Housing Affordability Scheme success?

September 13, 2008

CORPORATE Australia has flocked to a Rudd government offer of tax breaks in return for construction of low-cost rental accommodation, joining community housing providers in proposing 13,000 new low-rental dwellings in the next year.

The Rudd Government has received 244 proposals under the first round of its national rental affordability scheme and expects to be able to offer low-rent properties to battling families within months.

Under the scheme, a key Labor election promise, investors will earn federal and state tax breaks worth $8000 a year on each dwelling for a decade.

In return, they must rent the properties to eligible low-income earners for 20 per cent less than the commercial market rental rate.

The guidelines for the scheme mean about 1.5 million people will be eligible to apply for the cheap rent.

As the Real Estate Institute of Australia and the Australian Council of Social Service applauded the move yesterday, Housing Minister Tanya Plibersek said she was delighted with the number of applications for the first round of funding, which closed 10 days ago.

Ms Plibersek said 244 applications had been lodged proposing to build 12,770 new dwellings in the first year of the scheme.

The Government will approve 3500 new dwellings initially, followed by 7500 next year and 25,000 in the following two years.

"I expect we'll be able to turn some keys in front doors certainly this financial year," Ms Plibersek told The Weekend Australian yesterday.

She said existing market forces in the real estate sector had failed low-income earners.

Government intervention would bring rental accommodation within the reach of thousands of low-income families.

"For the vast majority of people, once they are in the market when it comes to buying their own homes, they are all right," she said.

"But there are some areas where there is obvious market failure. One of those is affordable rental, with very low-rental, low vacancy rates anyway; people who are looking for something at the affordable end of the market are really doing it very tough."

She said the previous government's assumption that the market provided for everyone was flawed.

According to the Department of Housing, rental accommodation was scarce across all capital cities in June, with vacancy rates in Melbourne, Perth, Adelaide and Darwin at about 2 per cent.

Rises in rents were exceeding wages growth and large numbers of people were unable to find accommodation.

Ms Plibersek said regional cities, particularly in mining areas, were even worse, with the Queensland city of Mackay's vacancy rate at 0.2 per cent.

She said applications lodged under the first round of the NRAS scheme were evenly divided between private entities, such as developers and financial institutions, and not-for-profit community housing organisations.

She said she had not been through all of the applications, but believed the involvement of the corporate sector was crucial.

Ms Plibersek hoped for increasing involvement from financial institutions through managed investment schemes.

"If a financial institution had a product which allowed a number of investors to band together, that would be appropriate for this scheme."

She said there was little incentive for investment in low-rental properties, with companies and individual investors instead seeking investments with potential for high capital growth.

The new scheme would balance the scales, allowing investors to use the tax breaks to legitimise the inclusion of low-rent properties with less capital growth as a part of their broad investment portfolios.

Ms Plibersek said the Government had resisted the temptation to spend more in the first two years of the scheme because of labour shortages in the construction industry and a fear that a sudden escalation in construction could put upward pressure on inflation.

In coming weeks the applications would be assessed against the scheme's criteria, with decisions guided by issues such as the proximity of proposed dwellings to services and the environmental efficiency of their design.

Of the proposals received for the first round, 5091 were in NSW, 2973 in Queensland, 2652 in Victoria, 1038 in Tasmania, 458 in West Australia, 402 in South Australia, 100 in the Northern Territory and 56 in the ACT.

Real Estate Institute of Australia president Noel Dyett said his organisation supported the scheme and did not believe that offering the properties at 20 per cent below market value would pervert the rental market.

"Investment in this sector is simply not happening now," Mr Dyett said.

"We need this because the private market is not going to cater for lower-income earners without some government incentives."

Australian Council of Social Service president Lin Hatfield Dodds said the project was a major step forward and would help low-income earners put a roof over their heads.

"It's really a significant plank in terms of housing affordability,' Ms Hatfield Dodds said. "It is a good way of energising investment. We still need, and the Government is working on, an affordable housing strategy. There's still a lot of work to be done, but we think this is a very important initiative."

Obviously not all of those will go through but that sounds like an awful lot of supply. I wonder where they are planning on putting them in.

http://www.theaustralian.news.com.au/story/0,25197,24338627-601,00.html
 
The supply will be for the type of renters that we would probably not entertain as potential tenants in our IP's.

My guess is that it will be a nightmare for the Landlords who sign up for it due to rent defaults and so on.

A generalisation for sure, but....

If the $8k was nett, and paid in advance, then maybe. But it wont be; it'll be before tax no doubt.

Good luck.

Currently, around 20% of rent is eaten up in holding costs - not including loan interest. Then, deduct another 20% to subsidise the losers (sorry; tenants), that's half the rent gone before loan interest.

