Billions spent on housing affordability are making it worse: Productivity Commission

Sixteen billion dollars a year in government housing assistance could be better targeted, while nearly $3 billion spent helping first home buyers works against improving affordability, a Productivity Commission review has found.

Governments should commit to targets for new housing supply, improve Commonwealth Rent Assistance and address shortcomings in social housing, the review of the National Housing and Homelessness Agreement, released on Friday, recommended.

Productivity Commissioner Malcolm Roberts said the agreement, set up in 2018 to fund state and territory governments to improve access to housing, was ineffective.

“It does not foster collaboration between governments or hold governments to account,” Roberts said. “It is a funding contract, not a blueprint for reform.”

The report laid bare the housing affordability challenge for renters on low incomes who may not be in a position to buy a home, even with the help of government programs.

About two-thirds of low-income households spent more than 30 per cent of their income on rent in 2022. Another 20 per cent spend over half of their income on rent.

Many are left with little to spend on necessities, as about a fifth of low-income households have less than $250 left after paying their weekly rent.

Rates of rent stress are high for many recipients of Commonwealth Rent Assistance. More than eight in 10 households who receive rent assistance and either Austudy, Youth Allowance for students or JobSeeker are spending at least 30 per cent of their income on rent.

“Over the life of the NHHA, housing affordability has deteriorated for many people, especially people renting in the private market,” Roberts said. “The median low-income renter spends over a third (36 per cent) of their income on rent.”

Economists have long called for increased rent assistance, and the pressure is felt by homelessness services and social housing providers who are fielding more requests for help as rents rise.

The pandemic hit the property market, pushing up rents in regional areas when city dwellers made a tree  or sea change, leaving local workers unable to find affordable rentals. New household formation has also increased rental demand in major cities.

Roberts said a new approach was needed to help those most in need into an affordable home.

“A two-track approach is needed to ease the pressure on low-income renters – the capacity for low-income renters to pay for housing needs to be improved and constraints on new housing supply need to be removed,” he said.

The $5.3 billion Commonwealth Rent Assistance program should be reviewed to improve its adequacy and targeting, the report found.

Fellow Productivity Commissioner Romlie Mokak said the safety net of homelessness services and social housing should be improved.

The report also called for a focus on Aboriginal and Torres Strait Islander housing.

“More support is needed for homelessness prevention and early intervention programs. As governments invest more in social housing, they should also test more flexible and timely ways to assist people,” Mokak said.

The report called on state and territory governments to commit to targets for new housing supply and accelerate planning reform.

It said housing would be more affordable if more homes were built, adding that Australia had 411 dwellings per 1000 people, among the lowest housing stock per person in the OECD.

State and territory governments should commit to targets for new housing supply, and revise zoning regulations that restrict density in established suburbs with good access to jobs and transport, the report said, echoing previous reports such as the Falinski inquiry that called for more supply.

Buyers are also feeling the pinch of rising house prices.

The review found that many younger buyers were being kept out of the market due to the deposit needed to get into their first home, despite programs aimed at helping them.

The average deposit has more than doubled from under $50,000 20 years ago to more than $100,000 by mid-2022, faster than growth in earnings and prices. The average first home buyer deposit surpasses 80 per cent of average annual household disposable income.

The review said policymakers across different levels of government needed to be aware of the effects of housing policies across different types of housing tenures. For example, social housing demand depends on the affordability of private rentals.

Instead, the National Housing and Homelessness Agreement had a narrow focus on funding homelessness services and did not include policy levers such as Commonwealth Rent Assistance and support for home buyers, the report said.