Affordable Housing Framework is Inadequate, Researchers Warn

The framework for affordable housing in Australia is inadequate and driven by funding opportunities rather than defined housing needs, a new report has warned.  

Researchers at the Australian Housing and Urban Research Institute (AHURI) released a report on Wednesday examining how to best fund affordable housing.

The study analysed six recently completed affordable housing developments across Australia to gauge how affordable housing project costs, revenues and subsidies interacted to produce affordable housing.

It found that affordable housing projects were being driven by funding opportunities rather than defined housing needs, reducing their effectiveness.

One of the authors of the report, Dr Laurence Troy, told Pro Bono News that affordable housing projects had to make do with “the opportunities available to them”.

“And because of the inconsistency in policy and subsidy support mechanisms it meant that they were not producing the best [possible] outcomes,” Troy said.

“There needs to be consistent policy and it needs to be operating at a national level because there are currently different mechanisms within the Commonwealth and state domains.”

One of the key issues identified in the report was a “funding gap” between the revenue acquired through rents paid by low-income tenants and the cost of developing and maintaining high-quality affordable housing.

“Producing social or affordable housing with a component of private finance invariably generates a gap between the revenues recouped from sub-market rents and the recurrent costs of provision, including debt servicing,” the report said.

“There is, therefore, a longstanding case for a ‘revenue gap’ subsidy to support the provision of affordable housing.”

What is the best way to fund affordable housing? A newly released AHURI report investigates: https://t.co/rlnJBEam4W pic.twitter.com/dWXESpJHVD

— AHURI (@AHURI_Research) February 13, 2018

Troy said that given the long-term decline in the direct supply of social housing and the inconsistencies in policy and subsidies, it was clear the current affordable housing framework was inadequate.

“All you need to do is look at the kind of numbers being produced currently and the scale of need that is out there,” Troy said.

“There is clearly a deficit and something needs to change. As we’ve walked away from the direct provision of public housing there’s been nothing that’s come in its place.

“What we’re arguing is that there needs to be a lot more effort and a lot more focus on delivering a whole range of housing, and that includes more social housing and also affordable rental space.”

The report highlighted the importance of a needs-based modelling approach to investment decisions.

“Too often the composition of affordable housing projects has been driven more by disparate funding rules and opportunities than to meet priority housing needs,” the report said.

“As a result, the rents of many ‘affordable dwellings’ may not be affordable to those on the lowest incomes or those in need of larger (higher rent) housing, or tenure pathways for households may not be operational.”

Troy said specific needs had to be taken into account before any policy or investments were considered.

“We need to set up a needs driven approach so we actually start with a set of housing needs at different income levels and then set about constructing policy around delivering those needs,” he said.

“This is better than allowing whoever gets housed to result from the opportunities of whatever policy or subsidy arrangements are out there. To provide for all kinds of needs we actually need to start from what those needs are and put things in place to ensure that it happens.”

The report said not for profits had a key role in providing affordable housing and ensuring the projects retained their social benefit.

“One advantage of the not-for-profit model of affordable housing provision lies in the potential for NFPs to retain the social benefit created by public investment over the long term,” the report said.

Troy added that NFP providers were important because they “generally redirected what might notionally be seen as a profit margin back into delivering a social return”.

This was highlighted through the researchers’ use of the Affordable Housing Assessment Tool (AHAT), a new interactive modelling tool developed to determine how affordable housing project costs, revenues and subsidies impacted the affordability for lower income households.

“What we have developed for the first time is a tool that enables us to start with housing needs, then figure out which types of subsidies and policies will best be able to fund projects to meet those needs,” Troy said.

“By using this tool we also found subsidising the private sector to produce affordable housing that is available for a defined period of time is less cost effective over the longer term than directing such subsidies to NFP housing providers.”

The researchers made a number of key policy recommendations to better meet the affordable housing needs of low-income households.

These include making public land available at below-market cost; keeping affordable housing in the NFP housing sector to retain social benefit created; providing gap funding to reduce the need for private financing; and using needs-based modelling for investment decisions and to drive the allocation of subsidies.

The full report is available to be viewed here.