Analysing the effectiveness of demand-side rental subsidies: the case of Australia’s Commonwealth Rent Assistance scheme

Abstract

Proponents of demand-side rental subsidy programmes have argued that they enhance consumer choice while costing less than supply-side interventions. However, unanswered questions remain on the effectiveness of demand-side rental subsidies in reducing affordability stress among low-income renters. This paper analyses Australia’s Commonwealth Rent Assistance (CRA) as a case study for evaluating the effectiveness of housing allowance interventions. Our evaluation exemplifies some important policy principles. First, we demonstrate that a multi-pronged package can simultaneously improve adequacy and targeting on those in greatest housing stress, while maintaining revenue neutrality. Second, whether CRA is designed as an income-oriented or housing-oriented subsidy can affect its effectiveness in improving rental affordability. Third, country-specific institutional contexts cannot be ignored. In Australia, constitutional amendments may be required if CRA is to be paid as a stand-alone housing payment rather than as a supplement to other social security payments. Furthermore, given the role of CRA in the esoteric funding structure of social housing, reforms to payment structure must incorporate meaningful measures to avoid unintended damaging consequences in this arena. Finally, any implementation of reforms should be embedded within a strong housing logic that aims to reduce affordability stress rather than as part of a fiscal cost reduction exercise.

Keywords:

• Commonwealth Rent Assistance
• rental subsidy
• housing allowance
• affordability
• reforms

Acknowledgements

This paper uses unit record data from the Household, Income and Labour Dynamics in Australia (HILDA) Survey. The HILDA Project was initiated and is funded by the Australian Government Department of Social Services (DSS) and is managed by the Melbourne Institute of Applied Economic and Social Research (Melbourne Institute). The findings and views reported in this paper, however, are those of the authors and should not be attributed to DSS or the Melbourne Institute.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 Australia’s federal system of government comprises the Australian Government (sometimes styled the federal government or the Commonwealth) and the governments of the six states and two territories.

2 These countries were selected because their housing and economic system similarities with Australia and, more specifically, because each has a substantial private rental sector. Each country also operates one or more national programmes of demand-side assistance for renters, with different degrees of variation from Australia’s CRA; there is also variation around the degree to which rents are regulated.

3 Another important tax benefit in the Australian case being the exemption of the ‘family home’ from the age pension eligibility assets test.

4 On the other hand, it is rather less difficult to conceive of subsidies delivered via tax expenditures facilitating higher income households doing the same.

5 Another factor is the inclusion or exclusion of social renters.

6 For instance, an elderly couple may share a dwelling with their independent adult son, but these are two separate income units living within a household because the son is not a dependent child.

7 We rank income units based on equivalised income unit income. Income is equivalised using the OCED modified scale (Hagenaars et al., 1994). This scale assigns a value of 1 to the first adult in the income unit and a value of 0.5 to each additional adult member. Children are assigned a value of 0.3. The bottom 40% of the equivalised incomes are defined as low-income units.

8 Per section 51(xxiiiA) of the Australian Constitution, the Australian Government can legislate for ‘the provision of maternity allowances, widows’ pensions, child endowment, unemployment, pharmaceutical, sickness and hospital benefits, medical and dental services (but not so as to authorize any form of civil conscription), benefits to students and family allowances.’

Additional information

Funding

The research reported in this paper was partially funded by the Australian Housing and Urban Research Institute (AHURI) grant number 81208. Rachel Ong ViforJ is the recipient of an Australian Research Council (ARC) Future Fellowship (project FT200100422) funded by the Australian Government.