The Age has published an article today on how the National Rental Affordability Scheme (NRAS) – a $3.2 billion scheme launched by the former Labor Government in 2007 amid claims that it would increase the supply of affordable rental housing to low and moderate income households – turned into a rort used by universities to supply subsidised accommodation to international students, which is now being investigated by the Turnbull Government:
The Turnbull government will launch an independent inquiry into allegations of rorts and misconduct plaguing a multibillion-dollar federal scheme designed to help house the poor.
Social Services Minister Christian Porter will announce the review of the National Rental Affordability Scheme on Thursday, following a string of complaints against housing providers.
Under the $3.2 billion Rudd government scheme, investors purchase new property and rent it out to low-income earners for 20 per cent less than market rates, in return for an annual $11,000 government subsidy.
But since its launch in 2008 the scheme has faced persistent criticism that it has failed to meets targets and has been hijacked to build student housing for wealthy foreign students…
The government’s investigation will be conducted by an independent consultant to be appointed in the coming days. The scheme currently costs about $300 million a year and is due to run until 2025-26.
In principle, I have no objection to the Government providing subsidised rental accommodation. Given Australia’s busted rental market – whereby insecure one-year rental terms are commonplace – there is scope to provide longer-term leases that provide renters with greater security of tenure.
However, any such programs must be reserved for low income locals. Moreover, the incentive structure of NRAS should have encouraged the construction of larger apartments and houses suitable for local families, rather than shoebox-sized apartments for students.
On this point, one of the major flaws of NRAS was that the maximum $10,000 subsidy could be the same regardless of the number of rooms built. This gave developers the incentive to supply shoebox student accommodation rather than larger homes targeted at impoverished local families.
NRAS is not bad in principle. Rather, like many policies of the former Labor Government, it was implemented poorly with bad incentives built-in. Fix these incentives, and ban provision to foreigners, and you have the makings of a good Scheme.
Obviously, lowering immigration, freeing-up the supply-side of the housing market, and improving rental security and tenure would do much more to ameliorate the rental pressures afflicting Australia’s big cities, and should be pursued with vigour by all levels of government.