Opportunities for better housing outcomes

7 October 2022

Four years ago, Australian governments signed the National Housing and Homelessness Agreement (NHHA), with the aim of improving access to affordable housing.

Today, by most measures, the situation is no better than it was in 2018.

It is likely that more people are homeless today than in 2018. More people are seeking homelessness services and more are being turned away. Demand for social housing is increasing, and almost 40 per cent of households on social housing waiting lists are high priority applicants.

The majority of low-income renters in the private market spend more than 30 per cent of their income on rent. Vacancy rates in the market have almost halved over the last year and advertised rents are almost 10 per cent higher.

Home ownership rates — especially for younger people — are continuing to slide, and there is little evidence of catch up later in life.

Against this sombre background, the Productivity Commission was asked to review the NHHA and recommend changes for the next agreement, due in July 2023.

Nearly everyone we consulted saw the NHHA as a failure. It is a funding contract, not a plan for reform. The NHHA provides for the annual transfer of $1.6 billion from the Australian Government to States and Territories for social housing and homelessness services. It does little else.

Governments are now reassessing housing policy, taking the important first step of developing a national plan. The next agreement should underpin the national plan. And it should cover all housing assistance — the NHHA captures only a tenth of the $16 billion spent by governments — so governments consider in a holistic way how to best spend housing assistance dollars to improve housing outcomes.

Improving affordability in the private rental market should be a priority. One in four Australians rent in the private market. More Australians are renting, for more of their lives, than in the past. And renters tend to be younger and have lower incomes than the Australian population. Affordability is most strained in the private rental market — which drives demand for homelessness services and social housing. Improving affordability for private renters will require well-targeted financial support and a boost to new housing supply.

The Commission is recommending a review of Commonwealth Rent Assistance. Commonwealth Rent Assistance is the largest single housing assistance program, helping more than 1.3 million households. This payment could be more tightly targeted to people in need and its value increased to reflect the growth in rents over time.

States and Territories should set targets for new housing supply. Planning reform and infrastructure investment will be critical to bringing more supply into the market. More supply will make homes more affordable for Australians (to rent and buy).

Reforms to homelessness services and social housing also have the potential to create a more effective and flexible safety net.

Governments should earmark more funding for programs to help people avoid or quickly exit homelessness. Investing in prevention and early intervention will reduce the costs of homelessness and alleviate pressure on other services.

The public housing stock is ageing and often does not match contemporary needs. Introducing portable rental assistance will allow renters to choose where they live, improving outcomes for tenants and addressing the inequities in the social housing system.

Beyond social housing, governments should test new, more flexible ways to assist people struggling in the private rental market. Rental subsidies and tenancy support services can be direct, lower-cost ways to help people find or sustain private rental tenancies.

Another priority for reform is replacing the historical formulas used to allocate funding between States and Territories with needs-based funding. Moving to a more equitable and realistic funding model is essential to align funding with need.

Including all government‑funded housing assistance in the next agreement will reveal where, over time, governments have over- (and under‑) invested. Governments spend more than twice as much supporting home buyers as on homelessness services. And the value of home buyer assistance is doubtful. Governments should redirect the $2.7 billion spent assisting home buyers to help people in greater need.

The next intergovernmental agreement is an opportunity for governments to deliver an effective national approach to improving housing affordability.