Reform of the federation - housing, homelessness and the road to reform

 

National Shelter's Executive Officer Adrian Pisarski reflects on how the review of Federation may impact on how housing needs are addressed in Australia.

Late last year I posed a question - is the current funding and responsibility for housing and homelessness  shared by the Commonwealth Government and the States/Territories ideal?  

At the time I was looking forward to the reform of the Federation process as something which might facilitate an intelligent discussion about current housing and homelessness policy settings.  The National Affordable Housing Agreement (NAHA) has structural flaws; Commonwealth Rent Assistance (CRA) is inadequate to alleviate housing stress but could be reformed and the National Partnership Agreement on Homelessness (NPAH) has become an annual battle.  I was quietly hopeful about the Federalism review being able to deliver good outcomes.  

My optimism was partly generated by the Reform of the Federation White Paper, which provides a good history and discussion of housing and homelessness and also seems to describe the crisis of affordability, especially for low income households, with accompanying open questions.

In hindsight my view was naïve and I now see the review as a somewhat cynical exercise to relieve the Commonwealth Government’s budget pressure, press Australia towards small government by removing resources, forcing the States into a no-win situation and creating an environment for a larger GST.

My change in attitude has come about since I attended the consultation roundtable in Canberra which had a different emphasis than the White Paper. I also became concerned about some of the principles guiding the process and how the elements will come together through the consultation.  

At face value, the aims and principles (listed below) themselves seem straight forward, if narrow. But the underlying assumptions are hidden and appear to usher the conversation down a specific path and a foregone conclusion:  that reform is necessary, the past 70 years to have created centralism contrary to the core of our Constitution, and that only radical reform taking us back to the intentions of the Federation forefathers can fix these problems.  

Within the Constitutional framework, consideration will be given to:

the practicalities of limiting Commonwealth policies and funding to core national interest matters, as typified by the matters in section 51 of the Constitution; reducing or, if appropriate, eliminating overlap between Local, State and Commonwealth responsibility or involvement in the delivery and funding of public programs; achieving agreement between State and Commonwealth governments about their distinct and mutually exclusive responsibilities and subsequent funding sources for associated programs; and achieving equity and sustainability in the funding of any programs that are deemed to be the responsibility of more than one level of government. Consistent with this, the White Paper will present the Commonwealth Government’s position in relation to: the values and goals that should underpin the Federation so it becomes more efficient and drives national productivity; principles and criteria to be applied when allocating roles and responsibilities between different levels of government, such as:

  1. subsidiarity, whereby responsibility lies with the lowest level of government possible, allowing flexible approaches to improving outcomes;
  2. equity, efficiency and effectiveness of service delivery, including a specific focus on service delivery in the regions,
  3. ‘national interest’ considerations, so that where it is appropriate, a national approach is adopted in preference to diversity across jurisdictions,
  4. accountability for performance in delivering outcomes, but without imposing unnecessary reporting burdens and overly prescriptive controls,
  5. durability (that is, the allocation of roles and responsibilities should be appropriate for the long-term), and
  6. fiscal sustainability at both Commonwealth and State levels.

The consultation I attended in Canberra seemed to begin by establishing that roles and responsibilities must change rather than looking at the scale of the problem and the best way of resolving it (which might or might not mean changing Federal/State relations or reinforcing existing ones).

The basic problems around housing and homelessness issues stem from starting the conversation at the wrong point and “driving against the flow of traffic” created over 115 years of Federation.  So following the principals above (some already alluded to by the Commission of Audit), the Commonwealth Government should have no role in housing , as it isn’t identified as a ‘core’ responsibility in Section 51 of the Constitution.  

The Commonwealth Government, in response to massive housing poverty, city squalor and an acute housing need for returned soldiers after World War II, determined in 1945 to get involved in the provision of housing.  The Constitution may not mention housing, but we have now had the Commonwealth involved for 70 out of 114 years. So history points to the fact that past governments recognised the significant Federal levers at their disposal to effect change to the housing system.

The Commonwealth Government exerts the major force over housing policy nationally through tax treatment.  The deductibility of expenses and losses against any income (negative gearing), exemptions from Capital Gains Tax (especially for investors since 1992) and other tax settings are contributing to our housing affordability crisis and are central to the Commonwealth’s role.  

The provision of capital contributions to States and Territories through the NAHA and NPAH is small by comparison with these tax concessions; and is increasingly used by states to support a diversion from providing social housing into providing assistance for households in the private rental market.  

So rather than asking what is wrong up front, the consultation starts at the point of Federal/State relations, roles and responsibilities, as the heart of the matter when in reality they are peripheral.

As echoed by all attendees at the consultation I attended, the basic problem is a lack of supply –  across the market, but particularly for low income households where the supply shortage is amplified by higher income tenants displacing lower income tenants.  

If we look specifically at the NAHA, the problems are really about the construction of the agreement, its limitations and the perceived lack of accountability between the States and the Commonwealth.  The NAHA is limited by both its dollar value and the method of indexation consigning it to a declining level over time. 

 It was constructed by central agencies, seemingly without reference to portfolio Ministers, and lacks clear goals, outcomes and measurements.  Its performance measures do not align with its own timeframes and either cannot be measured accurately or do not contribute to meaningful benchmarks about success or otherwise.  Shortcomings inherent in the agreement have led to deteriorating trust about its worth and effectiveness.  

