The wolves are out and I wouldn’t give the wounded NRAS scheme much chance. It’s a puzzle as to why it’s so difficult to bring housing supply to the market in Australia, but until it’s solved, prices will keep on increasing.
The Australian has had a few pieces over the past few days sinking the boot into the former ALP government and the limping National Rental Affordability Scheme (NRAS).
You can almost hear the glee as they trash the scheme, trash the ministers, trash K-Rudd. Does anyone take The Australian seriously anymore? They seem to take a pretty liberal approach to media bias.
But while their ‘news’ coverage reads more like an op-ed, the op-ed is right. NRAS is a mess. It’s become a massive rort, and most importantly it’s failed to bring substantial supply to a supply-constrained housing market.
The basic idea wasn’t bad – provide subsidies to developers of housing that would be rented to “low- and middle-income households at a rate that is at least 20 per cent below the market value rent”.
At a cost of $4.5 billion it was a major piece of policy, one of Labor’s flagships, and it gave us the impression that the government was on to it and doing something about Australia’s “affordability crisis.”
But the devil is, as always, in the detail, and the details aren’t pretty.
At first I welcomed the change in focus. Until then, most public policy responses to the ‘affordability crisis’ were to give the poor folks more spending power – like working rent assistance into welfare payments.
The trouble with this of course is that the money you pay out in rental assistance just becomes more demand in the market. And if the reason why rents are so high in the first place is because demand is outstripping supply, adding more demand to the equation won’t solve anything. You’ll only push rents up further.
The poor end up exactly in the same position, rents are higher, and all you’ve done is execute a massive transfer of tax-payer funds to landlords via poor renters.
The same can be said about the first home-owner grants.
So you can’t fix demand-supply imbalances with more demand. You’ve got to think about the supply side too.
So that’s why the shift in emphasis embodied in NRAS was a good thing. As the policy stated, the aim of NRAS was to “stimulate the construction of 50,000 high-quality homes and apartments, providing affordable private rental properties for Australians and their families”
They recognised that they needed to bring more affordable housing to the market. And that they needed to get the developers on board.
Trouble is, you generally can’t trust developers as far as you can throw them, so you need to get the rules and regulations in place. This is where the real ‘art’ of government comes in, and where the Rudd-Gillard government, like in so many other areas, just didn’t come up with the goods.
And the trouble seemed to be with the definition of dwelling. According to the legislation:
An NRAS dwelling must be self-contained. It must be demonstrated that a tenant, or tenants, would be able to live independently within the dwelling and not need to access external or common facilities.
But that sets up the situation where, in the eyes of NRAS, a shoe-box with a kitchenette and a bucket is the same as three-bedroom house. And because the subsidy attaches to the dwelling, developers get the same subsidy for each.
So you can see where the incentive lies – forget about houses, build as many shoeboxes as you can.
But who wants to live in a shoebox?
Particularly foreign students.
And this is the rort that The Australian has uncovered. Australian universities have won thousands of NRAS grants and are filling them with fee-paying international students.
The Australian singles out a giant 823-bed development in the heart of Sydney, right next to the rail-way station. They’ve received $80 million in government grants, and their promotional material puts a lot of emphasis on ‘international students’ and how the project is “NRAS-advantaged”.
The Australian goes on to cite an un-named construction industry insider, who was “uncomfortable that it did not meet the original intent of the policy.”
In general, I am not adverse to government incentives being used to encourage developers to provide a certain type of product that the market needs; however, NRAS in this case provides very little benefit to its target market and is predominantly benefiting the developer — at a cost to the taxpayer.
(Seriously? Where’d they find such a self-righteous developer? I’m always a bit suspicious of these ‘unnamed sources’ that tow the paper line so perfectly.)
But it’s not a good look. NRAS was set up to help firefighters and nurses live where they wanted to, not help international students (with wealthy parents) live in the inner-city.
The Australian’s attack dogs are on to it, and with a bipartisan consensus that everything the Rudd-Gillard government did was a disaster, nobody’s going to try and step in and save it.
So my bet would be that once it reaches its 50,000 target, the scheme will be scrapped – if not sooner.
And Australia loses one of the few (albeit flawed) serious policy attempts to fix the undersupply of housing in Australia.
And with the housing market in recovery, interest rates low, and price expectations soaring, demand is only going from strength to strength.
So if you’re worried about affordability now, just wait 5 years.
My hope is that the government will take the time to get supply policy right, rather than relying on knee-jerk responses to media ‘crises’.
But I’m not holding my breath.