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Industry Commission Act - Industry Commission - Reports - No. 34 - Public housing, 11 November 1993 - Volume I - Report


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INDUSTRY COMMISSION

REPORT NO. 34 11 NOVEMBER 1993

INDUSTRY COMMISSION

PUBLIC HOUSING

VOLUME 1: REPORT

REPORT NO. 34

11 NOVEMBER 1993

A ustralian Government Publishing Service C anberra

© Commonwealth of Australia 1993 ISBN 0 644 32913 0 (Volume 1) ISBN 0 644 32949 1 (set)

This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without prior written permission from the Australian Government

Publishing Service. Requests and inquiries concerning reproduction and rights should be addressed to the Manager, Commonwealth Information Services, Australian Government Publishing Service, GPO Box 84, Canberra ACT 2601.

Printed in Australia by A. J. La w . Commonwealth Governm ent Printer. Canberra

INDUSTRY COMMISSION

11 November 1993

The Honourable George Gear MP Assistant Treasurer Parliament House CANBERRA ACT 2600

Dear Assistant Treasurer

In accordance with section 7 of the Industry Commission Act 1989, we submit to you the report on Public Housing.

Yours sincerely

M L Parker Presiding Commissioner Associate Commissioner

J W Nevile

Benjamin Offices, Chan Street, Belconnen ACT Australia PO Box 80, Belconnen ACT 2616 Telephone: 06 264 1144

Facsimile: 06 253 1662

TABLE OF CONTENTS

VOLUME 1

Page

ABBREVIATIONS xi

OVERVIEW xv

TERMS OF REFERENCE xlii

1 THE INQUIRY 1

1.1 The Commission’s approach 2

1.2 Issues raised by participants 3

2 HOUSING ASSISTANCE IN CONTEXT 7

2.1 Housing concerns 7

2.2 Housing assistance in Australia 12

2.3 Government programs 13

2.4 Taxation and regulatory arrangements 16

2.5 Recipients of housing assistance 17

2.6 Distribution of housing assistance 19

2.7 International comparisons 21

3 FUNDING UNDER THE COMMONWEALTH-STATE HOUSING AGREEMENT 25

3.1 Funding sources 26

3.2 Disbursement of funds 28

3.3 Financial management 30

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4 HOUSING-RELATED OBJECTIVES 37

4.1 Government objectives 37

4.2 Operational objectives 39

4.3 Multiple functions 43

5 AVENUES OF ASSISTANCE 49

5.1 Low-cost private rental market 50

5.2 Addressing tenants’ needs 52

5.3 Addressing the economic criteria 59

5.4 Appropriate mix of assistance measures 63

6 PROVISION OF PUBLIC HOUSING 67

6.1 Current approach 67

6.2 Organisational reform of housing authorities 72

6.3 Security of tenure 79

6.4 Rents 80

6.5 Access to public housing 89

6.6 Benefits from the new approach 92

7 RENT ASSISTANCE PROGRAMS 95

7.1 DSS and DVA rent assistance 95

7.2 Rent assistance component of MRAP 100

8 A BETTER COMMONWEALTH-STATE HOUSING AGREEMENT 101

8.1 Commonwealth-State Housing Agreement 101

8.2 Commonwealth-State relations 102

8.3 Should current arrangements be changed? 103

8.4 Which level of government should deliver housing assistance? 104

8.5 Commonwealth housing interests 105

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TABLE OF CONTENTS

8.6 Separating responsibilities 105

8.7 Ongoing Commonwealth support for public housing 107

8.8 The strategy for reform 112

9 COMMUNITY HOUSING 115

9.1 Government programs 115

9.2 Aims and achievements 116

9.3 Assisting people through community housing 121

9.4 Benefits of the proposed reform 125

10 SUPPORT ASSISTANCE PROGRAMS 127

10.1 People who need housing and support assistance 127

10.2 Available programs 129

10.3 Reform of supported accommodation assistance programs 134

10.4 Linking public housing with support services and facilities 135

11 ABORIGINAL AND TORRES STRAIT ISLANDER HOUSING 139

11.1 Current situation 139

11.2 Program objectives and administration 144

11.3 Reform 147

12 ARRIVING AT MORE EFFICIENT OUTCOMES 155

12.1 Reform of the CSHA 155

12.2 Reforming the delivery of housing assistance 157

12.3 Improving access and affordability generally 162

12.4 Improving the delivery of allied community services 166

12.5 Effective advocacy 167

REFERENCES FOR VOLUME 1 169

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BOXES

2.1 The CSHA and the nature of public housing assistance 9

4.1 Making ideals and objectives operational? 41

5.1 Mobility and public housing 56

6.1 An illustration of the proposed rent setting approach 82

FIGURES

2.1 Government expenditures on housing for selected OECD countries 21

3.1 Source of CSHA funding, constant prices, 1974-75 to 1991-92 27

6.1 Proposed rent setting model 83

6.2 Comparison of current and proposed subsidy for single public renters in Queensland 87

7.1 DSS and DVA rent assistance outlays, 1984-85 to 1991-92 97

8.1 Commonwealth and State housing assistance payments 109

8.2 Housing assistance and rent contributions when proposed arrangements are fully implemented 111

11.1 Commonwealth Government funding of Aboriginal and Torres Strait Islander housing, 1992-93 142

11.2 Commonwealth expenditure on ARHP and grants to Aboriginal housing organisations, 1984 to 1993 in 1992-93 dollars 151

TABLES

2.1 Annual service flow subsidies by tenure by household income quintiles, 1990-91 23

2.2 Housing tenure in selected developed countries by household 24

3.1 State housing authority public housing assets and debt, 30 June 1993 28

3.2 Indicative financial analysis of public housing rental operations of State housing authorities, 1991-92 32

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TABLE OF CONTENTS

34

35

64

VOLUME 2

APPENDICES

A Participants’ views

B Overview of housing for low-income people

C Rental market

D CSHA funding arrangements

E Evaluation of housing assistance approaches

F Effectiveness and efficiency of public housing authorities

G Organisational reform of State housing authorities

H Asset valuation and management

I Pricing policies

J Public housing allocation

K Other housing programs

L Community housing

M Support assistance programs

N Aboriginal and Torres Strait Islander housing

O Inquiry process

References For Volume 2

Glossary

3.3 Estimates of funds available to housing authorities for new dwellings under indicative financial analysis, 1991-92

3.4 Estimates of opportunity cost of capital, 1991-92

5.1 A social audit of housing assistance approaches

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ABBREVIATIONS

Main abbreviations used in this report are listed below:

ABS Australian Bureau of Statistics ACOSS Australian Council of Social Services ADC Aboriginal Development Commission AGPS Australian Government Publishing Service

AHB Aboriginal Housing Board AHL Aboriginal Hostels Limited AHOP Aboriginal Home Ownership Program AHRC Australian Housing Research Council

ALGA Australian Local Government Association ANU Australian National University ARCH Association to Resource Co-operative Housing ARHP Aboriginal Rental Housing Program

ATSIC Aboriginal and Torres Strait Islander Commission AWE Average Weekly Earnings CAP Crisis Accommodation Program CEO Chief Executive Officer

CERC Common Equity Rental Co-operative CEHL Common Equity Housing Ltd CFAF Community Facilities Accommodation Program CGC Commonwealth Grants Commission

CHA Community Housing Association CHAP AC Community Housing Associations Program Advisory Committee CHASSA Co-operative Housing Assistance Service of South Australia CHEP Community Housing Expansion Program

CHIP Community Housing and Infrastructure Program CHP Community Housing Program CHPP Community Housing Partnership Program CLRC Community Law Reform Committee

CORHAP Community Organisations Rental Housing Assistance Program

CPI Consumer Price Index

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CRS CRTP CSDA CSHA CSO DAA DCSH DEBT DHA DIEA DHC DHHCS

Community Rent Scheme Community Residential Tenancies Program Commonwealth-State Disability Agreement Commonwealth-State Housing Agreement Community Service Obligation Department of Aboriginal Affairs Department of Community Services and Health Department of Employment, Education and Training

Defence Housing Authority Department of Immigration and Ethnic Affairs Department of Housing and Construction Department of Health, Housing and Community Services DHHLGCS Department of Health, Housing, Local Government and

DSHS DSP DSS DSW DVA EMTR FAS FHOS GHP GTE HAAS HACC HALCS HNZ HPA HPAA HREOC IC ILHS JSA

LGACHP

Community Services Defence Service Homes Scheme Disability Services Program Department of Social Security Department of Social Welfare Department of Veterans’ Affairs Effective marginal tax rate Family Allowance Supplement First Home Owners Scheme Group Housing Program Government Trading Enterprise Home Accommodation Assistance Scheme Home and Community Care Housing and Locational Choice Survey Housing New Zealand Home Purchase Assistance Home Purchase Assistance Account Human Rights and Equal Opportunity Commission Industry Commission Independent Living House Scheme Job Search Allowance

Local Government and Community Housing Program

x ii IN D U S T R Y C O M M IS S IO N

ABBREVIATIONS

LGDP Local Government Development Program LGHP Local Government Housing Program MRAP Mortgage and Rent Assistance Program MRRS Mortgage and Rent Relief Scheme NAHS National Aboriginal Health Strategy NESB Non-English Speaking Background

NHMRC National Health and Medical Research Council NHS National Housing Strategy NSA Newstart Allowance

NYCH National Youth Coalition for Housing OECD Organisation for Economic Co-operation and Development PRHP Pensioner Rental Housing Program PSBR Public Sector Borrowing Requirement

RCA Rental Capital Account

REIA Real Estate Institute of Australia RHC Rental Housing Co-operatives RHP Rooming House Program

SAAP Supported Accommodation Assistance Program SAC State Advisory Committee SACHA South Australian Co-operative Housing Authority SAHT South Australian Housing Trust

SAULT South Australian Urban Land Trust SHA State Housing Authority TRA Temporary Rental Assistance YSJS Youth Social Justice Strategy

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OVERVIEW

Housing is a basic human need. Governments in Australia assist home ownership, and in turn accept that people who are not in home ownership should enjoy some of its benefits — through public housing and rental assistance.

Since 1945, public housing has been funded through the Commonwealth-State Housing Agreement (CSHA). Annual expenditures on public housing are in the order of $2.5 billion and public housing assets are worth at least $31 billion.

The bulk of assistance to low-income people in private rental has been through the Commonwealth Government’s social security rent assistance system. Annual outlays exceed $1 billion.

The task of this inquiry is to report on ways in which governments can deliver public housing and rental assistance more efficiently and effectively. It is not an inquiry into home ownership assistance.

The findings confirm that provision of public housing is a cost effective way to meet government housing objectives. But people have a variety of housing needs. In addition to public housing the appropriate mix of assistance measures is likely to include rent assistance, community (including co-operative) housing,

and headleasing — that is, the leasing of a property by a housing authority or community group for on-leasing to a tenant.

The need at this stage is for funding and institutional arrangements and incentives that will allow the right mix of assistance measures to emerge.

S c o p e for reform

It is not easy to trace the use of housing assistance funds or to evaluate how well the funds are spent. Indeed, the full costs of housing assistance are not recorded and governments do not know whether assistance is well targeted or delivered efficiently.

Commonwealth funding for public housing is allocated to States on a per capita basis with no requirement for the States to report on how effectively the assistance is provided. Some low-income groups are poorly represented in public housing; many people in need are not being assisted; and there are

inequities in the levels of assistance provided to people in public housing.

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The Commission’s proposals for reform assume that funding constraints are inevitable and that housing assistance should therefore go first to those in greatest need. This leads to concern for better targeting of public housing and rent assistance, and more equitable outcomes. If housing assistance can be delivered more efficiently or effectively, more people can be assisted.

The Commission has not come to a view on the level of funding — it is for governments to set welfare priorities when there are so many competing demands. However, the findings point to many areas of unmet need — areas which warrant additional funding. Governments have a long way to go in assisting Australians who are in housing stress and in urgent need of assistance.

Public housing today reflects the response of the States, through their housing authorities, to the ideals set out in the CSHA. In the Commission’s view, the reform process should encompass the CSHA and the State housing authorities.

The housing authorities are amongst Australia’s largest trading enterprises. In some States they are amongst the largest land developers, builders, property managers, tenancy managers and financiers. Their operations frequently support State development and ‘better cities’ initiatives, and at times they have pursued policies aimed at maintaining activity in the building industry. The ways in which the housing authorities make use of their resources have a bearing on both the achievement of social objectives and Australia’s broader economic performance.

A better Commonwealth-State Housing Agreement

A prime objective of the CSHA is to ensure that people on low incomes have access to secure, adequate and appropriate housing which is affordable. The ideals of affordability, appropriateness, equity, choice and security of tenure are

also embodied in the National Housing Strategy. But they are just that — ideals. They are not linked to the performance of the housing authorities in any measurable way.

In the Commission’s view, the community is unlikely to reap the gains from improved performance until governments clarify their housing objectives and housing assistance is provided under arrangements which improve accountability and transparency on the part of the State housing authorities. There is also a need for better delineation of the roles of each level of government. At present, shared responsibilities under the CSHA, together with funding through capital grants, provide opportunities for each level of government to escape scrutiny.

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In Chapter 8, the Commission argues that capital funding under the CSHA should be replaced largely by recurrent funding and that governments should make changes to their respective roles such that:

• the Commonwealth Government would administer income support policy;

• States would have responsibility for public housing; and

• from 1995, the CSHA would include bilateral agreements on public housing.

An important outcome of these arrangements would be to make clear that it is the responsibility of the States to meet the housing needs of al] eligible people. Should low-income people generally, or groups such as Aboriginal and Torres Strait Islander people, continue to be in housing need, this would become very

apparent. It would be clear who is to be held responsible.

Consistent with the responsibility of the Commonwealth Government for income support, the proposals also call for the Commonwealth to provide rent assistance to all eligible people on low incomes, including tenants in public

housing (although in this case the payment would go to the housing authority).

The Commonwealth would retain its present interest in housing and would provide incentives to the States to meet specific objectives in providing housing assistance. It would contribute to the cost of public housing in two ways: through the rent assistance that would be paid for public housing tenants; and

through a further payment to support an appropriate level of public housing provision.

Recommendation 1

The Commonwealth Government’s income support role should extend to rent assistance for all households on low incomes in both public and private rental. In the case of public tenants, the assistance should be paid to the States.

In addition to rent assistance, the Commonwealth should make payments to the States in support of public and community housing.

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Recommendation 2

State governments should acknowledge responsibility for the housing and infrastructure needs of all of their people on low incomes, and should provide low-cost public rental housing in accordance with that responsibility.

Public provision of housing is cost-effective

The options for delivering housing assistance to people on low incomes include cash payments, effective housing allowance schemes (that induce supply of appropriate rental housing), public housing and headleasing.

In Chapter 5, these options are assessed against social justice criteria — accessibility, affordability, appropriateness, security of tenure and equity. They are also assessed against economic criteria such as efficiency and

cost-effectiveness.

Public housing and headleasing are assessed to be more cost-effective than cash payments and housing allowances. Discrimination and security of tenure problems of low-income people are overcome and better targeting is achieved. They avoid the monitoring and administration costs of ensuring that recipients receive appropriate housing (see Section 5.3).

Public provision of rental housing is shown to be more cost-effective than headleasing over the longer term — that is, there are benefits in terms of financial savings. This finding is subject to the condition that housing

administration in the public sector is efficient, or at least not so inefficient as to negate these savings. There are often inefficiencies in public sector provision, but with public housing theie is also the potential for efficiency gains through economies of scale, scope and density.

In addition to financial savings, public housing offers secure tenure, non- discriminatory access and other benefits which are denied to many low-income and disadvantaged people in the private rental market. Indeed, public housing or sympathetically managed community housing is the only option for some.

Given these benefits, it is tempting to conclude that where governments seek to improve welfare through the provision of housing assistance they can best do so by means of public housing. However, the issue is more complex than this.

First, people who cannot or do not aspire to home ownership do not necessarily look to public housing. They may prefer private rental for mobility and other

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reasons. Others may prefer community housing. By subsidising low-income tenants in private rental or community housing, governments can add to the choice of tenure and improve after-housing income.

Second, there are reforms which could shift the balance a little more towards private rental. Anti-discrimination legislation may be of limited value (see Chapter 5), but reforms in tenancy legislation would benefit both tenants and

landlords. In some areas (notably manufactured and mobile homes) these reforms are urgent (see Chapter 12). The headleasing of properties in the private sector can also reduce the likelihood of discrimination and (if on an adequate scale) can encourage institutional investors to view low-cost

accommodation as an attractive investment.

Third, governments differ in their housing objectives and in their views as to the appropriate mix of housing assistance. Governments may well agree that all Australians have a right to housing that brings at least some of the benefits of home ownership, but governments are unlikely to agree on ways in which to bring this about. Their policies in areas as diverse as taxation, home ownership

and social welfare will influence the blend of housing assistance adopted from time to time in each jurisdiction.

By exploring a mix of public housing, community housing, headleasing and rent assistance arrangements, governments will be better informed as to the cost and effectiveness of different tenures. The proviso is that governments also push ahead with reforms (including improved accountability). At present, it is

unclear how efficient the housing authorities are in the delivery of housing assistance. There is inadequate data on which to assess the performance of the individual authorities, let alone compare one authority with another (see Section 6.1).

Public housing

The State housing authorities own and manage about 370 000 dwelling units, accounting for almost 6 per cent of the housing stock in Australia. The range is from 22 per cent in the Northern Territory to about 12 per cent in South Australia and 3 per cent in Queensland.

Much of the public housing stock is in medium density housing estates located in what were outer suburbs in the 1950s, 60s and 70s. Their uniform design and appearance help to stigmatise public housing, but it would be wrong to focus too heavily upon past mistakes. In all States, the housing authorities are responding to the need for change.

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The improvements are far from uniform, but by comparison with the recent past the housing stock is better managed; the authorities are more client-oriented; and greater attention is paid to the environs and community facilities generally.

An increasing proportion of public housing is dispersed; the older housing estates are being renewed; and more attention is being given to spot purchases to improve the geographic mix of public and private housing. There is growing recognition that the location of public housing must have regard to employment and training opportunities, and the community amenities and support services without which there is danger of social dislocation and alienation. That said, much of the public housing stock is inappropriate in design or location.

The views of a range of inquiry participants are set out in Appendix A and summarised in Chapter 1. The majority expressed strong support for public housing. Some said that it should be an alternative tenure, open to all.

Attributes of public housing

Well designed and managed public housing has many attractive features which the low-cost end of the private rental market cannot or does not provide at rents affordable to low-income people.

Public housing can provide affordable housing of reasonable quality with security of tenure. It can avoid most of the discrimination which low-income people generally, and young people, those with disabilities and Aboriginal and Torres Strait Islander people in particular, face in private rental. However, the choice of property is usually limited by what is available and deemed by the housing authority to be ‘appropriate’. Once allocated a house, tenants do not have much opportunity to move between houses.

There are sound arguments for access to public housing to be on a broad front. But with scarce public resources, trade-offs have to be made since the provision of ‘appropriate’ housing for some may be at the expense of deferring even basic shelter for others.

The length of tenure offered in public housing is an area in which trade-offs exist and must be recognised. Guarantees of secure tenure once a tenant’s financial and social circumstances have improved can be at a cost to others. Premature withdrawal of housing assistance from public housing tenants would be counter-productive, but if tenants in public housing continue to receive rental

subsidies when there is a substantial improvement in their circumstances they are likely to exclude more needy tenants. Likewise the provision of public housing in high-priced locations can reduce the resources available to meet total housing needs.

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OVERVIEW

The Commission’s proposals call for significant changes in the funding and allocation of public housing, and in rent setting policies — yet current tenants would not be greatly affected. The proposals recognise that the vast majority of people in public housing are pensioners or beneficiaries of social security

payments, but the proposals would also apply if the tenure were open to all.

Eligibility and waiting lists

Eligibility for public housing is based on household composition, income and the time spent on a waiting list (see Chapter 6). Priority allocations are given in cases of special need, but as pointed out by Shelter Victoria:

... priority procedures have become ineffective simply because o f the sheer volume o f housing need, demonstrated by the waiting list. Approved applicants for priority housing may now wait up to 18 months before being housed (sub. 172, p. 18).

In June 1992 there were 216 300 applicants for public housing and waiting lists have lengthened to as long as five years in some States. Where houses are available, prospective tenants usually have some choice, but they may have to trade-off choice of location with length of wait.

Waiting lists can be a poor measure of housing stress since their size is conditioned by eligibility criteria and the frequency with which the authorities review the lists. Many young people, people with disabilities, and people in areas where there is no public housing, do not apply since they do not expect to

be housed.

Under the Commission’s proposals, the time spent on a waiting list for public housing would reflect the cost (both socially and financially), to the individual or household, of remaining outside public housing — the greater the cost the shorter the wait.

To achieve this, all applicants need to be assessed against common criteria. Thus the reforms call for a single segmented waiting list within each State, and a common set of eligibility criteria. People who are in similar need of housing assistance would be placed in the same segment of the list in order of their

application. The rate of progression in each segment of the list would depend on relative need, thus people in the greatest housing need would be favoured. Households with similar needs would generally wait the same length of time regardless of where they prefer to live within a State.

An applicant’s relative need should be assessed against criteria such as household income and composition, potential for discrimination in the private rental market, and current living conditions. The assessment could have regard to whether the need is likely to be short-term or long-term.

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It is impractical to determine a housing assistance priority for each and every applicant. Some categorisation of need is required, but this does not imply a ‘point-score’ arrangement of the type used in Tasmania. What is important is that public housing allocation should recognise different degrees of need (see Section 6.5).

Recommendation 3

All applicants for public housing should be assessed by the same criteria and, if eligible, placed on a single segmented waiting list within each State.

In the Commission’s view, categories of need should go beyond the use of ‘priority’ and ‘wait turn’ lists — 4 or 5 segments are suggested. However, it is important that eventually people from each segment are offered a house, albeit after different waiting times. Those wishing to transfer to another State’s waiting list should have the time they have been waiting credited to the new list. Without such a provision, public housing can unduly constrain people’s mobility.

Reform along these lines would have a profound impact on eligibility. It would favour low-income people generally, young people, people in crisis, people with disabilities and (as a group) Aboriginal and Tones Strait Islander people. Public housing would be provided more equitably and would be more effective because of better targeting.

Tenure

Asset management is not helped where housing authorities are constrained by the unlimited tenure granted to existing tenants. Tenure arrangements should acknowledge the need for the public housing authorities, in very limited circumstances, to relocate some tenants — to the benefit of all. This is already the situation in those States where the housing authorities reserve the right

allowed under the CSHA to require tenants to move for asset management purposes.

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Recommendation 4

Security of tenure in public housing should be in a local area, not a particular dwelling.

Tenure arrangements should be more flexible whilst guaranteeing high levels of security for tenants. Housing authorities should have the option of offering a range of tenures. It may be appropriate in some circumstances to offer leases under limited tenure arrangements, renewable subject to review, perhaps to people whose circumstances are expected to improve (such as people waiting

property settlements and some young people).

Recommendation 5

Housing authorities should be free to determine a tenure period shorter than ‘life’ when this is appropriate.

If appropriate and affordable accommodation can be provided on limited term leases (see Section 6.3), the opportunities for headleasing from the private sector will be enhanced. Such opportunities should not be forgone, since the need for housing assistance is large and increasing.

Rent setting in public housing

The State housing authorities set rental payments for tenants in public housing so that in general they fall between 20 and 25 per cent of gross income. Consequently, about 85 per cent of tenants do not pay the nominal rent but on average receive a subsidy of about $67 per week. This is not the full extent of the subsidy since nominal rents are often below market rents.

While most tenants in public housing are subsidised, the 70 per cent of households in owner-occupied dwellings and many low-income tenants in private rental are also assisted. In Chapter 2 the average annual assistance is estimated to be about $3450 for low-income public housing tenants, $1470 for

households of similar income receiving rent assistance in the private market and $3180 for high-income home owners (though less for home purchasers).

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Rent setting practices in public housing are not efficient. Since most tenants pay a rent related to their income, the rent does not reflect the value of the service they receive. As nominal rents rise, so does the rebate. Consequently, tenants are not given the incentives to change their housing circumstances as their income or family composition change. Tenants are given very limited choice of dwellings or opportunity to move and the housing authorities receive little information on the type of dwellings tenants most value (see Chapter 6). The criteria which determine whether (and how) assistance is varied or withdrawn contribute to poverty traps, particularly where they interact with criteria that underpin social security payments.

At present, public housing of variable quality is allocated to tenants although there is usually the option of waiting for better quality or better located housing. Housing authorities try to ensure that public housing tenants in similar circumstances pay similar rents. As a consequence, the rent rebates received by tenants are inequitable whenever tenants with similar incomes and family circumstances are allocated houses of different amenity (see Section 6.1).

In the rent setting model proposed by the Commission, the emphasis is upon benefits rather than rents. Housing stock would be valued at market values, but eligible tenants would be subsidised. The amount of subsidy would be set for each income level so that households can afford a public house appropriate for their needs. The subsidy would also vary according to household composition to improve equity. Thus tenants in similar circumstances would receive similar benefits (level of subsidy). Tenants in better housing (as reflected in the market price) would pay a little extra, but tenants eligible for rebates would continue to pay less than market rents.

Under the Commission’s proposals, the time applicants wait would not be affected by the availability of housing in the area of their choice to the extent that it is under the current arrangements. Tenants would be able to choose between appropriate properties by paying the difference in market rents applying to those properties. If given a choice of properties, some tenants may trade-off their housing costs against other costs related to location, particularly transport costs.

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Recommendation 6

Public housing rents should be set at market values. As long as tenants are offered a choice between appropriate dwellings, rent rebates should be structured to ensure that, within affordability limits, tenants in similar

circumstances receive similar levels of assistance. Assistance should decline as income increases.

Other elements of the rent setting model in Chapter 6 recognise the need for assistance to be targeted to those below a certain income, and to withdraw assistance at a rate and in ways which are more equitable but avoid

discouraging those targeted from improving their situation.

The Commission’s rent setting model has been tested on a representative sample of Queensland public housing tenants. The findings indicate that people on lower incomes would pay less rent, while those on higher incomes would pay

more. People in houses that offer above average amenity, in terms of size or location, would pay more in rent. Those in houses offering below average amenity would pay less.

At present, tenants’ needs are not well matched to the mix and location of public housing. This mismatch becomes very clear when the Commission’s rent setting model is applied to existing tenancies. When applying the model in a

particular jurisdiction, care is needed to protect the interests of existing tenants.

Under the Commission’s proposals, the small and decreasing number of people in public housing who can afford to rent in the private sector would be required to pay the full market rent, or they could negotiate to purchase the property.

Recommendation 7

Tenants who can afford to rent in the private sector, but who choose to remain in public housing, should pay market rents that include a premium of 2 or 3 per cent to reflect the security of tenure provided.

Separation of roles within public housing authorities

Perhaps because of their multiple functions, the objectives of the housing authorities are poorly specified, making it difficult to monitor performance. The effectiveness of particular programs becomes difficult to measure and the

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community has no way of knowing whether welfare goals are being achieved and services are being provided at least cost.

Transparency is further obscured where revenues generated through land banking or land development are retained by the housing authorities. The retained earnings bring benefits to public housing, but open and accountable government loses out. As the transfers are not made explicit the community has no say in how and for what purpose public moneys are used. These are matters

examined in Chapter 4.

Under the Commission’s reform proposals, cross-subsidisation between public housing provision and activities such as land development would be eliminated. If a State requires activity not in the interest of or at a cost to public housing, the objective would be clearly identified and separately funded. The subsidies received by public and community housing tenants would be explicit.

In Chapter 6 the Commission argues that commercial functions such as land banking, land development and property management should be separated from activities associated with tenancy management.

Some separation of roles is already emerging — as where the housing authorities establish business units responsible for producing and maintaining the public housing required by another unit responsible for tenancy management. If each unit charges the full cost of the services provided, these arrangements can enhance transparency, accountability, effectiveness and efficiency.

However, the Commission’s proposals go beyond the creation of business units within the one agency. Full separation of property and tenancy management is necessary to protect the interests of public tenants.

The property management side of public housing should be a commercial activity. This is the best way to ensure that the community gets best value for its very large investment. The property manager would receive a market price for the services provided, and would be required to earn a rate of return on the investment and pay a dividend to government. This provides an incentive for improved performance. But without full separation of functions it also creates an incentive and opportunity for the property manager to meet commercial objectives at the expense of tenants in public housing. The need for full separation will become more important as governments implement reforms requiring their trading enterprises to pay dividends.

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Recommendation 8

Within each State, responsibility for management of the public housing stock should rest with a separate body — the property manager — operating on a fee-for-service or contractual basis. The property manager:

• should operate through regional offices responsible for acquiring and maintaining a mix of housing assets reflecting the public housing needs of the region;

• should be free to buy and lease properties and sell surplus properties; and

• should pay dividends to government reflecting a normal rate of return on comparable assets valued at their current market value.

The main client of the property manager should be the tenancy manager — located in a separate agency.

Under the Commission’s proposals, the property manager would acquire, manage and maintain the public housing stock on a fee-for-service or contractual basis for the tenancy manager located in another agency. The tenancy manager would be responsible for allocating and managing dwellings

headleased from the property manager or from the private rental market. Public housing tenants would nevertheless continue to pay subsidised (or market) rent, according to their individual circumstances.

The separation of functions makes possible a more commercial approach on the part of the property manager and, on the part of the tenancy manager, a more holistic approach to the needs o f people.

The majority of people in need of housing require just that — housing assistance. Nevertheless the tenancy manager would be expected to co-operate with other arms of government in meeting the needs of clients, whether in

public or private rental, community housing or supported accommodation. Where tenants have special housing needs, the tenancy manager would work closely with agencies responsible for supported accommodation assistance programs.

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Recommendation 9

Within each State, responsibility for managing the sub-letting to tenants who are eligible for public housing should rest with a tenancy manager. The tenancy manager:

• should lease properties on a contractual basis from the property manager and from the private sector; and

• in responding to the housing and welfare needs of clients, should have regard to all available assistance options whether in public housing, community housing or private rental.

The separation of functions would not lessen the security of tenure within public housing as the tenancy manager would determine which dwellings were required and which were surplus. Nor would it constrain consultation and the

involvement of tenants’ associations. The contact would be primarily between tenants and the tenancy manager at a regional level (see Section 6.2).

Community housing

The Community Housing Program (CHP) introduced in 1992-93 by the Commonwealth Government builds on the small but growing community and local government housing assistance programs begun in the early 1980s. The funds support housing co-operatives, housing associations or joint housing ventures between governments and sponsoring organisations.

In addition to funding under the CHP, community groups in some States are funded to headlease houses from the public and private sectors for sub-letting to households on the public housing waiting list.

Community housing adds to choice, offers opportunities for tenants to benefit from their own efforts and has the potential to attract additional resources into housing. There is scope for shared equity, and for those who are able to participate in self-help arrangements there are also opportunities to develop

social and work-related skills.

In Chapter 9 the Commission explores the financial viability of community housing, and whether it is an effective alternative to public housing. The conclusion reached is that community housing should be part of the armoury of housing assistance, and that people eligible for public housing should have the

option of joining a community housing scheme.

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There is nevertheless doubt as to the viability of some community housing schemes, and the advantages of community housing relative to public housing are as yet unproven in Australia. The issue cannot be resolved until there is proper accounting of all benefits and costs, and until the costs of promoting and

facilitating community housing are separated from housing assistance.

Recommendation 10

Government expenditure to promote and facilitate community housing should be funded separately from housing assistance for low-income people housed in that tenure.

The reforms proposed by the Commission in Chapter 9 would ensure that properly administered schemes are viable. This is because people who are eligible for public housing, but who choose to be housed in a community scheme would be assisted at levels similar to those in public housing. That is,

public housing and community housing tenants would be treated equitably.

This is a marked departure from the present arrangements whereby it is assumed that rents collected from tenants in community housing will cover the cost of maintenance, insurance, administration and municipal rates. This can be an unrealistic assumption. In circumstances such as the Aboriginal Housing

Company at Redfem (Sydney) it means that maintenance is forgone and there is a steady decline in the number of habitable houses.

Recommendation 11

The level of housing assistance available to people in community housing who are eligible for public housing should be similar to the subsidies they would receive as public housing tenants.

H ousing people with support needs

Many Australians are homeless or live in conditions that the wider community would consider unacceptable.

People on low incomes are at greatest risk, the most vulnerable being those with psychiatric illnesses, the elderly, people with disabilities, women and children

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escaping domestic violence or experiencing family breakdown, young people, sole parents and migrants. Many individuals in these groups are in need of support or special housing.

The involvement of numerous government departments and community groups in the provision of support and accommodation means that there has been little pressure on the public housing authorities to house people with special needs.

In many respects the current arrangements for housing assistance are at odds with policies which encourage the movement of patients out of institutions. People with physical or intellectual disabilities, psychiatric or other mental health illnesses are often denied access to public housing until they can guarantee accompanying support. The housing authorities are reluctant to provide support-related services, or consider that the provision of these services

is not part of their role.

The problem is not always avoided where support services are available through the Supported Accommodation Assistance Program (SAAP) which is intended to assist people who are homeless or in crisis. As pointed out by the

Queensland Mental Health Branch:

People with psychiatric disabilities, particularly young women, seem to be excluded from receiving emergency and crisis accommodation through SAAP because of their support/treatment needs (sub. 290, p. 2).

The current arrangements do not adequately address the needs of people who, because of their disabilities, rely upon (often ageing) parents. Even where adequate accommodation can be found, there may be little choice of location or

quality.

Young people make up another group who are not well represented in public housing. Yet high unemployment, family breakdown, physical, sexual and emotional abuse, lack of appropriate living skills, low incomes and discrimination in private rental contribute to a growing pool of homeless youth. Many rely on hostels or other shelter provided by community groups and charitable organisations — which in turn draw on SAAP services.

The demand for emergency accommodation has outstripped the capacity of current programs to provide it. The benefits which were initially achieved have been eroded by the dearth of medium- to long-term housing (including public housing) to allow clients to move out of emergency accommodation. As pointed out by The Salvation Army:

... there is decreased capacity of emergency housing to respond to families in crisis. A shift is occurring so that short-term accommodation is effectively becoming medium- term; or clients are moving from one emergency accommodation provision to another; or

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clients are being accommodated temporarily in private rental housing, with substantial cost to community agencies (sub. 200, p. 2).

Many people remain in crisis until they are provided with adequate housing. Public housing does not currently meet this need because insufficient weight is placed on ‘priority’ relative to ‘wait-turn’ allocation. In turn, this adds to the log-jam in crisis accommodation.

This is an area requiring urgent support — too many people are falling through safety nets and too much of the burden has been passed to inadequately resourced charitable and welfare organisations. They are well placed to provide immediate accommodation for people in crisis, but the assistance should be for respite only. Greater use should be made of public housing for medium-term

accommodation (where it is needed), but without the presumption of tenure for life.

Reforms in eligibility criteria within public housing can help, but other changes are needed to ensure better co-ordination between agencies and between levels of government. As pointed out by the Aged Services Association of NSW and ACT:

One o f the most grating elements about achieving diversity o f housing options in the community is the incredibly convoluted and complex process o f achieving the blessing o f the various Commonwealth, State and Local Government authorities to turn housing ideas into realities (sub. 75, p. 8).

In Chapter 10 the Commission argues that there are benefits in separating the accommodation and support components of assistance. People in crisis who do not require support services would be identified at an earlier stage and would be able to apply immediately for public housing. There would be greater scope for properties to be headleased from both private landlords and the public housing property manager. Where crisis accommodation is provided from the public housing stock, the transition from crisis to medium-term accommodation could

be eased.

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Recommendation 12

Housing assistance for people in crisis should be available irrespective of the need for other support services; and should be subject to the rental policies applied to public housing tenants once the income and situation of those in crisis has stabilised.

Notwithstanding the value of separating accommodation from support assistance programs, a high level of co-ordination is needed between the tenancy manager and the SAAP program manager. To improve accountability and promote the right balance between subsidies and capital, SAAP funds and Crisis Accommodation Program funds should come under the control of one manager.

Recommendation 13

The Supported Accommodation Assistance Program and the Crisis Accommodation Program should be combined and come under the control of the SAAP Program Manager. The Manager should have the discretion to allocate funds for capital or recurrent purposes.

The contribution of public housing in assisting people with special housing needs would be enhanced by separate funding of the cost of modifying accommodation (for example, for wheelchair access). Registers of modified accommodation would also help.

Recommendation 14

Separate funds should be available to modify public and community housing to meet the special needs of people with disabilities.

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H ousing for Aboriginal and Torres Strait Islander people

In the view of the Northern Territory Department of Lands and Housing and Local Government, a two-fold increase in capital expenditure is required to bring living conditions in Aboriginal communities up to an acceptable standard.

Some Aboriginal and Torres Strait Islander people are tenants in general public housing, but many depend upon special programs administered by State and Territory housing authorities, and a community housing and infrastructure program administered through the Aboriginal and Torres Strait Islander

Commission (ATSIC).

Overcrowding caused by insufficient housing for Aboriginal and Torres Strait Islander people contributes to high levels of wear and tear. The houses are often old, poorly maintained and do not meet cultural needs. They are prone to high repair costs (particularly the wet areas) because of poor construction and

inadequate inspection during construction. Overcrowding and problems of upkeep are not helped by the concern to distribute the limited funds across all communities.

Problems in housing delivery

In recent years, governments have been concerned to devolve much of the responsibility for housing to Aboriginal and Torres Strait Islander communities. In this way, community members are helped to acquire management and financial skills. But devolution comes at considerable cost where housing is

provided ahead of satisfactory arrangements for its allocation and upkeep. In town camps, remote communities and some urban settings, housing has often been provided with little regard to maintenance and eventual replacement.

Where housing assistance is provided under arrangements akin to community housing, there is evidence that the model is not financially viable. The cost of repairing (or replacing where necessary) the current housing stock in rural and remote areas is estimated to be in the vicinity of $286 million.

Even in public housing, rent collections barely meet the cost of maintenance, insurance, administration and municipal rates. In rural and remote Aboriginal communities there is little prospect that rent collections will cover these outgoings, let alone provide for replacement of the dwelling.

When the available funds do not allow for repairs and maintenance, communities become locked into a cycle that sees them perpetually in need of capital grants to replace houses or carry out substantial renovations. This cannot encourage self-determination and empowerment.

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Reforms

There has been targeted assistance for Aboriginal and Torres Strait Islander people for almost 30 years. ATSIC argued for retention of a targeted approach on grounds that it:

...recognises the special effort over and above mainstream activity necessary to address the most disadvantaged group in terms o f housing. It ensures transparency and accountability and a mechanism by which the Federal Minister can, if he chooses, decide to increase the priority by allocating increased funds. This has happened over the last five years. Notwithstanding the significant effort made through the mainstream program the specific program is a way o f ensuring recognition o f additional effort (sub. 333, PP 3-4).

In the Commission’s view, the targeted approach has served to isolate the housing needs of Aboriginal communities in ways which have not been to their advantage. It has not resulted in improved transparency and accountability, nor has it produced levels of funding to appreciably close the housing gap.

Funding of the Aboriginal Rental Housing Program (ARHP) has remained at $91 million per year since 1989-90. The funding of the housing component of the Community Housing and Infrastructure Program (CHIP) has fallen from $54 million in 1990-91 to $40 million in 1992-93 (excluding $10.5 million for housing from the National Aboriginal Health Strategy). Funding for the infrastructure component has also fallen.

The reforms currently being negotiated between Commonwealth and State governments seek to define administrative responsibilities and to enter into bilateral agreements that may see ARHP funding channelled through ATSIC to the States and Territories.

In the Commission’s view these changes will not address the underlying funding tensions, partly because responsibility for providing funds and accountability will continue to be shared. The need remains for housing arrangements that bring clear demarcation of responsibilities.

In Chapter 11, the Commission sets out how the reforms proposed for public and community housing, when supplemented with additional assistance to meet the cultural needs of Aboriginal and Torres Strait Islander people, will:

• lead to improved accountability by making it clear that the States are responsible for the provision of housing and infrastructure for all people in need of assistance, including Aboriginal and Torres Strait Islander people;

• ensure equitable treatment for Aboriginal and Torres Strait Islander people in the distribution of housing assistance, especially for those in rural and remote communities;

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• promote self-determination by providing for the expansion of community housing; and

• promote self-sufficiency by ensuring that community housing schemes are financially viable in urban, rural and remote settings.

The changes proposed for public housing (in Chapter 6) would also be to the advantage of Aboriginal and Torres Strait Islander communities since the emphasis is upon assisting people most in need.

The reforms call for a single, segmented waiting list within each State, and a common set of eligibility criteria. People in the greatest housing need would be favoured, since the rate of progression in each segment of the waiting list would depend on relative need. Should communities continue to be poorly served by housing authorities, this would become very apparent. Arrangements for

consultation, and for the involvement of regional councils and Aboriginal housing organisations, would continue.

Recommendation 15

Aboriginal and Torres Strait Islander people should receive at least the level of housing assistance available to other public and community housing tenants, where they are eligible, and should be subject to similar obligations.

Other benefits would flow to Aboriginal communities from the changes proposed for community housing. As set out in Chapter 9, people eligible for public housing would have the option of joining a community housing scheme, where they would be assisted to the same degree as public tenants in similar

circumstances. With the changes proposed by the Commission, the community housing model would offer a viable basis for Aboriginal communities to develop housing options while maintaining control over their land and housing.

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Recommendation 16

The Commonwealth Government should reach agreement with the States on funding responsibility for housing and infrastructure costs (with respect to Aboriginal and Torres Strait Islander communities) which exceed those normally incurred in State housing programs.

