NRAS; the Christmas gift that saved Australian housing supply

The Australian Opinion Editorial (13 December 2018)

We are generally told to spare a thought for those more needy at this time of year and for the first 200 of around 37,000 families and low income tenants whose National Rental Affordability Scheme subsidies start to wind down after 10 years, this Christmas will pose some challenges.

For these 200 families whose rent is subsidised by annual financial incentives capped at 80% or less of market value, their challenge of finding alternate rental housing close to jobs, schools and services today is increasingly more complex than a decade ago when the subsidy was introduced.

Outside of the timely festive cheer for many families who obtained an affordable rental way back in 2009, those 200 new build NRAS homes kick started the revival of the then recessionary Australian housing delivery system and laid the growth foundations of the affordable housing sector.

Spare a thought also for the thousands of tradies, paraprofessionals and others that depend upon a pipeline of demand for homes to be built; who, without this new innovative affordable rental scheme, would not have had a job.

At the close of 2009 the Australian housing market had frozen. In December 2009, we had caught the Global Financial Crisis cold with only 131,000 dwellings commenced in the past year. When one considers that at least 40 trades and subtrades derive an income from the building of just one house, the situation looked dire for those in the housing industry.

In stark contrast, Australia today has a booming housing delivery market that has only grown in the past decade. At Christmas shutdown, this year we started over 228,500 dwellings, but despite the extra 100,000 homes commenced than in 2009, the future still remains uncertain – but we will get to that.

The investment in 2009 by Federal Government to incentivise the construction of up to 50,000 NRAS homes provided the confidence for the market to start to build once again.

Unfortunately not all 50,000 NRAS homes were built and the scheme which was rapidly brought in to stimulate a declining housing market amidst the GFC, was not without its problems. There were issues with allocations, delays in delivery, regulation as well as administration challenges and allocations going to non-target groups in some cases.

Just under 37,000 new rental dwellings and rental incentives were delivered however and underpinned a sinking housing delivery system in a similar way that the US Low Income Housing Tax Credit (on which NRAS was loosely based) has underpinned up to 10 percent of the US national build rate for 30 years now. Low income rental incentives are well regarded, safe investments, government backed and shown to ride out unexpected events, such as the Great Recession of 2008.

Whilst there were issues with the implementation of the NRAS scheme, industry and social groups were strongly advocating for the strengths of the program to address the yield gap for affordable rentals and its capacity to see stable housing price and volume activity is worth considering.

As we head into 2019, spare a thought of a future build rate that may slow down to long term average levels where 70,000 fewer homes are built than today, or 100,000 fewer homes per year if we fall back to 2009 levels and consider a rental subsidy that supports new home delivery to moderate the trough.

It also need not be the case that many of the existing near 37,000 NRAS rentals are sold off in the future years with thousands of families simply having less homes to rent as their current home is potentially turned over to realise ten year capital gains in a declining growth market.

With the position of having achieved a strong housing delivery system that was underpinned in part by NRAS, we are best placed to consider a structured approach to affordable rentals in perpetuity particularly as affordable housing is an emerging international asset class for investment.

The NRAS style lever as is becoming more evident provides healthy levels of institutional and international investors, creating jobs, supply and taxation revenues to potentially see an affordable housing crisis peace declared at a Christmas in the near future.