies to the housing providers, a model which is currently used in New Zealand.

Reforms to eligibility, prioritisation and allocation processes are also recommended, to improve the outcomes of social housing for both tenants and the community and address workforce participation. These changes would include:

  • enhancing opportunities to find and sustain employment for those who can take advantage of them;
  • reallocating existing tenants when identified as being in properties that are no longer suitable to their needs;
  • issuing all social housing leases as continuous leases; and
  • introducing a limited ‘right of return’ arrangement to encourage people to take up employment opportunities without fear of a loss of housing security if their circumstances change.

It is also recommended that time-limited private rental subsidies, already offered as an alternative to social housing for targeted households, be implemented more widely. This recommendation aims to assist more households in the short to medium term and avoid some of the need for longer term social housing.

Finally, an appropriate governance framework is recommended to ensure tenants and taxpayers receive good value from their contributions to funding social housing. This would include the development of a Social Housing Strategy by FACS to ensure there is enough of the right housing stock in the right place to meet demand.

The draft review does not recommend a rent model for affordable housing. Rather, IPART has recommended that available funding should be focused on social housing rather than affordable housing, to divert available resources to those in greatest need.

IPART is seeking comments on the recommendations and draft review by 12 May 2017. A public hearing was held in Sydney on 9 May 2017 to gather further feedback before the final recommendations are provided to the NSW Government in June 2017.