A program such as the CHIP would continue to operate in urban, rural and remote areas. It would provide the additional funds required to ensure that housing and infrastructure meet cultural needs. ATSIC would, as now, have a major role in co-ordination and consultation, and in ensuring that needs

specifically related to Aboriginal and Torres Strait Islander culture are met.

The provision of a financially viable housing model would contribute to self­ determination and empowerment, but the primary aim should be to speed up the delivery of housing and ensure that communities receive the health and social benefits that flow from efficient and effective housing provision.

Private rental

About 20 per cent of Australians live in private rental. It is a market which serves the needs of the majority of people in that tenure, but for others private rental does not offer affordable and appropriate housing with security of tenure. Where housing is available and affordable, there may be little choice of quality

or location and in all likelihood no guarantee of tenure.

The problems in private rental are very real for people on low incomes, yet for some (especially those with short-term housing problems) the provision of a rental allowance is a flexible way in which to deliver assistance.

Rent assistance

Rent assistance in the private sector is available to most people on low incomes through the Commonwealth Government’s social security rent assistance system. Commonwealth outlays on rent assistance in 1992-93 are expected to be in the order of $1.2 billion and assist over 900 000 tenants, boarders, lodgers

and nursing home residents.

The assistance goes to eligible people who pay above minimum threshold rent levels. It is provided at the rate of 75 cents per dollar of rent paid above a

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threshold rent up to a specified maximum rate of assistance. The rates of assistance have been increasing, but the March 1993 changes are expected to leave about 320 000 (or about 36 per cent) of rent assistance recipients still paying more than 30 per cent of income in rent.

The levels of assistance paid to private renters is much less than the rental rebate to public renters on similar incomes. Whilst rent assistance is largely determined by the level of rent paid by the household, public housing rebates are calculated on the level of income a household receives.

The Commonwealth Government has foreshadowed changes to achieve greater parity with public housing subsidies, and the reforms proposed by the Commission in Chapter 7 accept the need for some increase in rent assistance.

Some States have used untied funds under the CSHA to add to the

Commonwealth payments, usually to people on public housing waiting lists. In Tasmania, for example, the additional payments are intended to ensure that eligible tenants in private rental pay no more than 45 per cent of their income as rent.

Rent assistance to people in private rental is presently inequitable because households with different incomes receive the same level of assistance, and people not receiving pensions or allowances are not eligible for rent assistance (see Section 7.1). The reforms proposed by the Commission would extend the

assistance to low-income people not presently on government benefits, and ensure that assistance declines as income increases. Indeed, the proposals call for the Commonwealth to provide rent assistance to all eligible people on low incomes, including tenants in public housing.

The Commission has proposed new arrangements to ensure better targeting of rent assistance and to bring into better alignment the assistance accorded to people in public and private rental. The new arrangements would rely on rent assistance varying with the tenant’s income.

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Recommendation 17

The Commonwealth Government should change rent assistance to tenants in the private rental market so that it:

• declines as income increases;

• is available to all low-income tenants in the private rental market; and

• is brought closer to rent rebates in the public housing sector.

Rent assistance increases the incentives for some households without children to remain social security recipients. The Commission recognises that its proposals could worsen poverty traps in current general welfare payments. Accordingly, the proposal to withdraw rent assistance as income rises should be borne in mind for future implementation following a review of the rate of withdrawal of Commonwealth welfare measures. ‘Poverty traps’ are discussed in Chapter 7 and Chapter 12.

Inducing supply

The high levels of assistance given to public housing tenants and home owners, along with other factors, have tended to reduce the size of the private rental market. Added to this, the market for rental housing that is affordable to low- income people is a residual one and supply responses are therefore restricted. It is not generally an attractive area for investors (see Chapter 5).

Governments wishing to attract more properties into private rental have to overcome this by outlaying additional amounts of rent assistance. When this happens existing landlords are unavoidably paid more, even though the additional payment is not needed to hold them in the rental market. This is one of the reasons for concluding (in Chapter 5) that provision of public housing is a cost-effective form of meeting government housing assistance objectives.

That said, the benefits of public housing are diminished when there is inappropriate and inefficient delivery of assistance through that tenure. The reforms proposed in this report are intended among other things to bring to light the full costs and benefits of various tenures so that governments, in time, will be in a position to arrive at the best level and mix of assistance measures.

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The C om m ission draws attention to its su g g e stio n s that:

• State housing authorities adopt accrual cost accounting (Section 3.3);

• governments clarity their housing objectives to make them operational by linking them to intended outcomes (Section 4.2);

• where governments pursue objectives that impact directly on the cost of housing assistance, these objectives be identified clearly and funded from appropriate budgets (Section 4.3);

• a mix of housing assistance measures is required to respond effectively to the needs of people (Section 5.4),

• public tenants wishing to buy the property they are renting be able to negotiate its purchase (Section 6.2);

• capital injections in the form of grants may be required as well as

borrowings to expand the public housing stock (Section 6.2);

• market benchmarks be used wherever possible to value housing assets (Section 6.2);

• housing policy advice be provided by an organisation separate from both the tenancy manager and property manager (Section 6.2);

• land banking and land development functions be located separately from both the tenancy manager and property manager (Section 6.2);

• tenancy dispute tribunals be independent of housing authorities and located in a department such as consumer affairs (Section 6.2);

• the tenancy manager take an holistic approach to meeting the housing needs of people (Section 6.2 and 10.4);

• public housing tenants pay rent in advance, even if this means an initial rent holiday (Section 6.4);

• public housing tenants with disabilities requiring support infrastructure not pay a higher rent because of the additional cost (Section 6.4);

• applicants wishing to transfer from one State’s waiting list to another have their wait time credited to the new list (Section 6.5);

• equivalence scales (that adjust incomes for differences in household composition) be used when assessing incomes for eligibility for public housing and when calculating rent rebates (Section 6.4 and 6.5);

• ‘tied’ programs be consolidated into untied programs to improve equity (Section 6.6);

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• the rate of withdrawal of Commonwealth income support payments and rent rebates for public housing tenants be reviewed and harmonised to minimise poverty traps (Section 7.1 and 12.1);

• government sponsorship of community housing provides an appropriate means of assisting South Sea Islander descendants of the indentured labourers brought to Australia last century (Section 9.3);

• rent assistance be extended to young people in receipt of AUSTUDY or ABSTUDY who need to rent (Section 10.1);

• a register be maintained of dwellings modified to meet the requirements of people with disabilities (Section 10.4);

• current proposals for channelling ATSIC and CSHA housing funds will not address the major causes of inadequate housing for Aboriginal and Torres Strait Islander people (Section 11.1);

• a full assessment of housing assistance needs of Aboriginal and Torres Strait Islander people is required (Section 11.2);

• a rolling cycle is needed when funding housing for Aboriginal and Torres Strait Islander people (Section 11.2);

• Aboriginal and Torres Strait Islander communities make more use of local government building regulations (Section 11.2);

• the property manager be adequately capitalised (Section 12.2);

• housing authorities improve their auditing, accounting standards, reporting and performance monitoring (Section 12.2);

• some States need to strengthen their tenancy legislation and extend its coverage to tenants in caravan and mobile home parks and in boarding houses (Section 12.3); and

• governments fund and support effective advocacy and advisoiy services (Section 12.5).

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TERMS OF REFERENCE

I, JOHN SYDNEY DAWKINS, under Section 7 of the Industry Commission Act 1989 hereby:

1. refer the provision of public housing in Australia to the Industry Commission for inquiry and report within twelve months of receiving this reference;

2. specify that the Commission report on ways in which Commonwealth, State, Territory and Local Governments can achieve their social, economic and housing objectives more efficiently and effectively and how those changes can be implemented;

3. specify that the Commission, in dealing with this reference, have regard to the broad framework of the Government’s housing policies as set out in ‘Housing — Choices for a Changing Nation’ (released in the 1992-93 Budget context);

4. specify that the Commission pay particular attention to:

(a) the acquisition, maintenance, construction and management practices adopted by providers (including providers of community managed housing);

(b) the administrative and other mechanisms used to allocate housing;

(c) rental policies;

(d) funding, financing and ownership arrangements; and

(e) associated Commonwealth, State and Local programs and policies; and

5. specify that the Commission take account of any recent substantive studies undertaken elsewhere, including by the National Housing Strategy.

John Dawkins

5 November 1992

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This inquiry is about improving the effectiveness and efficiency of government housing assistance programs so that those most in need benefit and the number assisted is as large as possible, given the level of funding. The terms of reference are reproduced on the facing page.

Housing underpins the quality of life of all Australians. Yet our ever-increasing standards of accommodation (reinforced by planning, building and health regulations) and certain taxation arrangements can put housing out of reach for some.

The housing assistance programs covered by the inquiry are:

• public rental housing;

• community housing;

• crisis accommodation and emergency relief;

• housing for Aboriginal and Torres Strait Islander people; and

• rent assistance.

The rent assistance programs are those administered by the Departments of Social Security and Veterans’ Affairs, for tenants renting in the private sector.

Home ownership assistance programs are not directly under inquiry.

The inquiry is preceded by many reviews concerned with Commonwealth-State relations and housing policy. Recent reviews include:

• The National Housing Policy Review, 1988;

• The Housing Summit, 1989;

• The National Housing Strategy, which commenced in 1990 and finished in 1992;

• The Victorian Housing and Residential Development Plan, which commenced in 1991;

• The Functional Review of Housing in 1991; and

• The Mant inquiry into the NSW Department of Housing, completed in 1992.

The inquiry was conducted over twelve months. Completion was delayed for one week to allow participants at the Indigenous Australian Shelter Conference to give consideration to the Commission’s proposals for Aboriginal and Torres Strait Islander housing.

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1.1 The C om m ission's approach

The central task is to report on ways in which governments in Australia can achieve their social and economic objectives as they relate to public housing more efficiently and effectively through organisational and operational reforms.

The government’s housing policies as set out in ‘Housing — Choices for a Changing Nation’ and the work of the National Housing Strategy have been taken into account. The social objectives outlined in these documents, in which housing is seen as a means of achieving a fairer and more just society, have guided the Commission’s assessment of the effectiveness of the programs.

Our approach was to: (1) identify the objectives of housing policies and programs; (2) evaluate the extent to which these objectives are met; and (3) examine the effectiveness and efficiency of programs.

Program effectiveness is assessed in terms of whether programs are meeting their stated goals and whether current outcomes are being achieved at the lowest possible cost to the taxpayer. Program efficiency, which is concerned with making best use of available resources, is assessed in the broader context of government housing and social justice objectives.

In keeping with the Commission’s charter, an economy-wide view is taken when assessing housing assistance programs. Some of the issues of wider concern investigated are:

• the nature of housing assistance and its relationship with income support;

• inter-governmental relations and responsibilities;

• housing assistance, and the promotion of self-management, self­ determination and self-sufficiency on the part of Aboriginal and Torres Strait Islander people; and

• the impact of public housing policies upon the wider community.

The Commission consulted extensively on housing issues. All States and Territories were visited for three purposes — to discuss issues and set an agenda for the inquiry; for an initial round of hearings to discuss submissions on reform; and for a final round of hearings, which focused mainly on the Commission’s reform proposals.

The visits and hearings were held in all capital cities. In addition, hearings were held in two regional centres, Kununurra and Mackay. The Commission visited Aboriginal communities in Alice Springs, Cowra, Kalumburu, Kununurra, Redfem and Toomelah and met with Murrumbidgee-Lachlan Regional Councillors at Balranald.

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1 THE INQUIRY

Following the release of the draft report, Commission staff conducted a seminar for State and Territory officials and advocacy groups to explain the rationale for the draft recommendations and discuss implementation issues.

The report commences with a review of government objectives, funding, the nature of housing assistance and government involvement. Summaries of findings and proposed reforms for the main areas of assistance are presented in the subsequent chapters.

The appendices to this report include assessments of matters specifically mentioned in the terms of reference — asset management, allocation mechanisms, rental policies, funding, financing and ownership arrangements. The principles used to formulate findings and recommend reforms presented in

the report are also described.

Wherever the report refers to the States it should be read as the States and Territories.

The inquiry process is outlined in Appendix O.

1.2 Issu e s raised by participants

There was a very high level of participation and interest in the inquiry. There were 370 submissions to the inquiry and some 1000 individuals and organisations expressed an interest in being kept informed on progress. A selection of views and issues drawn from submissions is presented in

Appendix A and summarised below.

Equity and the distribution of housing assistance was of concern to many participants. Most were critical of tax advantages to home owners (the capital gains tax exemption of the family home and, notionally, the non-taxation of imputed rent), advocating the re-distribution of this assistance to public and

private renters.

The majority of participants said that the need of low-income people for secure, affordable and appropriate accommodation is not being met in the private rental market. Those most affected were said to be people in wheelchairs, people with disabilities, those with large or extended families and others with special housing needs. Discrimination on the part of landlords was seen as restricting

access to the private rental market.

Security o f tenure was seen as a major objective of public housing by a majority of participants. This was closely linked to the concept of public housing as social, rather than welfare housing and the concern to provide the benefits of home ownership to low-income people.

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Many opposed or had reservations about any effort to move single public housing tenants presently living in family accommodation. Others were critical of constraints upon tenants modifying public housing as this can diminish their perception of the dwelling as ‘home’.

Affordability was also a major concern. Participants cited inadequate security of tenure and deficiencies in the legislative protection for tenants in private rental.

Many inquiry participants claimed that only public housing can meet the government’s objectives of affordability, appropriateness, equity, choice and security of tenure. They were critical of the size of the waiting lists and often

argued that public housing should be an alternative tenure that is open to all and not seen as ‘welfare’ housing.

Although supporting open access to public housing, participants generally conceded that public tenants who can afford to pay fu ll cost or market rent should be required to do so. A minority argued that public housing should be available only to those on low incomes or who are otherwise disadvantaged.

Several participants criticised the joint responsibility fo r housing under the Commonwealth-State Housing Agreement (CSHA) where housing programs are funded by the Commonwealth and implemented by the States. They argued that the joint arrangement is not efficient or effective in delivering housing

assistance.

The integration o f housing and other assistance was raised by a number of participants. Some expressed support for a single authority being responsible for housing and care services.

Inquiry participants were critical of the performance o f the housing authorities, although many noted improvements in recent years. O f particular concern was the inappropriate housing stock, inadequate maintenance, the poor standard and condition of older stock, and a lack of appeal mechanisms. Many argued that the housing authorities are not sufficiently responsive to the needs of tenants.

Some argued that a proper assessment of the performance of housing authorities is not possible on the basis of the information in their annual reports.

Inquiry participants stressed the need for greater community consultation with respect to housing and support programs. Some said the role of local government is overlooked by the Commonwealth and State governments.

There was strong support for community housing but also concern that it might be supported at the expense of public housing. A few participants advocated community housing as an alternative to public housing but most saw it as adding to choice. There were many requests for increased funding of

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1 THE INQUIRY

community housing and funding to develop tenant skills and management career paths.

Many participants were concerned that the demand for crisis accommodation has outstripped the resources available to charitable organisations. O f particular concern were the lack of medium-term housing options; the constraints this puts on people leaving crisis accommodation; and the consequent loss o f capacity to

respond to crisis housing needs.

Many participants cited poor co-ordination o f housing and services programs. Areas identified as requiring greater co-ordination are housing and support services for the aged, youth, and physically and intellectually disabled. An area of special concern was the failure to co-ordinate assistance for disabled people who have moved out of institutions and people with disabilities who are

presently living with aged parents.

Housing fo r Aboriginal and Torres Strait Islander people was an issue in urban, rural and remote settings. The Commission found considerable evidence of the inappropriateness of existing housing, lack of funding, inadequate infrastructure and low maintenance (particularly in remote areas).

Participants pointed to many ways in which the traditional life and culture of Aboriginal and Torres Strait Islander people add to the difficulty of delivering housing assistance. Problems include overcrowding, culturally inappropriate housing size and layout, inadequate arrangements for rent collection and the up­ keep of both housing and infrastructure.

Most participants said that housing assistance should be increased, particularly public housing. Some were concerned that any increase in rent assistance may be at the expense of public housing, or that more rent assistance would raise rents and not assist people in housing need. A minority advocated more rent

assistance and less public housing.

The Commission’s reform proposals incorporated in its draft report helped to distil further the important issues. The public hearings on the draft report assisted the Commission to refine its recommendations and to recast parts of the report to remove misunderstandings.

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2 HOUSING ASSISTANCE IN CONTEXT

The first Commonwealth-State Housing Agreement (CSHA) was signed in 1945 in response to a housing shortage after World War II.1’1 2 It formalised the joint responsibility for providing public housing based on Commonwealth funding and State delivery.

Public housing was conceived to be self-funding once the housing had been constructed, with rents set on a cost recovery basis. However, this Agreement recognised that low-income people may not be able to afford cost-based rents and the Commonwealth agreed to meet 60 per cent of losses from housing

authority rental operations.

Since 1945 the CSHA has undergone many changes. Assistance is now provided to home purchasers as well as to public housing tenants; most assistance is now targeted to housing need, specifically people on low incomes and those with distinct housing needs (such as Aboriginal and Torres Strait

Islanders and people with disabilities); and the Commonwealth has withdrawn from directly sharing the cost of public housing rent rebates.

The major development outside the CSHA was the introduction in 1958 of Commonwealth assistance to private renters in the form of cash payments provided by the Department of Social Security (DSS) and Department of Veterans’ Affairs (DVA). Initially restricted to single pensioners, it was

extended in the 1980s to increase the level of assistance and target it to particular household types. Housing authority tenants ceased to be eligible for rent assistance in 1982.

2.1 H ousing con cern s

In the 1992 Budget document ‘Housing — Choices for a Changing Nation’, the Commonwealth Government affirmed that:

• An internationally competitive, efficient and flexible housing industry will contribute to growth, raise Australian living standards and increase employment opportunities. The Micro-economic Reform Imperative.

1 Tasmania joined the CSHA in 1956, the Northern Territory in 1981 and the Australian Capital Territory in 1990.

2 More details on the development o f the CSHA can be found in a study undertaken for the Commission by (R. J. Egan and Associates 1993). See Appendix O for the terms of reference for this study.

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• Concerted action is required because of growing environmental concern if the opportunity to create environmentally sustainable cities is to be retained. The Environmental Imperative.

• On average household size is becoming smaller because people are living longer, having children later and separating in larger numbers, thereby increasing the demand for smaller dwellings. The Demographic Imperative.

• Home ownership provides a way for people to feel part of mainstream society. Consequently, all should have the opportunity of benefits similar to those arising from home ownership. The Social Justice Imperative (DHHCS 1992a, pp. 7-8).

The social justice imperative in particular acknowledges that, to participate fully in society, people must have adequate housing. However, adequate housing is often not affordable for those on low incomes who must rent. The private rental market serves the needs of many renters reasonably well, but there are perceived ‘failures’ in the operation of the market, particularly at the low-cost end.3

Concerns expressed in the CSHA

Governments in Australia have sought under the CSHA to:

Ensure that every person in Australia has access to secure, adequate and appropriate housing at a price within his or her capacity to pay by seeking to:

• alleviate housing related povertx; and

• ensure that housing assistance is, as far as possible, delivered equitably to persons resident in different forms o f housing (Recital D, 1989 CSHA).

This statement identifies five key housing assistance concepts: accessibility, affordability, appropriateness, security and equity (see Box 2.1).4 The first four deal with specific attributes of housing that governments often seek to provide to individuals, while the fifth — equity — is about the fairness of the distribution of housing assistance between individuals.

3 See Appendix C for more details on the private rental market.

4 All o f these concepts were examined in some detail by the National Housing Strategy (NHS) See in particular NHS Issues Paper 2 (1991b) and NHS Issues Paper 6 (1992a).

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Box 2.1: The CSHA and the nature of public housing assistance

In Recital D of the CSHA, accessibility of public housing is implied in the primary principle that is to:

Ensure that every person in Australia has access to secure, adequate and appropriate housing.

as well as in:

Assistance provided shall be available to all sections o f the community irrespective o f age, sex, marital status, race, religion, disability or life situation.

Affordability of public housing is implied in that housing should be ‘at a price within his or her capacity to pay ... to alleviate housing-related poverty’.

Appropriateness of public housing is covered by the following:

A physical and locational environment appropriate to the tenant's needs;

Recognition accorded to the rights o f ... tenants;

Rental housing should reflect general community housing standards and be accessible to community and other services;

Rental housing stock should, as far as possible, be designed to cater for the needs and preferences o f current and likely future applicants;

The design, style and siting o f rental housing will, to the maximum extent practicable:

- Reflect the need for access to employment opportunities and services;

- Reflect the needs for accessibility and suitability for habitation by people with disabilities, Aboriginal, youth, the elderly or other identified groups; and

- Support the energy conservation policies o f the governments.

Security o f tenure is defined as follows:

Tenants are not to be forced to leave their home because o f actions inconsistent with the agreement by a State. Where a tenant is forced to move from one dwelling to another by a State, a choice o f dwellings and locations appropriate to the tenant’s needs is to be provided

Equity is implied in the following:

Housing assistance is, as far as possible, to be delivered equitably to persons resident in different forms o f housing tenure;

Priority in granting assistance shall be determined by the need for assistance, and

Public housing tenants with similar capacity to pay, pay similar rents

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Accessibility

Accessibility is about the relative ease with which households can change dwellings within the same tenure or between tenures. This would include barriers such as search, transaction and relocation costs as well as

discrimination and other practices which limit housing options for certain groups. The degree of choice available at the time of moving or seeking to move is also considered an aspect of access. For instance, for a private renter there are search costs in finding a new dwelling. For people on low incomes in particular, the costs may make access difficult and these costs will increase if the rental market is tight. There are financial costs to take up a tenancy such as

a bond, rent paid in advance, removal costs and connection fees for utilities.

Affordability

Affordability is about the relative ease, once in a dwelling, in meeting housing costs out of income. The National Housing Strategy (NHS) considered housing to be ‘affordable’ if it did not take up too large a proportion of the household budget. That is, after paying for housing costs, there should be enough income to pay for other necessities such as food, clothing and medical care.

The NHS (1992b) recommended that eligible renters should pay (after housing assistance) no more than 25 per cent of their income on rent for adequate and appropriate accommodation (see Appendix B for details about housing for low- income people). The Commonwealth Government in the 1992 Budget introduced the concept of a ‘benchmark of affordability’ for private renters. It set a long-term goal of assisting low-income renters paying more than 20 per cent of their income on rent.

Appropriateness

Appropriateness is a multi-faceted concept. It relates mainly to the physical qualities of housing, including its location, and whether these meet the needs of the occupants. Appropriateness is defined here in terms of:

• Qualitative life-cycle aspects: Housing must be appropriate to the life­ cycle stage, household composition and cultural background of residents. This includes ensuring sufficient size and space for the household’s needs.

• Design, siting and condition aspects: The physical nature of the dwelling, both internally and externally, must be appropriate. This includes privacy, physical security and access, and the condition of the dwelling as well as the availability of utilities. For rented dwellings, the responsiveness of the

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owner or manager when there is a need to rectify a problem with the dwelling is also relevant.5

• Geographic location: Employment, services and social contacts for the residents should be accessible.

Security of tenure

Security of tenure is usually defined as the extent to which the occupants of a dwelling have a right to continue to occupy that dwelling. Security of tenure for private renters is usually determined by the terms of the lease and relevant State legislation covering tenancies. Even if tenants meet their obligations under the

lease, such as paying rent on time, they can be required to vacate the dwelling. Most leases are for a fixed initial period of six months or a year and then continue on a monthly basis.

Equity

Equity is another multi-faceted concept and relates to the fairness of the treatment of individuals and groups of individuals by governments. Fair treatment is necessary to safeguard the cohesion of society. It is therefore an important social justice issue. Three categories of equity are:

• Horizontal equity: Those in similar circumstances should be treated similarly. Although this may appear a straightforward concept, what is accepted as ‘similar treatment’ and ‘similar circumstances’ is conditional upon social, moral and cultural norms.

• Vertical equity: Those in the worst circumstances should be assisted more than, and in some cases before, those not as badly off. This is a simple guide to the direction that redistribution of income ought to take. It is more difficult to assess because the role of governments is not simply one

of redistribution. Governments also provide services to those who have paid to receive them with their taxes. These latter services need to be distinguished from redistribution of income through pensions, benefits and government services, though they can also contribute to the redistribution

of income if those on low incomes pay little in taxes for the services they receive.

• Intergenerational equity: Later generations should be treated fairly. Decisions about the use of resources by the present generation ought to include consideration of effects on future generations. Broadly, there is an

5 This definition largely follows the approach used by the NHS in Issues Paper 6 (NHS 1992a, pp. 7 -9 ) and includes ‘adequacy’ as part o f ‘appropriateness’. However, unlike the NH S, security o f tenure has been defined separately.

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obligation on the present generation to pass on to further generations at least as much ‘wealth’ as is presently enjoyed.

Horizontal and vertical equity should be examined not just in terms of assistance for one good, such as housing, but ideally in terms of the bundle of assistance available to households.

2.2 Housing assistance in Australia

Australia is predominantly a nation of home owners and home purchasers. A growing number of people around 200 000 households in the private rental market — are unlikely to ever enter home ownership (DHHCS 1992a, p. 7). However, the private rental market has a number of imperfections that can limit

low-income people’s access to appropriate, affordable and secure accommodation (see Chapter 5).

All levels of government provide housing assistance. Governments provide funding for public and community housing, to increase the access to and the affordability of private rental, and to encourage home ownership.

Important indicators of the level of government assistance include:

• One in five rental households are government tenants.

• Housing assistance accounts for about 2 per cent of the Commonwealth’s total budget outlays.

• Commonwealth outlays on private rent assistance in 1992-93 totalled around $1.2 billion to about 900 000 households.6

• Housing authorities estimate that rent rebates in 1991-92 totalled $883 million to about 251 500 households.7

• About 85 per cent of all housing authority tenants received rent rebates in 1991-92.8

• Over 90 per cent of new tenants have insufficient income to meet the cost or market rents charged by housing authorities and receive rebated rents.

6 About 35 per cent o f all people receiving rent assistance are people in nursing homes, boarders or lodgers The total includes payments by both the DSS and DVA The DSS figures for married pensioners have been adjusted to a household basis.

7 Unpublished data provided by DHHLGCS Excludes Queensland and Tasmania as these two States do not calculate rebates The estimate must be treated with caution as some authorities use cost rather than market rents.

8 Commission estimate based on unpublished data from DHHLGCS, Queensland and Tasmanian Government submissions. The actual proportion subsidised is higher as some States do not set market rents.

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• The proportion of public tenants receiving rent rebates in 1991-92 ranged from 74 per cent in South Australia to virtually 100 per cent in Tasmania.

• The average rent rebate per public housing household receiving rent rebates (excluding Queensland and Tasmania) was $67.50 per week in 1991-92.9

• The average DSS and DVA rent assistance payment to private rental households receiving rent assistance was about $21 per week in 1991-92.

• Public housing stocks number about 370 000 dwellings and are valued conservatively at more than $31 billion.9 10

• Housing authorities held 5.6 per cent of the housing stock in 1991 (ABS 1993).

• There are currently around 15 000 community (including co-operative) houses, excluding community houses provided to Aboriginal and Torres Strait Islander communities under the Aboriginal Rental Housing Program and the Community Housing and Infrastructure Program.

• In 1990-91, 30 781 households received home purchase assistance loans under the CSHA. These loans had a total value of $2200.7 million.

2.3 G overnm ent programs

Funding for the CSHA represents about half of Commonwealth outlays on housing assistance. Commonwealth funding under the CSHA is largely in the form of capital grants, mostly for public housing.

At the State level there are hundreds of housing and housing related schemes that are funded under the CSHA. These include public housing, numerous forms of community housing, special needs housing, rent assistance, loans for bonds and home ownership assistance (see Appendix F).

Major CSHA programs

The major CSHA programs involving rental housing are:

Public housing: Public rental housing is delivered by State housing authorities and is funded by capital grants of about $1 billion annually. In addition there are two sub-schemes, the Aboriginal Rental Housing Program (budget

9 Calculated from Appendix D, Table D.6. This figure should be taken as a guide only. The actual subsidy cannot be determined as housing authorities use different methods to approximate nominal rents.

10 Estimated value o f housing authority dwellings as at June 1992 (Appendix H, Table H.2),

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allocation $91 million in 1992-93) and the Pensioner Rental Housing Program (budget allocation $49.3 million in 1992-93).

Community Housing Program (C.HP): Provides funding primarily for capital purposes to encourage participation by community groups and local government in the provision and management of housing for low- to moderate-income people. (The CHP received funding of $24.4 million in 1992-93 which is

additional to $12.5 million under the former Local Government and Community Housing Program (LGACHP)).11

Mortgage and Rent Assistance Program (MRAP): Private renters receive short­ term assistance under this program in the form of loans and grants for rental bonds and relocation costs. Rent subsidies are also available in some States to individuals or community groups that headlease dwellings to provide short-term

accommodation to low-income people. Total assistance was $80 million in 1991-92 (includes $48.7 million of State funding) excluding mortgage assistance.

Crisis Accommodation Program (CAP): Under this program capital grant funding is allocated to State housing authorities for the purchase, construction, renovation or lease of accommodation for the use of supported accommodation assistance services (expenditure of $5.4 million in 1992-93).1 1 12

Other programs

The Commonwealth also provides funding for a range of other housing and housing related support services outside the CSHA. The housing related programs are:

Rent Assistance: Rent assistance is provided by both the DSS and the DVA to clients (pensioners, allowees, special beneficiaries and recipients of the Additional Family Payment) who rent privately and pay above a minimum amount in rent (for 1992-93, DSS expenditure was about $1.2 billion and the

actual DVA outlay was $25.2 million). 13> 14

11 The Community Housing Program was announced in the 1992-93 Budget and superseded the Local Government and Community Housing Program from 1 January 1993.

12 Crisis Accommodation Program funding was reduced from $39.7 million to $12.5 million due to State under-spending. Only $5.4 million was spent and the remainder withheld due to changes in cash management practices (total 1993-94 funding $76.6 million; $43.3 million from Commonwealth, $33.3 million in unspent funds held by States) (DHHLGCS 1993)

13 Pensioners include the aged, people with a disability, wives (usually a carer), sole parents and widows (class B). Allowees include people receiving Job Search and New Start Allowances (these allowances replaced unemployment benefits in 1991). The Additional Family Payment replaced the Family Allowance Supplement (FAS) on 1 January 1993.

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Community Housing and Infrastructure Program (CHIP): This program is administered by the Aboriginal and Torres Strait Islander Commission (ATS1C) and provides funding for housing and infrastructure for Aboriginal and Torres Strait Islander people (expenditure of $40.1 million in 1991-92). An additional $10.5 million, allocated from the National Aboriginal Health Strategy, was also expended for housing under the CHIP program in 1991-92.

Aboriginal Hostels Limited (AHL): This program is administered by ATSIC ana provides funding for low-cost rehabilitative, aged, student, homeless and transient accommodation services through the AHL and Community Support hostels (expenditure of $29.1 million in 1992-93).1 4 15

Other Commonwealth programs are intended to provide the help necessary for people to move towards independent living or, where this is not possible, meet their on-going support needs. They include the Supported Accommodation Assistance Program (SAAP) (funding of $167 million in 1992-93); Housing and

Community Care program (Commonwealth funding of $341.8 million in 1992-93) and the Commonwealth-State Disability Agreement16 (CSDA) (outlays under the former Disabilities Services Program were $94.2 million in 1992-93). The Commonwealth also funds organisations to provide suitable residential care (nursing homes and hostels) for older people.

Assistance is also available under the CSHA to increase the access of low- income renters to home ownership. Under previous Agreements, most assistance was provided through concessional loans. In most cases the States now act principally as guarantors. Any direct assistance is subsequently recovered over the period of the loan.

A list of State programs funded under the CSHA is in Appendix F. Some States have chosen to provide additional funding outside the CSHA for a number of these programs.

14 In March 1993 the rent threshold for private rent assistance was changed to $30 per week for singles. $40 per week for sole parents, $50 per week for couples without children, and $60 per week for couples with children.

15 AHL also operates a subsidy scheme that assists students undertaking education away from their local area.

16 In July 1993. administrative responsibility for the provision o f accommodation services to the disabled was transferred to State governments under the Commonwealth-State Disability Agreement

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2.4 Taxation and regulatory arrangements

In addition to providing financial assistance, governments intervene in many other ways in the housing market.

Commonwealth responsibilities include tax expenditures (non-taxation of imputed rent and capital gains tax exemptions), tax-based investment incentives for residential rental property (negative gearing and depreciation).

State governments are responsible for stamp duties, land taxes and landlord- tenant legislation, while local governments are involved in local planning and building regulation, the levying of rates and, to some extent, community­ housing.

The main housing-related taxation and regulatory arrangements are:

Capital gains tax exemptions: Unlike other forms of investment, the family home is exempt from the capital gains tax introduced from September 1985. The value of the exemption for housing acquired since the introduction of the tax is estimated to have been $409 million in 1990-91 (Flood 1993).

Non-taxation o f imputed rent: Imputed rent is the value of the housing services consumed by the owner-occupier. The net tax forgone (after building depreciation and mortgage interest deductions) is estimated to have been $4.3 billion in 1990-91 (Flood 1993).

Land tax: This takes the form of an annual tax on the unimproved value of land. Widespread exemptions and rate variations make the net impact difficult to detennine, although rental housing is adversely affected (see Appendix C). The principal place of residence is exempt, except for Victoria and Tasmania.

In addition, all land valued below a general threshold is exempt from the tax. Exemptions are estimated to have cost $483 million in 1990-91 (Flood 1993).

Stamp duties: States levy stamp duties on property transfers occurring through sale or lease. Most States provide reduced duties for first home buyers.17 In addition, Queensland and Western Australia have lower rates of stamp duty for home purchasers compared to landlords (Wood 1992).

Pensioner rebates: State and local government provide pensioners with rebates on some taxes, duties and charges (principally water and sewage rates, municipal rates, stamp duties and land taxes). These cost an estimated

17 New South Wales and Tasmania give first home buyers an interest-free instalment payment option for houses up to a maximum value.

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$267 million in 1990-91 (Flood 1993). Unlike other tax expenditures, pensioner rebates are generally recognised on-budget.18

Residential tenancy legislation: All States have some form of residential tenancy legislation.19 However there are wide variations in the coverage and provisions. Legislation generally excludes boarding houses, caravan parks and mobile homes (exceptions to the latter are New South Wales and the Northern Territory). Some States have specific legislation for caravan parks (Victoria)

and mobile homes (Queensland).

Anti-discrimination legislation: All States, other than Tasmania and the Northern Territory, have their own legislation (although Commonwealth legislation applies it is limited in its application to the States). This legislation generally outlaws discrimination, although there are some exceptions with

respect to people with disabilities (see Appendix C).

Regulation o f building and planning: Regulations can impact on the construction and maintenance of dwellings. Estimates of the annual cost of delays range from $650 to $850 million (see Appendix C).

The Commonwealth also allows investors in rental property to use negative gearing and depreciation allowances (see Appendix C). While these provide assistance to the owners of rental property, they are available to investors and companies generally and so are not specifically related to housing.

2.5 R ecipients of hou sin g a ssista n c e

The Commission relied mainly on ABS data, DSS and other submissions in determining that:20

• Public tenants (compared with the general population) comprise: couples with children 27.5 per cent (41 per cent); couples without children 13.5 per cent (about 24 per cent); one parent families 27.5 per cent (about 9 per cent); and singles 27 per cent (about 19.5 per cent).

• About 73 per cent of families in public housing receive pensions or allowances from the DSS or DVA.

18 Flood (1993) considered pensioner rebates to be a direct expenditure when estimating the distribution o f subsidies to different tenure forms (Section 2.6).

19 Queensland and Tasmania are considering new legislation.

20 Information was sought from the housing authorities in relation to people waiting for, and accommodated in, public housing. Detailed data were provided by the Victorian and Queensland housing authorities. Both States are atypical o f housing authorities generally. Hence it cannot be assumed that the data apply to public tenants in all States.

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• About 1 in 4 pensioners and allowees are public tenants.

• About 1 in 3 pensioners are public housing tenants compared to about 1 in 8 allowees.

• 3 out of 4 public tenants are in the bottom 40 per cent of income

distribution.

Little is known about long-term public housing tenants, as opposed to those newly accommodated. Data for Victoria and Queensland suggests that the two groups differ mainly in incomes.

The recipients of private rent assistance are DSS pensioners, allowees, special beneficiaries and Additional Family Payment21 recipients and DVA pensioners. To be eligible they must pay above a threshold amount in rent.22 Public housing tenants are currently not eligible to receive rent assistance. It is known that:

• About 1 in 3 people receiving DSS and DVA pensions were also receiving rent assistance in 1990-91;

• The average payment by DSS to pensioners receiving rent assistance was $23 a week in 1991-92;

• The average payment by DVA to pensioners receiving rent assistance was $16.50 per week in 1991-92;

• About 1 in 5 families receiving the Additional Family Payment also received DSS rent assistance in 1990-91;

• The average DSS rent assistance payment to families receiving Additional Family Payment and rent assistance was about $27 per week in 1991-92; and

• The average DSS rent assistance payment to allowees receiving rent assistance was about $16.70 per week in 1991-92.

Despite government housing assistance, a large but unknown number of people are homeless.23 People on low incomes are at greatest risk, the most vulnerable being those with psychiatric illnesses, the elderly, people with disabilities, women and children escaping domestic violence or experiencing family

21 Formerly known as Family Allowance and Family Allowance Supplement.

22 Rent thresholds vary according to household types. See Footnote 14.

23 MacKenzie and Chamberlain (1993) estimate that the number o f homeless young people is 15 000 to 19 000 p e r night (based on the use o f SAAP services). Fopp’s 1989 estimate o f 50 000 to 70 000 homeless was for young people aged between 12 and 24 years that were homeless or at risk ο/'homelessness (Fopp 1993). Fopp (1993) states that Burdekin’s 1989 estimate o f between 20 000 and 25 000 appears to have been for those aged under 18.

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breakdown, young people, sole parents and migrants. Many of these groups have support or special housing needs.

2.6 Distribution of housing a ssista n c e 24

Housing assistance takes the form of direct government expenditures (including grants to public housing and rent assistance for private renters) and service flows (including tax expenditures and interest rate regulation).25-26 Although government expenditures are normally subject to explicit definition and

consideration through the annual budget process, service flow subsidies are not subject to the same level of scrutiny.

All forms of tenure — home ownership, rental housing and public housing — are assisted. Home owners receive the majority of assistance through the taxation system, specifically the non-taxation of imputed rental income and the capital gains exemption of the family home. Access to home ownership is also

assisted through housing loans and shared equity schemes for low-income people, stamp duty exemptions and low-cost land for first home buyers (new applicants do not normally receive a subsidy from low-start loan schemes as these now operate on a cost-recovery basis).

Public housing tenants are assisted primarily through income-based rents. The nominal level of assistance is measured as a rent rebate which is the difference between a CSHA-defined cost or a ‘market’ rent and the actual rent tenants pay.

The bulk of assistance to private renters is received as cash payments paid to welfare recipients (in the form of rent assistance). Some assistance is provided for removal costs and as loans for bonds.

Flood (1993) estimated government-provided, housing-related assistance for 1990-91 by two different methods — net expenditure27 and service flow28:

24 This section is based on Flood (1993). See Appendix O for details o f the consultancy.

25 A tax expenditure is revenue forgone relative to an ideal or benchmark tax base. The major tax expenditures include non-taxation o f imputed rent and the capital gains exemption on the family home.

26 Flood’s estimates o f assistance include the benefits o f the interest rate subsidy to home purchasers, calculated as the difference between the market rate o f interest and the ‘capped’ interest rate. Flood’s estimates do not include the costs or benefits o f anti-discrimination or landlord-tenant legislation, or o f planning and building regulation.

27 The net expenditure method includes all government funding for a particular purpose to a group net o f any money received from that group. It may include certain service flows.

28 The service flo w m ethod is the actual benefit received by a group. It includes direct transfers (for example rent assistance), net tax expenditures and other housing-related

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• Net expenditure of about $3.2 billion of which 79 per cent went to

households below the median income.

• Service flows of about $8.6 billion (comprising tax expenditures of about $5.4 billion, direct expenditure29 and other service flows of about $3.2 billion). About 38 per cent of tax expenditures and 73 per cent of other service flows went to households below the median income.

The net expenditure method measures the subsidy in terms of consumption. It assumes that aH outlays (recurrent and capita!) are consumed in the period of allocation. The service flow method measures the subsidy assuming housing is an investment good. It takes subsidies to be any reduction in normal recurrent costs relative to some benchmark or ‘usual’ tax system. Flood uses market rents and taxes in the private rental market, and appropriate market interest rates as benchmarks for calculating tax expenditures and other service flows.

Levels of assistance (as measured by the service flow method) vary significantly between tenures (see Table 2.1). Overall, public tenants ($2880) and home­ owners ($1890) received the largest average service flows per household. The average service flow to home purchasers ($890) was lower than that received by private renters ($970).

To the extent that the future benefits of imputed rent are capitalised into current house prices, the total service flow to home-owners derived by Flood will be reduced (because it raises house prices it also reduces the accessibility of home

ownership). Another qualification is that home purchasers would not receive all of the benefit from the non-taxation of imputed rent.

Levels of housing assistance also vary across income levels (see Table 2,1). Public renters in the lowest quintile receive the most assistance ($3450) — two and a half times that received by households with incomes in the top two income quintiles ($1340). Assistance declines as income rises until the fourth

quintile.

