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Welfare review flags significant reforms for public housing

Matthew Taylor | 18 July 2014

matthew-taylor Last year the Australian government commissioned a welfare review to identify improvements that could be made to ensure the system's sustainability, effectiveness, coherence and that it is more effective in encouraging welfare recipients to work to their full capacity.

The review is being headed by Patrick McClure AO who conducted an earlier review into Australia's welfare system for the Howard government in 2000, which sparked a wave of significant welfare reform.

The reference group for the second McClure review recently released its interim report, A New System for Better Employment and Social Outcomes, in the lead up to a period of stakeholder engagement in which the CIS was asked to participate.

One of the most significant possibilities for reform flagged in the interim report is to the way rents are charged to social housing tenants. While social housing is a state and territory responsibility, the Commonwealth contributed just over $1.7 billion in 2012-13 through the National Affordable Housing Specific Purpose Payments, on top of $2 billion spent by state and territory governments.

Each state and territory has its own approach to public housing rental charges with tenants typically charged a proportion of their income in rent. In NSW, tenants are charged 25-30% of their incomes, representing 42% of market rent for NSW public housing in 2012-13.

This approach to rental charges represents a significant disincentive for those in public housing to participate in the workforce. As the earnings of public housing tenants increase, this income is clawed back by the government through personal income tax and withdrawal of income support. Public housing rents put another significant claw back on top of this, greatly diminishing the gains from workforce participation.

This is in contrast to the Commonwealth's other major housing affordability measure, Commonwealth Rent Assistance (CRA), which is paid directly to those on income support in private rental. CRA payments increase with rent, up to a flat rate, and are added to the recipient's base rate of Family Tax Benefit Part A for those with families, or to the maximum rate of their income support payment for those without. This means CRA tapers out with their income support as earned income increases without introducing any additional participation disincentive.

Aligning the way in which the government subsidises the rents of those in public housing in favour of a flat rate of assistance, as is provided to those on low-incomes in private rental, would improve workforce participation incentives. In addition, it would take some pressure off public housing waiting lists as those who would otherwise seek public housing take up private rental instead.

Furthermore, the gap between CRA and the market rental would introduce price signals into public housing. Rather than having a percentage of each dollar earned taken from them in rent, working tenants could choose to increase their disposable incomes by moving to cheaper - though still highly subsidised - public housing stock. 

Matthew Taylor is a research fellow at The Centre for Independent Studies.