Budget 2017: Social housing problems won’t be fixed by government-backed bank

The 2017–18 Budget proposal for a National Housing Finance and Investment Corporation has potential, but with substantial risks, according to the Centre for Independent Studies (CIS).

CIS economist Michael Potter said, “The Finance Corporation, also known as a bond aggregator, will help the public and social housing sector with its financing problems.

“However, if government backing is added to the Finance Corporation, this will cause many problems — particularly discouraging necessary reform of the sector, collectively called social housing.

“Any government subsidy or backing for the aggregator is only worthwhile if the benefit is fully passed on to social housing providers. So why not give the benefit directly to housing providers instead of using a costly and non-transparent intermediary?”

“And a government-backed Finance Corporation will add to financial sector risks, particularly if it is expanded, and why wouldn’t it be? Why should government backing only be provided to borrowing for social housing, and not for schools or hospitals?

“In addition, the sector is facing many other problems that won’t be solved by the Finance Corporation.

“These problems include many dissatisfied tenants, dwellings that are too small or too large for tenant needs and dwellings that are poorly maintained.

“The sector is beset with inequities and poor incentives, waiting lists are long, and the sector is being squeezed by higher costs, flatlining government funding, and declining rent income.

“A Finance Corporation deals only with the finance difficulties facing the sector and not the other issues.

“The sector’s issues are better addressed by other solutions including increasing competition between housing providers, encouraging mergers between providers, and transferring public housing to the community sector. In addition, the states should use government contracting and contestability to increase efficiency.

“The Budget already includes one important reform that should benefit the sector: using the funding agreements with the states to encourage reform to planning laws and regulations.

“These reforms would be much better than a government-sponsored bond aggregator, and will provide numerous other benefits, including giving tenants much more autonomy over their lives, while making the sector more efficient and responsive to tenant needs,” Mr Potter said.

Michael Potter is a Research Fellow in the Economics Program at the Centre for Independent Studies and author of the CIS research report Reforming Social Housing: financing and tenant autonomy.