The level of assistance to private renters also declines with income. Assistance to the bottom two income quintiles ($1440 and $1340) is over twice that received by households in the top quintile ($550). Flood notes that, with rent

assistance targeted to low-income individuals and families, it is difficult to detennine the assistance received by households, as significant amounts of rent assistance is paid to individuals living in multi-person households.

assistance such as public housing subsidies (relative to market rents) and concessional home loans (relative to market interest rates).

29 Excluding direct expenditure on public housing, but including direct expenditure on private rental, home ownership and purchase. Flood uses estimates o f market rents to calculate the service flow subsidy to public housing tenants.

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Table 2.1: Annual service flow subsidies by tenure by household income quintiles, 1990-91

$ per household

B o tto m

2 0 p e r c e n t

2 n d 3 r d 4 th T o p

2 0 p e r c e n t

A ll

H o m e o w n e rs 1570 1770 1520 1310 3 1 8 0 1890

H o m e p u rch a se rs 1060 1300 9 30 360 1210 890

P riv a te re n te rs 1440 1340 820 640 55 0 970

P u b lic re n te rs 3 3 4 5 0 299 0 2 1 0 0 1340 1340 2890

A ll 2 0 1 0 1750 1210 820 1980 1510

a Government employees (including Defence employees) are included with private renters. Source: Flood (1993)

Home-owners in the highest quintile receive about twice the assistance of home-owners in the lowest quintile. This is attributable to the higher tax rates and imputed rents received by this group. The high level of assistance to purchasers in the highest quintile (relative to other purchasers) may also be

explained by higher tax expenditures and the higher equity in their houses. Purchasers in the second quintile receive more assistance than most other purchasers, reflecting the targeting of home purchase schemes to this group.

Flood notes that direct expenditure is increasingly better targeted to low-income households. In particular, assistance to public tenants appears to be well targeted with 93 per cent going to households with income below the median. However, indirect assistance to home owners and purchasers through tax

expenditures increasingly benefits households in the highest income groups. Flood concluded that the distribution of assistance in 1990-91 was more even than in 1985-86.

2.7 International com p arisons

Most developed countries provide assistance to both consumers and producers of housing. The assistance can be supply-based (that is, subsidising production) or demand-based (subsidising consumption). Some countries place emphasis on subsidising home ownership (for example the United States, United Kingdom,

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Australia and New Zealand). Others have placed greater emphasis on non­ profit or co-operative housing (for example, Germany and Denmark).30

OECD comparisons (see Figure 2.1) of government housing expenditures indicate that:

• Australian government expenditure on housing and community amenities as a proportion of GDP is relatively low by comparison with many OECD countries;

• Australian government expenditure on housing and community amenities is weighted towards current expenditure (as a proportion of current to total expenditure) with a significant amount taking the form of subsidies;

• Current outlays are favoured by governments devoting a small proportion of GDP to housing and community amenities;

• Capital outlays are generally favoured as housing and community amenity outlays increase (as a proportion of GDP); and

• France stands out in spending a relatively high proportion of GDP on housing and community amenities (both capital and current outlays) (OECD 1993).

However, this comparison does not allow for differences in the level of tax expenditures on housing between countries. There are many other differences between countries in Figure 2.1, for example, government housing policies, the relative strength of the non-profit and public housing sector, the relative maturity of housing markets and the level of population growth.

Government policy can significantly influence housing preferences. Affordability for example is influenced by policies that affect the availability and cost of land. The growth of the co-operative sector in Germany, Denmark,

Sweden and the Netherlands was largely based on land being made available at less than market rates.

In Australia, the United States and New Zealand the relatively low cost of land has encouraged low density cities with detached housing. As a consequence of this and taxation policies favouring home ownership these countries have relatively high rates of home ownership.

3 0 T h is s e c tio n is b a se d in p a r t on a s tu d y u n d e rta k e n f o r th e C o m m is s io n by S w in b u r n e

U n iv e r s ity o f T e c h n o lo g y (see A p p e n d ix O f o r th e te rm s o f re fe re n c e o f th e s tu d y ).

2 2 INDUSTRY COMMISSION

2 HOUSING ASSISTANCE IN CONTEXT

Figure 2.1. Government expenditures on housing for selected OECD countries

Per c e n t o f G D P

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0

Denmark Norway Australia Germany Italy Portugal Spain United France

1990 1991 1991 1990 1991 1986 1988 Kingdom 1989

__________________________ 1991

H C u rre n t □ C a p ita l

Note: Expenditure includes all current and capital expenditure by government on housing and community amenities. Source: Derived from OECD (1993).

The structure of housing industries in each country influence housing costs and therefore affordability. Australia, Canada, New Zealand and the United States have fragmented, mostly small-scale housing construction firms, although significant multi-unit development has occurred in the United States and

Canada in the last decade. By contrast, Germany and Denmark have large-scale producers with an emphasis on low-rise multi-unit housing. Apart from lower land, maintenance and management costs, production and infrastructure costs are reduced by standardisation and the scale of the development.

Australia is the only country studied by Swinburne where public housing authorities cover the rent deficit from internal sources (see Table 2.2). All others have some form of rent supplement or allowance that is externally funded. Apart from the United States, all the countries listed in Table 2.2 have

integrated housing assistance and income security programs.

Australia and New Zealand alone do not have significant rent controls in the private rental market.31

31 A u s t r a lia n la n d lo rd s in m o s t S ta te s a re u n a b le to in c re a s e re n ts w it h in th e fix e d te r m o f a

lease. H o w e v e r , it is a ls o d i f f i c u l t f o r a te n a n t to te rm in a te a lease. T h e s e lim it s o n th e

p r iv a te re n ta l m a r k e t a re n o t s ig n ific a n t c o m p a re d to c o n tr o ls im p le m e n te d e ls e w h e re .

INDUSTRY COMMISSION 23

PUBLIC HOUSING

Table 2.2: Housing tenure in selected developed countries by household

(per cent of all tenures)

C o u n tr y Y ear O w n e r

o c c u p ie r

P riv a te

r e n ta l

P u b lic h o u sin g ,

n o n - p r o fit a n d

c o - o p e r a tiv e s

O th e r

A u s tr a lia 3 1991 72 .0 20.4 7 .6 b na

C anada 1986 6 2 .0 .32.0 6 .0 na

U n ite d States0 1988 6 4 .0 34.5 1.5 na

D e n m a rk 1988 55 .0 18.0 2 1 .0 6 .0

E n g la n d 1990 6 8 .0 8.0 2 4 .0 na

N e w Z e a la n d 1986 73 .0 14.0 9.0 5.0

G e rm a n y (F R G ) 1987 38 .0 4 2.0 16.0 4 .0

na Not applicable. a In the case of Australia the ‘other, not stated and inadequately defined’ category has been excluded and the ‘not stated’ rental category has been allocated proportionally across rental categories, b Includes both housing authority tenants and government employees c The basis (households or dwellings) for the United States is not known. Sources: Swinburne University of Technology (1993); ABS (1993).

24 INDUSTRY COMMISSION

3 FUNDING UNDER THE COMMONWEALTH-STATE HOUSING AGREEMENT

There have been many changes in funding procedures since the initial Commonwealth-State Housing Agreement (CSHA) in 1945. Under the current (1989) Agreement Commonwealth funds are provided mostly as ‘untied’ grants albeit for housing. States must contribute $ 1 for every $2 received in an untied

grant.1

Over 80 per cent of the $1.03 billion of Commonwealth funds for the CSHA were in the form of ‘untied’ grants in 1992-93. However, some

Commonwealth funds are provided as special purpose payments. Since the 1989 CSHA, these apply to:

• pensioner rental housing;

• Aboriginal rental housing;

• mortgage and rent assistance;

• local government and community housing; and

• crisis accommodation.

Grants for pensioner housing are allocated between the States according to the number of pensioners and sole parent beneficiaries who receive Department of Social Security or Department of Veterans’ Affairs rent assistance. Grants for Aboriginal and Torres Strait Islander housing are on the basis of assessed

housing needs, with individual States having a guaranteed minimum level of funding. The remainder are allocated on a per capita basis with a guaranteed minimum level of funding.

States match Commonwealth tied grants for the Mortgage and Rent Assistance Program (MRAP) on a $1 for $1 basis.

States were expected to provide about $440 million in matching grants in 1992-93. They may provide loan funding rather than grants for up to 50 per cent of matching funds if the loans are for approved home purchase assistance

1 States match funding on a $1 for every $2 basis from 1992-93, having moved gradually towards this from $1 for every $4 in 1989-90. At least 50 per cent o f State matching funds must be grants for public housing; the remainder can be as loans for approved home purchase assistance programs. Some State matching grants which are in excess in a

particular year may, by agreement, be carried over.

INDUSTRY COMMISSION 25

PUBLIC HOUSING

programs. States may also provide loan funding to both public housing and home purchase assistance over and above those matching funds. Funding arrangements and trends are detailed in Appendix D.

3.1 Funding so u rc es

Over the period 1975-76 to 1991-92, the means of funding the CSHA changed significantly. These funding changes, in constant prices, are illustrated by Figure 3.1. Between 1975-76 and 1985-86 funding was entirely from Commonwealth, State and Northern Territory loans and grants. The last year that the Commonwealth made loans to the States and the Northern Territory was in 1983-84 (apart from nominated Loan Council Funds to which the States and the Northern Territory were given access over 1982-83 to 1988-89).2

State governments continued to favour loan funding until the 1989 CSHA. They borrowed from the Commonwealth at favourable rates, on behalf of their State housing authority. At the same time they borrowed commercially to meet their matching requirements. This led to a build-up of debt and agreement from

1989-90 that States would provide at least 50 per cent of the State matching requirement as grants.

Over recent years private sector borrowings have been used to substantially expand home purchase assistance programs. The 1989 CSHA actively encourages the use of private funds for this purpose. It allows the States to provide up to 50 per cent of their matching requirement as borrowings and allows funds for schemes that operate on a commercial basis to be treated as outside State Loan Council borrowing limits (DHHCS 1991b, p. 23).3

A significant proportion of the Commonwealth funds has always been used by the States to repay loans. Declining net Commonwealth payments to housing was one of the reasons why the Commonwealth ceased funding through loans.

The funding trends, illustrated in Figure 3.1, resulted in a major build-up of debt. Egan in referring to the 1988 National Housing Policy Review of the 1984 Agreement, noted that the build-up of debt in the public housing system can be traced to two interrelated trends:

2 These borrowed funds cannot be compared in simple dollar terms with grants.

3 Further to this, the 1992 Loan Council meeting agreed that State home finance schemes that operate on a commercial basis would be treated as outside the global limits, but that any concessionary elements o f such schemes be included within the global approach (Budget Paper No. 4 o f 1992-93, p. 62). See Appendix D Figure D.5 for more detail.

26 INDUSTRY COMMISSION

3 FUNDING UNDER THE CSHA

• The use by the States o f expensive commercial borrowings to match non­

repayable, interest-free grants provided by the Commonwealth. Since 1983 the States had put in less than $200 million in grant funds. This compares with $2500 million from the Commonwealth; and

• An increasing number and proportion o f very low-income tenants being housed. These tenants could afford only very low rents which, while they cover out­ goings to rates, administration and maintenance, are insufficient to meet the costs o f repayments o f principal and interest. Because households on these incomes

could not afford repayments o f loans for home purchase or market rents, they comprise the bulk o f the client group o f public housing (1993, p. 17).

Figure 3.1: Source of CSHA funding, constant prices, 1974-75 to 1991-92 $m

4500

4000

3500

3000

2500

2000

1500

1000

500

0

74- 75- 76- 77- 78- 79- 80- 81- 82- 83- 84- 85- 86- 87- 88- 89- 90- 91­

75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92

Note: Constant prices are derived from the weighted average of 8 capital cities Consumer Price Index for housing in 1990-91 dollars. Source: DHHCS (1992c), and unpublished data provided by DHHLGCS.

Public housing debt ranges between 8 per cent (for Queensland) and 386 per cent (for the Northern Territory) of the equity in housing authority assets, with the average being 26 per cent. Other housing authorities with below average debt levels with respect to equity are those of the Australian Capital Territory

and New South Wales. The housing authorities of South Australia and Tasmania have relatively high levels of debt with debt 48 per cent and 73 per cent, respectively, of equity in housing authority assets (see Table 3.1).

INDUSTRY COMMISSION 27

PUBLIC HOUSING

Table 3.1: State housing authority public housing assets and debt, 30 June 1993

($m)

N S W VicA Q ld WA SA T a s A C T Λ7*> A u s t

S H A assets0

P u b lic h o u s in g

debt:

13 4 8 9 5 291 3 586 2 2 99 3 997 753 1 483 7 86 31 683

- to C ’w e a lth 1 485 1 533 233 453 291 304 162 342 4 80 4

- to State 575 132 40 121 996 25 3 282 2 173

- to P riv a te 13 27 0 9 0 0 0 0 49

to ta l 2 07 2 1 6 92 273 583 1 287 329 165 6 24 6 603

D e b t to e q u ity

ra tio

0 .1 8 0 .3 2 0 .08 0 .3 4 0.4 8 0 .7 8 0.1 3 3.86 0 .2 6

a Victoria does not maintain separate accounts for home purchase assistance and public housing borrowings. Interest repayments are allocated on the weighted average interest cost of the funds employed in public rental and home purchase activities. About 75 per cent of interest payments were attributed to public housing debt in 1990-91. Total borrowings from the Commonwealth for public housing and home purchase assistance are in the table. In estimating the Victorian debt to equity ratio, 25 per cent of housing debt was deducted before the calculation was made. b Northern Territory purchased Commonwealth staff housing after self-government which accounts for a large

part of their debt. c Commission estimates. See Appendix II, Table H 2. Note: Derived from information provided by housing authorities. Source: Industry Commission.

3.2 D isbursem ent of funds

The CSKA accounting structure

There are three main ‘accounts’ underpinning the CSHA. They are the:

• Rental Capital Account which is used to manage funds for public housing construction, major maintenance and renewal. All Commonwealth ‘untied’ grants are paid to this account and 100 per cent of Commonwealth interest and principal repayments may come from the account, but only up to any loss on rental operation for that year;

• Home Purchase Assistance Account which manages funds for home purchase programs. Most new funds are private sector funds;4 and the

4 In South Australia, new funds are mostly from the South Australian Financing Authority, rather than from private sector institutions.

28 INDUSTRY COMMISSION

3 FUNDING UNDER THE CSKA

• Current Account which caters for recurrent expenditure for public rental housing activities. Most new funds are rental income.

There is also a mechanism to allow for flexible movement of funds from the Rental Capital Account — the General Allowance. Up to 25 per cent of Commonwealth untied grants and State matching grants paid into the Rental Capital Account each year may be transferred under this mechanism (the flow

of funds through these accounts is illustrated in Appendix D). The tied programs have separate accounts.

Allocation of funds for public housing

It is desirable for funds to be allocated on a basis which reflects their purpose. Under the current arrangements, Commonwealth grants are allocated on a per capita basis. While this is an administratively simple distribution, it may not be well targeted because:

• A per capita allocation ignores cost differences within and between States. Land acquisition and housing construction costs differ across the nation, between inner and outer urban areas of cities, and between cities and country towns. The purchase prices of established homes also reflects the

cost of construction which varies with locality.

• A per capita allocation also has no regard for the relative number or different housing circumstances of low-income people. That is, the allocation is not influenced by the relative number of low-income people in need of public housing. If a major purpose of these funds is to be

income support for existing public tenants, the allocation should have regard to the relative size of public housing in each State. A per capita funding allocation ignores this.

From 1993, recurrent housing transactions are to be included by the Commonwealth Grants Commission (1993, vol. 1, p. 24) in the standard budget used in the allocation of financial assistance grants to the States.5

5 This might offset some o f the distribution effects o f direct p e r capita funding because the Commonwealth Grants Commission formula incorporates an adjustment to reflect unavoidable differences between the States in revenue raising capacity and the cost o f provision o f public services to a similar standard.

INDUSTRY COMMISSION 29

PUBLIC HOUSING

Allocation of funds for home purchase assistance

Home ownership assistance programs do not fall within the scope of this inquiry. Nevertheless, funding of these programs impinges on funding for public housing.

The Commonwealth Government does not directly fund home purchase assistance under the 1989 CSHA (except for MRAP). However, it may do so indirectly by permitting Commonwealth interest and principal repayments for the program to be made from funds in the Rental Capital Account (which contains mainly funds for public housing construction, purchase and renovation, and Commonwealth interest and principal repayments). State governments are able to direct matching grant funds to Home Purchase Assistance Accounts of the State housing authorities under the CSHA, but grant funds were not used for this over the period 1989 to 1992.

Permitting home purchase assistance program interest and principal repayments to be made from the Rental Capital Account adds to the uncertainty about how much is spent on public housing. Advice from the States revealed that home purchase assistance debt was not met from the Rental Capital Account over

1989-90 to 1991-92, except in Victoria. Victoria, which does not formally maintain separate borrowings records, allocates interest on the weighted average interest cost and the funds employed in public rental and home purchase activities.

Allocation of funds for tied programs

There is no way in which to ascertain whether funds are distributed equitably between the untied and tied programs. The basis for the level of funding of tied programs is unclear. As discussed in Chapter 5, tied programs may lead to

inequitable outcomes, since persons assessed under a specific tied program as most in need may be less in need than others targeted by other CSHA programs. These matters are considered in Chapter 8.

3.3 Financial m anagem ent

Constraints on performance

The current arrangements emphasise capital expenditure. That is, they encourage expansion of public housing, major maintenance and renewal. This is an outcome of forcing most new Commonwealth grants to the Rental Capital

30 INDUSTRY COMMISSION

3 FUNDING UNDER THE CSHA

Account along with a proportion of the State matching grants. Funds from the sale of land and dwellings must also pass to the Rental Capital Account.

In the Commission’s view, the accounting arrangements unduly constrain the housing authorities in their ability to co-ordinate minor and major maintenance.6 Minor maintenance is paid from the current account and major maintenance and

renewal from the capital account. There is some evidence that minor maintenance is the residual element in the current account and that when funds are tight it is reduced or put off.

The 1993 amendment to the Agreement further limited funding discretion by changing the timing of Commonwealth grant payments from monthly payments to funding based on State forward expenditure projections. Without increased accountability and transparency through use of appropriate performance

indicators, these procedures may give rise to perverse incentives to spend funds unwisely. Performance indicators are considered in Chapter 12 and Appendix G.

An indicative financial analysis of rental operations

An indicative financial analysis of public housing rental operations using consistent assumptions is presented in Table 3.2. The purpose is to indicate the total annual cost of public housing and to assess whether the State housing authorities have sufficient funds to allow for the current expansion of stock.

The Table details annual outgoings and inflows from rents and government grants at 30 June 1992. It treats Commonwealth and State grants as payments to meet recurrent subsidies with any surplus available for stock expansion. Funds for refurbishment would be met from funds set aside as depreciation.

For the purpose of Table 3.2, management costs were assumed to be 10 per cent of nominal rental income (taken as 6.5 per cent of asset value). Maintenance and depreciation were assumed to be 1.5 per cent and 2 per cent of the value of the dwelling, respectively.7

6 See Appendix D, sections D 2 and D 3 for further information on this.

7 Data in National Public Works Council Inc. (1993, p. 30) suggest ‘that the long-term average maintenance costs o f a dwelling needed to keep it in an ideal condition is between 2.5 per cent and 3 per cent o f capital replacement value’. In the long-term the ‘ideal conditions’ which are determined by the individual States lead to rates ranging from 2.09 in N ew South Wales to 3.76 in Victoria. These maintenance costs are set so that, effectively, the dwelling does not depreciate

INDUSTRY COMMISSION 31

PUBLIC HOUSING

Table 3.2: Indicative financial analysis of public housing rental operations of State housing authorities, 1991-92

($ m )

Ite m N S W V ic Q ld WA SA T a s A C T N T T o ta l

O u tg o in g s

M a n a g e m e n t3 * * 8 7.7 34.4 23.3 14.9 2 6.0 4.9 9 .6 5.1 2 0 5 .9

D e b t re p a ym e n ts^ 154.9 78 .9 2 1 .8 20.5 7 7.4 17.6 10.0 3 1.7 4 1 2 .8

M a in te n a n c e 11 121.4 47 .6 32.3 2 0.7 36.0 6 .8 13.3 7.1 2 8 5 .2

D e p re c ia tio n 11 161.9 63 .5 4 3 .0 2 7.6 4 8.0 9 .0 17.8 9.4 3 8 0 .2

Rates a n d charges6 * * * * * 101.7 4 2 .7 2 8.5 2 5.9 4 2.2 12.8 10.3 9.2 27 3 .3

T o ta l 6 2 7 .5 267.1 148.9 109.6 229.5 51.1 61.1 62.5 1 5 5 7 .4

In flo w s

R e n t re c e ip ts 1 3 8 1.5 174.1 110.7 94.8 185.9 36.7 42.5 3 8.8 1 0 6 5 .0

Subsidies:

- C ’ w e a lth g ra n ts ^ 2 5 4 .0 191.6 156.9 88.1 63 .7 32 .0 15.0 4 4.5 8 4 5 .8

- State g ra n ts 107.9 82 .0 5 0.7 30.2 29.2 12.2 6.5 6 .6 325.3

- A ll subsidies 3 6 1 .8 27 3 .6 2 0 7 .6 118.3 92.9 44.2 21.5 51.1 1 171.1

T o ta l 74 3 .4 44 7 .7 318.3 213.1 27 8 .8 80.9 6 4 .0 8 9.9 2 236.1

S u rp lu s 115.9 180.6 169.4 103.5 49.3 2 9.8 2.9 27.4 6 7 8 .7

a Management fees are assumed to be 10 per cent of a rental income based on 6.5 per cent of asset value, b Interest and capital repayments are taken from unpublished data provided by DHHLGCS. c Maintenance is assumed to be 1.5 per cent of the value of the dwellings. The value of the dwellings is estimated at 60 per cent of the value of the assets. The value of assets is taken from Table H.2 in

Appendix H. Ideal maintenance and depreciation figures depend on various factors such as the age, type and location of the housing stock and the maintenance philosophy of the housing authority. This maintenance rate, when combined with the depreciation rate, approximates to the long-term average maintenance costs of a dwelling needed to keep it in an ideal condition (National Public Works Council Inc. 1993). d Depreciation is taken as 2 per cent of the value of the dwellings. This will overstate the situation with new

stock and understate it with old stock. e Rates and charges are taken from preliminary data prepared for the H ousing A ssistance A ct 1989 Annual Report 1991-92. f Rent receipts are taken from preliminary data prepared for the H ousing A ssistance A ct 1989 Annual Report

1991-92.

g Commonwealth and State grants were taken as those for 1991-92. Commonwealth grants includes untied grants, Pensioner Rental Housing Program, Aboriginal Rental Housing Program and State G rants (Housing) A c t 1971 monies less the General Allowance used for purposes other than public housing. General Allowance

figure is an average use over 1989-90 to 1991-92. Source: Industry Commission

The surplus after outgoings are deducted from inflows represents funds available for stock expansion. Under the Commission’s assumptions, the surplus is approximately $679 million. If management costs are reduced by 1 percentage point then a further $20 million is added to the surplus. If

maintenance costs are reduced by 1 percentage point then another $185 million

32 INDUSTRY COMMISSION

3 FUNDING UNDER THE CSHA

is added to the surplus. If the nominal rental income as a proportion of asset value is increased by 1 percentage point then the surplus is reduced by $40 million because of the impact of rental income on estimated management costs.

Not all States offer rent rebates or set rents according to market value. If rents were set at 6.5 per cent of the Commission’s estimate of asset value then $2002 million would be required to cover the rent bill. The analysis shows that government grants would have been sufficient to subsidise the rebate of

$937 million required to meet market rents.

In addition to the rental operations’ surplus estimated in Table 3.2, other funds have been available to housing authorities to expand stock. These include sales of land and dwellings, transfers from the Home Purchase Assistance Account, additional State capital (and any run down in the Rental Capital Account).

Indeed, an average of $325 million per year over 1989-90 to 1991-92 has been available from these sources. These funds when added to the surplus on rental operations along with the depreciation allowance suggest that approximately $1527 million was available in 1991-92 for capital acquisitions (see Table 3.3).

These analyses indicate that the level of funds available provides for recurrent costs and most capital expansion overall, but this may not be the case in some States.

In 1991-92, 11 827 dwellings were acquired. When the other available funds are added to the surplus on rental operations the average funds available for each dwelling would have been $129 100. Individual State dwelling costs differ substantially from this average. Possibly Queensland may not have had

sufficient funds to undertake adequate maintenance as well as construct or purchase stock at the 1991-92 level. Clearly the current rate of expansion can only continue if funds continue to be available from sources other than direct funding under the CSHA or by running down the capital stock.

It might be possible to finance current levels of expansion in some States by borrowing. The concern would be whether the current level of funding would be sufficient to cover debt servicing costs in the longer term. The housing authorities are not able to substantially alter their long-term cash flows without

lowering costs such as maintenance. Should debt charges increase substantially, as was the case in the 1980s, then authorities may have difficulty in covering debt repayments.

INDUSTRY COMMISSION 33

PUBLIC HOUSING

Table 3.3: Estimates of funds available to housing authorities for new dwellings under indicative financial analysis, 1991-92

Ite m N S W V ic Q ld WA SA T a s A C T N T T o ta l

S u rp lu s 3 ($ m ) 115.9 180.6 169.4 103.5 49.3 2 9 .8 2 .9 2 7 .4 6 7 8 .7

O th e r funds*’ ($ m ) 2 5 1 .9 73.3 5 4.4 17.5 2 7.8 5.8 16.9 2 0 .2 4 6 7 .8

D e p re c ia tio n c ($ m ) 161.9 6 3.5 4 3 .0 2 7.6 4 8 .0 9.0 17.8 9 .4 3 8 0 .2

T o ta l a v a ila b le ($ m ) 5 2 9 .6 31 7 .4 2 6 6 .8 148.5 125.0 4 4 .6 3 7.6 5 7 .0 1 5 2 6 .7

N e w d w e llin g s 1* (N o .) 3 945 1 980 3 305 604 1 161 331 213 2 88 11 8 27

Im p lic it cost p e r

d w e llin g

— u s in g su rp lu s 29 .4 91.2 51.3 171.3 42 .4 9 0 .0 13.7 95.1 5 7.4

fu n d s o n ly ( $ ’0 0 0 )

— u s in g to ta l fu n d s 134.3 160.3 8 0.7 24 5 .9 107.7 134.8 176.6 198.0 129.1

a v a ila b le ( $ ’ 0 0 0 )

a Calculated indicative surplus as estimated in Table 3.2. b Other funds for new dwellings is an average use over 1989-90 to 1991 -92 of funds put to the Rental Capital Account plus any run down in the Rental Capital Account over 1991-92. The averaged funds include other new State capital, sales of land and dwellings, Home Purchase Assistance Account transfers and other

unspecified funds. c As estimated for Table 3.2. d Number of new dwellings are taken from preliminary data prepared for the H ousing A ssistance A c t 1989 Annual Report 1991-92. Source: Industry Commission.

The total cost of public housing is understated in Table 3.2 as the opportunity cost of capital is not taken into account. The opportunity cost of capital to government can be approximated by the real long-term bond rate, assumed to be 5 per cent. The required return on rental operations is less than this because of

expected real capital gains. In Table 3.4 the expected capital gain is assessed at 1.4 per cent and the return on rental operations at 3.6 per cent of the value of the housing stock.

Transparency and accountability

Under the current arrangements, the full costs of public housing provision are not recorded. Indeed, the funding and financial practices encouraged by the CSHA cloud transparency and accountability. It is not easy to trace the use of funds or to evaluate how well the funds are spent. The difficulties arise because:

• Funding of public housing and home purchase assistance activities are not readily separated, despite separate accounts.

34 INDUSTRY COMMISSION

3 FUNDING UNDER THE CSHA

• Subsidies to tenants are not adequately recorded in the financial accounts. For example, rent rebates are not factored into the accounts published in the Housing Assistance Act 1989 Annual Report (although sometimes State housing authorities do this of their own accord).

• Tenants are differentially treated in receiving rebates, but neither the total nor the distribution of subsidies to tenants is sufficiently apparent. Tenants are required to pay a proportion of their income as rent, so their rent bears no relationship to the market rent attainable from the property.

Tenants in houses which are better placed or in better condition receive higher levels of assistance than others. This issue is taken up in Chapter 6.

• The CSHA allows for 75 per cent of Commonwealth debt repayment for public housing and home purchase assistance to be made from the Rental Capital Account. This clouds accountability because debt repayments for the two activities are not separable.

• In the CSHA accounts, depreciation is not treated as a cost to public housing.

Table 3.4: Estimates of opportunity cost of capital, 1991-92

( $ m )

Ite m N S W V ic Q ld WA SA T a s A C T N T T o ta l

R e tu rn o n re n ta l

o p e ra tio n s 3

4 8 5 .6 179.3 110.3 83.3 143.9 28.0 5 3.8 2 4 .6 1 108.9

E x p e c te d c a p ita l

g a in o n s to c k b

188.8 6 9 .7 4 2 .9 32.4 5 5.9 10.9 20 .9 9.6 4 3 1 .2

O p p o rtu n ity cost o f

c a p ita l0

6 7 4 .5 249.1 153.3 115.7 199.8 38.9 7 4 .8 34.2 1 540.1

a Estimated at 3.6 per cent of asset value, b Estimated at 1.4 per cent of asset value. c Assumed to be equivalent to the real long-term bond rate of 5 per cent. Repayment of interest must be subtracted to get net return

Source: Industry Commission.

In a recent preliminary study of the CSHA, the Australian National Audit Office noted that some States consistently did not provide certain data to the Commonwealth for the Housing Assistance Act Annual Report. The Office observed that:

... the types o f data sought had changed little in recent years and the compilation o f that data occurred without much Departmental analysis. ... The true levels o f subsidies and

INDUSTRY COMMISSION 35

PUBLIC HOUSING

other Community Service Obligations were not readily determinable from the data currently supplied to the Commonwealth by the States (1993, p. 12).

There is no commonly agreed basis for valuing the housing and other State housing authority assets. Their worth may bear little relationship to their construction or purchase costs. Current cost asset valuation would be needed for proper asset valuation and provision for depreciation. In the Annual Reports of the Housing Assistance Act, houses are reported by number of dwellings only — no value is given.

In the Commission’s view, the use of accrual cost accounting by all State housing authorities is desirable. It would signal to the community that the authorities are accountable for both the resources they control and their performance in using those resources. This is not to say that the focus should be on the ‘bottom line’ profit figure. The accounts of the housing authorities

should nevertheless identify the cost of the service provided, cost recoveries and details of asset management. They should disclose relevant information about cash flows (for example, details of proposed expenditure plans and reasons for any failures to meet those objectives; details of any borrowings) and how well their operating objectives are being achieved.

Beside financial accounting there is also service quality. No analysis of accountability would be complete without some assessment of how well the housing authorities achieve non-financial objectives such as the quality of services they provide to their tenants. Some authorities provide some information in their Annual Reports but there appears to be no reporting obligation under the Housing Assistance Act 1989.

The Commission’s recommendations to improve the CSHA are contained in Chapter 8.

36 INDUSTRY COMMISSION

4 HOUSING-RELATED OBJECTIVES

Governments intervene in many ways to assist in the provision of housing. The objectives can differ between levels of government, but there are also shared objectives expressed through the Commonwealth-State Housing Agreement (CSHA).

4.1 G overnm ent objectives

Clear objectives are critical not only for the efficient delivery of housing services but for reasons of accountability and transparency.

Commonwealth

Objectives underpinning the Commonwealth’s national housing policy found in the 1992 Budget statement include:

• to provide maximum opportunities for Australians to own their own home or to benefit from the attributes o f home ownership (eg. security o f tenure, control over one’s own home);

• to ensure that housing remains affordable by reforms in the regulatory environment and in industry, and by providing adequate assistance to private renters;

• to provide for more housing choice so as to ensure appropriate options for people at different stages o f their lives;

• to develop viable, innovative, efficient and responsive forms o f public and community housing;

• to provide for better location o f housing in relation to jobs, transport and other services to ensure more efficient functioning cities as a contribution to micro economic reform as well as more equitable and ecologically sustainable cities; and •

• to encourage a competitive, efficient and more innovative housing construction industry and more efficient land supply processes (DHHCS 1992a, p. 9).

These goals are being pursued by means such as public housing, home purchase assistance programs, the Community Housing Program and a Social Housing Subsidy Program for shared equity schemes. Broader concerns about urban development and infrastructure are addressed by schemes such as the National

Urban Development Program and the Building Better Cities Program.

The Commonwealth Government provides rent assistance as part of its income maintenance role. It is received by more than 930 000 tenants. Moreover, the

INDUSTRY COMMISSION 37

PUBLIC HOUSING

Commonwealth remains committed to providing housing and infrastructure for the ‘worst housed’ people in Australia, the Aboriginal and Torres Strait Islander peoples (DHHCS 1992a).

States and Territories

Although each State has its own objectives, many are common. Some are shared with the Commonwealth through the CSHA.

The primary principal within the 1989 CSHA is to provide public housing and other forms of housing assistance:

... to ensure that every person ... has access to secure adequate and affordable housing ... [priced] within his or her capacity to pay. ... to alleviate housing-related poverty; and ensure that housing assistance is, as far as possible, delivered equitably to persons resident in different forms o f housing tenure. ... [Providing rental housing] is a key element o f this agreement (Recital D o f the CHSA).

As a result of the 1992 renegotiation of the funding for the CSHA, the following shared objectives were proposed by the Commonwealth-State Standing Committee of Housing Officials:

• Ensure that the supply o f affordable housing is commensurate with the need for it in the community.

• Ensure that housing assistance matches the housing and location needs o f low and moderate income earners and that it is planned and allocated equitably and on the basis o f need.

• Maximise choice for housing consumers across tenures.

• Ensure that appropriate housing assistance is available to households with special needs, including people with disabilities, Aboriginals and Torres Strait Islanders, youth, the elderly or other identified groups.

• Ensure the management o f housing assistance is cost-effective, efficient and responsive to people’s needs.

• Ensure that housing assistance is allocated on an equitable basis and delivers security o f tenure and good quality, affordable housing which is accessible to community and other services. •

• Ensure that all forms o f housing assistance are effectively integrated and

contribute to national strategies that create efficient, safe, ecologically sustainable and quality environments in which people can live (sub. 217, att. 7, pp. 7-8).

Recital D of the CSHA provides that States will be able to exercise maximum autonomy and flexibility in developing the administrative arrangements necessary to achieve the agreed principles.

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In the past, different emphasis placed on shared objectives and the freedom to exercise autonomy have led to significant differences in the way States have used public rental housing to meet their communities’ housing needs. In the Northern Territory, for example, public housing now accounts for 22 per cent of

the housing stock. In South Australia the proportion is 12 per cent and in Queensland the proportion is 3 per cent. There are no income criteria on applications for public housing in South Australia although entry tests exist. In contrast, the Queensland Housing Commission focused very much on home

ownership.

Other objectives pursued (by different States) have included land banking, urban consolidation, support for the building industry and employment, and facilitating ‘innovation’. Subsidiary aims of the South Australian Housing Trust, for example, are ‘to contribute as far as possible to the social well-being and economic development of the State’ and ‘to facilitate industrial

development and support the growth of employment in the State’ (SAHT 1991, p. 4). A corporate aim of Homeswest is to be a ‘market leader and innovator’ by developing ‘innovative housing finance schemes’ and increasing ‘innovation in products and services’ (sub. 51).

4.2 Operational objectives

The objectives of State housing authorities (as described in their annual reports and other publicly available documents) are not, on the whole, specific enough to determine whether their activities in fact achieve the objectives. How, for example, should the housing authorities be seen to ensure that: the supply of

affordable housing is commensurate with need in the community; housing assistance matches housing and location needs of those on low and moderate incomes; and planning and allocation are equitable and based on need? Many objectives have little operational content. One consequence is that they are open to a variety of different interpretations (Box 4.1 illustrates the problem).

Objectives may be stated in language so broad that the intent is capable of widely differing interpretations. In contrast an operational objective or an objective that has been given operational content is one where the intention is clear. Operational objectives are capable of being put into effect without

ambiguity.

Broad objectives have their place, but at some point objectives must be operationalised — either implicitly or explicitly.

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Participants supported the Commission’s concern about unclear objectives. The Good Shepherd Youth and Family Service, for example, submitted:

The Commission has identified the fact that the “stated goals” o f state housing authorities (SHAs) usually comprise a long list o f what might be called “motherhood statements” or ideals. These “goals” are rarely prioritised in such a way so as to identify easily the trade-offs that often have to be made in practice, due to financial constraints. This fact makes it very difficult to asses the “effectiveness” and

“efficiency” o f SFLA programs (sub. 330, p. 3).

The North Queensland Regional Housing Forum noted difficulties in clarifying housing assistance objectives, but endorsed clarification as a goal:

... Clear objectives always require a clear definition o f target groups, their needs and the programs to meet their needs.

Our concern is that housing assistance is not always able to be defined clearly thereby making the operationalisation o f objectives difficult (sub. 322, p. 3).

If the initial broad objectives are not operational, then who should make them so? What is better — for elected representatives to set objectives that are operational or to leave the task to be accomplished in a defacto manner by public administrators?

Hundreds of specific housing assistance schemes are operated by different levels of government, each with its own objectives (see Appendix F). They range from general public housing, through numerous forms of community housing, special needs housing, rent assistance and bond assistance to home ownership assistance.1

The main reason for specific schemes is to improve targeting. However, improved targeting is achieved with an increase in administrative costs. A point must be reached at which the extra benefit from better targeting is less than the extra cost. Equity is also an issue — particularly where one group is assisted more than another. If there are too many schemes, accountability is clouded

where different levels of government pursue similar schemes.

Concepts of ‘need’ and ‘equity’ are used widely, but since they have no clear and consistent meaning for all who use them, they give rise to different expectations. They can be implemented efficiently, but there has to be agreement on meaning at a more specific level — this requires explicit consideration of trade-offs.

1 The Commonwealth and some State governments have indicated their intention and desire to rationalise the current number o f programs.

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Box 4.1: Making ideals and objectives operational?

The CSHA lists a fine set of ideals. However, (possibly of necessity) its level of generality fails to provide unambiguous direction. Based on the CSHA, one of the shared objectives proposed during the 1992 funding renegotiation by the Commonwealth-State Standing Committee of Housing

Officials was to:

Ensure that the supply o f affordable housing is commensurate with the need for it in the community (QDHLGP, 1993, p. 5).

Circumstances often mean that the goal of ‘commensurate’ supply is not achievable. Nevertheless, operationalising this goal requires a clear understanding of what is meant by ‘affordable’ and ‘need’, at least at a State level.

The Queensland Housing Assistance Plan 1993-1996 gives as its strategy to implement this goal:

• Increase the supply o f public and community managed rental housing

commensurate with need (p. 24).

What this means in practice is left unresolved. The performance indicators by which the outcomes of this strategy are to be measured are:

• The extent to which additional public and community housing is provided is measured by:

- additions to stock on an annual and three years basis.

• The extent to which people who are unable to access appropriate housing in the private sector have access to the Department’s products is measured by:

- the distribution o f public and community housing relative to need as measured by waiting lists and recipients o f Department o f Social Security rent assistance.

- the number o f households assisted annually by region by: public

housing; community housing; home ownership products; and private rental assistance products.

- public housing as a percentage o f residential dwellings by region

(pp. 2 4 -2 5 )

At the end of the three year period how will the community know if objectives have been met cost-effectively. Who were regarded to be in need? How many of them were there? How many were housed, affordably? What was regarded to be commensurate supply? Was the

target met? If questions such as these cannot be satisfactorily answered, then accountability is impaired and the potential for continuous improvement is compromised.

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There is broad support for the principle that assistance ought to go more quickly to those in greatest need. But there may never be agreement about whose need is greatest. Limitations on the resources available to government to meet needs require trade-offs. Decisions have to be taken on how much assistance ought to be given to different groups with different levels and types of need.

Security of tenure and good quality come at a price. That price may involve higher subsidies for tenants, reducing the numbers who can be assisted. These trade-offs call for answers to questions of the type: How good the quality? How affordable? If security of tenure is not possible for all (for example, to those renting privately) then on what specific basis is security to be accorded? And how widely is it to be extended, if not to all?

The need for trade-offs extends to the broader objectives that housing authorities may be instructed to pursue — land banking, urban consolidation, support for the building industry and increased employment, and an ecologically sustainable and quality environment. What weight should be given to each objective? Should monies provided for public housing be used to pursue all of these goals?

The (shared) objectives proposed by the Commonwealth-State Standing Committee of Housing Officials (see sub. 217, attachment 7) — namely that the supply of affordable housing is commensurate with the need for it; that housing assistance matches the housing and location needs, is provided in a cost-effective, efficient and equitable way; that choice is maximised; and that all forms of assistance are effectively integrated — are not immediately operational. This is because they call for trade-offs and because the objectives are not always compatible.

Separation of commercial and non-commercial aspects of the activities of housing authorities would assist policy-makers in the formulation of clear workable objectives.

For commercial functions, detailed objectives do not need to be specified by government. The authority can be left to get on with the job. Greater freedom may be given to commercial units in setting their operational objectives when they know how their performance will be assessed and the broad area within

which they must operate. An ‘arms-length’ approach would involve a commercial unit being accountable to government principally for financial performance.

For non-commercial functions more operational guidelines are needed. The functions of the housing authorities extend well into the area of social services. It is an area where government can be expected to detail non-commercial objectives and follow them up with a high degree of scrutiny. With detailed

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financial and non-financial objectives specified, performance may be assessed and improved.

Some housing authorities publish more detailed objectives than others. All can improve by publishing clear operational objectives to assist them and the community to monitor their performance.