Perhaps the most disappointing aspect of the consultation process is that it seems to have a pre-determined outcome.  It seems that activities are already in train to change the roles of the states and Commonwealth, without waiting to consider any outcomes from the process.  I point to a pattern of decisions already enacted or recommendations made by reviews framed by the government, which I believe add weight to my argument about the inevitably of the process, which might conclude that the Commonwealth should have no involvement in housing and homelessness policy, funding or programs.

In coming to power the first decision of the Prime Minister was to remove the title housing from the community services portfolio. Once again, we no longer have a Minister for Housing; and the portfolio sinks further into welfarism by being subsumed by the Department of Social Services (DSS).  

The Minister for DSS, then Kevin Andrews, immediately ended the Ministerial meetings with the Housing Minister’s Advisory Council (HMAC), which were the mechanisms of coordinating and determining Commonwealth/State arrangements.  Next the Commonwealth Government axed the National Housing Supply Council (NHSC) which was the only body collating and considering the level of housing supply and the scale of the problem being dealt with.

The Commonwealth Government’s Commission of Audit report devoted a page to housing and homelessness; recommending the Commonwealth cease funding the NAHA and make public housing tenants eligible for Commonwealth Rent Assistance (CRA), on the condition that public housing authorities charge market rents.  

The gross amount of CRA and the level of NAHA payments being approximately equal, this measure would remove the accountability and transparency issues plaguing the NAHA.  Unfortunately, the demise of the NAHA in favour of CRA changes would also have the effect of extending housing stress and poverty to 350,000 public tenants.  This is because they would pay more rent; and CRA, at current levels, would not protect them from poverty. The recommendation ignored the much more considered approach of the Henry Tax Review (which also thought CRA should be extended to public tenants) of paying an additional higher needs payment for most public tenants.

While decisions have not yet been made on the recommendations of the McClure Welfare Review, it picked up the proposal to extend CRA to public housing tenants, charging market rents, but also increasing the level of CRA.  McClure at least recognises the diminished capacity of CRA to meet the affordability gap for renters, but did not properly acknowledge the massive increase required in payment levels to individuals to meet an adequacy test.

We also saw a coordinated media campaign via The Australian newspaper, to attack, curtail and frustrate the National Rental Affordability Scheme (NRAS) on the basis it had housed foreign students (all of whom would have met eligibility criteria), even though this had been allowable and arguably helped the Australian Capital Territory student housing market.  Eventually rounds 5 and 6 of NRAS were axed; and the scheme continues to be examined for faults with operators frustrated by over-zealous regulatory compliance.  

Lastly, as a budget saving measure through the Mid Year Economic Fiscal Outlook (MYEFO), the Expenditure Review Committee and Minister Andrews removed the entire housing and homelessness program budget, including slashing funding to the three peak bodies whose role is to advise DSS and the Minister on all policy matters related to housing and homelessness and who were the voices of the homeless and marginally housed in Australia.  

It appears to me that the Commonwealth is determined to end its involvement in housing, based on its behaviour since coming to office.

However, there are numerous ways the Commonwealth Government could consider improving the respective roles of itself and State/Territory Governments.

The accountability and transparency issues related to the NAHA could be addressed in other ways, such as insisting that there be specific capital and operational components of the next NAHA and developing measures to ensure the capital component demonstrate net additional supply.  CRA could be extended to public tenants to become the operational cost component of the NAHA; although it would also have the effect of removing the incentive to reform social housing via stock transfer to community housing organisations, and this issue must be addressed.  

A change in the mix of taxation treatments for housing is required, involving both the Commonwealth and States. But this must now be considered by another major review of taxation.  

Whichever review deals with tax, it would be best approached as a package of measures designed to end the unhealthy competition we have created between investors and purchasers, reduce the inflationary tendencies of our current settings (including tax deductability), move from stamp duty to land tax at the State level, provide better arrangements for infrastructure charging and the cost of new supply, and provide the required incentives to encourage institutional investment (especially by superannuation funds) into residential property, with an emphasis on affordability.

The Review of Federation must also recognise that the states bring other elements to the table beyond State funding.  Planning schemes may have more impact on housing affordability than any financial contribution to the NAHA.  Many States have land and other capacities beyond financial contributions that may be lost or ignored by a simple ‘in or out’ proposition, based on financial contributions.  Accountability and transparency may be negotiated and reformed by a sensible approach to Commonwealth/State relations rather than basing responsibility on narrow interpretations of Constitutional clauses.

The Review must also include local government, too often ignored in discussions; and, increasingly, there should be places at the table for the not-for-profit sector agencies which are charged with much of the responsibility of administering and growing our level of social and affordable housing.  

The process so far seems to ignore many of the important reform questions by starting from the wrong point and travelling against the traffic flow.  It may yet be a meaningful road; but for me it needs to start the discussion by asking the right questions and seeing whether the answer is changing roles or some other solution.  These questions are:

  1. What level of investment is required to address Australia’s housing supply shortage particularly for low income households?
  2. What mechanisms are required to ensure affordable housing, including social housing, are financially sustainable in Australia?
  3. If investment is sought, what is the best way to finance the supply of affordable housing, including social housing ? What is the appropriate mix of public, private, institutional investment?
  4. What are the most appropriate instruments required to support the mix of public and private investment (such as NAHA, Tax, Bonds, NRAS)?
  5. What are the most appropriate roles for the public, private and NGO sectors in Australia to develop a sufficient supply of affordable housing and address and prevent homelessness?

Clearly, answers to these questions do not lie in the Commonwealth removing itself from all things housing and homelessness, extending CRA to public tenants and leaving the rest to the states!