A third of low-income households receiving Commonwealth Rent Assistance (CRA) are in housing stress even if all their rent assistance is put towards rent.
What's more, one-fifth of low-income private rental households don't receive any rent assistance despite being in housing stress, according to new research from the Australian Housing and Urban Research Institute (AHURI).
The report, ‘Demand-side assistance in Australia’s rental housing market: exploring reform options’, found that rent assistance isn't well-targeted, with 18% of low-income households not receiving any rent assistance despite being in housing stress.
Housing stress in this instance is defined as spending more than 30% of gross (pre-tax) income on rent or mortgage repayments.
AHURI found that raising the CRA maximum rate by 30% could lift 40% of low-income households out of housing stress.
Meanwhile, changing CRA eligibility criteria to target those in housing stress would reduce the number of low-income households struggling to pay rent by 370,000 - many of whom are currently ineligible for CRA.
Buying a home or looking to refinance? The table below features home loans with some of the lowest variable interest rates on the market for owner occupiers.
Smart Booster Home Loan
- Discount variable for 1 year <=80% LVR
- No ongoing fees
- Unlimited redraw facility
Monthly repayments: $1,476
- Discount variable for 1 year
- No ongoing fees
- Unlimited redraw facility
Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. The product and rate must be clearly published on the Product Provider’s web site. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term.
To be eligible for CRA, you must be receiving social security or veterans' income support and/or more than the base rate of Family Tax Benefit Part A and pay or be liable to pay more than the specified rent thresholds.
Changing the eligibility criteria would mean that 240,000 households in housing stress would become eligible for CRA while 330,000 would lose their entitlement to receive CRA because they're not in housing stress - saving the economy $1.2 billion per year.
Professor Rachel Ong ViforJ from Curtin University said while changing the CRA eligibility rules offers the biggest benefits in terms of targeting those who need it most, there would be constitutional complications in implementing this reform.
"Currently the Australian Government is constitutionally limited to only paying CRA as a supplement to people who receive certain other social security benefits such as JobSeeker or the Age Pension," Professor ViforJ said.
"Nevertheless, there could be constitutional ways of overcoming these constraints, such as using the external affairs power to effect the internationally recognised right to housing; expanding the Australian Government’s constitutional powers to make provision for housing benefits; or reforming CRA as a Commonwealth-State and Territory program, with the Australian Government making grants to state and territory governments to pay rent assistance to eligible persons.
"Care would need to be taken to ensure it retains its form as a cash payment to tenants, not landlords."
The research found that a 30% increase in the CRA maximum rate would lift 40% of low-income households out of housing stress.
"This would reflect a much-needed increase in CRA for low-income renters. CRA maximum rates simply have not kept pace with rent increases over time."
But the report warned that in severely disadvantaged areas, up to one-third of an increase in the CRA maximum rate could be captured by landlords lifting their rents.
"Policies that increase the flow of new housing supply in low-value market segments would be important to counteract this effect," said Professor ViforJ.
The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:
- The big four banks are: ANZ, CBA, NAB and Westpac
- The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
- The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
- If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au
Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.
In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.
*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may inﬂuence the cost of the loan.
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