It is likely that the State housing authorities have more detailed (and one hopes more operational) objectives and indicators of performance to assist day-to-day management than they publish in their annual reports. However, public accountability depends on what is publicly available. The community has no

other basis on which to make assessments of the performance of housing authorities.

Where standards higher than the norm are imposed (say, environmental or building standards) the difference in cost ought to be funded separately. The extra cost should not be borne by clients or to the detriment of those on waiting lists.

4.3 Multiple functions

Multiple functions can contribute to conflicting objectives. If trade-offs are not clearly recognised this can lead to poor performance. It is also easier for governments to interfere in the day-to-day operations of the authority.

The history of the CSHA itself contributes to conflicting objectives. Its principles were devised originally in support of public housing as a generally available alternative tenure.

In South Australia the operations of the Housing Trust come closest to meeting the perception of a generally available housing scheme. With the possible exception of the two Territories, the reality elsewhere is that access to public housing is limited to people on pensions and beneficiaries of social security

payments, the vast majority of whom enjoy rebated rentals. As pointed out by Mant when reviewing the Department of Housing in NSW:

Most o f its capital funds have come through the CSHA which is based on principles supporting public rental housing as an alternative to home ownership (the principles o f cost rent, security o f tenure and quality o f housing) notwithstanding the reality that public housing has become purely a welfare function (1992, p. 5).

The effects of the CSHA are further discussed in Chapters 5 and 8.

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Accountability is also jeopardised by the additional roles taken on by, or required of, the housing authorities. As pointed out by Tapper:

Homeswest is a large operation. It is ... Western Australia’s largest land developer, builder and property manager. Its house and land assets are estimated to be around $3 billion. It operates about 35 000 rental properties, or roughly five per cent o f Western Australia’s housing stock. Its annual expenditure from all sources exceeds $600 million a year. ... In 1989-90, government agencies, o f which Homeswest was the largest,

developed half o f all serviced residential lots in the Perth metropolitan area. In 1991, it had 10 000 subsidised home loans on its books, making it a significant player in the home finance market (sub. 40, pp. 1- 2).

The Commission recognises that there will always be a multiplicity of objectives. They are often complementary and do not have cost consequences for the principle objectives. Concerns only arise when the objectives are not complementary and the achievement of one imposes additional costs on another. When this occurs transparency and accountability are compromised if the additional cost is not recognised and counted against the relevant objective.

When a State requires activity not in the interest of the housing authority, the objective ought to be clearly identified and funded from the appropriate budget. Only then can the merits of this separate objective be assessed.

Better cities and urban consolidation

The Commonwealth Government has included ‘Better housing and better cities’ amongst its broad social objectives. Many States also have urban consolidation objectives. Support for these objectives has arisen from concern about urban sprawl, especially around large cities, and the extent to which the environs will continue to support increasing demands that urban growth places on them.

It is not clear that using public housing to pursue these objectives is the best method if there are additional costs. Both the approach and the additional cost need to be assessed against explicit objectives and any cross-subsidies

identified. They are objectives that might be funded separately — not by money targeted for welfare provision.

Land banking

Land banking and land development were examined in the Industry Commission’s recent inquiry into Taxation and Financial Impacts on Urban Settlement (IC 1993). There are sizeable land banking operations linked to the functions of housing authorities in most States. They seem to have been involved in these activities to ensure the orderly acquisition, management and release of affordable land (SAULT 1992).

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In some cases (for example, South Australia), the housing and land development activities are kept at arms length. In Western Australia activities seem to be linked in ways which allow for little public accountability yet ensure cross subsidies from the land development arm to public housing.

Regardless of whether land banking is worth pursuing (in the sense of benefits gained being greater than costs incurred) there is the potential to cloud transparency. Problems in pursuing one goal may be masked by using resources intended for another goal. The extent of cross-subsidisation between public

housing provision and other activities is difficult to detect because costs, benefits and trade-offs are not at present explicit.

Land banking and land development goals ought to be explicit and outcomes should be monitored against them. Retained earnings could well be to the benefit of public housing, but if the transfers are not made explicit,

accountability is lost.

Counter-cyclical intervention and industry support

The State housing authorities have variously supported their local building industry, especially in periods of economic downturn.

It is not clear that such counter-cyclical support has always been of value. Due to the lags between decisions and construction, the support can add to rather than diminish cyclical movements.

A State housing authority with a forward construction program may, during periods of economic downturn, commence early construction for purely commercial reasons. This is costless and does not need to be prescribed. However, at times, support for the building industry has gone beyond this form

of ‘pump-priming’. As pointed out by Mant, when reviewing the Department of Housing in NSW:

... it has long been held by successive governments, housing departments and the building industry that funds for public housing construction are there to benefit the industry as well as those who may eventually live in the houses. The maintenance o f a viable building industry and assistance to the industry have been and still are corporate goals o f

the organisation. There has been a cost, however, when houses have been built in locations and to designs based on the perceived and actual needs o f the building industry rather than the long-term needs o f the people (1992, p. 4).

Tenure for all?

Is public housing solely welfare housing or should it be a tenure available to all? Historically it has had both roles.

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The reality is that public housing is no longer a tenure for all. By targeting assistance to those most in need and ensuring that those on high incomes receive little subsidy, the emphasis has shifted to a welfare housing role (see Chapter 2). This is the case in all jurisdictions. As pointed out by the then South Australian Housing Trust General Manager:

... the Trust is in many respects now carrying out a welfare role. This is because the Trust has responded to the need o f those coming to it for assistance and adjusted its programs so that it is responsive to those people, the overwhelming majority o f whom are in housing need (quoted in Egan 1993, p. 36).

The community would not be getting full value for its resources if those who can pay, and therefore not those in greatest need, pay less than market rents. There are sizeable needs-based waiting lists and most tenants in public housing are eligible for rebates. Consequently, public housing is now provided to assist people with housing to a standard that they otherwise would not be able to

afford.

State housing authorities were, on the whole, established with the primary focus of providing housing. Initially it was low-cost housing open to all. This has contributed to the production focus identified by Mant in relationship to the NSW Department of Housing:

The Department has remained primarily a public works organisation when the efficient management o f assets and sympathetic assistance for people in need are the tasks to be done (1992, p. 5).

The Commission supports Mant’s view that the changed nature of public housing requires greater emphasis on outcomes and service issues.2 This position was endorsed by the Department of Finance:

It [the department] supports the Commission’s view that ‘public housing is no longer tenure for all’ and that the objectives o f housing assistance should be welfare objectives (sub. 353, p. 1).

Implications for the tenancy management role of the housing authorities are considered in Chapter 6.

2 This is not to say that public housing as ‘an alternative tenure for all’ is an inappropriate objective. There are arguments that favour such a goal. For example, it could reduce some o f the stigma attached to public housing. However, it would require a completely unrealistic increase in funding with current stock levels.

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Improving choice

A public housing goal supported by most inquiry participants is to increase housing choice. Improving choice is a fitting objective but consideration has to be given to the accompanying incentives.

Where appropriate choices are offered (to those in similar circumstances), in principle the full difference in cost of an accommodation choice ought to be paid by those who receive the advantage when making the choice. In this way people in similar circumstances receive the same benefit from government,

horizontal equity is satisfied and governments commitment to appropriateness is met.

Those who receive the assistance are often in the best position to assess whether the extra value is worth the extra cost when they face appropriate choices. They may be expected to know, for example, whether in their particular

circumstances being closer to some amenity is worth so much in extra rent. In turn, feedback is provided about the quality and location of housing most valued by the tenant. However, because of the affordability criteria it may be necessary to only charge a proportion of the difference in rent. This aspect is

discussed further in Chapter 6 where the Commission develops a rent setting model for public housing whereby tenants in better housing (as reflected in the market price) would pay extra, but all eligible tenants would continue to pay substantially less than market rents (see Recommendation 6).

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There has been considerable debate in Australia and overseas on the best way to deliver housing assistance to low-income renters. However, for almost all participants to this inquiry the answer is clear — public housing. They point to deficiencies in the operation of the private rental market that cannot be

overcome through legislation or by financial assistance to people in the private rental market, but are overcome when governments provide rental housing.

The Victorian Council of Social Service stated:

... the private rental sector does not provide appropriate housing that is affordable. The quality, location and type o f housing stock does not meet the current housing needs o f many households. It would seem that the private rental sector, in its current form, does not and probably cannot, meet the full range o f social objectives (sub. 169, p. 11).

The North Melbourne Tenants Association added:

... the argument for universal rental subsidy for private rental accommodation and little or no public housing assumes that if people have sufficient money they will be accommodated in the private rental market. However unlike public housing authorities, private landlords can pick and choose who they rent to. There is usually no way to coerce

a private landlord to accommodate someone they do not want to accommodate (sub. 81, p. 1).

In contrast, the Real Estate Institute of Australia supported a greater role for the private sector:

... the private sector can and is willing to provide the greater proportion o f the community’s housing stock, especially in areas currently catered for by public housing. The private sector can provide housing in a more efficient and market responsive manner than that provided by the current system, or under arrangements that essentially maintain a Government monopoly on the provision o f housing stock for public tenants. . ..

The unwieldy apparatus o f government ill befits it for the role o f welfare landlord Government’s long-term role should be restricted to addressing, in the national interest, the distinctive requirements relating to:

• special interest groups;

. disadvantaged members o f the community;

• emergency and crisis accommodation;

and in relation to the broader economy

. micro-economic reform and appropriate fiscal incentives for the private sector to facilitate a rapid investment in housing stock (sub. 103, p. 6).

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In this chapter, after examining the problems for low-income people in the private rental market, a framework is established to analyse the main forms of assistance available to help people obtain affordable and appropriate housing. The forms of assistance considered — cash payments, housing allowances, public housing and headleasing — are assessed against the criteria of accessibility, affordability, appropriateness, security o f tenure and equity. They are also assessed against economic criteria such as efficiency and cost- effectiveness. The assessment is summarised in Table 5.1 located at the end of this Chapter.

Payments in the form of subsidies to private sector landlords to own and manage affordable and appropriate housing for low-income renters have not been considered. In Australia this form of assistance has not been particularly successful. Amounts of $13 million in 1990-91, increasing to $65 million in

1995-96, were allocated by the Commonwealth under the Private Rental Subsidy Scheme. Under this scheme, a subsidy was to be available for approved State government financial vehicles to use private sector funds to acquire or construct private rental dwellings. The scheme has been withdrawn. None of the funds have been used, largely because of the difficulty of

establishing the appropriate financing structures (sub. 213).

5.1 Low -cost private rental market

The low-cost private rental market is relatively large. One estimate of its size is the number of pensioners and beneficiaries receiving rent assistance. According to the Department of Social Security (DSS), about 919 000 of its recipients were receiving rent assistance at December 1992 (sub. 214).1 This compares with about 312 000 of its clients in public rental. Estimates of the size and

composition of the low-cost private rental sector are provided in Appendix B.

The case for government intervention in the low-cost segment of the private rental market arises because of the existence of market failure and market imperfections. These are briefly reviewed here (see also Appendix C).

The rental market tends not to provide enough affordable dwellings for those on low incomes and is slow to respond to changes in demand at the low-cost end.

An overwhelming number of participants gave evidence that low-income people, some Aboriginal and Torres Strait Islander people, some people with

1 About 65 per cent o f DSS rent assistance clients are tenants in private dwellings. The remainder includes people in nursing homes or who are boarding or lodging. The number o f DSS clients also includes husbands and wives on pensions, living in the same dwelling and each receiving rent assistance.

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non-English speaking backgrounds, and those with special housing needs, such as those with disabilities, are not well served in this market (see Appendix A).

Low-income households, families with young children and those who are perceived to be different — perhaps because of race — often find it difficult to obtain accommodation because others are preferred. Others have difficulty in finding suitable accommodation because the market does not readily provide for

them. Included in this group are people with distinctive needs, such as large families who require more than three bedrooms, the mentally handicapped, and the aged and the physically disabled who require specially modified housing.

Discrimination and prejudice on the part of landlords, which in part may be due to a lack of information2 about tenants, further restricts the already limited choices of many people on low incomes. Specific cases of discrimination are difficult to prove and are unlikely to be avoided by enforcing anti­

discrimination legislation.

From an economic viewpoint, rental markets are far from perfect. It is impossible for leases to cover all eventualities and there are often incentives for landlords and tenants to withhold relevant information from each other. Mechanisms for monitoring and ensuring compliance with rental agreements

create perverse incentives (for example, to make false claims against bonds) and lead to further costs where third parties are required to resolve disputes. Although all tenants face these potential problems, low-income and special needs groups are at greater risk as they are less able to afford the costs of

moving or enforcing their rights. They lack power in the bargaining process.

The low-cost rental housing market has not attracted large commercial operators. Instead it is characterised by landlords who are typically small investors with 1 or 2 properties in which they have invested for security and capital gains or which are let for a limited period.

The market for rental housing that is affordable to low-income people is a residual one.3 Housing in this market typically ‘trickles down’ from other uses. Consequently, supply responses are restricted.4

2 Discrimination due to this cause is referred to as ‘statistical discrimination’. It can be motivated purely by the landlord's pursuit o f profit when faced with incomplete information — the landlord having no personal disposition for or against any group.

3 In this respect it is similar to other ‘second hand’ goods markets, with a supply response contingent on maintenance and upgrading o f existing stock.

4 In Melbourne in 1990-91, for a couple on unemployment benefits with two dependent children, only 97 out o f almost 40 000 advertised rental properties with two or more bedrooms were affordable at 25 per cent o f income (Victorian Department o f Planning and Housing 1992, p. 17).

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As a result, accommodation affordable to low-income people can be inappropriate in that it is run-down or in a location isolated from employment and educational opportunities, shops and other community infrastructure. As well, low-income people are at a disadvantage when it comes to paying rent-in­ advance and bond monies, removal expenses and utility connection fees.

The desire by tenants for secure accommodation can be at odds with the desire of landlords for a good return and an easily relettable or resaleable dwelling. Although tenants cannot generally be evicted within a fixed period of the lease, once this period is exceeded a tenancy can usually be terminated with a month’s notice. The security of tenure problems often experienced by low-income people mean that they are less able to plan their lives. They must constantly anticipate high relocation costs. The Commission received evidence that properties in the private rental market change hands on average about once every 7 years (see transcript p. 2472).

Low-income tenants are further disadvantaged where they cannot (for many reasons) make the commitment involved in a fixed-term lease. O f course this is not evidence that security of tenure is not valued by them.

Notwithstanding these problems, a large number of tenants choose the private rental market. According to the Housing and Location Choice Survey, around half of private renters in Sydney and Melbourne5 believe that the advantages of the private rental market outweigh the disadvantages (Burgess and Skeltys 1992, pp. 64-7). The advantage most commonly given for private renting was the ability to choose location of the residence. The disadvantages were largely financial.

5.2 A ddressing ten an ts’ n eed s

In this section, four forms of housing assistance are analysed. It is assumed that only one form of housing assistance is available at one time and so comparisons are made with unassisted tenants in the private market.

General income support

Under a general income support approach, cash payments would be provided to private renters (and to other low-income people who are not renters) to ensure they have an adequate standard of living. The cash payment would generally be

sufficient to purchase an adequate quality and quantity of necessities —

5 This includes all private renters, not just those in the low-cost segment o f the market.

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including adequate and appropriate accommodation. However, the assistance would not be tied to any particular expenditure. Unemployment benefits are an example of this type of assistance.

The head of the household could trade-off expenditure on non-housing goods with housing to obtain a mix of expenditure that gives the head of the household (and perhaps the rest of the household) the most satisfaction. However, for private renters, this would not guarantee that households had appropriate or

affordable housing.

The approach ensures no greater security o f tenure than that available generally in the private sector. Also, cash payments do not address some aspects of accessibility — discrimination in the private rental market is not addressed and access and search costs are not reduced.

Cash payments may provide lower-income people with a greater choice because they have greater disposable income. However, there is no guarantee, at least in the short- to medium-term, that the supply of low-cost dwellings in the market would increase to improve the somewhat limited choice currently available in

the low-cost segment of the market. This slow response stems from the nature of supply in the low-cost end of the private rental market (see Appendix C).

There is also the risk that for some individuals cash payments provide perverse incentives. For instance, they may spend their cash payments recklessly in the knowledge that if they get into difficulty, governments will look after them.

Because cash payments would not be tied to expenditure on housing, there is a likelihood that this approach would be poorly targeted. For instance, home owners and renters in similar circumstances may receive the same amount.

The way in which cash payments are provided would determine the equity of distribution. For instance, vertical equity would require that the amount of assistance declines as a tenant’s income increases.

Housing vouchers and allowances

Housing vouchers and allowances are a form of targeted cash payments provided directly to tenants to assist with the cost of renting in the private market. Vouchers and allowances can take various forms. The amount of the cash payment would usually reflect the income and the composition of the

household, but some schemes may adjust the payment according to the rent paid.6

6 Some schemes also adjust the payment according to location.

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Rent assistance, paid by the Departments of Social Security (DSS) and Veterans’ Affairs (DVA), is an example of this type of housing allowance. This form of housing allowance is, for most recipients7, equivalent to general income support (Varian 1990). Thus in these cases it is a housing allowance in name only. The DSS agrees with this view (sub. 214) since it is supported by its own research.

An effective housing allowance is one that targets increased expenditure towards housing better than general income support. Vouchers can be made conditional upon the dwelling meeting certain standards and the subsidy may be paid directly to the landlord rather than the tenant. Overseas experience indicates that the more effective the housing allowance scheme is in the private rental market, the more expensive it is to administer.

Vouchers and allowances can normally be said to broaden recipients’ choice. But the greater choice in rental properties may not exist in practice, especially in the short-term.

Housing vouchers and allowances can improve accessibility to the private rental market, but search, transaction and moving costs remain and discrimination is not addressed.8 Based on evidence of participants to this inquiry, some landlords prefer not to rent to tenants in receipt of a housing allowance (such as rent assistance) presumably because the tenant is identified as being on a low

income and therefore potentially a higher risk for the landlord

(see Appendix A). Vouchers and allowances can be conducive to mobility between locations to meet the changing needs of the labour market.

Housing vouchers and allowances primarily address the affordability of housing for recipients. The DSS (sub. 214) advised that prior to the March 1993 changes to rent assistance, over 590 000 clients out of some 870 000 were paying more than 30 per cent of their income in rent before receiving rent

assistance. After rent assistance, this number dropped to about 404 000. The March 1993 changes were expected to leave about 320 000 (or about 36 per cent) still paying more than 30 per cent of income in rent.

7 If rent assistance recipients are paying rent which is above the rent threshold, an amount o f money, equivalent to what they receive in rent assistance, becomes available for them to spend as they wish. This would be the situation for most recipients. However, in some circumstances, such as where an unemployed person lives with parents and receives no rent assistance, the availability o f rent assistance may allow them to move into the private rental market and thus alter their mix o f goods and services.

8 If dwellings must meet certain standards for tenants to obtain assistance as w ith some United States schemes, then search costs are likely to increase and there may be a greater likelihood o f discrimination. Experience with such schemes is that take-up can be low.

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Housing vouchers and allowances may have an impact on appropriateness of housing for those tenants who use the additional cash payment to increase their consumption of housing services. However, unless there are conditions specifying that tenants rent houses of a particular standard, tenants may forgo

any improvement in standard of accommodation in order to increase spending on non-housing goods. This may benefit some members of the household, but others such as children, may be disadvantaged.

They do not directly address the issue of security o f tenure in the private rental market. Security of tenure could be addressed by legislation, but this in itself involves additional costs.

The equity with which assistance is provided would depend on the design of the housing allowance or voucher. Currently, rent assistance is paid to private renters according to the rent they pay and the type of pension or allowance they receive but not their income. Therefore, there is vertical inequity in the amount

of assistance paid under rent assistance (see Appendix K). As rent assistance is only available to those on pensions and allowances, there is also the potential that some people on low incomes will be ineligible (see Appendix K).

Public housing

Public housing is owned and managed by government. The objective is to provide equitable access to affordable, secure and appropriate rental housing for low-income renters.

Because of the benefits which (rebated) tenants in public housing enjoy, demand for public housing exceeds supply. Therefore, access to public housing must be rationed and so people wait to become public tenants, often for a number of years. In some respects, the accessibility of public housing is

similar to that for home ownership. Both usually require a waiting period.

Moving costs are much less compared to private rental — for instance, public tenants do not usually pay bonds or spend time searching for affordable accommodation — while choice within public housing would depend upon the availability of stock and the allocation procedures of the housing authority. At

present, mobility in public housing is much lower than in private rental (see Box 5.1). According to the Housing and Location Choice Survey, public tenants in Sydney and Melbourne value the affordable rents and security of tenure, but dislike the current limited choice of location (Burgess and Skeltys

1992).

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Access to public housing does not preclude access to the private rental market. Therefore, although problems of choice within public housing need to be addressed, the option of public housing increases choice.

Because public housing tenants are usually required to pay an ‘affordable’ proportion of their income as rent, housing is affordable. Tenants have more of their income available to purchase other goods compared to private renters in similar circumstances without any form of assistance. In this way, public housing is a foim of income support but it comes with other benefits as well.

Box 5.1: Mobility and public housing

Impediments to mobility may hinder microeconomic reform (sub 353). While mobility increases economic efficiency many of the things valued by individuals are impediments to mobility. These include forming relationships, providing a stable environment for children and being a member of a community. Accordingly, a high value is placed on security of tenure — where security of tenure means not having to move unless you wish to.

There is a case for changes in the administration of public housing that improve mobility without compromising security of tenure. These matters are addressed in Chapter 6.

There is some confusion over what security o f tenure means in public housing in Australia. Although principles are set out in the Commonwealth-State Housing Agreement (CSHA) which suggest that State housing authorities may require tenants to move from one dwelling to another, many tenant and community groups claim that security of tenure within public housing should apply to a particular dwelling. This issue is considered further in Chapter 6 (see also Recommendation 4 and 5).

There are other aspects of security for public housing tenants. Ms Lovejoy, a sole parent in public housing, put it this way:

Having public housing, even now I’m employed, has given me the security o f accommodation for my child, knowing that even if I were to lose my job, I could still afford to pay my rent. You have to understand the great importance o f this to our lives (sub. 3, p. 1).

Appropriateness is addressed largely through the standards set by the housing authority. This would include, for example, the standards used to determine the dwelling to be allocated to a household of a particular size and composition and

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the location of the housing stock in relation to services. In choosing to live in public housing, tenants currently accept reduced choice and mobility to gain affordability, appropriateness and security of tenure.

The goal of appropriateness may be linked to the perception that social benefits flow from appropriate housing (see Appendix E). Carter, Milligan and Hall (1988) put forward the following explanation of why the public is willing to contribute to housing programs for low-income people:9

While theories o f physical determinism cannot be pushed too far, a series o f reinforcing factors o f deprivation and denial o f the opportunity to participate in society can clearly be shown to be associated with antisocial behaviours which can affect others in society (p. 52).

Not all public housing in Australia is appropriate to the needs of tenants. In part this is a result of earlier policies which led to public housing estates and high-rise units, and emphasis on cost-minimisation in construction. The housing authorities have been improving their asset management to make public

housing more appropriate but this goal cannot be achieved quickly.

Equity should be considered in terms of access to public housing and the way assistance is distributed and calculated. Currently, access to public housing in Australia is not very equitable. ‘Wait-turn’ waiting lists, although administratively simple, are not equitable. From a vertical equity perspective, those in greatest need should have to wait less time to be assisted. This cannot

happen with a ‘wait-turn’ list, and ‘priority’ waiting lists provide only a partial solution. Different waiting times in different areas raises equity issues inasmuch as people who can afford to wait longer, choose a wait list that gives them better housing.

Rent rebates received by public tenants are not equitable either. From a horizontal equity perspective, those in similar circumstances should receive the same level of assistance, not pay the same rent. Charging rent as a percentage of income ignores differences in amenities (for instance, location, number of

bedrooms, access to services, condition of property) that tenants with similar incomes can receive from different properties. Allocation and pricing issues are discussed further in Chapter 6 (see also Recommendations 3 and 6).

There is also an equity issue in the way funds are allocated to tied programs under the CSHA (see Chapter 3). Examples of tied programs are the Pensioner Rental Housing Program and the Aboriginal Rental Housing Program. If State

9 Adam Smith, an 18th century philosopher and economist expressed a similar view: ‘Society may subsist though not in the most comfortable state, without beneficence; but the prevalence o f injustice must utterly destroy it’ (Raphael and Macfie 1976).

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housing authorities are providing housing equitably, there should be no need for separate allocations. This issue is taken up in Chapter 6.

Headleasing

Headleasing occurs where, for example, a community group, funded by the State housing authority, leases properties in the private market and then sub-lets the properties to people on the public housing waiting list.10 Tenants pay a rent (based on their income) to the community group which is then passed (together with a subsidy) to the landlord. The community group usually guarantees payment of the rent to the landlord and agrees to make good any damage except for normal wear and tear. Under the current schemes operating through the

CSHA, tenants are offered a public house when they reach the top of the waiting list. There is no reason why State housing authorities, like community groups and the Defence Housing Authority, could not headlease directly from the private sector.

For tenants in headleased properties, the nature of the assistance is similar to that for public housing tenants except possibly for security of tenure.

Accessibility is improved for tenants in headleased properties. Headleasing can address discrimination by putting a third party between the landlord and the tenant. However, inquiry participants said that some landlords headleasing properties to community groups would not extend the lease if they found tenants belonged to certain ethnic groups (Liverpool Rental Housing Association and the Bankstown Community Housing Association, transcript, pp. 783-^1).

Choice may be limited but search costs and transaction costs would be reduced, particularly if the organisation managing the tenancy were to pay bond and rent in advance for the tenant.

Appropriateness can be addressed by headleasing but this would depend largely on the range of properties that the organisation managing the tenancy is able to lease and the subsidy available to fund the lease of appropriate properties.

Security o f tenure within the one dwelling cannot be guaranteed under headleasing because the dwelling is owned by a private sector landlord and leases have to be renewed from time-to-time. Under current annual funding arrangements for some headleasing schemes, community groups are unable to

10 Headleasing is funded under the Mortgage and Rent Assistance Program as the Community Tenancy Scheme in New South Wales and the Community Rent Scheme in Queensland.

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sign leases for more than 12 months but the Defence Housing Authority headleases some properties for 10 years.

Equity would depend on the method of selecting applicants as well as the amount and distribution of assistance. Similar issues to those raised under public housing would need to be considered.

Headleasing can improve accessibility and affordability. Both landlords and tenants are likely to favour headleasing over housing allowances and vouchers. For tenants, this is because of the reduced costs of accessing the housing, including less discrimination. For landlords, it is because of the much lower

risk. Participants advised that some landlords lower their rents on headleased properties because of this reduced risk (see Appendix A).

5.3 A ddressing the econ om ic criteria

From the above analysis, public housing and headleasing appear to more closely address the social objectives of governments and the needs of many tenants. In this section, the same four assistance approaches are examined in relation to economic criteria — cost-effectiveness and efficiency of resource use and

allocation.

The cost-effectiveness of programs is assessed in terms of whether they meet their stated goals at lowest possible cost to the taxpayer. Program efficiency, which is concerned with making best use of available resources, is assessed in the broader context of government housing and social objectives.

The efficiency and cost-effectiveness of these approaches is addressed first in terms of long-term housing needs.

General income support or targeted housing assistance?

The four assistance approaches can be divided into two categories: general income support and targeted housing assistance. Targeted housing assistance is any assistance which is tied to housing and so would include housing vouchers and allowances,11 and public housing and headleasing.

The main argument usually put forward in favour of general income support is that recipients of the assistance are free to spend as much or as little of the cash payment on rent as they see fit. Recipients are likely to get more satisfaction if

11 In the discussion that follows, housing vouchers and allowances are assumed to be ‘effective’. That is, they have the effect o f reducing at the margin the relative cost o f renting appropriate accommodation, compared to the cost o f other goods.

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they choose how a given amount of assistance is spent rather than the government. A counter argument to this is that benefits accrue to individuals where governments increase their range of choices as well as their income.

Applying the analysis of Appendix E, the Commission accepts that targeted housing assistance is better than general income support in the long-term because:

• There is more certainty with targeted housing assistance that those for whom the assistance is provided — such as the spouse and children — will receive it;

• There is a risk with general income support that some individuals will not exercise due care to avoid the need for income support — this is known as the moral hazard problem;

• Some of the benefits from targeted assistance — fewer social problems, better health, lower crime and better cities — would be available to a lesser degree from general income support;

• There are many taxpayers who prefer that assistance be provided through housing assistance to those whom they consider need looking after;12 and

• Housing assistance may be more efficient in that it makes recipients better-off and is less likely to cause poverty traps while costing the government the same as income support.

Public housing versus housing vouchers and alternatives

If it is assumed that private and public provision are equally efficient in providing housing services to tenants, it is cheaper in the long-run for governments to provide public housing in order to achieve their stated housing goals. This is because additional housing supply is more costly for governments to bring forth under a housing voucher or allowance approach.13 It

is more costly because increases in rents necessary to increase supply under a housing voucher or allowance approach must also be paid to existing landlords.14 This will result in net financial transfers from governments to

12 That preferences o f ‘donors’ require consideration in regard to the disbursement and form o f assistance is sometimes referred to as the donor sovereignty argument (see Fisher 1977).

13 This outcome is a result o f the nature o f the private rental market and in particular the characteristics o f supply in the low-cost segment o f the market. It also stems from the government’s commitment to ensure affordable rents for those on low incomes. This effectively means that the government is the sole buyer in this market.

14 Governments could recover some o f this net transfer through taxation. There would be efficiency losses because taxation would recover less than half the transfer and additional administrative costs would be incurred.

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landlords (as well as tenants).15 Under a public housing approach the net transfers to landlords will be smaller, but it is difficult to estimate the extent of such savings. This argument is elaborated in Appendix E.

Also, it is more cost-effective for governments to provide public housing to groups likely to be discriminated against in the private rental market than to provide incentive payments to landlords under a housing voucher or allowance approach.

Although the government could liquidate its investment simply by selling all (or part of) its public housing stock, there would be no net benefit from doing so.16 Such an approach would have to be weighed up against its costs. These include:

• Having sold the public housing stock the governments would have lost an effective physical hedge against the welfare costs that they face during cyclical downturns. That is, during a recession governments not only need to make greater welfare payments because of the greater numbers of low-

income people, but because the housing stock is sold they will have to pay more per household (because low-cost housing rents increase as a result of the increased demand).

• There would be additional costs of providing general rent assistance. The demand for the lowest quality rental accommodation would increase with the addition of those who previously resided in public housing. The former public housing stock, being of an appropriate and therefore better

quality, would not all be retained in this low-quality market. As a result, rents would rise because of an increased demand (without a corresponding increase in supply).

Ownership of public housing stock allows government the option of increasing assistance at a lower cost.

Related arguments in favour of public housing are mainly to do with allocative efficiency and include:

• Public housing providers are large enough to self-insure against rent arrears and damage to property. Private landlords, may obtain insurance in the private market, but is likely to be more expensive because of

15 These net financial transfers to landlords occur despite tenants being the sole intended recipients.

16 Assuming equal efficiency o f provision in the public and private sectors implies that the investment return in alternative investments should be no greater. Still, this does not mean that housing stock should never be sold. A State housing authority should continue to buy and sell its housing stock in accordance with sound asset management principles and

changing requirements.

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administrative costs and moral hazard. In any event they will require a bond and will charge a premium in the rent to cover perceived risk or cost of insurance.

• The administration of housing vouchers or allowances can be costly.17 Administration for vouchers and allowances involves an additional expense compared to public housing. This argument would apply more to effective housing vouchers and allowances rather than the current rent assistance available through the Departments of Social Security and Veterans’ Affairs.

• There is the risk that tenants and landlords may collude about the level of rent paid, adding to the cost to governments.

• Supply may not be forthcoming under a housing voucher or allowance approach because investors may be reluctant to acquire additional stock if they believe there is a risk that the level of government assistance may not be maintained in real tenns — a sovereign risk problem.

Private provision is often more efficient than public sector provision. However, no evidence has been provided to support this for housing. State housing authorities now contract out construction and maintenance and in other areas may be more efficient because of economies of scale and scope and density.

But even if public housing providers could be shown to be inefficient compared to the private sector, the above conclusion about the cost-effectiveness of public housing would still hold provided that the inefficiencies did not negate the identified savings.

There are areas of potential inefficiency in State housing authority operations. These include:

• The potential for State housing authorities to run down their stock because of financial constraints imposed under the CSHA (discussed in Chapter 3);

• The potential for the housing stock to be poorly managed (taken up in Chapter 6);

• The lack of good performance information to indicate areas where improvements could be made (taken up in Chapter 6);

• Rent setting practices and transfer policies that need to be improved and wait lists that need to be harmonised (taken up in Chapter 6); and

17 The Experimental Housing Allowance Program in the USA is known to have had program administration costs o f 23 per cent. Costs o f Great Britain's Rent Allowance Program were o f the order o f 12 per cent (Hendrie 1988; Carlson and Heinberg 1978).

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• Mismatches between the relative numbers of public housing clients in different categories and relative numbers of different types of houses available (discussed in Appendix J).

Also, multiple functions of housing authorities may lead to inefficiencies in meeting welfare objectives and costs may be incurred when States use public housing to support the construction industry and as an instrument of counter­ cyclical policy (discussed in Chapter 4).

With assets valued at over $31 billion, small improvements can lead to significant savings. The Commission’s proposed reforms outlined in Chapter 6 aim for more efficient provision of public housing through improved incentives and improved institutional arrangements.

Headleasing versus public housing

Headleasing falls between public housing and housing vouchers and allowances in both efficiency and cost-effectiveness in the long-term. Headleasing provides qualitative advantages approaching the ideals that governments seek to give with public housing. Also, both landlords and tenants are known to prefer

headleasing to housing vouchers and allowances. However, based on the experience of the Defence Housing Authority, the provision of housing services is more expensive through headleasing than through public ownership of stock (DHA 1992, p. 3) although this may be because the market for headleased

properties is relatively new and ‘thin’.

5.4 Appropriate mix of a ssista n c e m easures

The community’s concern to ensure that people are adequately housed dictates welfare support in the form of housing assistance. The decision to provide housing services through public housing rather than direct demand-side measures, such as housing vouchers and allowances, should be determined by

which is more cost-effective and efficient. Cost-effectiveness requires a set of objectives against which to assess the delivery of assistance.

Under the CSHA, governments have agreed to provide people on low incomes with ‘access to secure, adequate and appropriate housing’ which is affordable. This is clearly a commitment to more than just providing access to affordable housing. When consideration is given to these ideals, public housing is clearly

the preferred form of assistance, where the housing need is long-term. Housing vouchers and allowances cannot deliver the same standard of appropriate housing as public housing or for as low a cost in the long-run.

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Table 5.1: A social audit of housing assistance approaches

C r ite r ia

R a tin g a n d r a n k in g o f h o u s in g a s s is ta n c e a p p r o a c h e s

C a sh p a y m e n t H o u s in g v o u c h e r /a llo w a n c e a H e a d le a s in g

Social justice Targeting*1 Poor Average

Accessibility Not addressed Poorly addressed6

Appropriateness Not addressed Partly addressed

Affordability Poorly addressed Addressed

Security of tenure Not addressed Not addressed

Other concerns^ Poorly addressed Partly addressed

Client problems induced Poverty trap Possible Less likelyS

Moral Hazard Possible Possible

Fraud Possible Possible

Efficiency*1 Long-term 3rd 4th

Cost effectiveness* Long-term 4th 3rd

Other financial characteristics Capital outlay required Very little Little

Risk performance J Poor Poor

Administrative costs*1 Small Large

Flexibility111 Short-term Good Good

Good Partly addressed1* Addressed Addressed

Partly addressed6 Addressed

Less likely Less likely Less likely

2nd

2nd

Modest Good Medium

Medium

P u b lic h o u s in g

Good Partly addressed Addressed

Addressed Addressed Addressed

Less likely Less likely Less likely

1st

1st

Large Very good Small*

Small

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Notes to Table 5.1 * i

a The assistance is assumed to be effective. That is, it has the effect of reducing the relative cost of renting accommodation, compared to the cost of other goods. Consequently expenditure on rental accommodation becomes relatively more attractive. b Toward those in long-term need but especially toward making rental accommodation affordable for those who receive it by effectively reducing its relative cost. See note 9. c Although moving from one tenure to another may be eased, it would not be eased by much. Search costs would remain high especially to those discriminated against.

d Mobility within the tenure is possible, and associated search and moving costs can be lowered with appropriate policies. Some difficulty in moving into the tenure is likely to remain. e With leases of 5 years or more. f As w ell as concerns about physical outcomes and commitments to equity, these concerns include preferences as to the t>pe of assistance and mode of delivery.

g As argued in Appendix E, there is empirical support for an in-kind transfer in the form of effective rent assistance or public housing having a less detrimental effect on work effort than a cash payment (Steinberg Schone 1992). h Efficiency in terms of resource usage and allocation. i Cost-effectiveness in terms of the net cost to government to meet their housing objectives for those on low' incomes. If the purpose is to make rental accommodation less

expensive compared to other goods, then cash payments only have the effect of increasing income. The income effect generally results in more of all goods being bought not more of one particular good, in this case rental accommodation. Otherwise vouchers and allowances, headleasing and public housing are broadly as effective as each other although the costs of each approach differ. j Headleasing and public housing provide a ‘hedge’. The rental rates for those on low incomes can be volatile. When substantial increases occur, the need for increasing

levels of assistance is greatest. Often this coincides with other increased demands on government revenue. Ownership of public housing and access to headleased property (with binding contracts) mitigates these difficulties. k Assumes public and private sector provision is equally efficient, ignoring any additional cost of program administration. The Experimental Housing Allowance Program in the USA, is known to have had program administration costs of 23 per cent. Costs of Great Britain’s Rent Allowance Program were of the order of 12 per cent

(Hendne 1988; Carlson and Heinberg 1978). The Defence Housing Authority found the administrative (and general) costs of headleasing to be greater than public ownership (DHA 1992, p. 3), but this could have been due to this market for headleased properties being relatively new and ‘thin’. 1 In the long-run there is no reason why program administrative costs ought to differ from those for a cash payment. m Flexibility in terms of meeting changing levels of need.

Source: Industry Commission.

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In the short- to medium-term, public housing does not provide as flexible a response as either headleasing or vouchers and allowances. This is because of the capital nature of public housing. If governments are to respond flexibly to the varying needs of people, then options in addition to public housing are required. For these reasons, headleasing and rental allowances can be an effective way to meet some of the housing need, particularly of a short- to medium-term nature. They are also better able to accommodate the needs of more mobile sections of the population.

A mix of approaches is desirable in order to respond flexibly to the varying needs of people.

Headleasing is potentially more flexible than public housing. It provides many of the benefits of public housing but the capital is provided by the private sector. If introduced on a reasonable scale, it may attract investors into the low- cost segment of the private rental market if the sovereign risk problem can be overcome by long-term contracts.

Rent assistance, as a form of housing allowance, is a flexible way of delivering housing assistance. It is likely to be favoured as a response to short-term problems. This would include, for example, assistance to those on public housing waiting lists and those in need of short-term assistance, perhaps because of unemployment or family separation.

The relativity between the amount of assistance paid to people in the private market receiving rent assistance and those in public housing receiving rent rebates is taken up in Chapter 7. It is difficult to answer the question of what is the appropriate mix of rent assistance and public housing. The relative level of rent assistance and public housing rebates; the objectives of government in terms of ‘affordable’ and ‘appropriate’ housing; who is eligible for public housing; and the quantity of public housing provided all have a bearing on the answer.

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The key challenge for the Industry Commission is to make recommendations which will further the reform process so that the State housing authorities will more effectively and efficiently achieve social objectives. These social objectives cannot be reduced to economic or commercial objectives (Victorian Council o f Social

Services, sub. 169, p. iv).

Although there is general agreement on the principles for delivery of housing services through the Commonwealth-State Housing Agreement (CSHA), there have been significant differences in the ways in which State governments have used their public housing authorities to meet housing needs.

6.1 Current approach

State housing authorities

The public housing authorities are either statutory authorities or government departments. They report to the responsible State minister for housing through an executive, and sometimes also through a board. Their operations are principally funded through the CSHA.

Most of the housing authorities were established immediately before and after the Second World War to build low-cost housing. This naturally led to a focus on production. More recently the housing authorities have been required to meet broader welfare needs and to deliver housing services as targeted welfare

assistance.

The housing authorities own and manage about 370 000 dwelling units, accounting for almost 6 per cent of the housing stock in Australia. However, their functions extend well beyond provision of public housing. In most jurisdictions the housing authorities are involved in a variety of community

housing projects, crisis and emergency housing, housing for special needs groups such as disabled or Aboriginal people, equity sharing schemes, home ownership assistance, private rent assistance, mortgage assistance, bond assistance, deposit assistance, land acquisition and land development.

The housing authorities are amongst Australia’s largest government trading enterprises, being responsible for housing stock valued at over $31 billion (see Appendix H). The way in which they make use of these resources has a bearing

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on both the delivery of housing assistance and Australia’s wider economic performance.

The Victorian Council of Social Service said that:

While standards, discrimination and appropriateness o f the private sector have undergone little change in the past decade, State housing authorities have undergone a major transformation. It may be that they are being judged on the basis o f their performance o f 10 years ago rather than now (sub. 8, p. 15).

The Commission agrees that housing authorities have made major improvements in the operation of public rental housing over the last decade. Although improvements are far from uniform, the housing stock is better managed; the authorities are more client oriented; and greater attention is paid

to the environs and location of public housing in relation to community facilities. However, there remains considerable scope for improvement.

