Shifting Management to NFPs is Good for Public Housing

Transferring the management of public housing from state and territory governments to not-for-profit housing providers can revive run-down estates and build more homes, according to a new report.

Research from the Australian Housing and Urban Research Institute (AHURI) found transfers of long-term management contracts to not-for-profit community housing providers (CHPs) created similar credit borrowing capabilities for those providers as transferring the properties with freehold title.

According to the report, transfers on this basis could provide a viable means for addressing moderate maintenance backlogs, enhancing community development and helping to fund the development of additional affordable housing.

Lead author Professor Hal Pawson, from the University of New South Wales, told Pro Bono News that long lease contracts were becoming standard and marked an important development in affordable housing industry finance.

“That is certainly an important development that makes the recent programs different from the smaller scale things that have been done in the past… they’re proposing 20-year terms,”  Pawson said.

“So that is a new dimension, I think it is a very positive one because in some ways it is near equivalent to handing over public housing with full ownership, in the sense that it should enable a community housing provider to leverage against it.

“In other words it can be used as a security that enables more borrowing, that a community housing provider can do to invest, probably mostly in bringing property up to a reasonable standard but possibly, to some limited extent, also in additional social and affordable housing that could be built as an indirect benefit of the program.

“This is a useful way forward that should give CHPs a secure basis for leveraging funds while avoiding concerns about public housing ‘sell-offs’ and ‘privatisation’.

“As well as helping to channel more funding into the system, the ‘long lease’ model is a welcome development from the CHP perspective because it reduces the uncertainties they’ve faced under the short-term management contracts typically used in earlier transfers.”

The report, Recent Housing Transfer Experience in Australia: Implications for Affordable Housing Industry Development, examined three recent public housing transfer programs: Tasmania’s Better Housing Futures (BHF), South Australia’s Better Places, Stronger Communities (BPSC) and Queensland’s Logan Renewal Initiative (LRI).

“What we were doing was focusing on a small number of transfer programs that have been progressed in the last couple of years,” Pawson said.

“It has mostly been a New South Wales story until recently, but in the last three years three states which had historically done little in this area became very active, that’s South Australia, Tasmania and Queensland.”

The report found that in those cases boosting the resources available to upgrade and expand social housing was the most important motivating factor for the state governments concerned.

In South Australia and Tasmania, the revenue boost achieved through accessing Commonwealth Rent Assistance was directed to address maintenance backlogs and improve tenant services, with more ambitious estate renewal objectives coming later to the agenda.

However LRI, which would have been the largest and most far-reaching transfer program undertaken in Australia to date, was recently terminated following a drawn-out implementation process and a change of government.

Pawson said one of the lessons was not to run before you can walk.

“They pulled the plug on it [LRI] after a huge amount of dithering and an enormous amount of public money and community housing provider money had gone down the drain as a result of that, so that’s not a positive story, but the story for the other two is more positive,” he said.

“Particularly for Tasmania I think, which for a relatively small state has done this on quite a big scale.

“So in Tasmania now, as a result of the transfers, about half of all social housing is now under the management of the not-for-profit sector under community housing providers and half of public housing, whereas in all the other states, public housing remains much more dominant than that.

“I think one of the lessons is don’t try to run before you can walk… Both South Australia and Tasmania approached their programs in a much more measured way and they both very sensibly decided to have a staged approach where the first stage was if you like a pilot or test, relatively small scale trial, and then following on from that, having learned a bit about how you do this, the governments felt in both cases to initiate a second bigger stage which has been completed now in both Tasmania and South Australia.”

Pawson said access to Commonwealth Rent Assistance was a “critical incentive” for the transfer of public housing to CHPs.

“The ability of a community housing provider to charge a higher rent that doesn’t leave the tenant any poorer because of the tenant being able to get access to Commonwealth Rent Assistance, that’s a very important incentive,” he said.

“It means that the amount that a community housing provider can collect in rent inclusive of CRA is somewhere around 50 per cent higher than what the public housing provider is able to charge in rent based on 25 per cent of the tenant’s income.

“So it is an important part of the equation for state governments. The realisation that there is a way…of say leveraging or channeling commonwealth funding into social housing, which isn’t available unless you do a transfer.

“But it is not unlimited. It does have a budgetary impact for governments.”

According to the report the cost of progressing transfers to achieve the 65 per cent/35 per cent public housing/community housing split of total social housing, agreed as a target by Australian Government in 2009, would be $193 million – equivalent to a 4 per cent increase in the total CRA budget.

Transferring all public housing would result in a 22 per cent CRA budget increase.

However, Pawson said he would expect the net cost to the federal government to be less than this implies, as if states and territories no longer owned public housing they would not qualify for the annual block grant funding (approximately $2 billion) they currently receive under the National Affordable Housing Agreement.

“[The Commonwealth Government] will be looking for every way of limiting what they are spending on CRA so they are not going to be too happy at any increase but because public housing compared with the lower income part of the private rental market is really pretty small,”   Pawson said.

“Even if you transferred all public housing into community housing hands and all the current public housing tenants could suddenly begin claiming CRA, the effect on the total CRA budget would be moderate.”

The research also modelled four transfer scenarios to assess their long-term viability and leveraging potential.

It found that factoring in the extra Australian government funding received by CHPs can generate a modest operational surplus – sufficient to eliminate moderate maintenance shortfalls over the medium term and to underpin the building of new affordable rental homes on a limited scale.

However, if the transferred properties need large-scale maintenance or CHPs are expected to fund additional non-landlord activities, then the scope to generate extra social housing is greatly reduced or eliminated.

Pawson said a long-term plan to transform social housing provision, informed by better data on public housing finances, coordinated across both levels of government and with the industry, and sustained by strong national leadership and bipartisan support, was an “urgent priority”.

But he said it was not a “silver bullet” to solving the shortage problem.

“Because the condition of public housing is not ideal by any means, because it has been run down over some decades, I think any responsible policy would say the first priority of additional revenue is to bring property up to a reasonable standard or redevelop it,” he said.

“Some public housing property is in a state where the best, most effective use of resources is not to patch it up, it is to replace it.

“Especially because a lot of public housing is in places where it is not an effective use of land anymore. Since it was built, which might be 40 or 50 years ago, the surrounding area has changed and… now it would make a lot more sense to replace it and maybe build three times, five times, maybe even 10 times as many properties… on the site.

“So if you were to transfer the entire public housing stock into the community housing sector I think along with that there should be a program of bringing all of the homes that it makes sense to keep, up to a good standard, and replacing those that are either in too bad a state or they are not an effective use of land, and in that way you would increase the amount of affordable housing, the total amount as well.

“But it is not a silver bullet to solving the shortage problem at all. Solving the shortage problem is an important issue and needs to be tackled but transferring from one owner to another is only going to make a pretty small impact on that.”