Let's call it ALL the rent gone in costs after you factor in defaults and damage, and a low growth property thrown in.

We end up with $8k of before tax deductions and many headaches.
 
Don' want to be rude but i think its a w--k, the crud gov has reduced house prices already by forcing home owners out of their homes on interest rates, want cheap houses, then just move the rates to 15% the idiots.
I hope i havn't offend just my thought on this! cranky!!!
 
Agree with Marc. Noel Whittaker said a couple of weeks back in a newspaper column that he couldn't see much value in such a scheme for investors.

My understanding was that the '$8K' was made up of $6K in tax rebates and $2K of 'in kind' benefits from the state governments (e.g. rate subsidies, stamp duty concessions, etc). So I wonder how many applications from "Corporate Australia" will actually result in construction, once "Corporate Australia" analyses the fine print of the scheme. My guess would be 'not many'!

Cheers
LynnH
 
hello,

a bit of propaganda i would say from Tanya,

most likely a spin after the report yesterday indicating not many interested in setting up first home savings accounts,

spot on lynneh

thanks
myla
 
hi all
you can down load the information onthe project from the gov website
the application for this scheme closed 2 weeks ago and yes it is at this stage 6k in tax relief and 2k in kind.
and as for who is in it will I have my finger in.
and until it comes out and we get real numbers its a bit of a lottery.
remembering two things here
1. its not thru as yet and won't be until oct
and 2
they have not said where the properties or allocation will be.
so its a case of put in anf hope at this satge and no commitment from either side.
so until a
we know where
b who is the renters
c numbers
d what the tax back is
ewho the lenders are
its abit o0f a spinning coin at this stage and alot of hot air
but I am in it as they say
you can't win if you don't take the field.
but that does not mean we are going to kick off if we don't like the field or the ref we will be taking our ball and walking off.
hope this helps but I think it won't.
the min number of units must by 20 and above to qualify
 
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With this type of tenant, wouldnt centrelink be paying the rent anyhow. Could be guaranteed if you can actually rent to the Dept then they put a tenant in, pay the rent and restitute any damage
 
hi celica
no this scheme will be managed by fahcsia and they are asking for different people to be put on their lists.
and the developing company with have a lease /agreement to rent at an amount with fahcsia.
and that developing company/owner can't be changed for the 10 years that the agreement is in place unless they sell to someone int he scheme or someone that applys to the shceme and is approved
and if that person/company wants to be part at the shceme at any time the same procedure as is current wil be required to be done.
so it not as simple as renting at 20% below market and away you go.
alot of these scheme sound simple to start( as it easy to say we are going to do this)but in the setup and running of these scheme thats were all the problem areas start to show up
and with this scheme there are alot that I see but at the end of the day if there is money to be made you have to be in it to win it.
it is very early days at this stage.
and not sure if it will work if at the end of the day there is not margin then it is not going anywhere form me.
 
hi all
another great well thoughtout scheme.
to date no progress on it comming out and another hump in the road of progress.
will it happen
have not got a clue but there is alot of hurdles in the way at this stage.
and another was put up yesterday
in the form of charities
is a charity is involved in this scheme they could lose the charity status as they are producing an income and as such can't be involved.
now that sounds silly to me as the uniting church is a very large lender in the finance industry so you work out where the logic is in that one.
but they will work it out.
its been put back three times so far and the latest was yesterday with the computer generated answer that its still to be given the thumbs up
now I have not got any clue
how or why someone in an office in canberra would think that a person would leave a unit or house vacant ( and it has to not been lived in) for 4 months (and thats how long its been since this started) in a market that is over heated ( and thats the reason they started this scheme in the first place)
and the places that they are filling are still there.
and heres the funny thing if they are not they have redo it all over again.
well it will work its self out it always does
just an update
 
I am not a krudd fan, however, I think your all a little glass if half empty.

8k tax free for a 20% rent reduction is a big incentive on lower end properties........

Looks like a lot of the managers are including damage insurance and default insurance in their fees also.

IMho it's worth more research....
 
Outstanding Investment Opportunity in Tassie

I agree with you accumulator

I think NRAS is generally misundertsood and due to the Govts rush to get it to the market it has not been marketed well.

In Tas you can buy a $250,000 home with market rent is $250 per week @80%= $200 pw plus NRAS $167 = $367 pw which is guaranteed for 10years. Thats a starting gross yield of 7.6% (the NRAS is indexed to increase)

I particulary like the following

Low entry level -makes my equity go further
Brand new - reduces maintenance
very high quality build, -increases their appeal to be tenanted
surrounded by other new homes in good locations- assits in providing capital growth
 
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