In the Commission’s view, changes are needed to improve the institutional arrangements of State housing authorities as well as the incentives facing both the providers and recipients of housing assistance. The areas of most concern are tenancy management, housing allocation, rent setting, asset management and transparency and accountability generally.

Tenancy management

The role of public housing has changed from one of constructing houses to one of meeting the housing requirements of people in need. This change requires a cultural shift within the housing authorities to focus more upon tenancy management and the needs of the tenants.

The majority of inquiry participants expressed strong support for public housing yet had reservations about aspects of tenant-landlord relations. They were particularly concerned at the dearth of community consultation and appeal mechanisms. Community and tenant groups in particular expressed dissatisfaction with arrangements for tenant participation, airing grievances or appealing decisions (see Appendix F).

Some people have problems accessing housing assistance.1 People in need often have to approach many agencies to obtain the correct information or to apply for a particular form of housing assistance.

Problems of co-ordination were also highlighted by organisations concerned to secure public housing for people with special housing needs. Some argued that it is difficult and costly to have to deal with poorly co-ordinated levels of

I See for example Sussex Street Community Law Service (sub. 272).

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government in obtaining approval and funding for housing projects. They referred to difficulties in obtaining appropriate housing in the time frame allowed by the agencies providing funds for support services. Problems stem from the need to obtain funding from one government department and housing

from another, both with significant lags. Participants referred to instances where people with special needs could not move into public houses because of hold-ups in funding for support services. These are problems discussed in Chapter 10 dealing with people in crisis and those with special housing needs.

They are problems which call for a more holistic approach to the welfare needs of people who need accommodation as well as support services.

Housing allocation

The CSHA (which underpins public housing) embraces the ideal that those most in need are assisted first and that assistance is provided equitably.

However, the reality is that the concern to provide public housing to all low- income people means that those most in need are not necessarily being assisted first. Moreover, the timing of housing assistance depends on a public house

being available in a specific location — not the availability of a housing subsidy.

There are also inequities. The eligibility criteria for public housing differ between jurisdictions and applicants have to wait different times for different types of accommodation in the same region. A single person is likely to have to wait significantly longer to receive public housing than a household eligible for

a three bedroom house, even though that person is in greater need of assistance. This is because of the mismatch between the public housing stock and the accommodation requirements of those people in greatest need of assistance.

Problems occur because separate waiting lists are kept for different locations with applicants having to wait for public housing to become available in the location they choose. People cannot join a waiting list for locations where there is no public housing. Also, people in greatest need often choose less desirable

locations because these locations have shorter waiting times. Once allocated a public house, transfer to a more desirable area is often difficult. In contrast, applicants who are relatively well off can trade-off a longer wait for a higher level of anticipated amenity.

The equivalence scales used by Australian housing authorities tend to discriminate against larger families, when compared to widely used equivalence scales based on expenditure patterns — such as the scales used in developing the Henderson Poverty limits. This means larger families become ineligible for

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assistance at proportionally lower income levels than smaller families (see Appendix J).

Rent setting

The vast majority of public housing tenants pay rents determined by their income — not the market value of the property which reflects its location, size, and condition. But the quality of public housing is quite variable. This means that public tenants in similar circumstances can be allocated houses of

significantly different amenity, but pay the same rent.

Because the rent most public tenants pay is limited to a fixed proportion of their income, the housing authorities do not receive information from their tenants regarding preferences for location and characteristics of housing (see Appendix I). Further, the method of setting rents can lead to a disincentive for tenants to improve their income as this will lead to an increase in their rent.

State housing authorities currently use different definitions of household income when calculating rebated rent levels (see Table 1.1). Generally, the income of the principal earner and their partner is included, regardless of whether the

source is a wage/salary or from the government. The proportion of income of other household members included as assessable income varies between States, as does the inclusion of specific government payments such as family allowance, mobility allowances and disability allowances.

The treatment of casual and intermittent work when determining income for rent setting purposes is inappropriate in some States where a casual job brings an immediate rent increase which is premised on the wage lasting a year (Wulff, Pidgeon and Burke 1992). To quote one tenant:

Well I went back nursing and I earned $144 one week and 1 had to let them [housing authority] know and the next week 1 didn’t do any work and they put my rent up and I was only on that one shift and I had to go to them [housing authority] and tell them I was on casual wages and they said ‘well pay the rent or don’t work at all. We can’t be bothered doing this all the time'. I had to go right back on the pension to get my rent back down (Wulff, Pidgeon and Burke 1992, p. 16).

A sset management

Housing authorities are constrained in meeting asset management objectives by the often unlimited tenure granted to existing tenants as well as limits on current and future funding (see Appendix H). Other objectives facing housing

authorities — such as assisting the building industry or meeting government urban planning requirements — can conflict with efficient asset management.

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The age profile of the public housing stock, the large housing estates and high- rise buildings are other constraints. Some States (for example, Victoria) have a high proportion of older stock built in the 1950s and 1960s. The older, often inappropriate, stock is in part an outcome of State home ownership policies in

the 1960s and 1970s when the then newer and better quality stock was often sold to tenants.

Older houses require higher maintenance and renewal expenditure to maintain the level of housing services. A past history of poor design, low construction standards and the use of inferior materials has further increased maintenance and renewal costs. It has not been possible in this inquiry to determine whether

the public housing stock is being run-down but there is anecdotal evidence to suggest this is occurring (see Chapter 3 and Appendix H). Also, incentives under CSHA funding arrangements (see Chapter 3 and Appendix D) are likely to encourage capital works and renewal at the expense of maintenance.

There is a mismatch between the current public housing stock and the accommodation requirements of both existing and potential public tenants. Current allocation and pricing arrangements do little to provide appropriate demand signals for effective asset management.

Asset management is not helped by the current practices of many housing authorities in Australia valuing their housing stock at historical cost. The usefulness (and indeed relevance) of historical cost data is dubious given the very long lives of buildings. Market values should be used as the benchmark

for valuing property assets where possible, because they reflect society’s current valuation of the assets.

The reforms proposed later in this Chapter would separate the functions of property and tenancy management. This separation would clarify the objectives of the property manager, which are primarily commercial, and provide incentives to manage property from a long-term perspective. A similar

approach already applies to Australia’s Defence Housing Authority.

Transparency and accountability

Some housing authorities are using internally generated funds from other areas of their operations, such as land banking, to cross-subsidise public housing provision. Added to this, there is often conflict between various public housing objectives, impairing tr ansparency and making performance assessment difficult

(see Chapter 4). The effect is to obscure the real cost to the community of providing public housing. Governments and the community could make more informed decisions about how much public housing to provide if the size of the subsidy were known.

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The objectives of housing authorities, as described in their annual reports and other publicly available documents, are not on the whole specific enough to enable an observer to determine whether the stated objectives have been achieved or not. The Commission agrees with those inquiry participants who complained that annual reports of the housing authorities provide no basis on which to assess performance (see Appendix F).

It is very difficult to establish useful performance indicators since there is a dearth of comparable statistical data on the operations of public housing authorities. Even where comparable data appears to be available, it is difficult to make meaningful comparisons between authorities because of different definitions of items such as ‘maintenance’.

Since the performance of the housing authorities cannot be properly measured, they are not fully accountable to either the government or the community. It is unclear whether housing authorities are efficient or inefficient in the delivery of public housing.

Housing authorities can control (to some extent) the level of demand for public housing through their eligibility and allocation policies. They also have control over the supply of public housing (through construction and purchase programs). Poor performance in housing provision can therefore be covered up by adjusting the size of the waiting lists. Sharing responsibility for supported accommodation arrangements with community service agencies also clouds transparency, and accountability becomes a question of justifying unmeasured

outcomes.

It is understandable that most of the progress in performance measurement by housing authorities has been in housing production. There is a greater degree of quantifiable data in these areas. There is, however, a need to balance the indicators of throughput and activity (discussed in Appendix F) with measures to cover outcomes for the people being assisted.

6.2 Organisational reform of housing authorities

Clarifying roles within housing authorities would enhance accountability, transparency and co-ordination between agencies. To this end, the Commission recommends that the roles of property management and tenancy management be separated and that some functions presently undertaken by the housing

authorities be assigned to more appropriate agencies (see Appendix G). This would involve the following reforms:

• Creation of a separate body (possibly a statutory authority or corporation) with the task of managing the housing stock (see Recommendation 8).

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This agency (hereafter referred to as the property manager) would be charged with ensuring the supply of public houses at the behest of the tenancy manager. The property manager would also be responsible to ensure that the stock is adequately maintained.2 This agency may best be

accountable through a board to a Minister for building services. The property manager would receive a market rent for managing properties and so would be expected to pay a dividend to government.

• Creation of a separate unit or body to undertake tenancy management (hereafter referred to as the tenancy manager) with a corporate culture responsive to client needs (see Recommendation 9). The tenancy manager would lease properties from the property manager or private landlords and be responsible for the selection and administration of leases with tenants.

The tenancy manager should also provide a referral service for other support services to tenants. Ideally, this agency would not report to the Minister responsible for property management.

• Consolidation of housing policy functions into an organisation separate from the tenancy manager and the property manager. The principle guiding this separation is that the organisation responsible for policy and regulation should be independent from service provision functions.

Significant links should remain to facilitate good information flows.

• Movement of consumer tribunals to an appropriate department such as consumer affairs.

• Movement of land banking and development activities to separate commercially focused corporations.

Some States have already made some structural reforms along the lines proposed by the Commission. The Queensland Department of Housing and Local Government has established a business unit called the Housing Production Service. This unit has responsibility for producing and maintaining

Queensland’s public housing as required by the Housing Services Group. The Housing Services Group is responsible for the day-to-day management of tenant issues. A similar arrangement, though not formalised by incorporation of a business unit, is operated in the Victorian Ministry of Planning and

Development (Egan 1993).

The Mant (1992) inquiry into the NSW Department of Housing recommended similar reforms, separating out the various functions of the housing authority

2 The arrangement for maintenance would be determined through long-term contracts between the property and tenancy managers. Tenants would deal only with the tenancy manager. Response to maintenance needs would be an important performance indicator for the tenancy manager.

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and establishing them as semi-autonomous units under an umbrella department. Fully independent regional housing offices would serve as property and tenancy managers and be responsible for the provision of housing. These reforms are currently being implemented in New South Wales.

The Commission supports these moves but believes the reforms should ultimately go further. Full transparency and accountability will not be achieved until the property management is operated on a commercial basis with the property manager required to return a dividend to government. Once the property manager is required to meet financial targets, full separation is necessary to ensure that commercial success is not achieved at the expense of housing assistance, that is outcomes for people. It is a logical progression of the current process of establishing property and tenancy managers as separate business units within State housing authorities.

Property should be managed commercially, but not to the detriment of people in public housing. The New Zealand approach, discussed in Appendix G, allows the commercial imperatives to dominate. The purpose of making the

commercial function explicit is not to make a profit — there is no profit to be made in subsidised public housing — but to make sure that resources are used efficiently.

The suggested separation of functions would make clear to governments the prices they pay for housing services, and allow them to compare those prices with market prices. The hade-offs between, for example, more or better housing would be fully explicit and there would be scope to assess the likely

outcomes of policy decisions.

Part of the reason for separation is to ensure that the organisations concerned have more consistent and compatible objectives — without which it can be difficult to assess performance or detect the presence of corrupt behaviour.

Property management

The role of the property manager in each State would be set out in legislation. Its prime task would be to lease housing to the tenancy manager. It would have a commercial focus. It would have no direct dealings with tenants, its client being the tenancy manager.

The quantity, type and location of housing would be specified in medium- to long-term contracts negotiated with the tenancy manager. The property manager would be free to buy properties or to lease them from the private sector to meet the contract. Public housing properties could only be sold if the

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tenancy manager agrees that they are surplus. The property manager would not be free to secure dwellings purely to rent in the private market.

Property management functions would be decentralised, and managed largely from regional offices. The organisation and location of the property manager are discussed in Appendix G.

The property manager would be responsible for maintenance of public housing assets. Arrangements for carrying out minor maintenance would be a matter for negotiation between the tenancy manager and property manager. The tenancy manager would be liable for the cost of all maintenance above normal wear and

tear, which should be recovered from the tenant.

Many inquiry participants argued that a housing provider with a commercial charter would tend to behave like private landlords, and some of the benefits of public housing such as security of tenure and non-discriminatory access would be lost. The proposed arrangement would avoid this. A tenancy manager and

not the property manager would be responsible for providing security of tenure and non-discriminatory housing. The property manager would be required to meet the needs of the tenancy manager with a clear charter setting out its role.

The tenancy manager would pay a market-based rent (less the standard management fee for tenancy management) to the property manager for each property leased. One benchmark for the cost of tenancy management is the amount real estate agents charge to manage tenants in private rental properties.3

However, the long-term nature of the lease contracts could result in the tenancy manager receiving some further discount in recognition of the property manager’s lower transaction costs. The contractual payment should also reflect the greater certainty of income continuity offered by the tenancy manager

(relative to private tenants) and the agreement by the tenancy manager to pay for any damage above normal wear and tear (irrespective of whether payment is obtained from the tenant).

The property manager would charge the tenancy manager the full cost of the services provided. This would clearly reveal the cost of public housing to the tenancy manager, the community and government. It would promote more informed decision making by governments.

The arrangements would allow a rate of return to be made on the housing stock. In turn, the property manager would normally be expected to pay a return on the asset as dividends to the government. The property manager should face the

3 The Property Owners’ Association o f Victoria put this at 7 to 12 per cent o f rental income (sub. 156); in some States there is also an establishment fee for new tenancies o f at least one week’s rent.

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same incentive structure (taxes and charges) as landlords in the private market (these could be paid to the State government as an additional dividend).4 In turn, it should be capitalised to an appropriate degree to enable it to operate effectively in property markets (as discussed below).

One limitation to commercial activity would be the need to obtain agreement from the tenancy manager that stock is surplus before it could be rented directly to private individuals or sold. Full rent would be paid by the tenancy manager

on any properties contracted from the property manager which remain vacant. If the tenancy manager wanted the property manager to retain a particular house because of its location, for example, but has no tenant for it, the property manager could lease that property privately for an agreed period. The tenancy manager would then make up any shortfall between the private rent (and associated administrative costs) and the rent the tenancy manager had contracted to pay.

It would be appropriate for the property manager to manage other State-owned stock and headlease to government departments for employee housing, and to headlease to local councils and non-government welfare organisations for community housing and crisis accommodation. The proviso is that headleasing to government departments for employee housing should not interfere with its primary responsibility to serve the tenancy manager.

In turn, client agencies, including the tenancy manager, should not be constrained to lease only from the property manager. They should be free to enter into agreements with private landlords. The potential for private provision would act as a cap on pricing and also provide benchmarks by which the efficiency of the public provider could be gauged. Other indicators should be established to enable effective performance monitoring.

Corporatisation of government agencies is often the forerunner to privatisation. Privatisation of a corporatised property manager would not be desirable for reasons already discussed in Chapter 5 and Appendix E. The loss of ownership of the properties would expose governments to financial risks in providing housing assistance to low-income renters.

Selling public housing to tenants

In most cases, public housing tenants have insufficient income to bridge the gap between public rental and home ownership, even with State government assistance. If public tenants are able and desire to buy the property they are renting, they should be able to negotiate with the property manager. Where it is

4 In most States, land tax discriminates against large holdings o f rental properties. Special arrangements would need to be made to exempt the property manager.

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unlikely that a property will be available for sale, prospective tenants should be informed.

Given that the property manager operates on a commercial basis, it should be indifferent between selling or renting the stock, providing it receives the full market price and all costs are covered.

Public tenants would be entitled to any form of home purchase assistance for which they are eligible, but would otherwise pay full market price.

Financing and funding

The property manager could borrow for expansion of the housing stock. It might borrow through the State treasury so as to obtain the best terms, or it could borrow commercially. The extent of expansion would be limited by government borrowing limits5 and debt.

If the tenancy manager were to require a large increase in the number of dwellings to be supplied, the property manager may need to receive capital funding from governments.

Valuation of assets

Market benchmarks should be used to value property assets wherever possible. They give a common basis on which to assess the value of State housing authority assets, allowing identification of the size of the public rental subsidy and thereby assisting governments to assess the effectiveness of public housing

assistance.

Market valuation is not possible where similar accommodation is not available in the private rental market. In such cases, the asset value should be the current replacement cost (excluding the value of the land), adjusted for depreciation.

Full valuation is needed at regular intervals — say every three years — but property values could be updated annually, using a sampling method.

Asset management

It will be in the interest of the tenancy manager to provide as much information as possible to the property manager about future housing service requirements. Acquisition and renewal can then potentially be achieved at least cost, while maximising the disposal value.

5 If the property manager were established as a commercial body, it would have a greater case to be exempted from government borrowing limits.

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Property managers should be free to maximise returns from houses that are no longer required. They should have the discretion to decide when and how to dispose of houses deemed surplus, and to lease surplus houses to the private sector where this is an appropriate short-term strategy.

Property managers should be free to engage contractors or to provide their own service.

Tenancy management

The Commission’s proposals call for tenancy management to be separated from property management. Separation would encourage the tenancy manager to be more responsive to the needs of clients and assist them in a more holistic way.

On issues related to their housing, tenants would have contact primarily with the tenancy manager at a regional level.

There could be better integration of support, crisis and general housing assistance, and better co-ordination with areas such as Supported Accommodation Assistance Program, Home and Community Care, Disability Services Program. The tenancy manager would help clients to access government and non-government programs for which they are eligible. This goal should be pursued regardless of the organisational model adopted. Some options for the organisational location of the tenancy manager are given in Appendix G.

The tenancy manager would not control access to these other programs. To do so would mean unwarranted influence over important aspects of clients’ lives. The tenancy manager should be a facilitator and an advocate for tenants.

Consistent with this role, the tenancy manager would seek the views of tenants and their associations on issues affecting tenants. The tenancy manager may facilitate this through funding of tenants’ associations and by generally encouraging tenant participation.

An allied role of the tenancy manager would be to provide feed back to policy makers on how the programs fit, or fail to fit, together.

The tenancy manager should have staff trained to deal sensitively and effectively with diverse client needs. Some would have specialist skills — for example, staff trained in dealing with psychiatrically ill people. In many locations Aboriginal and Torres Strait Islander personnel should be employed to provide expertise in meeting the special needs of this group of people. Staff would also need to have knowledge of relevant support programs.

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Housing policy

The Commission considers that housing policy advice should be provided by an organisation separate from both the tenancy manager and the property manager, (possibly a ministry). Housing policy that is often associated with public housing, for example urban consolidation, environmentally sustainable designs

and heritage conservation, should be integrated with housing policy generally, and with urban and regional development as appropriate.

Tribunals, boards and committees

Housing authorities are often responsible for landlord and tenant legislation and for administration in relation to public housing tenants’ complaints and appeals. There is an obvious conflict of interest when the arbitrator is also one of the protagonists. Organisations such as the Housing Review Committee (ACT) or

the Public Tenants’ Appeal Panel (NSW) should have independent status and be located in a department such as consumer affairs.

Land banking and development

Under the Commission’s proposals, land banking and land development functions would be relocated to other agencies separate from the property and tenancy managers. Separation would ensure that costs are not distorted or hidden by subsidies, and demand signals are not lost. Any community service

obligations should be separately funded. Governments would then be fully informed as to the commercial viability of these activities.

6.3 Security of tenure

Security of tenure, as it applies to public housing, has not been clearly defined by governments. Governments have agreed under the CSHA (Recital D) to provide a choice of dwelling and locations appropriate to the tenant’s need ‘where a tenant is required to move from one dwelling to another by a State’.

Yet there is a common perception amongst public tenants that once they have a public house, they are entitled to stay there for life — that is, they have security of tenure over a particular dwelling.6

Security of tenure over a particular dwelling is an ideal that comes at a cost. It can compromise asset management and the efficient allocation of dwellings to

6 Unless the tenant fails to meet conditions o f the lease.

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households. These costs need to be taken into account wherever there are funding constraints.

Public tenants, particularly elderly tenants, value existing social networks. And families benefit from continuity of schooling and access to local amenities. The Commission therefore proposes that public tenants should have security of tenure to a local area, but not necessarily to a specific house (see

Recommendation 4).

This does not mean that tenants would be moved for asset management reasons without regard to their needs or desires. For a start, the tenancy manager would have to agree to any change and there would have to be clear benefits to the community from the move. It would occur under arrangements similar to those

currently operating in a number of States — contact with the tenant would have to be handled sensitively and the tenant would be offered a choice of appropriate dwellings in the same local area.

The Commission’s proposed that security of tenure be to a local area is intended to cover circumstances where a dwelling has reached the end of its useful life and the maintenance costs are excessive, or where there are sound reasons for dwellings to be demolished and replaced by more modem dwellings with better amenities. In such cases relocation costs should be borne by the housing authority.

Limitations on security of tenure are particularly relevant where properties are headleased. If security of tenure for public tenants is ‘for life’, the opportunity to headlease properties from the private sector would be greatly diminished.

Yet headleasing has advantages in that authorities can be more responsive to the immediate needs of people.

There is a case for the tenancy manager to offer some leases under limited tenure arrangements, renewable subject to review, where the circumstances of tenants are expected to improve (see Recommendation 5). The offer of security of tenure ‘for life’ to all people entering public housing would be inappropriate. By offering limited tenure arrangements, more options (including headleasing), are opened and housing assistance may be offered sooner.

6.4 Rents

The housing authorities presently try to ensure that tenants with similar incomes pay similar rents. Public housing of variable quality is allocated to tenants largely at the discretion of the housing authorities. This is inequitable where tenants on the same income and in similar circumstances pay similar rents for dwellings of different amenity.

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The Commission’s rent setting proposals offer a more equitable outcome for tenants (see Recommendation 6). The level of assistance (or the subsidy) would not depend as at present on the household income, and the market rent for the

property they choose to rent. The subsidy would depend on household composition and income, and the market rent for an appropriate dwelling. This approach is illustrated in Figure 6.1. An example of how rent setting could work is given in Box 6.1.

In the Commissions view, rents should be paid in advance, even if this means an initial rent holiday.

Outline of the proposed rent setting model

Families and individuals would be classified into broad categories on the basis of household composition — such as singles, singles with one child, singles with two children, couples, couples with one child and so on. A subsidy payment would be calculated for each income level within each household

category.

Income, adjusted for assets, should be used to determine the level of subsidy paid within these categories. Ideally the relevant income would be total after­ tax income including (most) social security payments. Since after-tax income would be administratively difficult to use, the ‘generally’ equivalent gross

income could be used instead. The definition of income should be consistent between States and have regard for the additional costs (including transport) incurred by people with disabilities.7·8

The Commission proposes that for each household category, a standard market rent would be set reflecting the cost of appropriate housing. The standard rent could be the average of market rents of all public houses that meet the appropriateness standard for public housing. Alternatively, it could be set at the market rent of housing within a specific location9 that meets the appropriateness

standard. Each household category would have assigned a different standard rent because the size of appropriate housing would be different.

7 Consideration o f additional costs faced by people with disabilities should be on a case-by­ case basis.

8 Where tenants income varies, time lags in the adjustment o f rents by housing authorities not only discourages tenants taking casual work but pushes tenants into arrears. Rents could be set on the basis o f income over a number o f previous weeks, so that the lags in adjusting rents upwards act the same as those when the adjustment is downwards.

9 The location could be chosen, for instance, because o f its accessibility to services.

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Box 6.1: An illustration of the proposed rent setting approach

For an unemployed couple with two children whose only source of income is government benefits, household income is $332 per week.

If in public housing, they would pay rent under the current arrangements equal to approximately 25 per cent of their household income. This amounts to $83 per week — no matter what the market value of the property they are renting.

Under the Commission’s proposals, the tenancy manager would determine a standard market rent for a 3 bedroom house in the region — that is, the market rent for properties in the region that met appropriateness standards — say $170 (see A in Figure 6.1). The household would receive a subsidy that would ensure that the standard market rent was affordable given the household’s income and composition (see BC in Figure 6.1).10 Their subsidy would be the standard market rent of a three bedroom public house in their region ($170) less 25 per cent of their household income ($83), which is $87 per week. The household would receive this subsidy regardless of the rent that the tenancy manager has set for the particular public house they choose.

If the market rent for that house is below the standard market rent, say $160 per week, they would receive assistance of $87 per week and contribute $73 per week in rent (see DE in Figure 6.1). In this way they would be compensated for the lesser amenity of the house.

If, however, they choose a public house with a market rent above the standard market rent, say $180 per week, they would still receive assistance of $87 per week, but contribute $93 per week in rent (see FG in Figure 6.1). They would pay additional rent because of the higher amenity of the particular house.

Rents for existing tenants would not be affected, at least initially.

10 For simplicity, this example assumes that in the current and proposed systems, an affordable rent is set at 25 per cent o f household income. In the Commission’s proposed system, there would be some adjustment for household composition through equivalence scales and changes in the rate o f withdrawal o f assistance to make assistance more equitable.

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Figure 6.1: Proposed rent setting model

Market rent of appropriate public housing available in a given region

Z- housing assistance

Commonwealth

Rent paid by tenant X

<--------

High income Income of Minimum °

tenant X mcome

D House of F

appropriate quality

Housing quality Household income

Source: Industry Commission.

Public housing tenants should increase their contribution to rent as their income increases. However, their contribution should be set so that at each level of income the rent paid is affordable (see affordability benchmark in Figure 6.1). In a dwelling for which the market rent is equal to the standard market rent, the

tenant’s contribution to rent would be the affordable benchmark rent.

Households of different size and composition require different levels of income to be equally well off. For instance, a couple will require greater income than a single person to have the same standard of living. Allowance needs to be made for this when determining affordable benchmark rents for household categories.

Tenants in the same household category with identical incomes but renting dwellings with different market rents should receive the same level of subsidy — not pay the same rent. This is an application of the principle of horizontal equity — those in equivalent circumstances should be treated similarly. Those

in better housing, as reflected by its particular market price, should pay more and those who choose to live in less valued public housing should pay less — that is, the tenant’s contribution to rent should be related to the market rent of the particular property. Under the Commission’s proposal, the subsidy would

also be related to the market rent of appropriate housing — that is, to the standard market rent.11

11 The subsidy for a tenant in a particular dwelling can be calculated as the affordable benchmark rent (based on the tenant’s income and household category) plus the difference between the market rent (o f the dwelling) and the standard market rent (for that household category).

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If tenants add significant value to their dwelling, such as through the addition of a carport, they would not pay a higher market rent for the greater amenity. Also, people with disabilities requiring support infrastructure would not have to pay a higher rent because of the cost of providing the infrastructure. The standard market rent would be for housing appropriate to their needs.

As governments are not able to assist everyone, they need to target those below a certain income, and withdraw this assistance as income rises.12 This would improve vertical equity because those on a lower income should pay a smaller

proportion of their net disposable income on rent. Those most in need would benefit the most, given that their difficulty in allocating a portion of their income on rent is greatest.

The rate of withdrawal of assistance would be non-linear (see Figure 6.1). Two conflicting objectives need to be reconciled in order to determine an appropriate rate at which to withdraw assistance. First, governments must maximise the cost-effectiveness of public housing by targeting assistance to those most in need. Second, they must minimise any effect the rate of withdrawal has on

disposable income that would discourage those targeted from improving their situation.

Within each household category, a point will be reached as income increases, where the tenant’s contribution will be the full market rent. The precise level at which the payment of market rent comes into effect again depends on an

appropriate rate of withdrawal of assistance. This market rent should reflect the higher security of tenure that public rental provides over private rental. The premium paid by public tenants for the extra security of tenure should be small, perhaps 2 or 3 per cent higher than comparable private rents (see

Recommendation 7).

Under the Commission’s proposals, tenants would not be forced to leave public housing should their incomes improve and their subsidy be withdrawn. For some tenants it would be inappropriate to force them to leave because the improvement in their income may be expected to be short lived. The decision to leave public housing should be left to the tenants. If they choose to remain in public housing, then, provided they pay market rent, they are not being

subsidised for their housing. It would be possible for the tenancy manager to lease a replacement dwelling for someone requiring assistance.

12 Implementation should occur only after a review o f the impact o f the withdrawal rates o f housing assistance for low income renters, marginal tax rates and the withdrawal rate for additional income earned by Department o f Social Security and Department o f Veterans’ Affairs recipients.

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For the proposals to function effectively public tenants must have a reasonable choice of stock at the time of allocation and must be able to transfer between properties. When they come to the top of the waiting list, potential tenants should have the choice of not one or two but at least four appropriate different

dwellings with a range of rents within their area of interest. The household can then choose, for example, whether to trade-off the higher cost of an inner-city property with lower transport costs associated with housing in that location.

As the housing needs of tenants change, they should be able to relocate to a more appropriate house and be allowed to again exercise some choice over the dwelling. Tenants should bear some or all of the cost of relocation when it is at their initiative.

Where tenants cannot be given a ‘reasonable’ choice of properties they should not be disadvantaged financially. For instance, if a tenant is offered only one dwelling and the market rent of this dwelling is larger than the standard market

rent, it would be unfair for them to pay for the additional amenity above the standard market rent. In this case, they should be asked to pay the affordable benchmark rent.

Implementation of the Commission’s rent setting model need not affect the rents paid by tenants already in public housing. It could apply for new tenants, with existing tenants either benefiting from a ‘grandfather clause’13 or by having their rents change gradually (to those proposed). It is important that the level of

subsidy households receive is explicit whichever option housing authorities adopt.

Further details of the proposal for setting rents are given in Appendix I.

Allowing for regional differences in rents

The Commission’s proposals recognise that the cost of appropriate accommodation varies by location and the level of assistance would need to change accordingly. States would be divided into a number of regions. Within each region, the amount of subsidy would be set so that at each income level,

households can afford to rent a public house that is of an appropriate size and standard.

The principles contained in the CSHA and developed by the National Housing Strategy suggest that all accommodation offered should be at least of a minimum quality and reflect community standards.

13 A grandfather clause would mean that public housing tenants at the time o f the change would receive dispensations under the new arrangements.

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An ‘appropriate standard’ would need to take into account amenity and access to services. The State would need to choose regional boundaries and the rent for appropriate housing in each region for the different household categories.

As the Queensland Council of Social Service noted, the key to the

Commission’s proposals on rent setting lies in the definition of ‘region’ (sub. 241).

In rural and remote areas a region may include only a particular town and dwellings in the surrounding community. This would avoid any disparities in housing costs between ‘regions’ with large differences in prices.

Testing the proposed rent setting approach

The proposal was tested on a representative sample of Queensland public housing tenants by the Centre for Urban and Social Research, Swinburne University of Technology.14

The indicative results (comparing proposed benefit with current benefit for the sample of tenants) were:

• Households on the lowest incomes in the sample would be slightly better- off, most others would be as well-off or better-off except those in the sample on the highest incomes, and some singles and couples (without dependants) in detached houses;

• Couples (without dependants) would be better-off except those in two or three bedroom detached houses;

• Singles (without dependants) would be slightly better-off except those in detached houses with two or more bedrooms (see Figure 6.2);

• Those with dependants, whether couples or singles, would be at least as well-off except those on the highest incomes; and

• Except for inner-Brisbane the results reported above did not vary according to region, however, tenants in inner-Brisbane were generally worse-off.

Figure 6.2 plots for single public tenants in detached houses and pensioner units an estimate of the current rent rebate against the subsidy under the approach proposed by the Commission. For each dwelling type, dwellings are ordered by number of bedrooms and within number of bedrooms, by income of the tenant.

14 More detailed results on the testing of the Commission's rent setting model are available in Pidgeon (1993) and Industry Commission (1993).

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Figure 6.2: Comparison of current and proposed subsidy for single public renters in Queensland

(a) in two and three bedroom detached dwellings

$ per week

140 -i-120 · ·

3 bedrooms 2 bedrooms

Current Proposed

Note: For each dwelling type, dwellings have been ordered by number of bedrooms and within number of bedrooms, by income of tenants.

(b) in one bedroom pensioner units.

$ per week

10 ■·

Current Proposed

Source: Pidgeon (1993).

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The inequity of the current arrangement can be seen — those on lower incomes in pensioner units, for example, receive about the same subsidy as many of those on higher incomes. Currently most singles in detached houses are receiving a rebate estimated to be over $100 per week whereas most singles

living in pensioner units (and on similar incomes to the singles in detached houses) receive a rebate of less that $65 per week. The cost to the community of singles living in detached houses under the current arrangement is also clear.

The Commission’s model appears to work in this illustrative trial. The outcomes are more equitable — people on lower incomes receive a higher subsidy than those on higher incomes. People on the same incomes in dwellings of different amenity, in terms of size and type of dwelling, receive the same subsidy.15

Modification of the model

Market rents for public housing in large urban areas, such as Sydney, may vary widely due to differences in amenity. In Appendix I it is shown that the proposed rent setting model could, under certain assumptions, provide public housing tenants in Sydney with access to rental properties comparable in amenity (as reflected in market rent) to around two thirds of the private rental market.

However, some of the existing public housing stock in Sydney is poorly matched to tenant housing requirements (in terms of numbers of bedrooms) or is located in higher-priced suburbs. Under the proposed rent setting model, tenants wanting to move into these properties would pay high rents relative to their incomes and so their housing would not be affordable.16

If State governments consider it appropriate for public tenants to reside in higher priced locations then adjustments to the underlying rent setting model would be required so that the housing remains affordable. One approach would be to divide, for example, Sydney into a number of regions with each region having different standard market rents. People would be eligible for higher (lower) subsidies in regions with higher (lower) rents. This could provide incentives for people to choose housing in regions that maximise the subsidy they receive and so demand for these areas may be high. If this was considered inappropriate these incentives could be lessened by adjusting standard market rents for each region but this is unlikely to be entirely satisfactory. However,

15 Note that in this example no attempt is made to make the outcome revenue neutral.

16 Conversely, for other tenants, the market rents o f some less desirable properties may be so low that they would pay little or perhaps no rent.

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any difference in the subsidy received within an urban area may lead to inequities, especially between tenants living either side of regional boundaries. Consequently, this approach is not recommended.

An approach favoured by the Commission would be to set an upper limit (and perhaps lower bound) on the proportion of income public housing tenants spend on housing. For instance, the limit could be set so tenants pay no more than 30 per cent of their income on rent (and perhaps a lower bound of 15 per cent). An upper limit of 30 per cent of income is higher than in current practice. But the tenant concerned could have chosen a dwelling with an affordable rent (for

example, a dwelling carrying the standard market rent). Tenants who chose to pay up to 30 per cent of income are likely to be making trade-offs between rent and other costs, perhaps transport costs, or choosing to pay more to rent houses with extra amenities such as an additional bedroom.

One way of ensuring payments remain affordable (if necessary) would be to discount the additional cost (or saving) to tenants renting houses with market rent different from the standard market rent.17 An initial analysis of data for the Sydney market suggests that a discount of 50 to 75 cents in the dollar of the

additional cost in some locations may be required to ensure that public housing remains affordable in Sydney (see Appendix 1).

This modification of the Commission’s rent setting model may be required in other cities with wide variations in rents to ensure rents remain within an affordable bound.

6.5 A c c e s s to public housing

Waiting lists

There would be advantages in a single segmented waiting list for each State, with a common set of eligibility criteria (see Recommendation 3).

17 Consider the example in Box 6.1. If the market rent for the property were $190 per week, the standard rent $170 per week, and the subsidy $87 per week, a tenant would pay rent o f ($170 - $87) + ($190 - $170) or $103 per week under the basic model.

Assuming a discount o f say 75 per cent o f the extra cost o f the market rent over standard rent, the tenant would pay rent o f ($170 - $87) + 0.25 x ($190 - $170) or $88 per week.

With a discount o f 100 per cent, the model reverts to the current rent setting system used by housing authorities. From a horizontal equity perspective, the outcome becomes more inequitable the larger the discount.

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This proposal has two important parts. First, there would be one waiting list for the whole State. The time it takes to receive assistance would not vary by location because of differences in the availability of public housing as is the current practice. With a single waiting list, households with similar needs would generally wait the same length of time regardless of where they prefer to live within the State.

Second, the waiting list would be divided into a number of segments. People who are in similar need of housing assistance would be placed in the same segment of the list in order of their application. Most States currently have a two segment waiting list — a wait-turn and a priority list — for each region. The Commission believes it would be better to have more than two segments. However, the appropriate number of segments would depend on trade-offs between equity and administrative simplicity, recognising that the assessment of people’s needs is subjective to some degree. These constraints are expected to limit the number of segments to four or five.

Currently the proportion of people accessing public housing by way of a priority list varies widely between States — from 1 per cent in Queensland to 50 per cent in the ACT. Also, people can wait up to 18 months for priority housing with the average wait being 6 months. Although these wait times appear

excessive (for those assessed as needing priority access) it appears that different criteria are being used by State housing authorities. Some authorities have very tight eligibility criteria whereas others are less strict. This suggests that more than two segments for a waiting list is possible and worthy of investigation.

The size of the waiting list is not the important factor, but rather the length of time people have to wait. Those most in need have most to benefit from public housing and consequently it is appropriate and equitable that they wait the least time.

The role of the tenancy manager is to provide housing assistance to people — as a subsidy for use in public housing, or headleased private rental accommodation — when they reach the top of a segment of the waiting list. It would be up to the tenancy manager to respond to the specific needs of tenants and to offer the housing assistance that best meet their housing needs. As far as possible, prospective tenants should be able to choose between public and community housing. Similar levels of assistance would therefore be provided if people chose to enter community housing (see Chapter 10).

The rate at which people from a particular segment of the waiting list are allocated a dwelling would be determined by their need for housing assistance relative to people in other segments. This would mean that the average waiting time for a public house would be shortest for people in greatest need, and grow

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longer for each successive segment. It is important that eventually people from each segment are offered a house, albeit after different waiting times.

Assessment of eligibility and relative need

Eligibility criteria for entry to waiting lists should take into account the housing needs of the different sizes and compositions of households. At the very least, all households on low incomes who qualify for rent assistance should be eligible. Eligibility criteria should ensure that those who are eligible will be

assisted in a reasonable period of time.

The Commission believes that applicants should be assessed at the time of application and again just prior to reaching the top of the list.

An applicant’s relative need should be assessed against a set of criteria — such as household income and composition, potential for discrimination in the private rental market, and current living conditions. The assessment could have regard to whether the need is likely to be short-term or long-term.

Each applicant’s circumstances should be considered within flexible guidelines. Clearly the guidelines should be interpreted broadly given the specific nature of individual cases. The relative housing need of applicants would be determined and they would be listed in the appropriate segment. Those in special

circumstances, for example those currently in crisis accommodation, would require a greater degree of subjective assessment of the gravity of their needs. Applicants should be able to apply for re-assessment should their circumstances change.

The initial assessment could be undertaken by either a panel or a case officer from the tenancy manager’s office working within the eligibility criteria. There should be a right to appeal against decisions.

A single segmented waiting list would lead to better targeting of assistance and more equitable outcomes. People in crisis, people with disabilities, Aboriginal and Torres Strait Islander people, and South Sea Islander People18 are most likely to benefit (see Chapters 10 and 11).

Those wishing to transfer from one State’s waiting list should have the time they have been waiting credited to the new list. Mobility ought to be treated

18 South Sea Islander people raised concerns about their sub-standard housing, low level o f home ownership and non-recognition o f their cultural needs. Some can access Aboriginal and Torres Strait Islander programs. The needs o f the South Sea Islander people would be partially addressed with this approach. They would be able to apply for public or community housing by joining the waiting list and have their housing needs ranked against the needs o f all other applicants.

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neutrally, hence those who are on a waiting list should not be unduly discouraged or penalised from transferring (but neither should they necessarily be encouraged).

In relation to interstate transfers, the Queensland Government said:

Over recent years, Queensland’s relatively strong economy and generally attractive climate have combined to make it a major recipient o f interstate migrants. ... Queensland would be therefore likely to receive a disproportionately large share o f interstate applicants, who have earned waiting time in their home State and who then move when they judge an allocation in Queensland would be made quickly

(sub. 345, p. 17).

These problems are likely to be reduced over time if the Commission’s proposals for allocation (detailed above) and the funding arrangements proposed in Chapter 8 are implemented. Waiting times for people in similar need but in

different States would be expected to equalise over time.

6.6 B enefits from the new approach

By separating the major functions of tenancy and property management, the Commission’s proposals would clarify objectives and separate welfare from commercial objectives.

With the separation of functions, measures of performance become meaningful, transparency is enhanced and conflicting objectives are avoided. It should be clear whether objectives are being achieved or not. This means greater accountability to both governments and the community, and incentives to encourage greater efficiency and effectiveness.

The restructuring of responsibilities would ensure that clients are looked after by organisations concerned about the delivery of housing services and dedicated to equitable distribution of assistance. An holistic approach to the delivery of welfare services would be possible.

The proposed housing allocation and rent setting systems are efficient and more equitable. They would allow for greater choice and flexibility for public tenants. Tenants could choose to pay less on rent and live in a public house of relatively lower amenity (perhaps an older house or one further from the centre of town) or pay more in rent and enjoy lower transport costs to the city, for example.

The cost of unrelated objectives could no longer be hidden, and therefore borne, by the public housing sector. The cost of government urban planning requirements or support to the local building industry, for example, would be clearly identified and funded separately from public housing.

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Treating public tenants more equitably

Those people in greatest need of housing assistance who are still on waiting lists would have their needs better taken into account and would be likely to receive assistance sooner.

All public tenants would have greater choice over where they live. Those in properties of high market value could choose to move to a property of lower market value and pay less rent, freeing some of their income to save or spend on other goods. The tenancy manager would be more responsive to their needs and

there would be greater flexibility under the new arrangements.

Those people currently in public housing whose income exceeds the eligibility criteria stand to lose since they may no longer receive subsidised

accommodation. If they were not eligible for subsidy they would face the full market rent for the properties they occupy. This would improve equity within public housing, and it is a reform which most housing authorities are already moving to implement.

Rents for existing public tenants would be protected by a ‘grandfather clause’ or their rents would be adjusted after a phase-in period. Public tenants who are fortunate enough to have been allocated above-average accommodation may face higher rents in the medium term. Alternatively, they could move to

properties of lower market value and pay the same rent as before, or even less rent, if they so choose.

Because people’s needs would be better taken into account in allocating assistance, there would be no need for the Commonwealth Government to tie funding to specific programs under the CSHA. The current arrangements can be inequitable (see Chapter 5). They can also isolate the housing needs of

particular groups in ways that are not to their advantage (see Chapter 11).

Improved choice in public housing

An applicant whose name comes to the top of the list should be able to choose from a number of public dwellings. The dwellings offered should be appropriate to the applicant’s needs. Applicants who reject the offers should be placed back on the list, but not at the bottom. There is a trade-off between the

benefits of wider choice for tenants and the administrative costs in providing it.

Knowing their subsidy, tenants would be able to choose to live in properties offering more, or less, amenity and pay slightly more or less rent than they are currently paying. Tenants would have greater freedom to choose the location and type of public housing, making the appropriate trade-off between cost and

amenity.

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Clear demand signals would be sent by tenants through the tenancy manager to the property manager. This would result in more appropriate stock being provided, in terms of location, size and cost.

There should be opportunities to transfer within public housing but unless this is also in the interest of the tenancy manager, the tenant should bear the cost.

Under the current arrangements, a public tenant who wishes to move interstate must join the new State’s waiting list at the bottom. This is inequitable and creates artificial barriers to movement.

The mismatch between current stock holdings and the requirements of tenants and new applicants means that it will take time for housing authorities to effectively increase the choice available to tenants.

* * *

The need for housing assistance is large and increasing. The sooner these reforms can be implemented, the sooner the benefits of a more flexible, efficient and effective public housing sector can be passed on to people most in need.

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Rent assistance is available to private renters receiving pensions and allowances from the Commonwealth Government.

Some States have used untied funds from the Mortgage and Rent Assistance Program (MRAP) under the Commonwealth-State Housing Agreement (CSHA) to top-up these payments, often to people on public housing waiting lists. MRAP also provides bond and re-location assistance for private renters.

7.1 DSS and DVA rent a ssista n c e

Rent assistance is provided by the Department of Social Security (DSS) and the Department of Veterans’ Affairs (DVA), to eligible tenants in private rental accommodation who pay above minimum threshold rent levels.1 Since March 1993 rent assistance is provided at the rate of 75 cents per dollar of rent paid

above a threshold rent and up to a specified maximum rate of assistance. Threshold and maximum levels of assistance vary with family composition but not location.

The amount of rent assistance paid to private renters is much less than the rental rebate to public renters on similar incomes. Further, public housing rebates are calculated on the level of income a household receives whilst rent assistance is determined by the level of rent paid by the household.

Commonwealth outlays on rent assistance have grown from $234 million in 1984-85 to about $1.2 billion in 1992-93 (see Figure 7.1). This is a

consequence of a widening of the eligibility criteria and consequent increase in the number of recipients — from approximately 500 000 in 1984-85 to just over 930 000 in 1991-92 — and an increase in the assistance per household — from a flat rate of $15 per week in 1984-85 to a number of differentiated rates

in 1992-93 with a maximum assistance of $42.60 per week (see Appendix K).

There are a number of problems with the current structure of rent assistance.

The cap on rent assistance payments can result in people facing high rents in some locations receiving the same level of assistance as those where rental costs are lower.

1 See Appendix K for more details.

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An inequity exists in rent assistance because the same level of assistance is available to households with different incomes. It arises because up to relatively high levels of income, rent assistance is based only on the level of rent paid by the household. For private renters there is also an inequity between those who are DSS and DVA clients and those on low incomes who are not eligible to receive rent assistance. Those excluded include singles and married couples without children who obtain their income from sources other than a government benefit, and AUSTUDY recipients.

The effect of withdrawal rates of DSS rent assistance, other benefits and allowances and concomitant taxation rates have the potential to cause poverty traps. All these combine to produce effective marginal rates of taxation in

excess of 100 per cent for some recipients (Wulff, Pidgeon and Burke 1992).

Given the identified inequities and anomalies, the Commission considers that the DSS and DVA rent assistance programs are in need of reform. The following considerations are relevant.

Improving DSS and DVA rent assistance

Commonwealth role

It is a Commonwealth responsibility to provide income support to those people whose income is insufficient to achieve a minimum standard of welfare. In keeping with this income support role, the Commonwealth should continue to provide rent assistance to households on low incomes facing housing

affordability problems in the private rental market.

Renters on low incomes are unable to access public rental accommodation immediately (they are usually required to join a waiting list). These people require income support in the short-term to reduce their housing costs while

they are waiting for public rental accommodation. Others on low incomes may choose to rent in the private market. In these situations it is desirable that the Commonwealth provides income support, such as rent assistance, to raise their

standard of living to a socially accepted minimum.

However, it would be costly to attempt to provide cash assistance to change people’s relative housing consumption. DSS states that rent assistance is not an attempt to change the housing consumption patterns of low-income people, but rather to provide an income supplement (see Appendix E and K). The

Commission believes that rent assistance primarily acts as income support but there will be some households for whom the assistance will induce a relative consumption change.

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Figure 7.1: DSS and DVAa rent assistance outlays, 1984-85 to 1991-92 $m 1400 T

84-85 85-86 86-87 87-88 88-89 89-90 90-91 91-92 92-93

Note: Expenditure by DVA on rent assistance from 1984-85 to 1990-91 are estimates. Estimates derived from information supplied by DSS and DVA. Source: Industry Commission.

Greater equity

Currently rent assistance is only available to DSS and DVA clients. To provide for greater equity between people on low incomes, regardless of the source of income, rent assistance should be extended to all those on low incomes renting privately, including low-income households without children and AUSTUDY

recipients (see Recommendation 17).

The level of assistance should be withdrawn as income rises. In this way, people in similar circumstances (that is, facing the same opportunities) would receive comparable levels of assistance. Those receiving higher incomes should receive lower levels of assistance (see Recommendation 17).

The benefits gained from increased income should not be gauged solely in monetary terms but should embrace broader measures of well-being. This involves, for example, the use of equivalence scales to compensate for family size and composition. There is a strong case for rent assistance to vary with

clients’ circumstances, whereas currently clients with different incomes typically receive the same rent assistance payments.

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The Commission’s proposal to link rent assistance to levels of income will exacerbate the poverty traps already inherent in social security payments, but it is not a problem which can be solved by DSS rent assistance policy alone (see Chapter 12). Before the above proposals are implemented there needs to be a review of the withdrawal rates of social security payments and rent rebates with the aim of harmonising them to minimise poverty traps, given marginal income tax rates.

Improved incentives

The National Housing Strategy recommended that in pursuing a housing affordability benchmark the government should be guided by a number of principles, one being greater equality of subsidy across tenures. The Commonwealth Government in the 1992-93 budget foreshadowed that it would look into the feasibility of equalising assistance to low-income tenants in public and private rental accommodation by the year 2000.

In the Commission’s view there should be some increase in the assistance available to people in private rental, though there is a case for less than complete parity of assistance with public rental rebates (see Recommendation 17). As argued in Chapter 5, ideals for housing set by governments are not

achievable through rent assistance alone. Rent assistance does not necessarily guarantee people are appropriately housed and pay affordable rents.2 Therefore, governments are faced with providing higher levels of assistance ■ — through public housing as the most cost-effective long-term means.

Equalising rent assistance and rent rebates in public and community housing does not ensure equity in a social justice sense. Furthermore, it is not necessary for the achievement of equal treatment of public and private renters because private renters who are eligible can apply and receive public housing after some wait.

A decision on the additional assistance provided to public tenants — relative to tenants in private rental — requires an appreciation of the net benefits gained through public housing relative to rent assistance. That is, the difference in

assistance between public rebates and rent assistance should reflect the greater effectiveness and benefits of public housing.

2 Increasing rent assistance could have the effect o f increasing government expenditure without the desired improvement to affordability or appropriateness. This would occur even if the recipients do not fully spend on housing the additional amounts received, or if the supply o f low-cost housing did not significantly respond. In the latter case the government would be unintentionally increasing private landlord profit.

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The gap between rent assistance to private renters and public rebates should provide an incentive to choose public housing, but not be so great as to be perceived as unjust. The gap should be subject to regular review.

Trade-offs between efficiency, effectiveness and equity will be required to determine the appropriate gap between rent rebates for public renters and rental assistance for people who are waiting to enter public housing. The extent of the gap and its justification should be explicit.

Regional variations

The cap on rent assistance creates inequities between people who pay higher rents in some regions but receive the same level of assistance as those renting in low-cost regions. One way of providing greater equity in assistance would be to directly target extra rent assistance to those living in high rent regions.

In a joint submission, the Department of Health, Housing, Local Government and Community Services (DHHLGCS) and DSS stated that there are a number of reasons for not varying rent assistance on a regional basis (sub. 331). First, discriminatory treatment of DSS clients across the States may offend s.l 17 of the Constitution. Second, the approach may create ‘zones of discontent’ as

people in regions neighbouring high assistance regions would not be eligible for the higher level of assistance, even though there may be some high rent stock in the region. Third, rents in inner metropolitan regions may be higher because of better access to support services such as transport, thus providing offsetting

benefits to the tenant. Finally, the Departments argued that there may be administrative difficulties associated with people living near regional boundaries.

In their joint submission DHHLGCS and DSS stated that:

... the impact o f high rent areas on the adequacy o f rent assistance would be better addressed through further measures to target assistance to those with high housing costs relative to income within the current structure o f assistance, such as through further increases to maximum rates (sub. 331, p. 32).

Public housing provides a means of giving additional assistance to house low- income renters in high-cost areas. This overcomes the Constitutional issues raised if DSS rent assistance was provided at rates that reflect regional differences.

The other issues raised in the joint submission and listed above are operational in nature and would need to be resolved at implementation.

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7.2 Rent assistance component of MRAP

MRAP is an untied CSHA funded program.3 States have to match most of the Commonwealth’s funding. In 1991-92, funds available for the program totalled $129 million — the Commonwealth and State contribution being $53.5 million and $36.5 million respectively.4

MRAP provides assistance to people experiencing difficulties in mortgage repayments, or people on low incomes facing difficulties in meeting rents in the private market and people requiring deposit assistance in purchasing a home.

Relocation and bond assistance to low-income private renters on public housing waiting lists are all part of the States’ responsibilities under the rent relief component of the MRAP. This is appropriate because the States are responsible for regulating tenancy legislation.

The Commission considers that States should continue to provide relocation and bond assistance to people facing financial difficulties in the private rental market. The argument for the Commonwealth to continue to fund these programs rests on whether it considers ‘ensuring that all Australians have access

to more affordable and appropriate housing choices’ to be its responsibility (DHHCS 1992a, p. 5).

States spent $65 million (50 per cent) of total funds available under the MRAP on the rent relief (cash subsidy) component in 1991-92. Even if the Commonwealth increases its rent assistance role there may be a role for the States to provide some cash assistance to people who have unavoidably high housing costs.

3 See Appendix K for more detail.

4 The remaining $38.5 million comprised funds carried forward, internally generated funds and funds transferred from the general allowance.

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Inter-govemmental financial arrangements influence accountability at the broadest level. They also have a bearing on the incentives facing housing authorities, and in turn the performance of government agencies. If the inter- govemmental arrangements do not provide the right incentives, programs are unlikely to be fully effective and economic efficiency and accountability will be

diminished.

Governments are most accountable to the electorate when:

• There is a direct relationship between the monies they collect through taxation, and expenditures on programs for which they are responsible;

• There is a clear demarcation of responsibilities;

• Policies have clearly defined objectives;

• The cost and other consequences of decisions are transparent; and

• Their agencies are fully accountable.

8.1 C om m onw ealth-State Housing Agreem ent

The first Commonwealth-State Housing Agreement (CSHA) was signed in 1945 in response to a housing shortage after World War II. This Agreement formalised the joint responsibility for public housing.

Public housing was conceived to be self-funding once the housing had been constructed, with rents set on a cost recovery formula. Provision was made for rent rebates with the Commonwealth agreeing to pick up 60 per cent of overall rental losses. However, the Commonwealth withdrew from this shared

arrangement for rent rebates in 1965.

Later agreements saw a shift in housing policy towards home ownership. This led to the sale of about 40 per cent of rental dwellings built between 1945 and 1971 and an increase in the proportion of remaining tenants requiring rebates.

The Commonwealth Government introduced rent assistance in 1958 -— at first just for pensioners. Initially, public housing authority tenants were eligible to receive the assistance. Following the 1981 CSHA, rent assistance eligibility criteria were changed to reduce the inequities in assistance between public and

private renters. Rent assistance was withdrawn from public tenants in 1982.

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From 1981, the Commonwealth increased the proportion of CSHA funds ‘tied’ to specific programs. For example, the 1981 CSHA allocated $200 million to Aboriginal and Torres Strait Islander people, pensioners and other special needs groups.

Restrictions placed on public housing eligibility in the 1970s and 1980s further increased the proportion of public tenants receiving rent rebates and reduced rental incomes. Declining rental incomes and higher interest payments (due to

States borrowing to meet matching requirements) and the rising maintenance costs of ageing housing stocks placed considerable pressure on the finances of housing authorities.

The National Housing Policy Review (1988) of the 1984 CSHA found that the number of houses acquired would decline rapidly with Commonwealth grants increasingly being used to cover interest on State loans. The main outcome of the review was an all-grant system of funding for public housing. Housing

authority costs, other than interest, were to be recovered mainly from rental incomes.

The Commonwealth Government, through the CSHA, has provided the bulk of funds for public housing in Australia. Its interest has been largely one of ensuring expansion of public housing through capital investment. Although the

States’ interests have varied widely and changed over time, there have been and continue to be financial and reporting tensions between the States and the Commonwealth.

8.2 C om m onw ealth-State relations

Commonwealth grants to the States lead to a substantial blurring of responsibility and accountability. In the case of the CSHA, responsibility is particularly ambiguous because it is formally shared. Consequently, the collective decisions on policy matters provide opportunities for each level of government to escape scrutiny and avoid accountability. State agencies are left

in a position where they have a great deal of latitude in how they formulate and manage their programs.

The Commonwealth is a partner with joint responsibility but little real control over the effectiveness and the efficiency of the programs. It is currently tiying to inject greater accountability into CSHA programs through performance monitoring.

Shared responsibility also affects incentives facing governments. The CSHA funding arrangements reduce the incentive to provide services at least cost. State governments do not receive any financial benefit from cost savings

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because they must match Commonwealth payments.1 Indeed, funding on the condition that the monies must be spent may provide a perverse incentive.

The CSHA schedules contain general statements of intended rather than measurable outcomes.1 2 Although CSHA expenditure can be attributed notionally, say as the number of houses built, it is not possible to judge how well the money is being spent or how well the needs of people are being met.

For example, as discussed in Chapter 6, present rent-setting policies do not ensure that those most in need receive the greatest benefit.

The lack of clearly defined objectives under the CSHA weakens the incentive to make decisions transparent. Even if there is a will to promote performance monitoring, the absence of outcome orientated objectives would constrain its effectiveness. The reforms which the Commission has proposed in Chapter 6

are aimed, in part, at improving transparency.

8.3 Should current arrangem ents be changed?

Even small improvements in performance could bring significant gains since expenditures on public housing are in the order of $2.5 billion annually and public housing assets are estimated by the Commission to be worth at least $31 billion. In the Commission's view the difficulty in quantifying these gains

does not justify preservation of the status quo. Options for change should be identified and debated.

Many participants objected to any change in the CSHA that lessened the Commonwealth’s role. A common view of the Commonwealth’s role is to ‘keep the States honest’ because without a strong Commonwealth involvement the States would reduce their funding support for public housing. Joint responsibility is also seen as insurance against ‘aberrant’ decisions by

governments that, as a matter of ideology, might reduce the level of housing support.

These arguments can be questioned on several grounds. First, the States are already in a position to reduce their level of support by running down the public housing asset, irrespective of the matching payments required by the CSHA. Second the States, with their responsibility for housing and development

policies, are well placed to make housing policy judgements. Indeed, with housing costs varying widely across the country', States may be in a better

1 They benefit by being able to provide higher levels o f service.

2 For true accountability, outcomes should be expressed in terms o f the number o f people to be assisted, the standard o f housing considered to be appropriate and where it is to be located, and so on.

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position than the Commonwealth to balance housing with other social priorities such as infrastructure to support economic growth, education and health. Finally, historical outcomes lend support to the view that the States are not always committed to public housing, but this may be the effect of objectives or inappropriate incentives created by the CSHA. If this is the case, governments should review their objectives and the CSHA arrangements should be changed.

Another argument is that change would destabilise arrangements that are mutually acceptable. This ignores the possibility of better outcomes. Indeed the NSW Government supports the Commission’s concern that the focus of the CSHA be changed from building housing stock to providing appropriate shelter for the maximum number of people in need (sub. 354).

8.4 Which level of governm ent should deliver housing a ssista n c e ?

One of the considerations of the functional review of housing programs conducted for the 1990 special Premiers' Conference was the level of government that should have responsibility for housing assistance. At the time of the review, there was already agreement by all levels of government that there should be a reduction in tied grants as a proportion of total

Commonwealth payments to the States.

The four options for change were (DHHCS 1991a):

• States solely responsible through absorption of Commonwealth funding into general purpose payments;

• Shared responsibility through an enhanced CSHA;

• Shared responsibility through broad banding that eliminated the specific purpose funding; and

• Allocation of sole responsibility to the Commonwealth.

The review concluded that State and local governments are the appropriate level of government for the delivery of housing services, but it was not resolved which of the first three options was most appropriate.

Housing Ministers agreed that a basis for co-operation between the States and the Commonwealth in housing policy will have to be developed, and that the role of the States in delivery of housing services should be strengthened.

State government ownership of the public housing stock is reason alone to support this finding. Another compelling reason is State and local government

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responsibility for the regulation of building, land use and regional development, all of which have a significant bearing on housing costs.

8.5 Com m onwealth housing interests

Given that States should deliver housing assistance, what is the

Commonwealth’s role? Is it possible to clearly separate responsibilities? Should the Commonwealth continue to be a party to inter-governmental arrangements on housing and, if so, in what capacity?

The Commonwealth Government does not have a constitutional role in housing provision, except to fulfil its responsibilities under international treaties through the indirect route of the external affairs power. However, one area of Commonwealth interest in public housing flows from its responsibility for

income support.

Other Commonwealth interests stem from concern to:

• Safeguard against an increase in the level of welfare support required if housing is not provided efficiently and effectively;

• Ensure that public housing assets, to which the Commonwealth has made a considerable contribution, are used for the intended purpose of providing rental accommodation for people with low incomes; and

• Ensure equitable access to low-cost housing that is appropriate to the needs of households across the country.

8.6 Separating resp onsib ilities

Where different levels of government are involved in the provision of housing there should be a clear delineation of their respective roles.

A Commonwealth role recognised in the Commonwealth Constitution is social welfare benefits and pensions. The States have legislative responsibility for land, housing and urban development.

The Commonwealth’s interest in housing would be clearer and transparency increased if it were confined to income support and the provision of incentives to the States to meet specific objectives in providing housing assistance. Under this scenario:

• The Commonwealth would administer income support policy;

• States would have responsibility for public housing; and

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• From 1995, the CSHA could be replaced in part by bilateral agreements consistent with the new regime of responsibility.

A number of participants argued that the demarcation of responsibilities is clouded by the link between affordability and appropriateness. Despite this linkage, the proposed division of responsibility provides a basis from which objectives can be operationalised. The Commonwealth would have to justify its actions in terms of its income support and other housing responsibilities. The States would be responsible for ensuring that all their citizens are appropriately and affordably housed. Where it is in the interest of each level of government to jointly support public housing, outcomes for each flowing from negotiated bilateral arrangements can still be assessed against their separate objectives. What has to be determined is the extent to which governments utilise opportunities for mutually advantageous collaboration.

In keeping with its income support role, it is proposed that the Commonwealth make payments to the States equivalent to the sum of the rent assistance that each public tenant would receive if in private rental. This would presently amount to approximately $550 million.

State governments would assume full responsibility for housing allocation, rent setting, security of tenure and appropriateness policies. Consequently, the level of overall support for public housing would be determined independently by each State but subject to bilateral agreements with the Commonwealth with respect to support payments. This should encourage more efficient service delivery because any savings would reduce the State funding requirement. It

should also promote better integration of housing assistance with land use and regional development policies.

There would be no need for national agreement on the matters for which States are responsible. However, this would not preclude agreement on matters where there is mutual benefit to be gained. For example, States may wish to adopt a similar level of support to prevent people ‘shopping around’ for assistance.

The payment equivalent to rent assistance would be the sum of the payments for each public tenant. It would be provided for each eligible household, although an appropriate sampling method could be used to determine the overall payment. It should be assumed that the tenant pays the market rent for the purpose of calculating the level of assistance.

For administrative ease, rather than paying rent assistance directly to tenants, an amount equivalent to the rent assistance payment could be passed to the relevant tenancy manager (see Chapter 6 for the role of the tenancy manager). This would be a payment distinct from Department of Social Security (DSS) rent

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assistance paid to recipients to avoid conflict with the Social Security Act, which presently only allows for voluntary transfers from clients.

The States would be free to adjust the level of their housing stock. Although some States may face financial pressures to reduce the level of their support for public housing, they would also be subject to pressures from welfare groups that, with improved transparency, could readily identify the real level of

support. More importantly the Commonwealth could provide incentives to maintain or expand public housing as set out in Section 8.7.

Fiscal neutrality for the Commonwealth could be preserved by reducing current Commonwealth CSHA payments by the amount needed to fund the rent assistance payment. This would be a notional adjustment and have no net effect on the current flow of funds for public housing. States would continue to be responsible for principal and interest payments on debt to the Commonwealth.

The overall flow of funds to the States would only be preserved if the balance of current CSHA payments continue to be transferred, either as specific purpose payment for housing or general purpose financial assistance grants. States indicated that they could not support the proposed changes if they were to be worse off financially.

8.7 Ongoing C om m onwealth support for public housing

There are financial gains to the Commonwealth from State public housing provision. Consequently, it is in the Commonwealth’s interest to provide support payments to the States in addition to the proposed rent assistance payment for subsidising public housing tenants.

The continuing involvement of the Commonwealth in the support of public and community housing is consistent with its responsibility for income support. Public housing can be used to provide support in addition to capped rent assistance where housing costs are high.

The Commonwealth would need to take into account the circumstances of the people in public housing in each State when determining the size and distribution of the support payment. Factors influencing the decision about the degree of support for public housing that fulfils the Commonwealth’s

responsibilities are:

• public housing is the most cost-effective way of ensuring housing is appropriate and affordable;

• rent assistance is an important means of targeting short-term income support to those renting in the private rental market;

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• rent assistance is a blunt instrument because the constitutional restrictions militate against it being varied across the country to take account of differences in housing costs;

• rent assistance does not guarantee that people, including children and members of groups discriminated against in the private rental market, are appropriately and affordably housed;

• public housing, as a supply response, can be targeted to those who are in long-term need of assistance; and,

• the provision of public housing assists both public and private tenants where there is inadequate supply of low-cost rental properties.

In deciding on the degree of support it should provide for public housing, the Commonwealth has to pay particular attention to the overall supply of low-cost rental accommodation. Without adequate public supply, rents could be expected to rise because private supply is unlikely to be responsive to price, especially in the short-term (see Appendix C for a discussion of the residual nature of the private rental market and its supply responsiveness). Low-income people would bear the cost. After-housing poverty would rise. Overcrowding would increase to the detriment of health. Social problems could arise at a cost to the community generally where, for example, children are unable to fully realise their potential.

Without an adequate supply of public housing, the Commonwealth would be faced with increasing outlays on income support. The additional assistance would not be targeted as effectively, resulting in higher overall program cost — and people would not necessarily be appropriately housed. Any attempt to ensure that people are housed appropriately, say through an effective voucher system, would increase costs further (see Appendix E).

The benefits flowing from public housing provision are:

• the increase in affordability attained both in private and public rental;

• the incremental improvement in housing standards in both public and private rental (up to the level that the Commonwealth regarded as appropriate); and,

• any other social justice objectives achieved (in addition to those flowing from the Commonwealth’s income support role).

The support payments to the States in addition to the proposed rent assistance payment would be in support of both existing public and community housing tenants and those to be housed by an expansion of the stock. The payment could be conditional on appropriately housing an agreed number of households. If appropriate, capital could be provided for expansion of the stock on condition

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of matching support and retention of stock numbers. The payment would not discriminate against those who rent in the private market because those tenants are able to apply for State public housing if eligible.

The support payment should be paid only if people were housed. It would provide effective leverage because State governments would be under pressure to house all the people for whom a support payment was available.

The flow of Commonwealth and State funds under the proposed arrangements is shown in Figure 8.1. Initially, the sum of the equivalent rent assistance and support payments could be notionally set at an amount equal to the current Commonwealth funding. This would allow the separation of government responsibilities to be recognised before the current CSHA funding agreement

expires.

Figure 8.1: Commonwealth and State housing assistance payments

Commonwealth support p a y m e n t/

X a|State subsidy Return on capital , and dividends ν'

/ Rent ’ '

assistance

M arket rent

Rent assistance

Affordable rent payment

Public tenant Private tenant

Property manager

State treasury

Commonwealth

Housing assistance provider (Tenancy manager)

Source: Industry Commission

The essence of the current inter-governmental accord formalised in the CSHA would be unaffected. Financial flows to the States would be unaltered for the life of the present funding agreement. Outcomes consistent with the present operation of the CSHA could be maintained without any change to the level of

services received by public and community housing tenants.

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The size of the support payment for individual households could be pegged to some proportion of the subsidy that each State accords to them. This is likely to be compatible with the Commonwealth’s interest as the subsidy reflects need.

States may be reluctant to house tenants that require larger State contributions to rent rebates. Therefore, the support payment should be arranged so that as far as possible the residual State subsidy is the same for all tenants irrespective of their income.

The size of the support payment for those housed by an expansion of the public housing stock should reflect any increase in housing cost. It would be a sharing of the additional cost burden of expansion. However, there should be allowance for the capital gain on existing stock, realised by the State each time a house is sold.

The Commonwealth would negotiate with each State to determine the size of the support payments. Because the payments would be determined by need, funding relativities could differ significantly from the current per capita Commonwealth funding under the CSHA. Negotiations would have regard to differences in housing costs, the additional costs in housing people with disabilities and the number of people in various categories in need.

As a safeguard against sovereign risk and to ensure gradual and planned adjustment to any changes in funding, the resulting agreement would need to extend over a number of years. The three year period applying to the current CSHA is an appropriate benchmark.

The Commonwealth and State payments, by income level, under the proposed arrangements after the change of responsibility had been fully implemented are illustrated in Figure 8.2.

The proposed support payment would be in the nature of a contractual transaction, not inter-governmental finance. It should be seen as a payment for a service, where the States are acting as agents. Nevertheless, it could be treated as a specific purpose payment from the Commonwealth.

The Commonwealth Grants Commission (CGC) has advised that it is unable to make a firm decision on the treatment that would be accorded the proposed payments. Its preliminary view is that the rent assistance equivalent payment would not be taken into account (treated by the deduction approach) in determining general revenue grant relativities. The CGC tentative view is that it is unlikely that the support payment would be regarded as a reimbursement to the States for service. Therefore, it could potentially affect general revenue grant relativities (being treated by the inclusion method). If the payments were taken into account they may have little impact on relativities because they

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would be determined on a needs basis that reflected cost disabilities, amongst other things.

Figure 8.2: Housing assistance and rent contributions when proposed arrangements are fully implemented Dollars

Benchmark market rent

__ Public tenant contribution

" S ta te housing assistance

— Commonwealth support payment

Commonwealth rent assistance

Household income

Source: Industry Commission

The Western Australian Treasury submitted that:

In the case o f housing, the Grants Commission should assess, against its standard policy benchmark, the expenditure required in each State (whether financed by the State or the Commonwealth) for both public housing and rental assistance for private tenants. The difference between these “standardised expenditures” and the Commonwealth's actual

payments to each State (ie comprising CSHA payments and direct payments by the Departments o f Social Security and Veterans’ Affairs) would be compared with the corresponding national p e r capita average difference to determine the contribution o f the housing function to each State’s general revenue grant.

This method o f including Commonwealth outlays in the Grants Commission’s assessments is termed the “inclusion approach” by the Grants Commission, and is described in the Commission's 1993 Report on General Revenue Grant Relativities (Vol. 11, p. 202).

By including Commonwealth outlays in the Grants Commission’s housing assessments, incentives for States to shift costs onto the Commonwealth are eliminated without the need for the Commonwealth to provide specific purpose housing payments to the States. States which opt for a small public housing sector will receive a lower general revenue

grant (because the general revenue grant will be reduced by the large Commonwealth

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subsidy for private tenants), and similarly, States which opt for a large public housing sector will receive a larger general revenue grant (sub. 369, p. 2)

The Commission could not assess the efficiency of the suggested approach. However, the CGC would have to be directed by the Commonwealth Government to include the specific purpose payments provided to meet a Commonwealth responsibility — DSS and DVA rent assistance — as these are normally excluded from the determination of financial assistance to the States.

8.8 The strategy for reform

The right mix of assistance measures depends on their cost-effectiveness and how well they can be targeted, their equity in delivery and their affect on efficiency through the incentives they create.

Having decided to assist people with housing, or a combination of assistance measures including housing, governments must resolve whether to intervene on the supply-side or on the demand-side through housing vouchers or rent rebates. The right mix of measures depends on market responses and the cost-effective achievement of objectives such as ensuring that people can access appropriate housing both in the short- and the long-term and are not subject to

discrimination.

People can be assisted through a number of tenures in a supply-side response. The options are public housing, community housing and headleasing from the private sector. The right tenure depends on people’s particular needs and the most cost-effective way of providing a house having regard to supply conditions.

Governments are currently taking decisions with only limited information as to the cost of housing assistance. The capital grants used to fund public and community housing are a poor indication of the cost of assistance. The cost of

capital is better measured by the opportunity cost of the stock rather than the size of annual injections. States also have latitude to use funds in support of programs other than public housing.

Commonwealth funding for public housing is currently disbursed on a per capita basis with no requirement for the States to report on how effectively the assistance is provided. It is unlikely that the number of people in need and level of assistance required is directly related to population. The inequities in the levels of assistance provided to those in public housing and the many Australians who remain in housing stress indicate that the assistance is not well targeted.

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If housing assistance is to be delivered efficiently, governments must be better infonned as to who is benefiting, the level of benefit and the cost to those in need of assistance but not presently targeted. The NSW Government supported this view. However, such an assessment in itself will not reveal the appropriate mix of assistance measures because the effectiveness of each form of assistance

is currently unknown. The need is for policies that will allow the right level and mix of assistance measures to emerge. It is a matter of first getting the framework right.

The reforms proposed for public housing (see Chapters 6) would help provide the necessary information, but they will take time to implement. Stock adjustments will have to be made in the face of limited opportunities to buy and sell property. Precipitous action could disadvantage people or increase the cost

to government of assistance. A long-term strategy is therefore required.

Greater emphasis on recurrent funding is central to the proposed strategy. It would assist transparency and provide a direct basis for measuring the cost of the assistance. Furthermore, given that most people now entering public and community housing will receive rent rebates, funding recurrent subsidies is

more directly linked to the achievement of outcomes than providing infrastructure. It enables the funding effort to be measured against the need for assistance by people whose housing options are constrained by their circumstances.

This strategy assumes that governments have a long-term commitment to assisting people. If this is so, a change in emphasis from capital to recurrent funding is unlikely to reduce support. Indeed it is likely to lead to increased support if the current level of assistance is being sustained by an erosion of the

asset because funding is too low to sustain the current level of capital investment. Moreover, reform necessitates an ongoing commitment by governments and agreement on financial arrangements that extend over a number of years, just as they do now under the CSHA.

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Recent years have seen the introduction of a range of new housing models managed by tenants, community and religious bodies, local governments and the housing authorities. Much of the impetus has come from community and local government housing assistance programs, begun in the early 1980s, which

provided financial assistance for the purchase, construction and upgrading of dwellings for low-cost rental housing, including boarding houses and hostels.

The reforms described in this chapter are part of an overall package aimed at improving the effectiveness, efficiency and equity of housing assistance. In order to understand what is proposed, readers should first read Chapter 6.

9.1 Government program s

The Community Housing Program (CHP), introduced in 1992-93 by the Commonwealth Government, builds on the small but growing community housing movement. The new program is funded by tied grants under the Commonwealth-State Housing Agreement (CSHA).

Community housing can be an important part of the armoury of housing assistance. It adds to housing choice, and for those who are able to participate in self-help arrangements, there are opportunities to develop social and work- related skills. It provides opportunities to harness resources, such as capital

provided by others, through shared equity arrangements and to reduce the cost of housing assistance to governments.

Commonwealth CHP funds are allocated on a per capita basis with a minimum of $400 000 for each State.1 Funding is guaranteed to 1995-96 — $52 million in 1993-94, $57 million in 1994-95 and $64 million in 1995-96.

Not all funding is through the CHP under the CSHA. For example, the Victorian Rental Housing Program uses untied funds. Some housing is provided under the Aboriginal Rental Housing Program which is a tied program. The New South Wales Community Tenancy Scheme is funded under the

Mortgage and Rent Assistance Program (MRAP).1 2 Also, much of the housing

1 CHP does not require matching funds from the States (unlike, for instance, the Mortgage and Rent Assistance Program).

2 That program provides interim, affordable community managed rental housing for low- income households usually through headleasing arrangements with private sector landlords. More details are presented in Chapter 7 and Appendix K.

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provided under the Crisis Accommodation and the Supported Accommodation Assistance Programs could be regarded as community housing which is being directed to people with particular housing needs (see Chapter 10).

Some States support community housing projects funded outside the ambit of the CSHA. For example, Queensland’s Community Housing Partnership, which requires applicant organisations to provide land plus 10 per cent of purchase or construction costs, is funded from the Auctioneers and Agents

Fund.

Appendix L gives greater detail on community housing programs.

Community housing usually involves sponsorship. The sponsor(s) can be another government agency, a local government, a charity or other non-profit organisation. The sponsor may provide capital, services (including support services), materials, labour, tenancy management or take responsibility for maintenance. The scheme must be legally incorporated with sound accounting procedures and management structures.

The contributions which tenants and the sponsor make in the management, ownership and operation of community housing vary greatly. Schemes range from those with little participation from the tenants and with little contributed in the form of equity or services from the sponsor, to schemes with a high level of involvement by either or both.

There are currently about 15 000 community (including co-operative) houses, excluding community houses provided to Aboriginal and Torres Strait Islander communities under the Aboriginal Rental Housing Program and the Community Housing and Infrastructure Program. Inquiry participants sought increased government support in this area, but there was also concern that the support might come at the expense of public housing.

9.2 Aims and achievem ents

The over-riding objective of the CHP is to develop a viable community housing sector whilst also providing legal, technical and management infrastructure to support its expansion. Funds are therefore used mostly for capital purposes, but they can also be used to promote community housing. They cannot be used to meet the administrative costs of the program.

Housing assistance under the program is available to low- and moderate-income people. The sponsoring organisation has the right to choose all the tenants so long as the proportion of tenants who are eligible for public housing is commensurate with the CHP contribution.

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One intention is to promote linkages with support services and encourage the integration of community housing with public housing programs. This accords well with the thrust of the Commission’s proposals aimed at developing a more holistic approach to the delivery of housing assistance to people in crisis and those with special housing needs (see Chapters 6 and 10).

Advantages

Community housing potentially offers benefits not usually obtained from public housing.

Benefits to tenants

Community housing increases the range of housing choices available to those on low incomes or with special housing needs. However, under some forms of community housing, selectivity is practiced which raises questions of equity.

Other benefits suggested by participants relate to the scope for individuals to improve their lives and life prospects, through their involvement in management. Involvement was said to bring feelings of security, provide opportunities to develop self-reliance, and lead to the acquisition of social and

work-related skills. In the longer-term, those assisted may enjoy better prospects and need less assistance (than they would otherwise require).

Compared with public housing the tenure offers similar levels of affordability. Security of tenure can be similar, although this depends on the scheme. Appropriateness may not be addressed to the same extent. For example, because fewer dwellings are available in a scheme there may be fewer options

for tenants when their circumstances change. Another potential difference is accessibility.

Benefits to governments

Community housing brings savings to government by harnessing additional resources from the wider community. For example, contributions to capital and in-kind resources, such as donations of land and materials, can assist governments to expand housing assistance. In supported and other

accommodation, economies of scope may lower the cost of providing services.3

In assessing the benefits to government, ownership of the asset can be important. Public housing is owned by the State whereas in many forms of

3 Certain services can be produced or distributed together more economically. Economies o f scope arise whenever average costs arc lowered by producing (or distributing) more than one good or service together.

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community housing, a sponsor may own the property or share ownership with the government. As argued in Chapter 5 and Appendix E, the government gains extra benefit from ownership. This benefit takes the form of profits that arise when governments intervene in the market and the higher than normal returns that sometimes flow to land and property owners. Where there is no government ownership of community housing stock, or ownership is shared, the government benefit is smaller.

Problems raised by participants

Many inquiry participants were concerned with the effectiveness of community housing, citing numerous contributing problems (see Appendices A and L).

Funding and support

The Australian Local Government Association complained of unnecessary delays in receiving project approvals, funding agreements and other critical documents from State departments (sub. 102). The Western Australian Municipal Association (sub. 38) was critical of unwieldy administrative overheads and bureaucratic handling procedures requiring approvals from all three spheres of government.4

Other changes introduced under CHP are in response to difficulties in promoting the tenure. Partridge pointed to the need for governments to increase their commitment in this area, particularly in the light of the limited experience of the voluntary sector (sub. 143, p. 1):

... transfer to the community o f significant management responsibilities and expectations o f accountability can not be achieved without a very dramatic rise in commitment by government to a systematic program o f community management training and management support services.

Current levels of funding mean that schemes in Australia are generally small compared to those overseas. The average size of co-operatives is about 17 dwellings compared to 34 in Canada. In Denmark the average size of community housing projects is about 700 houses. It seems that within Australia most programs have yet to reach an efficient scale. However, sometimes a number of schemes come together to obtain the benefits of bulk purchasing, for example, insurance.

4 The NSW Ombudsman (1993, Summary, pp. I— II) recently reported to the NSW Parliament that the Department o f Housing had failed to establish efficient management procedures. The Ombudsman reported that ‘a mystifying bureaucratic maze has obstructed the approval and funding o f projects, in some cases for years’.

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On the other hand, concern was expressed about the capacity of current schemes to take advantage of any economies of scale. The Sunshine Coast Regional Housing Council (sub. 107, p. 7) claimed ‘the numbers of houses to be managed in order for economies of scale to operate can be beyond the capacity of community groups’.

Some participants regarded the income mix of tenants to be important. In the Commission’s view this is not important for economic viability because it is unlikely that tenants with higher incomes will contribute more than a market rate of rent to subsidise tenants on lower incomes. That said, the level of government and sponsor support must be higher where a scheme has a large

number of people with low incomes.

Accountability

The Australian Local Government Association (sub. 102), the Federation of Housing Collectives Resource (sub. 43) and other participants referred to the need for improved accountability and monitoring. Despite being incorporated, not all of the 2200 fund recipients under the earlier Local Government and

Community Housing Program (LGACHP) were audited. Greater accountability is proposed under the CHP:

The Victorian Government submitted (sub. 159) that accountability, monitoring and co-ordination are preconditions to improved efficiency and effectiveness in the provision and management of community housing. It proposed regular evaluation of community housing performance.

Partridge (sub. 143, p. 3) attributed past frustration and diminishing support for the tenure to circumstances where ‘the State housing authority manager has very minimal control over the selection or dismissal of community housing staff or management committees’. Where community-based housing managers set goals

in conflict with those of the State housing authority, a mechanism to resolve the dispute is required. Difficulties also arise for the State housing authority executive where goals are agreed to but not met.

Partridge suggested that ‘a genuine partnership of trust and mutual respect between State housing authority and community expressed through negotiation of strategic plans’ is required. He also noted the need to avoid housing authorities responding ‘to signs of conflict and poor management with structural

controls which incorporate community housing organisations more tightly into the authority system of the bureaucracy’ (sub. 143, p. 3). This control would be contrary to the empowerment goal of community housing.

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Legal instruments

The need for enabling legislation was raised by many participants. They are concerned about tenancy arrangements and an appropriate means of securing community housing title. Title to CHP properties is to be normally held by the sponsoring organisation(s) with the State housing authority acquiring security commensurate with the level of its equity. Title is secured by means of an appropriate legal instrument, legally binding and enforceable.

Associated with the issue of title is resolution of how ‘sweat equity’ contributions to management and maintenance are to be recognised.

A number o f participants considered that dispute resolution procedures are deficient (some communities have difficulty in coping with or evicting violent people). The handling of rent arrears is also an issue.

Continuing disputes may lead to dysfunction and possible break-down of a community. An important goal of community housing is tenant participation. This means that a considerable level of co-operation and compatibility between tenants is required. To assist in this, there is a need for mediation and dispute resolution training and support.

Performance

One of the objectives of LG AC HP was to attract supplementary resources from the States and the rest of the community. However, these resources have not always been forthcoming. Capital funding has been provided in some cases without State and community sponsorship. Frequently, sponsors’ resources have been put to recurrent costs.

Randolph (sub. 216, p. 33) submitted that ‘stimulating diversity, militates against cohesion and the development of common approaches to best practice’. He argued that:

• Australian community housing is highly fragmented both within and between States;

• The sector is supported by multiple funding programs (with relatively little co-ordination of activity between programs);

• There is a lack of standardisation in procedures and a poorly developed legal and legislative framework; and

• There is limited professional expertise (sub. 216, pp. 32-33).

The performance of States in successfully promoting community housing is partly illustrated by the extent to which funds have been carried over from one financial year to the next (see Appendix L, Table L.3). The figures seem to

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confirm participants’ comments that Victoria and Queensland have been successful in providing community housing, while New South Wales and Western Australia have not.

The new CHP is intended to redress many of these problems — but it will be some time before the effectiveness of program improvements can be assessed.

9.3 A ssistin g people through comm unity housing

People eligible for public housing should have the option of joining a community housing scheme. This would increase the housing options and thereby increase the effectiveness of housing assistance. It would enhance the satisfaction of people receiving the assistance.

Governments should invest in community housing on the basis of its merits as a low-cost tenure and an alternative to public housing. Support for the tenure (that is, investment in and promotion of the tenure) should be clearly distinguished from housing assistance for low-income people (see

Recommendation 10).

The assistance provided to people who are eligible for public housing but choose to be housed in a community scheme should be similar to that provided in public housing. Public and community housing tenants should be assisted equitably; they should meet the same eligibility criteria, generally wait for the

same time and pay similar rents (see Recommendation 11).

State housing assistance for people

Under the Commission’s proposals, State housing assistance (incorporating equivalent Commonwealth rent assistance and support payments as proposed in Chapter 8) would be made available to eligible people in community housing as a recurrent subsidy and not through capital grants.

People would become eligible for housing assistance by joining the public housing waiting list. On joining they would be asked to give an indication of the general area in which they wish to live and whether they would be prepared

to join a community housing scheme. If a suitable scheme is available and attractive to the household seeking assistance, they could approach the scheme managers and join if mutually acceptable.5 Failure to enter the scheme would not jeopardise the recipient’s right to be assisted in public housing.

5 This is not to say that all community housing tenants must be eligible for public housing — only those who receive assistance.

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The level of assistance for those choosing to join a community housing scheme would be the same or similar to that received in public housing, depending on the extent of government ownership of the community housing:

• Where ownership is entirely with the government, the tenant would receive the same overall level of assistance as public tenants in comparable circumstances in the region;

• Where a sponsor holds all the equity in the housing stock, the tenant would receive State housing assistance equal to that of public tenants in comparable circumstances in the region less an amount equivalent to the loss of benefit (to the government) from not owning the stock;6 and

• Where government has some intermediate level of equity, the level of State housing assistance would be determined by negotiation between the tenancy manager and the community housing group. The negotiations would have regard to the level of risk borne by government and the agreement on how many people eligible for public housing are to be housed.7

People on low incomes not eligible for housing assistance and people who join a community housing scheme, without reaching the top of a housing authority waiting list would receive Commonwealth rent assistance if eligible. In determining their eligibility any subsidy funded by the sponsoring body should be counted as part of the rent paid by the tenant. This should give the

opportunity for differing levels of subsidies or rebates and a wider mix of tenants. The community housing organisations should be entitled to have a proportion of tenants who receive no subsidy at all.

The tenant’s contribution would be determined by the community housing group. Any difference in the level of rent paid by assisted members of a community housing scheme relative to public housing tenants in similar circumstances, would reflect the savings derived from capital and ‘in-kind’ contributions by the sponsor and tenants. For example, if tenants or sponsors are able to reduce housing costs by their own efforts, they would be compensated directly by reduced rent contributions.

6 By this means, the effective housing assistance (market rent subsidy less the average amount o f any dividends accruing to the government because o f above normal rates o f return on property) would be held the same.

7 The amount o f State assistance would fall between that provided where the government fully owns and has no equity in the housing stock. It is unlikely that governments would find it worthwhile to enter into joint ownership unless some minimum level o f equity were forthcoming to off-set the transaction costs involved.

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The relationship between assisted community housing tenants and the sponsor would not be of direct concern to the tenancy manager. The community group would be responsible for tenancy management and making good any damage for which its tenants would normally be responsible.

The owner with the major equity share would normally be responsible for maintenance, however this would not preclude tenants contributing on an agreed basis. The agreement should be between the owners of the asset and the tenants — not the public tenancy manager.

With housing assistance provided only to people who are eligible for public housing, community housing would not be expanded at the expense of general public housing. Indeed, the community at large would benefit to the extent of tenancy management and other savings.

Promotion of community housing

Governments contribute in a number of ways to promote community housing. Two forms of ‘facilitation’ should be distinguished.

Training and community group formation

The purpose of facilitation should be primarily to assist the members of community housing schemes to develop skills so that they may be able to take a greater role in management and maintenance of the property. It is likely that the relatively small cost can be justified on the skills obtained, particularly if it can

be shown that they reduce the time people need housing assistance.

Capital support

The advantages of community housing relative to public housing are unproven in the Australian context. However, the tenure adds to choice, offers opportunities for tenants to benefit from their own efforts and has the potential to attract additional resources into housing.

Under the proposed arrangements there is no need to invest in the tenure as an indirect means of assisting certain groups — people will be assisted through direct subsidies. Under these circumstances any capital investment would be a specific payment for the purpose of expanding the tenure. Accordingly, the housing assistance component of the CHP capital funds that is provided to

house low-income people should be converted into funds for that purpose. Consistent with the general principle of broad-banding, the monies would be transferred to the pool available to fund public and community housing.

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Some of the Commonwealth funding for community housing would be incorporated into the public housing support payment. These funds could be used for capital or recurrent purposes, but both the Commonwealth and the State housing policy unit would be entitled to impose conditions specifying the minimum amount to be spent for capital purposes in community housing. State funding would be incorporated into the State housing assistance payment.

Where governments sponsor the tenure through capital investment, they should set out to achieve a normal rate of return, as for public housing. This is feasible under the proposed arrangements. The reason is that the tenant rent

contribution and the housing assistance payment (which together equal the market rent for appropriate housing in the area) should cover all costs. However, some government support may be required for privately sponsored schemes, particularly if they are small and do not have the pooling and hedging advantages (economies of massed resources) of a large owner of stock, such as the property manager.

An agency other than the public housing tenancy manager should have responsibility for managing the sponsorship of the tenure with capital support. This would avoid any potential for conflict of interest, particularly if governments wish to sponsor the tenure to provide housing for people not

eligible for public housing. The agency responsible for housing assistance (tenancy manager) would be in the best position to monitor demand and assess the advantages of the tenure for people who are eligible for public housing. Therefore there should be close co-operation between the public housing tenancy manager and the agency sponsoring community housing.

Where private sponsors bring capital and other resources to the scheme without requiring a full return on them, they could assist governments to house more people. The most direct way for a sponsor, such as a charitable organisation, to do this is to accept lower levels of assistance for the people they house. The level of assistance provided for tenants would be determined by negotiation.

By requiring less assistance for people who are eligible for public housing, sponsors would reduce public housing waiting times and extend housing assistance to people who might have to wait longer because they have special housing needs. This would encourage governments to invest in community housing as a lower-cost alternative to public housing.

Aboriginal housing corporations are prominent in the provision of community housing. The reforms proposed in this chapter are therefore relevant to the housing needs of indigenous people. The adaptation of community housing to meet the particular needs of Aboriginal and Tones Strait Islander people are

covered in Chapter 11.

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9.4 Benefits of the proposed reforms

The proposal to place emphasis upon recurrent subsidies has a number of advantages. First, there is greater transparency and accountability. The effectiveness of the subsidy in terms of outcomes is readily apparent and the cost is explicit. Second, general assistance subsidies are more flexible than

specific purpose capital grants for the tenure. Assistance should be applied at any time in the way that achieves the maximum benefit for the recipients and ensures that those most in need are assisted first — capital grants do not readily provide for changes in assistance needs. Third, the subsidisation of tenants up to a market rent would cover variations in housing costs.

By equating the level of assistance to that in public housing, the tenancy manager will be indifferent about where people are placed. Under these circumstances, sponsorship of community housing as an alternative tenure for people who are eligible for public housing will be influenced by any advantages

over public housing.

The funding arrangements mean that eligible tenants will find it easier to find places in privately sponsored community housing schemes. This is because they will carry with them the housing assistance needed to meet all their community housing costs. People will have greater choice and this will

improve the effectiveness of assistance.

The Commission’s proposed reforms would see housing assistance provided for people who currently have difficulty accessing public housing. One such group is South Sea Islanders. The Human Rights and Equal Opportunity Commission (HREOC) (1993, p. 3) noted that the 15 000 to 20 000 descendants of the

indentured labourers brought to Australia last century:

...are a discrete ethnic and cultural group. ... Their culture was shaped by their treatment during the indentured labour period and the difficult early years o f this century.

The rate of home ownership of South Sea Islanders is less than that of any other significant migrant group. The HREOC (1993, p. 40) said ‘even the newly arrived Vietnamese, Pacific Islander and Chilean communities had higher home ownership levels’.

Hitherto many South Sea Islanders have been housed under the AHRP but they have been told they can no longer access this housing as a South Sea Islander. Existing South Sea Islander tenants have been advised informally that they will not be evicted from their AHRP homes. However, this makes their security of

tenure very uncertain (sub. 289, p. 3). South Sea Islanders said ‘more control of housing by our people is a very important way in which our people can achieve self-management; self-determination and empowerment’ (sub. 289, p. 2).

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Community housing sponsored by the Commonwealth or Queensland Governments is probably the best way to achieve this. The sponsors would have to supply funds (grants or low-interest loans) for the acquisition of dwellings, as well as training in management.

Separate funding for the promotion of community housing would address the problems described in Section 9.2. It would help to clarify objectives and simplify decision making on support for community housing. The benefits offered by the tenure as an alternative to public housing (largely financial cost savings) would be easier to identify and the level of support would be independent of the incomes of the people to be housed under the scheme.

Scale economies within community housing seem unlikely in Australia in the near future. Nevertheless the proposed reforms would broaden rather than narrow community housing. Levels of support, although funded differently should be maintained and if the tenure has merit as an alternative to public housing, it would attract additional support.

The Commission’s proposals would provide greater flexibility in terms of who is housed. People would receive housing assistance according to their circumstances and so those who are eligible for public housing could be included in a community housing scheme along with people with moderate incomes who do not receive assistance. There would be scope to vary the mix of tenants over time without affecting the viability of the scheme. Greater flexibility would make it possible to attract greater numbers of people and perhaps reap any scale economies.

The proposals would provide scope for better asset management. Under the current arrangements there is often an assumption that the cost of maintenance can be met by the contributions which community housing tenants make through their rent payments. The reality is that even the State housing authorities have difficulty in meeting recurrent costs with rent revenues (see Chapter 3). This problem would be addressed under the proposed reforms.

The proposed arrangements would enhance transparency and accountability. Promotion of community housing would be funded separately from housing assistance for low-income people housed in the tenure. The reforms may overcome some of the current problems with legal instruments by simplifying

the relationship between the government supporting the scheme and the sponsor (possibly another government agency).

The proposals provide for community housing to be treated on an equal footing with other tenures for people receiving housing assistance. If the tenure is cheaper in the long run, as claimed by proponents, support will flow from the government. If people also prefer it, the tenure will expand.

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E s p e c i a l l y in d i f f i c u l t t i m e s it is i m p o r t a n t t h a t th e r e q u i r e m e n t s o f t h e m o s t

n e e d y a n d th e l e a s t a r t i c u l a t e n o t b e l o s t i n t h e s e a o f d e m a n d s a r i s i n g f r o m

o t h e r s b e t t e r p l a c e d t o c a p t u r e p u b l i c a t t e n t i o n a n d th e p o l i t i c a l a g e n d a

( C o m m u n i t y a n d I n s t i t u t i o n a l P a r e n t s ’ A c t i o n o n I n t e l l e c t u a l D i s a b i l i t y ,

s u b . 1 6 4 , p . 2 ).

Many people have difficulty accessing appropriate and affordable housing. They include people with disabilities, some elderly people, young people, women and children escaping domestic violence and family breakdown, sole parents, Aboriginal and Torres Strait Islander people and migrants. The problems faced by these people in accessing support programs and public housing are discussed in Appendix M.

People who have difficulty accessing private and public rental accommodation often become homeless. They may then be in need of support assistance until they are accommodated and out of crisis. This is often the situation with women waiting property settlement and young people. Others may require

ongoing support assistance.

People who do not require support assistance may be eligible for housing assistance through public housing. However, those who cannot live independently do not generally qualify for public housing. Others may be eligible, but cannot be accommodated until there is appropriately modified accommodation. Governments provide support assistance to people who cannot live independently, and accommodation with support assistance to people who

are homeless.

The reforms described in this chapter are part of an overall package aimed at improving the effectiveness, efficiency and equity of housing assistance. In order to understand what is proposed, readers should first read Chapter 6, 8 and 9.

10.1 P eople w ho need housing and support a ssista n c e

People with disabilities on low incomes who do not own their own home and are unable to obtain public housing must rent privately or remain dependent upon family members. If they are not Department of Social Security (DSS) clients they may not be eligible for rent assistance. This often leads to financial

hardship, especially when the extra costs arising from a disability mean that people have less disposable income for rent and other necessities. In these

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circumstances, many people with disabilities must accept sub-standard or inappropriately designed accommodation which can compromise their health. Houses in the private and public rental markets, for example, normally do not have wheelchair access, ramps or handrails.

The policy of closing down institutions for people with disabilities has added significantly to the need for public housing. The National Inquiry into the Human Rights of People with Mental Illness (HREOC 1993, p. 386) reported that rooms in private boarding houses have become ‘a major form of accommodation for people with a psychiatric disability’ even though the living conditions are often sub-standard.

People with physical and intellectual disabilities, psychiatric or other mental health illnesses are often denied access to public housing unless they can guarantee accompanying support. The episodic nature of some disabilities and the need for periodic hospitalisation add to the problems which some people face in securing and maintaining accommodation.

The stress of having to deal with numerous government departments can deter people with disabilities from joining public housing waiting lists. Yet by addressing this problem, the community may forestall people ending up in crisis.

People with disabilities who live with parents frequently face housing stress when their parents can no longer care for them or are unable to provide financial support. If their accommodation needs are not properly co-ordinated and planned ahead by service providers, they can end up in hostels or crisis refuges. Singleton Equity Housing Limited made the point that these people

often require accommodation because their aged parent has died and they can no longer get the necessary housing and support:

The client becomes part o f a crisis program and fills a bed until some long term solution is developed. As the future needs o f people in this situation can be quite easily identified there seems to be no reason why better scheduling and planning cannot be undertaken (sub. 249, p. 4).

Even where adequate accommodation can be found, people with disabilities may have little choice of location or quality. The Community and Institutional Parents’ Action on Intellectual Disability said (sub. 236, p. 1) ‘the Intellectually Disabled should have the right to choose what sort of housing best meets their needs’ — this may include living in institutions, with parents, in group houses, cluster houses, villages or farms (transcript, p. 2478).

Not all people who become homeless gain access to crisis accommodation. Some remain homeless. The National Inquiry into Human Rights of People with Mental Illness (HREOC 1993, pp. 363-8) reported that Aboriginal people,

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young people, and women with children who have a mental illness and those with dual or multiple disabilities are particularly disadvantaged in accessing crisis accommodation.

Some elderly people face similar problems and have the same support and accommodation needs. They have difficulties in accessing appropriately designed and located private or public rental and once in crisis, they too may have difficulty in accessing programs.

Women escaping domestic violence can have difficulty finding refuges and shelters that accommodate children, in particular teenage boys. Homeless women interviewed by the Commission expressed concern not only about access to refuges and shelters, but also their ability to pay the rents demanded in private rental for appropriate accommodation, and the difficulties in accessing

public housing. Other issues of concern included discrimination, the lack of information on housing for people in crisis, and the stigma attached to being a homeless woman with children. Similar concerns were expressed by participants at public hearings and in submissions to the inquiry.

Homelessness amongst young people is exacerbated where young people, particularly young girls, are afraid to seek assistance at mixed refuges and shelters because their safety may be in jeopardy.

Changes to State legislation pertaining to State wards mean that young people who in the past may have been considered wards of the State, have a need to access housing and support programs. There is some confusion as to who is responsible for the care of homeless young people under 16 years of age. This

needs to be determined.

Young people in receipt of AUSTUDY and ABSTUDY who need to rent are not eligible for rent assistance. The provision of rent assistance would help alleviate homelessness amongst students and strengthen their prospects of continuing studies.

10.2 Available program s

Supported accommodation assistance programs

The main programs aimed at assisting those in crisis and in particular the homeless are:

• Emergency Relief;

• Youth Social Justice Strategy;

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• Supported Accommodation Assistance Program; and

• Crisis Accommodation Program.1

The Emergency Relief Program provides cash for food, electricity, gas or rental bills for individuals and families in times of financial crisis. Funds are provided directly by the Commonwealth to about 1000 non-government agencies which deliver the service through 1200 outlets Australia-wide. Over $30 million was provided for the program in 1992-93. The amount available for emergency relief in 1993-94 is $17.6 million.

In response to the 1989 Burdekin Report on youth homelessness the Commonwealth Government provided a $100 million package of initiatives to assist disadvantaged young people, including the homeless, under the Youth Social Justice Strategy (YSJS). Funding and administrative arrangements for the accommodation and support components of the YSJS are the same as those for the Supported Accommodation Assistance Program (SAAP) and Crisis Accommodation Program (CAP). During 1991-92, and again in 1992-93, the Commonwealth contributed $5.2 million towards innovative projects for homeless youth. State governments match this contribution on a $1 for $1 basis. In 1993-94, $5.4 million will be provided for YSJS.

The SAAP funds supported accommodation for people who are homeless or in crisis. The aim of the program is to assist people in crisis return to independent living through the provision of short- to medium-term housing and support.1 2 SAAP is a joint Commonwealth-State program administered by State governments through community service departments. Funding for the SAAP was $167 million in 1992-93. In 1993-94, $183 million has been made available for SAAP .

The organisations delivering SAAP services are principally charitable organisations and community groups. The support services include counselling, advocacy, help in developing independent living skills, financial management training, and help in locating employment.

The CAP established under the Commonwealth-State Housing Agreement (CSHA) provides capital funding for crisis and supported accommodation housing. Funds are provided to purchase, construct, renovate or lease dwellings primarily used for accommodation for SAAP services. Organisations which do not provide support services are eligible to apply for CAP funds for crisis

1 The Mortgage and Rent Assistance Program (MRAP) provides rent and bond assistance to people renting in the private market who are not in crisis but face the possibility o f homelessness. See Chapter 7 for details on MRAP.

2 In some instances long-term support is provided to individuals who live in independent accommodation but require support assistance.

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accommodation so long as the funds are directed to the homeless. The CAP is administered by State housing authorities in much the same way as the funding and administrative arrangements for SAAP. Funding for 1992-93 totalled $5.4 million. In 1993-94, $76.6 million (comprising $43.3 million from the

Commonwealth, and $33.3 million in unspent funds held by the States) is available for CAP.

Submissions for SAAP and CAP funding are forwarded to the relevant State department for assessment. The assessments are discussed with the Joint Officers Group which then develops a funding package for approval by the State and Commonwealth Ministers.

The requirement for both levels of government to be involved in assessing and approving applications for funding can cause delays and add to the cost of assistance. A number of participants said that opportunities to obtain appropriate housing can be lost, and costs can rise, while waiting for funding approval. When this occurs, organisations must either put in a new application or apply for additional funding — taking up more of the organisation’s resources.

Although SAAP and CAP funding submissions are generally assessed together, a number of participants expressed concern that funding is not adequately co-ordinated (see Appendix M). They referred to poor communication between

the community services departments and public housing authorities that administer the programs. Some SAAP projects were said to be in inappropriate temporary accommodation because of delays in funding under the CAP.

Inquiry participants were also critical of the inflexible interpretation of guidelines by State departments administering the programs. It was claimed that options which may be cheaper in the long-run are not considered. The slow pace of government funding approval, and the inflexibility of government

departments, can add to the distress of people in crisis.

CAP funds are tied to specific housing in most cases. People must use the housing offered if they wish to receive assistance. In some instances, needs may be better met if people are housed at a different location. Organisations providing SAAP services would be better able to meet needs if they had funds

available to headlease in areas that suit the people receiving assistance. In some States, housing authorities will not give medium- or long-term leases to organisations even when houses are custom built.

Generally, CAP and SAAP funds are provided for linked accommodation and support. This means that people whose primary need is shelter may be denied assistance, unless they access support services in order to obtain

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accommodation. Funds would be better spent if assistance were directed to the source of need.

The delivery of supported accommodation assistance is compromised by the lack of low-cost, long-term accommodation for people who wish to leave the shelters and refuges. For many, the only alternative is public housing. However, the long waiting times for public housing has meant that people trying to exit crisis programs cannot do so. The practice of some State housing authorities of giving lower priority to those on the priority waiting list once they have entered a shelter or refuge exacerbates the problem.

Many organisations find they are being called upon to house people for longer periods. The Salvation Army said:

A shift is occurring so that short-term accommodation is effectively becoming medium- term; or clients are moving from one emergency accommodation provision to another; or clients are being accommodated temporarily in private rental housing, with substantial cost to community agencies (sub. 200, p. 2).

The National Committee on Violence Against Women said:

A major problem contributing to the heavy demand for Crisis accommodation places is that short-term services find it necessary to extend clients’ length o f stay because o f the unavailability o f other accommodation. Alternatively, women and children are forced, in the absence o f adequate medium-term and long-term options, to go from one service to another in a series o f insecure stays (sub. 98, p. 2).

This means others are unable to access supported accommodation and some are likely to remain homeless.

The log-jam in crisis centres could be eased if people had better access to information on the services available to them. For example, people from non- English speaking backgrounds face special difficulties in accessing housing because they lack information. Access to information may enable people to get the right assistance as quickly as possible, and early assistance may avoid the need for people to enter shelters and refuges.

Support programs

There is a range of programs aimed at helping people with disabilities and the elderly to live independently within the community. Programs that provide this support include:

• Home and Community Care;

• Aged Care Program (Financial Support sub-program); and

• Disability Services Program.

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Home and Community Care (HACC) provides a range of services that include home help, personal care, home maintenance and modifications (changing light globes, provision of ramps, handrails and some minor renovation work),

community respite care, and transport for people with functional disabilities to enable them to remain in the community and avoid premature or inappropriate admission to institutional care.

Public housing tenants are eligible to receive HACC services. HACC is not provided where a person’s living circumstances are such that they are receiving similar support under another government program. For example, people receiving assistance under the SAAP are ineligible to receive similar services

under the HACC program. State governments are responsible for the day-to­ day administration of the program. The amount provided for HACC in 1992-93 by the Commonwealth Government was $341.8 million. In 1993-94, $370.6 million is available for HACC.

The Financial Support sub-program of the Aged Care Program funds capital grants to non-profit organisations to build, buy, extend or upgrade nursing homes and hostels. It also funds a range of care services to aged people living in the community and the development and support of innovative services for

special needs groups.

Prior to the signing of the Commonwealth-State Disability Agreement (CSDA) in July 1991, both the Commonwealth and State governments were involved in providing accommodation support services for people with disabilities under the Disability Services Program (DSP). In July 1993, administrative responsibility

for the provision of accommodation services to the disabled was transferred to State governments under the CSDA. The Commonwealth Government has administrative responsibility for employment services for people with disabilities. Approximately 900 accommodation support services providing

support for almost 15 000 people with a disability were transferred to the States under the CSDA.

The Commonwealth Government is providing $245 million in additional funding to State governments over the 5 year term of the Agreement. Of this amount, $145 million is to improve services and $100 million for growth in disability services.

People with disabilities are also able to access the Domiciliary Nursing Care Benefit (DNCB) sub-program of HACC. The DNCB is payable to carers who provide, at home, continuing nursing care to a chronically ill or disabled person (aged 16 and over) who has been assessed as requiring the level of care

provided in a nursing home. The DNCB is a tax-free payment of $52 per fortnight and is not means tested. The benefit will be indexed in January each

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year. Since January 1993, beneficiaries have been able to receive the benefit while the person being cared for is in respite care for up to 42 days per year (data provided by DHHLGCS).

Aboriginal Hostels Limited (see Chapter 11) and the Department of Veterans’ Affairs provide crisis and other community-based health and welfare services.

10.3 Reform of supported accom m odation a ssista n c e program s

In the Commission’s view the effectiveness of the SAAP program would be enhanced if the assistance for accommodation and support were separated. It would then be possible to provide assistance for shelter without support, thus breaking the link between the two and extending the scope to meet the housing requirements of those in crisis (see Recommendation 12). The increased flexibility would allow the available funds to be spread further to the benefit of more people in housing crisis. People who only require accommodation would be identified at an earlier stage and would be able to apply immediately for public housing.

SAAP program managers would be able to plan with greater regard to need — if more people were homeless, resources could be directed to accommodation rather than support services. They would be in a position to make better use of headleasing. Properties could be headleased from the private rental market, but also the public housing property manager (see Chapter 6) or community housing schemes (see Chapter 9).

Headleasing from the public housing property manager offers the potential for people to make the transition between crisis accommodation and public housing without changing accommodation. They may have to make higher contributions to rent in the transition period (as they would only be eligible for DSS rent

assistance) but the payment of rents above public housing ‘affordability levels’ may be preferable to moving, possibly several times, before gaining access to public housing.

Where properties are leased, responsibility for defining what is appropriate accommodation for people in crisis would rest with the SAAP program manager.

People benefiting from housing assistance should be required to make contributions similar to those of tenants in public housing once their incomes and support needs have stabilised (see Recommendation 12). Providers of supported accommodation would receive the housing assistance payments discussed in Chapter 6. Where the landlord is a charity, the payments should be

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negotiated. The housing assistance payments, like those proposed for general public housing, should be sufficient to meet a market rate of rent (if the charity charges a market rate of rent) when added to the tenant’s contribution. The support assistance payments would meet the cost of all the services provided

apart from accommodation. Under these arrangements the total subsidy would be explicit.

Although they may not have much choice over where they are housed, the Commission’s rent setting proposals should generally apply (see Chapter 6). The level of subsidy would reflect the cost of appropriate crisis accommodation, rather than appropriate public housing.

CAP funds should be combined with SAAP funds and become the responsibility of the SAAP program manager who should have the discretion to allocate funds for capital or recurrent purposes (see Recommendation 13). There would be a need to fund some non-government facilities from CAP funds to allay any

sovereign risk concerns held by non-government SAAP service providers. The control of SAAP and CAP funds by one manager should improve accountability and assist in achieving the right balance between subsidies and capital.

Where CAP funds are used to provide accommodation, lower levels of rent assistance would have to be negotiated because in this case the government has met the cost of capital and major maintenance.

10.4 Linking public h ou sin g with support se rv ic es and facilities

With the emphasis on short-term accommodation, little consideration has been given to the longer term needs of those in crisis. Many people find they have nowhere to go once they have accessed supported accommodation assistance programs. There is a shortage o f low-cost, medium- to long-term housing.

Access to public housing may be gained by joining the wait-turn or priority housing waiting lists, but the waiting period may be several years. Those on the priority waiting lists can expect to wait six months or more before a house becomes available. In some States people not only lose their place on the

waiting list once they have accessed a crisis shelter or refuge, but the time spent in a refuge is not considered as being in crisis.

One aim of the Commission’s proposals is to bring an holistic approach to assisting people in need of housing. Those most in need would be assisted sooner and longer-term needs would be taken into consideration.

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There are significant social costs in leaving people in crisis accommodation for too long. Not the least of these is the denial of accommodation to others in crisis. The extent of the log-jam in SAAP accommodation suggests that levels of funding should be reviewed. The thrust of this report is that better targeting will help those most in need, but governments must assess whether the overall objectives of housing policy can be met with the current level of funding.

The holistic approach advocated by the Commission would help alleviate the problems raised in the National Inquiry into the Human Rights of People with Mental Illness (HREOC 1993). For example, where a client has an episodic disability or requires periodic hospitalisation, the tenancy manager would be responsible for ensuring that arrangements are made with the client for the collection of rent and maintenance of the tenancy. Where elderly tenants are in need of HACC, the tenancy manager would be responsible for ensuring that they are able to access these services.

Community housing that provides for a live-in manager or carer, can benefit people with disabilities, as well as the elderly and some young people. It can help reduce the need for people with disabilities to live in group houses.

Elderly and young people would be able to live independently while receiving support assistance from a live-in manager.

The Commission’s proposals for the allocation of public housing assistance would be more responsive to the needs of people who access SAAP services. The period of tenure would be negotiated between the client and the tenancy manager. Family size, income and current housing situation would be taken

into consideration when determining an applicant’s position on the waiting list. The criteria in Chapter 6 would help to differentiate between people in crisis and those who can wait longer for housing assistance. The assessment of people’s relative need should not be affected by entering a shelter or refuge.

Once on the waiting list they should progress at a faster rate than they do currently towards the receipt of a public house, thus freeing up crisis accommodation.

The proposed allocation system would reduce the time people wait in transition between SAAP accommodation and public housing. To ensure that the assistance is properly co-ordinated, the tenancy manager and SAAP program manager should be in the same department. Where this is not possible there is a need to forge strong links between the two programs.

Meeting the infrastructure needs of people with disabilities

The Commission proposes that there be a separate budget allocation to fund the infrastructure needs of disabled people (see Recommendation 14). The cost of

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modification should be seen as an aspect of ‘appropriateness’, but not necessarily come from the public housing budget. The cost could come from the health or community service budget.

The tenancy manager would be in a position to draw upon these separate funds to provide the necessary infrastructure — ramps, structural modifications to make homes wheelchair accessible and other facilities. The tenancy manager would have the responsibility for ensuring that people with disabilities are

provided with appropriate accommodation as soon as they are eligible. A segmented waiting list (see Chapter 6) would ease the task of the tenancy manager by providing early notification of the applicant’s needs.

A register of modified houses (covering both the public and private markets) would ease the waiting time and reduce somewhat the need for new construction by assisting the tenancy manager and community groups to

headlease or the property manager to purchase these dwellings from the private sector. In this way, the register could enhance the value of purpose-built accommodation.

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The challenge is to provide a form o f housing assistance that will be effective in achieving housing aims while also helping the process o f community development and self-determination.

The reforms described in this chapter are part of an overall package. The aim is to ensure that all those eligible for public and community housing receive the same minimum level of support subsidy without discrimination. In order to understand what is proposed, readers should first read Chapters 6, 8 and 9.

11.1 Current situation

Home ownership amongst indigenous Australians is low (about 28 per cent compared with 70 per cent in the wider community), and those who can afford private rental face discrimination in rental markets. Data from the 1991 Census (ABS 1992) indicates that more than 30 percent of families are government

renters (compared with the national average of around 6 per cent). An unknown number of these people are in general public housing.1

The Commonwealth Government has, since 1967, accepted that it has a special responsibility for Aboriginal and Torres Strait Islander people. The prime responsibility for provision of housing and infrastructure nevertheless remains with the States. The Commonwealth and State housing programs which

presently target Aboriginal and Torres Strait Islander people are:

• The Aboriginal Rental Housing Program;

• The Community Housing and Infrastructure Program;

• The Aboriginal Home Ownership Program; and

• Aboriginal Hostels Limited (temporary accommodation only).

1 A more detailed account o f Aboriginal and Torres Strait Islander housing can be found at Appendix N. It is based on submissions received together with information and views obtained during visits to Aboriginal communities in Alice Springs, Cowra, Kalumburu, Kununurra, Redfem, and Toomelah and discussions held with Murrumbidgee/Lachlan

Regional Councillors at Balranald.

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There are also State operated Aboriginal and Torres Strait Islander home ownership programs. Accommodation is provided in some States under the Local Government and Community Housing Program.

The Aboriginal Rental Housing Program (ARHP) is funded by the Commonwealth Government under the Commonwealth-State Housing Agreement. Since 1988-89, $91 million per year has been allocated to the program. State governments also contribute.

The ownership and management arrangements of housing provided under the ARHP vary. The arrangements include:

• Public rental housing managed by State housing authorities in much the same way as general public housing;

• Rental housing owned and managed by incorporated Aboriginal and Torres Strait Islander organisations in discrete communities in urban, rural and remote localities; and

• Rental housing owned and managed by incorporated Aboriginal housing associations and co-operatives in areas of mixed settlement, generally urban.

The Community Housing and Infrastructure Program (CHIP) is funded by the Commonwealth Government and administered by the Aboriginal and Torres Strait Islander Commission (ATSIC). Great emphasis is placed under this program on the desire for Aboriginal and Torres Strait Islander people to

achieve self-management, self-determination and empowerment.

The allocation of CHIP funds is determined by Aboriginal and Torres Strait Islander people. Communities place bids for grants with their Regional Council which then submits budget estimates to ATSIC. The ATSIC Board of Commissioners decides the amount of program monies to be allocated by Regional Councils. ATSIC then decides the allocation of this amount to each State. In turn, Regional Councils allocate the funds they receive from ATSIC to local communities.

Communities own and are responsible for housing and infrastructure provided under the CHIP.

ATSIC also administers an Aboriginal Home Ownership Program (AHOP) which provides home ownership loans at concessional rates to low-income earners. ATSIC considers AHOP to be its most cost-effective program. It has assisted more than 6500 families since it commenced operations in 1974.

Aboriginal Hostels Limited (AHL) is also funded through ATSIC. AHL provides low-cost rehabilitative, aged, student, homeless and transient

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accommodation services through AHL and Community Support hostels. AHL also operates a student subsidy scheme that assists students to undertake education away from their local area.

Hostel tariffs are determined in accordance with ability to pay — most residents receive rental subsidies because they are in receipt of government benefits.

AHL generally provides short- to medium-term accommodation, but is increasingly called upon to provide long-term accommodation because residents are unable to find alternative accommodation. Some of AHL’s clients are people who are unable to gain access to public housing because they have an

outstanding debt with a housing authority.

Almost $324 million was provided by the Commonwealth for housing and infrastructure programs (including AHL) during 1992-93 (see Figure 11.1 for funding details).

Even so, a high proportion of Aboriginal and Torres Strait Islander people continue to be housed in conditions that most Australians would consider unacceptable. They live in houses that are overcrowded, do not meet local government building standards, and do not cater for their cultural needs. Funds for repairs and maintenance fall well short of requirements, and communities

often lack basic amenities such as water, sewerage and transport infrastructure. The responsibility for co-ordination and provision of services to communities in rural and remote areas and fringe locations of urban centres is unclear. Sub­ standard housing and infrastructure contribute to problems of health and

community welfare generally. The criticisms apply to both urban and remote settings.

At government level there is no clear demarcation of responsibility. This contributes to confusion and duplication of services. The poor delivery of services is exacerbated by the on-going dispute between local governments and communities over the payment of rates.

Housing organisations are required to ensure that tenants pay rent, but many communities are not meeting their obligation in this regard. That said, the cost of food and clothing in remote areas can leave little for rents. In some communities, the houses are in such a poor state of repair that tenants have

refused to pay rent. Family relationships and responsibilities of elected officials may also determine their willingness to adhere to rental policies.

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Figure 11.1: Commonwealth Government funding of Aboriginal and Torres Strait Islander housing, 1992-93 $m

ARHP AHOP CHIP

Notes: CHIP funds do not include $92.7 million for infrastructure, and $32 million funding allocated under the National Aboriginal Health Strategy. In addition to the $10 million appropriated by ATSIC for the AHOP, a further $28.3 million was available from revolving funds. AHL provides temporary accommodation only.

Data provided by ATSIC, AHL and DHHLGCS. Source: Industry Commission.

Rents are set in accordance with ability to pay. Consequently, the low level of rent paid by many tenants means they are not eligible for Department of Social Security (DSS) rent assistance. Aboriginal housing organisations are expected to fund all repairs and maintenance, insurance, administrative and municipal

costs from the rent they do receive. This is not borne out in practice. Even if all rents were collected, it is unlikely that the revenue would be sufficient to meet recurrent outlays.

In urban settings, for example Redfem, the average rent collected is $3240 per house per annum. ATSIC considers that:

It would be an unusual circumstance if maintenance costs o f an urban dwelling were greater than this ... However, in a general sense we believe that routine maintenance and other essential housing costs (rates where applicable and insurance) could and can be covered by rental collection where an organisation has efficient and effective management practices (sub. 370, p. 2).

Even if the rent does cover minor maintenance, it is unlikely to cover insurance and tenancy management costs, renovations or make provision for the eventual replacement of the house. A participant, James (transcript, p. 2770) said estimates prepared by Australian Construction Service indicate that maintenance

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and renovation work required at Redfem would cost in the vicinity of $2 million.

In public housing generally, rent collections do little more than meet these costs, even though State housing authorities provide a lower average rent rebate than is common in Aboriginal and Torres Strait Islander communities, and the majority of their dwellings are in urban areas where maintenance is cheaper

than in remote areas.

The lack of on-going funds for repairs and maintenance and the inability of communities to raise sufficient revenue through rents to meet the cost of maintaining houses means that Aboriginal communities become locked into a cycle that sees them perpetually in need of capital grants to replace houses or

carry out substantial renovations. Community Development Employment Projects help offset the funding shortfall, but without built-in financial viability it cannot be said that the current arrangements enhance self-determination and empowerment.

There is a further cost in terms of the health of Aboriginal communities. Healthabitat in commenting on the improvements in health through changes in housing design and maintenance in a Pipalyatajara community, South Australia, said there is:

... scientific medical evidence to show that improvements in health hardware, ... showers, toilets, waste disposal, ... leads to specific improvements particularly in children under 5 years o f age (transcript, pp. 2779-80).

The problems stemming from over-lapping bureaucracies and funding arrangements have been recognised and led to the National Commitment to Improve Outcomes in the Delivery o f Programs and Services fo r Aboriginal Peoples and Torres Strait Islanders. Negotiations have begun between the

Commonwealth and the States to enter into bilateral agreements with the view to implementing more efficient arrangements for the planning and delivery of Aboriginal housing and infrastructure. The aim is to integrate the current programs into a single Aboriginal housing program by channelling ARHP funds

through ATSIC to the States. The program is to be administered under bilateral agreements between State governments and the Commonwealth.

Some State governments and ATSIC also support an enhanced role for existing Aboriginal housing boards or the establishment of an independent Aboriginal housing authority within each State. Aboriginal specific housing funds would be channelled direct to the Aboriginal housing authority which would be jointly

responsible to ATSIC and the State government.

These initiatives, although helpful, are unlikely to substantially improve outcomes, in part because responsibility will still be shared by two levels of

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government. The Northern Territory Department of Lands and Housing and Local Government (sub. 337, p. 2) said:

It is ... the delivery o f the service by the Territory as the sole service provider, which enables reform o f the process [to] be undertaken and to implement measures to monitor program outcomes and achieve the accountabilities which we agree are necessary.

In the Commission’s view, fundamental changes are required to improve the operation of and accountability in programs which suffer from conflicting objectives, a lack of clarity about the responsibilities of each level of government, and the unreal assumption that rents will cover recurrent costs.

11.2 Program objectives and administration

The desire to see Aboriginal and Torres Strait Islanders achieve self­ management, self-determination and empowerment is an overriding objective of ATSIC programs. The concern is to:

... support, through strategics which are consistent with Regional Plans, Aboriginal and Torres Strait Islander aspirations to live in a location o f their choice with access to facilities and services consistent with and appropriate to their expressed needs (sub. 116, p. 5).

The objectives and arrangements for delivery of housing assistance differ between programs. Housing funded under the ARHP in urban centres, is managed by State housing authorities in a similar manner to general public housing — it is rental housing incorporating welfare assistance. The

arrangements are substantially different where State housing authorities and ATSIC hand over responsibility for rural and remote housing to local Aboriginal and Torres Strait Islander communities — it is a form of community housing intended to provide welfare assistance and to facilitate self-sufficiency. Where the houses are handed over, the communities are then responsible for housing allocation, tenancy management and rent collection, repairs and maintenance, and housing upgrades.

The attempt to facilitate self-determination in this way comes at a cost in terms of the efficiency with which housing services are delivered to individuals. It is contributing to the slow pace of providing appropriate housing for Aboriginal and Torres Strait Islander people, and as recognised by ATSIC (sub. 116), inappropriate housing is jeopardising improvements in health, employment, education and training.

This raises the question should housing assistance target the provision of appropriate housing to individuals, or should it target community development and self-determination? If both are targeted, how are the conflicts resolved? Is

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it possible to achieve both better delivery of housing services and self­ determination?

Responsibilities and accountability can be compromised in the pursuit of self­ determination. The organisations through which the assistance is delivered are responsible for ensuring that it is used for the intended purpose, distributed equitably and any conditions attached to its provision are met. If they do not

live up to their responsibilities, and assistance is not delivered effectively, people do not get the full benefit of funds provided.

At present, the emphasis is upon funding as many communities as possible. This raises the question whether greater benefit would be achieved by applying available funds to fewer communities. The present incremental approach (with new housing spread thinly across communities) prolongs overcrowding and its

attendant problems of maintenance. That said, if one area were funded ahead of an adjacent area, there could be a problem if too many people were to move to where the housing had been rejuvenated.

There is no set amount allocated to housing in the CHIP. Regional Councils have the power to determine how much of the Regional Council budget will be allocated to housing and how much to infrastructure.

Program administration and delivery is compromised by inadequate demographic, asset, and repairs and maintenance data. Without this information funding allocations cannot be made on a needs basis. Priority should be given to a more thorough needs assessment to determine the level of assistance required for Aboriginal and Torres Strait Islander people.

The effectiveness of housing assistance is further reduced where the annual funding cycle does not allow for delays in expenditure caused by cultural needs and weather. A rolling cycle would allow for long-term planning and more effective funding.

A further transparency issue arises from the desire of Aboriginal and Torres Strait people to live on their homelands. It costs in excess of $150 000 to provide a standard 3 bedroom home, with power and water, in remote locations. The relocation of communities to homelands will create a need for health,

education, transport and communications services in later years. However, there appears to be little recognition given to the long-term resource implications of decisions to help people relocate to remote areas. The issue is not where Aboriginal and Torres Strait Islander people live, but whether the

resource costs and trade-offs are known and made clear.

The present practice is to provide capital funding and then leave Aboriginal and Torres Strait Islander housing organisations to manage the houses often without

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the financial resources and/or management skills to do so. It is not unusual for housing to be provided ahead of satisfactory arrangements for its allocation and upkeep, or indeed any expectation on the part of tenants that they are to make regular rental payments. This leads to rapid deterioration of the housing stock. When houses cease to function it is understandable if tenants no longer take care of them and they become unusable. Healthabitat pointed out that:

The minute a part o f the house fails, particularly toilet, waste removal and water removal, the house is essentially shed by the community and our belief is houses fail first and are vandalised — where vandalism occurs — second (transcript, p. 2784).

The cycle of capital grants neither provides housing assistance effectively nor facilitates self-determination. It can breed an attitude of dependence on government.

There are other problems where communities are not given the means to administer housing. Housing stock falls into disrepair because rents are not collected, wilful damage to houses is not paid for, and little consideration is given to long-term replacement. As Ross said:

At the moment [Aboriginal and Torres Strait Islander] communities have no staffing overheads provided so that somebody can take responsibility for the housing, make inspections, note the maintenance requirements before they become old and urgent, nor to organise the trades who need to come in and make those repairs. The result has been — houses are just allowed to deteriorate to such a state that tenants move out

(transcript, p. 1973).

A belief that housing is provided as a right, perhaps as compensation, contributes to the reluctance of many Aboriginal and Torres Strait Islander communities to pay rent. The Aboriginal Housing Board of Victoria said:

There have been people who have used the land rights arguments and the Board is conscious o f people being told by activists and others, ‘Don't pay your rent because when land rights come, you won’t have to pay rent’, and unfortunately people have fallen for that misinformation (transcript, p. 1752).

Under the current arrangements, communities are left to meet on-going costs. Communities are more likely to be supportive of this approach if they have better information when selecting housing and infrastructure, and if they are fully informed as to the likely on-going costs. However, even where they make appropriate choices, communities may still require financial assistance in maintaining their housing and infrastructure.

Ineffective supervision of construction work contributes to poor housing and possibly fraudulent practices by contractors and builders. Healthabitat attributed problems, in the past, with waste disposal systems in the Pipalyatajara community to poor construction work ‘for example, a soakage trench that was not put in the ground, ie it did not exist’ (transcript, p. 2781). Healthabitat

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recommended that no in-ground works be installed and covered without inspection.

The South Australian Housing Trust commented that it has made arrangements for the supervision of in-ground construction works to be undertaken ‘by a specialist officer within the Aboriginal Housing Unit of the SAHT’ and that the procedures established ‘ensure that all in-ground works are inspected and

photographed prior to covering’ (sub. 367, p. 2).

Aboriginal and Torres Strait Islander communities would benefit if they implemented local government building regulations, but the regulations need to be administered with a degree of flexibility. Housing construction and maintenance are a means of promoting employment and training, and increasing

community control over their affairs in rural and remote areas. However, concern for these other objectives should not overshadow the efficient and effective provision of housing.

11.3 Reform

Many Aboriginal and Torres Strait Islander housing issues are the same as those for public housing, but allied objectives of self-determination, self-sufficiency and empowerment raise a host of competing priorities. One outcome is that the responsibility for co-ordination and provision of services to communities in

rural and remote areas and fringe locations of urban centres is unclear.

ATSIC sees its role as providing a supplementary service to clear the backlog in housing and infrastructure created by years of neglect. It considers that the States have prime responsibility for housing, but have not faced up to their responsibilities, shifting the funding burden to the Commonwealth:

At present, confusion exists because o f the duplication o f programs and services and the number o f Government Department and Agencies involved. On the one hand, high administrative costs result from these duplicated efforts while on the other hand, there are areas where the confusion as to who is responsible for the provision o f services results in

no services being provided at all. State and Territory Governments at present are not meeting their responsibility in providing services for their residents, necessitating ATSIC putting in greater effort (sub. 116, p. 9).

The thrust of reforms currently being negotiated between Commonwealth and State governments is to define administrative responsibilities, and to enter into bilateral agreements that may see ARHP funding channelled through ATSIC to the States. In the Commission’s view the changes will not address the

underlying funding tensions, partly because responsibility for providing funds and accountability will continue to be shared. Indeed, ATSIC’s enhanced

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involvement may reinforce the wrong signals created by its role in rectifying the ‘backlog’ in housing and infrastructure.

The need is for inter-government arrangements which bring a clear delineation of responsibility. Accordingly, the Commission proposes that the ARHP be combined with the general public housing and community housing programs. State and local governments would then be clearly responsible for the delivery of housing assistance, infrastructure and community services to all their residents (see Recommendation 15).

Combining the ARHP with the public housing and community housing programs would lead to improved targeting and funding of housing assistance. This would benefit Aboriginal and Torres Strait Islander people. As outlined in

Chapter 6, the Commission’s proposals call for implementation within each State of a single segmented waiting list with a common set of eligibility criteria. People with the greatest need would be favoured since the rate of progression in each segment of the waiting list would depend on relative need (see Chapter 6). People would not be discriminated against on the basis of where they wish to live. If certain groups of people continue to be poorly served by housing authorities, this would become very apparent. It would be clear who is to be held accountable.

Those receiving public housing assistance would have greater choice as to where they live and how much they pay in rent, while still maintaining a level of affordability for people on low incomes. Public and community housing rents would be based on market rents, but eligible tenants would be subsidised

so that the rent paid was within an affordable range.2 Details on the proposed model can be found later in this Chapter.

Aboriginal and Tones Strait Islander people applying for housing assistance would join the general public housing waiting list. When their name reaches the top of the list they would become eligible for housing assistance and would have a choice as to whether they came under public housing or a community housing scheme. Applicants may have to wait a short time to receive their

assistance until a house becomes available. However, they would not lose their position at the top of the waiting list while they were waiting for a house.

Existing community housing scheme tenants who wish to receive housing assistance would have to join the general public housing waiting list. Their current housing circumstances would be taken into consideration when determining eligibility for assistance. It would be inappropriate to pay the full

2 The subsidy (comprising the Commonwealth and State housing subsidy (see Chapter 8)) when added to affordable rent contributions would meet all costs o f a house, including a sinking fund for its eventual replacement (see Chapter 6).

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amount of assistance for those who become eligible for assistance who live in houses already provided to the community through grants. The level of assistance would be reduced to reflect the capital assistance that has already

been provided.

The Commission’s proposals would:

• Lead to improved accountability by making it clear that the States are responsible for the provision of housing and infrastructure for all people in need, including Aboriginal and Torres Strait Islander people;

• Ensure equitable treatment for Aboriginal and Torres Strait Islander people in the distribution of housing assistance, especially those located in rural and remote communities;

• Promote self-determination by providing for the expansion of community housing; and

• Promote self-sufficiency by ensuring that community housing schemes are financially viable in urban, rural and remote settings.

The Commission’s approach would raise the level of assistance to Aboriginal and Torres Strait Islander people in need of housing. The changes would be to their advantage since they are amongst the groups with most to gain from the reforms proposed for public housing and community housing (see Chapters 6, 8

and 9). Arrangements for consultation, and for the involvement of regional councils and Aboriginal housing organisations, would continue.

The on-going role of ATSIC would be to ensure that needs specifically related to Aboriginal and Torres Strait Islander culture are met. These needs include:

• The provision of infrastructure and other services such as health,

education, transport and communications to remote communities;

• Support for home maker services;

• Support for awareness programs that assist communities to design and develop appropriate housing and locational plans;

• Support for the additional costs associated with providing appropriate accommodation consistent with cultural needs in urban, rural and remote areas; and

• Capital grants or low interest loans for new houses.

These activities would be funded through a program such as CHIP. ATSIC would reach agreement with States on funding responsibility for housing and infrastructure costs where they exceed those normally incurred in State housing programs (see Recommendation 16). Where an above average size house is

needed to cater for visits from the extended family, the funds would come from

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two sources. The State government would provide housing assistance at a level equivalent to that available in general public housing in the area in which the family lives. The Commonwealth Government would fund the additional costs associated with providing an appropriate house - that is, accommodation for the extended family. Funding through CHIP would meet the additional costs associated with locating a community in a remote area, such as infrastructure costs.

With the additional costs that arise because of culturally specific needs clearly identified, it would then be possible to report on these needs on an annual basis.

The subsuming of the ARHP within the general public housing program should be contingent upon governments adopting the allocation of housing assistance and community housing reforms proposed by the Commission. If these reforms were not adopted, Aboriginal and Torres Strait Islander people could be disadvantaged once the programs were combined.

Some participants have expressed concern that the effect of combining the ARHP funds with the general public housing program would be fewer houses allocated to Aboriginal and Torres Strait Islander people. ATSIC said:

A specific Aboriginal and Torres Strait Islander Housing Program recognises the special effort over and above mainstream activity necessary to address the most disadvantaged group in terms o f housing. It ensures transparency and accountability and a mechanism by which the Federal Minister can, i f he chooses, decide to increase the priority by allocating increased funds. This has happened over the last five years. Notwithstanding the significant effort made through the mainstream program the specific program is a way o f ensuring recognition o f additional effort (sub. 333, pp. 3-4).

In the Commission’s view, the creation of specific housing programs for Aboriginal and Torres Strait Islander people has not been to their advantage. It has not resulted in improved transparency and accountability, nor has it produced levels of funding to appreciably close the housing gap. Funding of the ARHP has remained at $91 million per year since 1989-90. The funding of the housing component of CHIP has fallen from $53.9 million in 1990-91 to

$40.1 million (excluding NAHS funds for housing of $10.5 million) in 1992-93. Funding for the infrastructure component has also fallen. Thus the level of funding has been relatively static in real terms, despite the growing recognition of need (see Figure 11.2 for levels of funding).

In commenting on specific Aboriginal and Torres Strait Islander housing programs, the Ngunnawal Local Aboriginal Land Council and Mulanggari Aboriginal Corporation said:

... you have governmental bodies setting up housing programs and things like that, and if they have a separate little category from which they provide Aboriginal housing, they expect all Aboriginal people to line up just for that Aboriginal housing and they don’t

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provide them immediate access into the rest o f the mainstream housing. ... it's not a policy, it's a practice that has then been transposed right across the provision o f all services for Aboriginal people. ...

A lot o f the Aboriginal housing co-ops have sprung up around different country towns right across Australia because they could not sec their needs being met under the special category for Aboriginal housing, and they have tried to address that need or. that basis (transcript, pp. 3566-7).

Figure 11.2: Commonwealth expenditure on ARHP and grants to Aboriginal housing organisations, 1984 to 1993 in 1992-93 dollars $m 160 T

83-84 84-85 85-86 86-87 87-88 88-89 89-90 90-91 91-92 92-93

□ ARHP

M AHO grants

Notes: The implicit deflator for private dwelling construction was used to convert nominal to real expenditures. Funding to Aboriginal housing organisations includes National Aboriginal Health Strategy funds of $0.6 million in 1991-92, and $10.5 million in 1992-93. Derived from ABS (1992. Table 3); ABS (1993, Table 22); ATSIC (1993); and data provided by

ATS1C. AHO refers to Aboriginal I lousing Organisations. Source: Industry Commission.

Following the release of the Public Housing draft report a request was made to the Minister by the Aboriginal Housing Company Limited, Redfem, to delay the signing of the final report until after the Indigenous Australians Shelter Conference. The Commission outlined its proposals at the conference on

1 November 1993. Subsequently, the following motion was tabled:

... the Indigenous Australians Shelter Conference recognises the inability o f (most/all) Aboriginal Housing Associations to adequately maintain their housing, pay decent award wages to staff and plan properly for growth and stability. And generally support the

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Industry Commission’s recommendations for parity with State/Territory Housing Authorities providing cultural differences are recognised in the arrangements.

The motion went on to suggest that the arrangements be piloted and assessed before application (communication from Aboriginal Housing Company Limited, Redfem).

Community housing model

The Commission’s community housing model, is intended to meet the needs of people. It has been modified to reflect the special needs of Aboriginal and Torres Strait Islander people.

Under the community housing model, discrete urban, rural and remote communities would have a choice as to whether they come under a community housing scheme (managed by their Aboriginal housing corporation) or be managed by the public housing tenancy manager.

Where people who are eligible for public housing elect to be housed under the community housing scheme, the tenant’s contribution together with the State housing assistance subsidy would be sufficient to allow the community to meet all costs (see Chapter 8). This would include the eventual replacement of the house (see Chapter 9).3 The community would be able to borrow capital and

make sinking fund payments to replace houses when they reach the end of their useful life. The tenant’s contribution would be determined by the Aboriginal housing organisation, but would usually be set between 20 and 25 per cent of income.

Aboriginal and Torres Strait Islander people who wish to live on Aboriginal land but not under a community housing scheme could elect to do so providing there is an Aboriginal housing organisation. In this case the public housing tenancy manager would headlease houses from the Aboriginal housing

organisation and manage the tenancy.

Sponsorship from a government agency may be required to ensure that sufficient houses are available to the Aboriginal housing organisation. Sponsorship funding could be provided to promote self-sufficiency. For

3 In general, under the Commission’s proposals the rent subsidy is the difference between the tenant's contribution and the market rent. However, in cases where the market rent is difficult to determine a rent that covers all normal or reasonable costs is the best benchmark to use.

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example, ATSIC could fully or partially sponsor a community housing project with capital grants or low-interest loans.4

Other resources would have to be provided for management training Community development could be encouraged if the maintenance were carried out under Community Development Employment Projects.

Consistent with self-determination, Aboriginal housing organisations would be responsibility for ensuring that houses meet the needs of the tenants. That is, the houses should meet the design, size, and locational requirements of the tenants determined through consultation with tenants. Aboriginal housing

organisations would also be required to ensure that houses are built properly, building inspections are carried out, maintenance and repair work is undertaken on a regular basis and provision made for the eventual replacement of houses.

To lessen the possibility of fraudulent work by contractors and builders the Aboriginal housing organisation should consider implementing local government building regulations and the linking of payments to contractors and builders with inspections.

Many communities may not be large enough to form a viable housing organisation. There may be a case for these communities to create umbrella organisations that can undertake tenancy management, accounting and organise contracting out. The umbrella organisations would be expected to apply general public housing tenancy management rules within communities. in Alice

Springs the Tangentyere Council already assumes responsibility for town camps and outlying settlements.

The Commission’s proposals would not resolve the tension between the Commonwealth and States over responsibility for the provision of infrastructure in remote communities, and the associated question of whether it is appropriate for governments to provide infrastructure on private land. These matters must

be resolved by governments through negotiation.

The community housing model provides a basis for Aboriginal and Torres Strait Islander people to maintain control over their land and housing. Housing services are removed from the debate, leaving the provision of water, sewerage, roads and power as the only issues. This separates matters that are truly a right

of all Australians from those that must be resolved, namely the provision of infrastructure services on land not controlled by governments and their agencies.

4 Interest would be subtracted from the subsidy where governments lend to housing organisations.

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With community housing in place and appropriately funded, on-going assistance need not be subject to dispute and the overall cost of housing assistance would be reduced through improved incentives and accountability.

Most importantly, people would be appropriately housed, to the betterment of community health.

Tenants would be subject to the obligations that normally go with assistance received through public housing. The adoption of public housing obligations would help overcome the difficulties faced by elected officials in relation to family obligations when carrying out their responsibilities. The community would be responsible for ensuring that housing assistance monies are applied

for their intended purpose and that people eligible for public housing are housed affordably and appropriately under their stewardship.

The proposed arrangements would not detract from self-determination. Communities would still be involved in the design, layout and construction of houses and infrastructure, as well as management. Self-sufficiency would be enhanced because communities would receive a return on their assets if the appropriate subsidy is paid and tenants pay their rents.

Public Housing

Some Aboriginal and Torres Strait Islander people live in general public housing. Again the model has been modified to meet their needs. For public housing in general the Commission has proposed a number of changes which would see property and tenancy management undertaken by separate

organisations (see Chapter 6). The tenancy manager would be responsible for tenancy management functions and ensuring that the housing and support needs of clients are met.

The tenancy manager would have regard to the cultural mores of clients and would, for example, employ Aboriginal and Torres Strait Islander people especially in client service roles. The CHIP would fund additional costs associated with providing culturally appropriate housing. State governments

would have to decide whether or not to involve Aboriginal Housing Boards and Aboriginal housing organisations. ATSIC would continue to monitor the effectiveness of programs in accordance with s.7(l)(b) of ihe ATS1C A c t 1989.

* * *

All those eligible for public and community housing would receive the same minimum level of support (subsidy) without discrimination. This would be a step forward in improving equity and redressing past neglect.

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In this report, the Commission proposes far-reaching reform of government housing assistance. Many of the proposals are presented as principles that should guide governments to achieve more effective and efficient delivery of assistance. Some reforms can be implemented quickly but others will take

time.

Implementing many of the reforms will not be straight forward. The housing stock in some States is poorly matched to current needs. Other States have too little stock. Therefore the reform path will not be the same for each State.

12.1 Reform of the CSHA

The National Housing Strategy (NHS) referred to developments in Australian housing policies over the past decades as incremental and fragmented (NHS 1991a, p. 2). The NHS concluded that it is important to assess current and future housing needs and develop an agenda of fundamental policy reform to

match expected changes in the demographic, economic and social environment.

The Commission concurs with the NHS assessment. The nature of public housing has changed from a low-cost tenure available to all to one in which the vast majority of tenants pay rebated rents. The level and coverage of Department of Social Security (DSS) rent assistance have also been increased

and the Commonwealth Government has foreshadowed increasing assistance to people by this means.

However, housing assistance is but one of many ways of achieving social justice. Income support, pensions, allowances, benefits and housing assistance, all have a role to play.

The following issues need to be resolved by governments concerned to improve housing assistance and social justice:

• What level of rent assistance is sufficient — keeping government costs within reasonable bounds — to allow people with low incomes to afford to rent privately while they are waiting for public housing, or to rent permanently if they prefer?

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• Do the benefits of providing public housing at levels of appropriateness and affordability above that in private rental justify the additional expenditure?

• What is an adequate level of public housing, recognising that some wait listing is inevitable?

These issues should be addressed as part of the reforms to the

Commonwealth-State Housing Agreement (CSHA) proposed by the Commission (see Chapter 8). Under the proposed demarcation of responsibility, States would ultimately decide the quantity of public housing to be provided and what is ‘appropriate’ if socially desirable outcomes are to be

achieved. However, the Commonwealth would influence the level of supply by providing a payment in support of public housing (see Chapter 8). It could also influence affordability if it so desired, by applying conditions to the payments.

The main task for the Commonwealth would be to determine the appropriate level of rent assistance and the degree of support that is required to ensure that there is an adequate supply of low-cost rental accommodation in each State, the latter depends on the level of public and community housing.

A review of the rate of withdrawal of Commonwealth income support payments in order to minimise poverty traps is urgently required. Improvements in this area would also help harmonise rent assistance and rent

setting within public housing so that equity and efficiency are improved overall. However, the Commission’s recommendation to introduce an income test for rent assistance (see Recommendation 17) so that the rate of payment decreases as income rises should not be implemented until after such a review.

The main task for the States is to determine what is ‘appropriate’ housing, the best way of delivering assistance — and the level of support for public housing in particular. Another important task will be identifying institutional and organisational arrangements that produce efficient outcomes. The aim

should be to complete these tasks before the current CSHA funding arrangements expire in 1995.

The future role of public housing

Finally, there is the question of the role of public housing in the longer term. Is it to remain a residual tenure for those on low incomes — that is, welfare housing? The move to welfare housing rather than a tenure available to all appears to have occurred by default through progressively narrowing assistance by tighter targeting. With a growing need, the continuation of anything like the current level of funding would ensure that this situation will remain.

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The findings of this inquiry point to many areas of unmet need — areas which warrant additional funding. Governments have a long way to go in assisting Australians who are most in need of housing. Many Australians remain in housing stress and in urgent need of assistance. For instance, Bisset, Blaskett

and Siemon (forthcoming) estimate that currently there is an additional demand for public and community housing from people in the private rental sector of over 300 000 income units. To meet this additional demand would require a major expansion of public and community housing stock which is

unlikely to be achieved in the short-term.

The Commission considers it important that governments assess now what role they want public and community housing to take in the future and begin reforms so that people do not suffer needlessly.

12.2 Reforming the delivery of housing a ssista n c e

Reforms to the delivery of public housing are proposed in Chapter 6. Some of the changes will have to be introduced gradually over a considerable period of time. The factors influencing implementation and timing of change are discussed below.

Rent setting and allocation

The proposed reforms to rent setting and housing allocation could be introduced under existing organisational structures but market rents and property values would need to be established first. Housing authorities would need to establish specific formulations of the rent setting and allocation

proposals, but this could be done quickly.

The present accommodation mix within public housing has developed over more than 40 years in an absence of price signals. In many States the mix falls well short of the profile of client need in terms of location, adequacy and type of accommodation available. For instance, single people and sole parents

with one child are poorly catered for when compared with the stock available for couples with several children.

The mismatch is partly due to inadequate signals about what people value. The mismatch is especially glaring in comparison with the private rental market where tenants’ decisions are guided by a pricing system. This is not to say that the mix of stock in the private rental market is always ideal.' 1

1 The stock in the private rental market accessible to those with low incomes is not necessarily o f a standard that the community deems appropriate.

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The extent of mismatch in some States is such that the benefits of the rent setting and allocation reform will take time to emerge, but a mix of public housing stock that meets the needs of clients will eventuate in the long-run (see Appendix I).

There are several ways that change may be effected without unduly disrupting individuals and families. Some of the options are outlined below.

Transitional adjustments to rent setting

The rent setting proposals should be phased in over several years. ‘Grandfather’ arrangements for existing tenants are proposed in Chapter 6 for this reason.

Those already within public housing could continue to pay rent calculated under the old regime. Another option is to gradually change the rents payable under the current scheme to those of the new scheme. This might involve tenants paying their ‘current’ rents plus an increasing percentage of the

difference between the ‘current’ and the ‘new’ rents, until finally they were paying the new rents.2’ 3

Transitional adjustments for allocation reform

Under the proposed allocation refonns there would be one segmented waiting list for each State. Currently people in similar circumstances wait different times to be housed, depending on the availability of a house in the location they wish to live.

Although State-wide waiting lists could be introduced immediately, it will be some time before there is a range of houses available in the region of choice when people reach the top of the list. Initially, people may have to wait some time until they are allocated a house, but no longer than at present — and the waiting period should be reduced as the stock is adjusted.

In some areas headleasing, renovation and (as necessary) new construction will be required. In areas where there is excess public housing, properties should be either rented or sold so that funds are released. Stock that falls short

of an adequate standard will need to be upgraded or sold.

During the transition, it will be difficult to increase opportunities for existing tenants to transfer within public housing.

2 A weighted average o f the old and new' rent with the weighting shifting towards the new rent over time.

3 The degree to which choice is increased through stock adjustment and tenancy turnover would influence how quickly the new rent formula could be introduced.

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Improving choice

Choice is a key component of the Commission’s proposals for public housing rent setting and allocation. To achieve this, an adequate number and range of vacant properties (in terms of type and location) will need to be available. However, it may be difficult to provide wide choice within a local area from

the outset. Current housing authority waiting lists are unlikely to provide useful information on the preferences of people under the proposed rent setting arrangements. The tenancy manager in each area will have to approach people near the top of the waiting list and obtain some indication of the

locations that people would prefer to be housed given market rents and the level of subsidy. Early placements will provide additional information which can be used to determine where properties should be acquired.

Some flexibility will be required until preferences become known and stock adjustments can be made. The contractual arrangements between tenancy and property managers should provide for this flexibility.

Valuation of the stock

Valuation of the housing stock at market values is necessary to determine the level of subsidy currently provided to tenants and the funds required to maintain the stock to an appropriate standard. The valuation will require assessments of the condition of dwellings and future maintenance and repair

costs to bring dwellings to an appropriate standard.

According to information provided to the Commission, the total cost of this task could amount to $25 million nationally — less than 0.1 per cent of the estimated value of the stock. This expenditure should not be regarded as a cost of reform. Housing authorities should and are carrying out this work,

irrespective of the reforms proposed by the Commission.

This task should be completed before the end of the current CSHA funding period.

Property management

The public housing stock should be managed as a commercial undertaking. This will require new corporate plans and objectives to be established. Performance indicators should also be in place from the start to measure the gains from the proposed reforms.

It is not essential that the tenancy and property managers be in separate agencies at the outset. However, corporate plans and objectives appropriate to independent business units should be established as soon as practicable. This

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would ease the change to an independent unit dealing exclusively with property management — perhaps operating as a statutory authority.

In the Commission’s view separation of property and tenancy management will be required once the property manager is given a commercial charter. If the property manager is to be a statutory authority, enabling legislation will be required, setting out corporate objectives, reporting requirements, accounting methods, structure of the board, responsibilities, ownership and other relevant matters.

Corporate objectives should be broadly defined. From these objectives, corporate plans could be negotiated between the board and the minister, as a contract — with the minister committed to support the plan and the board to achieve the outcomes specified in the plan.

Auditing, accounting standards, reporting requirements and performance monitoring

A reform priority is to review and improve where necessary accounting standards, reporting requirements and performance monitoring. Authorities have started this work, but the Commission’s reforms — with property management on a commercial basis and a more holistic approach to tenancy management — will create new challenges.

Accounting standards and reporting requirements should be consistent between States to allow comparisons to be made. There are no private sector equivalents to State housing authorities. Consequently, inter-agency comparisons will be important in providing performance benchmarks and

some indication of relative performance.

Both financial and non-fmancial performance should be audited. Auditors should report on the efficacy of the indicators used, as well as the measured outcomes.

The auditor could be the Auditor-General or a private auditor. In choosing a private auditor, care should be taken to ensure that there are no potential conflicts of interest arising from other activities such as consultant advice.

Efforts to collect consistent data and develop performance indicators across the States could be co-ordinated through the Steering Committee on National Performance Monitoring of Government Trading Enterprises. Another option would be to standardise key indicators used in the Housing Assistance Plans,

the results of which could be reported in the Housing Assistance Act annual reports. However, more work needs to be done on standardising definitions.

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The Commission sought participant’s views on performance indicators, largely without success. A discussion of performance monitoring is in Appendix G. Under the proposed reforms, three organisations — tenancy management, property management and policy — would each require performance

indicators. Those for property management would be the easiest to develop as the output would be readily quantified. Assessment of tenancy management would focus on the achievement of outcomes for tenants and their satisfaction with the services provided.

Property and tenancy management would, of course, be subject to Freedom of Information legislation and review by the Ombudsman where applicable.

Adequate capitalisation of the property manager

States would have to determine what debt to transfer to a fully commercial property manager. This is a key decision as it affects the financial

performance of the property manager and the overall cost of providing public housing. The debt to equity ratio will depend on the anticipated rate of capital expansion required.

The Defence Housing Authority, a property manager with functions similar to those advocated by the Commission, found that its inadequate capital base meant that ‘within two years, solely as a result of the interest burden, the Authority will be operating at a loss’ (Kirkby-Jones 1990, p. 17). Without

adequate capitalisation it would be difficult for the property manager to foster a commercial culture. Alternatively, this could create an incentive for the property manager to run-down the housing stock to achieve the required rate of return.

Co-ordinating rates of withdrawal of housing assistance

The rates of withdrawal of social security benefits and of public housing rent subsidies are at present determined independently of each other. This may create a disincentive for low-income people in public housing to increase their income. Co-ordination is required and must take into account marginal

income taxation rates.

Greater co-ordination of housing assistance between DSS and State housing authorities is required to minimise these disincentives. Ideally, a single body (either Commonwealth or combined Federal and State) could determine levels of assistance and rates of withdrawal using a criteria of equity, efficiency and cost-effectiveness. Such a body should aim to ensure a more complete and

effective coverage of all targeted groups.

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12.3 Improving a c c e s s and affordability generally

The NHS identified many housing related problems that if addressed would mitigate housing stress. The focus was on improving access to affordable and appropriate housing, particularly for low-income people.

Public housing addresses many of the housing problems identified by the NHS. However, some of the problems faced by low-income people can be addressed in other ways, for example, by reducing discrimination, improving consumer protection, removing impediments to efficient market operations by reducing the tax burden on property owners, ensuring that building regulations

do not add unnecessarily to costs.

Anti-discrimination legislation

The NHS recommended that the Commonwealth Government review anti­ discrimination legislation and its effectiveness in relation to housing. It also recommended that the States introduce a legislative charter of tenants’ rights.

Evidence brought before this inquiry suggests that low-income people generally — and in particular youth, those with disabilities and Aboriginal and Torres Strait Islander people are discriminated against in the private rental market. The Commission supports the NHS recommendation, but it is not clear that housing issues should be covered specifically in anti-discrimination legislation. A charter of tenants’ rights placed in landlord and tenancy legislation would assist awareness of the problems faced by these groups.

Care needs to be exercised with anti-discrimination measures. Regulation that is too restrictive could be counter-productive if it reduced the supply and level of competition in the private rental market. For example, a charter with legal effect could exacerbate the problems faced by low-income people in accessing rental housing, if compliance imposes additional costs on landlords.

Enforcement would be difficult and it could encourage landlords to discriminate against the people the regulation is intended to protect if landlords’ profitability or flexibility are adversely affected.

Some of the problems arising from discrimination would be ameliorated by headleasing. The Commission’s proposals in Chapter 6 would encourage greater use of this tenure.

Consumer protection for private renters

The NHS recommended that:

• The Commonwealth should develop consistent landlord-tenant legislation for all States; and

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• The States, with Commonwealth support, should have rental bond boards and residential tenancy tribunals.

The Commission supports the intent of these recommendations.

The level of protection provided by legislation varies considerably between States (see Appendix C). Those States with less stringent provisions should be looking to strengthen their legislation, but this is a State responsibility and should not require Commonwealth involvement.

Tenants in boarding houses and caravan parks are especially at risk. The National Inquiry into the Human Rights of People with Mental Illness reported that boarding houses are often sub-standard and ‘a national disgrace’:

... the physical conditions in many boarding houses are depersonalising, depressing and completely unconducive to any dignified normal life. Many boarding houses have no living space appropriate for any form o f leisure activity. Security is poor ... Many rooms are dark, cramped, crowded, dirty, unsafe and poorly maintained

(HREOC 1993, vol. 2, p. 388).

The National Youth Coalition for Housing said:

Residents o f caravan parks have little security o f tenure and few tenancy rights, and conditions are often far from adequate (sub. 131, p. 27).

In most States the general residential tenancies legislation does not apply to boarders and lodgers. Nor does it apply to caravan parks or mobile homes, with the exception of New South Wales and the Northern Territory. Victoria has enacted specific legislation for caravans and mobile homes, while

Queensland has specific legislation for mobile homes. Clearly the gaps in coverage should be addressed.

As noted earlier, care should be exercised in regulating the rental market. Regulation can be counter-productive and an appropriate balance of incentives and sanctions must be struck.

Taxes and charges

The NHS found that by OECD standards the tax burden on Australian property is relatively high. These taxes are levied by State and local governments.

In 1988-89, almost one-third of State government revenue was from property taxes. During the 1980s, there was significant real growth in revenue yields from property taxes. The NHS concluded that land taxes can be potentially onerous for professional investors with multiple property holdings. This may

affect the nature and level of investment in low-cost rental property.

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Property taxes, stamp duties and charges also affect affordability, and hence demand for appropriate housing. The taxes and charges must be reflected in private sector rents and ultimately in the level of assistance (subsidy) provided to public tenants. In 1991-92, public housing authorities paid $273 million in rates and charges. This represented 26 per cent of rental receipts and 25 per cent of government grants for public housing.

Rental properties are subject to land taxes. Exemptions have reduced the land tax base and average liabilities (including those of private rental landlords) have increased. For example, in South Australia the number of taxpayers in 1979-80 equalled 319 000. With the exemption of owner occupiers, increases in the tax-free threshold and exemption of non-profit organisations, this had fallen to 20 547 taxpayers in 1987-88 (see Appendix C.3).

The real revenues from stamp duties doubled in all States (and tripled in Victoria and Western Australia) over the ten years from 1979-80 to 1989-90. Transaction costs on house purchases affect all tenures, however they are not tax deductable in the case of purchases for business purposes such as renting. All States exempt residential leases from stamp duties, except Western Australia which levies duties on houses renting for more than $130 per week (see Appendix C.3).

Governments can reduce the burden of these taxes and charges by improving the efficiency of their administration and thereby reducing their revenue requirements. They should also ensure that their taxation minimises economic distortions, that is, they are structured to minimise the change to consumption relative to the revenue raised.

Tax expenditures — such as the non-taxation of imputed rents and capital gains on the family home — are seen by many to be inequitable. The level of assistance received through tax expenditures (apparently) increases with income. Although a particular tax may be regressive, equity comparisons between high- and low-income earners can only be made by considering

taxation overall.

Non-taxation of imputed rent may provide little benefit to many present owner-occupiers. Taxation of imputed rents ceased in 1923. The effect of the removal of this tax has been to raise the value of real estate by an amount equivalent to the capitalised increase in the net-of-tax return to owners.

Those who presently own property are now making a normal net return on their asset. Those who rent presently suffer the legacy of this decision in the form of having to pay higher rents than they would otherwise have paid if the

tax was still in existence.

A further point concerns the subjective nature of the ‘tax expenditure’ concept. A tax-expenditure is considered to occur when a particular tax rate is

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less than that of an ideal rate suggested by some hypothesised system of taxation. It could also be expected that an increase in a particular rate would be to some extent off-set by reductions to other rates. As a consequence, the distributional effects of any change to the tax regime are by no means clear.

A re-introduction of the taxation of imputed rents would have to be done with a great deal of caution. First, other taxes would need to be adjusted. Second, the taxes would have to be introduced gradually because the imputed rents are, to some unknown degree, capitalised in land values. Third, the outcomes of a

reduction in the relative price o f land are uncertain, for instance, its affects on urban sprawl.

Another problem is the effective taxation caused by the withdrawal of pensions should the elderly or disabled liquidate the capital in their homes in response to any change in taxation or regulation aimed at making better use of the housing stock.

A change to pension regulations could encourage some people to move to more suitable accommodation and lead to greater efficiency. Although the cost savings from a better use of resources would be sustained, once the surplus housing was absorbed, housing costs would begin to rise again. The

benefits gained by adjusting to a better use of the existing housing stock would be offset to some degree by high transaction costs on property exchange.

Local government regulations

Local government has an impact on housing primarily through land use, building and development control processes. Most councils do not have explicit housing policies, and are often not aware of the housing related impacts of their policies and activities.

Local government also has a role in the development of efficient and equitable patterns of urban development, and hence an impact on the provision of affordable and appropriate housing. The collective effect of decisions by local government authorities has significant metropolitan or regional implications.

The NHS concluded that local government regulations and the provision and funding of infrastructure have a significant impact on housing costs and hence affordability. It was recommended that local government:

• Introduce more flexible controls and streamline approval processes to facilitate the provision of more affordable housing;

• Introduce development regulations that enable a greater range of choice of housing types; and

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• Implement policies to encourage the retention of rental accommodation including boarding houses.

The Commission endorses changes to building regulation that allow lower cost accommodation to be built. The changes should be achieved by removing unwarranted controls where the economic benefits of doing so outweigh any costs.

Policies aimed at encouraging the retention of rental accommodation should only be implemented if they are achieved by removing distortions. Policies involving subsidisation of low-cost private sector housing provision are not likely to be effective in the less-than-fully competitive rental market and the subsidies would be difficult to confine to low-cost accommodation.

Increasing private participation in the low-cost rental market

Under the Commission’s reform proposals, competition between the agency responsible for property management and private landlords can and should be fostered. The agency responsible for providing housing assistance should headlease a proportion of its housing requirements from the private sector.

Greater use of headleasing may increase the supply of low-rent properties in the private rental market.

12.4 Improving the delivery of allied comm unity se rv ic es

It is not possible to place a community service agency, like the proposed tenancy manager, on a commercial footing and rely on competitive disciplines to provide the incentive to be efficient. Consequently, there is a need for high levels of accountability, more so because of the impact poor service can have

on people’s lives.

Governments should ensure that the activities of the tenancy and Supported Accommodation Assistance Program (SAAP) managers are transparent; that adequate consultation takes place; and that the decisions they make are subject to administrative appeals. Measurement of performance is essential, because of the subjective nature of the service outcomes. Measures of performance

should include consumer satisfaction, and findings should be published and audited (see above).

The Commission’s reforms call for a more holistic approach on the part of the tenancy manager. To meet the needs of the small proportion of people who require more than assistance with shelter, officers may need a knowledge of the programs available to assist people and the skills to deal with people who

need the additional support.

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Greater co-ordination of policy is required, as are links between policy and operations. A high degree of co-ordination is needed between the tenancy manager and SAAP manager. In Chapter 10 the Commission calls for SAAP funds and Crisis Assistance Program funds to come within the control of one

manager.

Role of charities

Charitable organisations have an important role in the provision of crisis accommodation. They house the homeless and assist many who are unable to access or are waiting to enter public housing. Many people find them more receptive than government agencies in responding to their needs.

Charitable organisations are now assisting people over longer periods. In turn, governments are providing funds to help them cope with their traditional crisis role and the newer role of providing medium-term housing.

Thus a partial but growing transfer of responsibility has occurred. This poses important social questions. Are governments abrogating too much of their responsibility? Are all members of the community contributing equitably to the cost of social welfare? Are government tax expenditures an appropriate

incentive for people to contribute to charities? Are tax expenditures being used efficiently in this area?

There is no evidence to suggest that governments have given adequate consideration to the role and funding of charities. Important issues are the extent to which charitable organisations should be used as agents to perform specific services; the extent of accountability; and ways in which to improve

co-ordination of effort. Participants pointed to unacceptable delays by government departments in responding to requests for funding and fulfilling support commitments. Improved co-ordination is needed to enhance the joint effectiveness of government and non-government assistance.

12.5 Effective advocacy

Effective advocacy is important:

• Low-income and disadvantaged groups are in a poor bargaining position and may be without adequate knowledge of the ways in which policies and practices affect them;

• Individual tenants face difficulties because of the potential for retribution if they complain; and

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• Many issues cannot be resolved at the individual level or one-off basis, but require broader institutional changes in personnel, policies, practices and organisational structure.

The role of tenant and community advocacy groups should be to monitor outcomes for tenants against performance standards and ensure that individuals receive adequate service, their rights are respected and they have avenues of appeal.

For their part, governments and their housing authorities should listen to and discuss issues with advocacy groups. They should ensure that information is available on policies and programs and that adequate resources are provided, for example, by helping tenant groups develop management and organisational skills.

Some governments recognise that advocacy groups are part of the process of good management. The NHS reported that there is a need for greater effort and recommended that:

• The Commonwealth and States should enhance resourcing of present community-based advocacy and information services for renters; and

• A national information program should be introduced to inform consumers and providers of rental accommodation of their rights and obligations.

The Commission supports this recommendation. There is a need for State governments to promote consumer protection and support effective advocacy and advisory services for those renting from the private sector. It is also in the interest of State governments to support public housing advocacy groups as this will only improve the performance of their authorities. However, to avoid conflict of interest, governments should not support advocacy through the agency responsible for providing housing.

The Commonwealth Government also has an interest in funding advocacy for public housing. Effective provision of public housing will ensure that there is less need for income support and other Commonwealth assistance measures.

A difficulty faced by the State housing authorities in dealing with advocacy groups is that some of the issues (the CSHA, asset management, acquisition of housing stock, rent setting) are not understood well enough by advocacy groups. Governments should consider resourcing advocacy groups and

ensuring that the workers are adequately trained.

Groups experiencing difficulty renting, such as non-English speaking migrants, may not have the skills or the resources to find accommodation that suits their needs. They should be targeted specifically by advocacy groups and consumer rights programs.

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Burdekin Report 1989. See HREOC 1989.

Burgess, R. and Skeltys, N. 1992, The Findings o f the Housing and Location Choice Survey: An Overview, Background Paper no. 11, National Housing Strategy, AGPS, Canberra.

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Carter, R., Milligan, V. and Hall, J. 1988, The Benefits and Costs o f Public Rental Housing in New South Wales, Research and Policy Papers no. 2, Department of Housing, New South Wales, February.

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DHA (Defence Housing Authority) 1992, Corporate Plan 1991-1994, The Pot Still Press, Canberra.

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REFERENCES - VOL 1

Kirkby-Jones, W.J. 1990, ‘Management Accountability for Public Assets’, Royal Australian Institute of Public Administration Conference, Defence Housing Authority, 16 July.

Mackenzie, D. and Chamberlain, C. 1993, ‘The number of homeless young people in Australia’, in Shelter (1993), pp. 28-32.

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National Housing Policy Review 1988, Final Report, (D. Persson, Director), mimeo, February.

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THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

PARLIAMENTARY PAPER No 6 of 1994 ORDERED TO BE PRINTED

ISSN 0727-418

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