Social housing: helping the vulnerable and the economy

This concentration of COVID-19 related job losses in low-income brackets is likely to increase the number of households at risk of needing social housing or financial assistance for rent. And while approvals for social housing developments have risen since the beginning of the pandemic downturn, they are still at very low levels compared to the long-term average.

"Sadly, the underlying demand for social housing was already far exceeding supply.”

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Sadly, the underlying demand for social housing was already far exceeding supply. In 2018-19:

• 797,000 Australians were in social housing programs;
• 1.29 million income units received Commonwealth Rental Assistance (CRA); and
• 91,800 households received private rental assistance.

Of households with newly allocated public housing in 2018-19, 36.1 per cent had waited a year or more to be allocated social housing and a further 15.7 per cent waited 6-12 months. This suggests an undersupply of social housing.

In 2016, the estimated shortfall of around 431,000 social housing dwellings was forecast to grow to 727,300 by 2036. This translated to a need for around 36,000 new dwellings per year.

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Economic and social benefits

Increased investment in social and affordable housing has long-term social and economic benefits in the recovery from the pandemic.

First, increasing the stock of social housing will reduce some of the accommodation shortfall for people experiencing or at-risk of homelessness. This is particularly important given the pandemic’s obvious impact on low-income jobs.

Reducing homelessness through social housing also supports public health. It is estimated that of homeless people in Australia, 73 per cent of men and 84 per cent of women have at least one mental health disorder. Productivity Commission research suggests appropriate housing contributes to both prevention of and recovery from mental health disorders. Educational attainment levels, social inclusion and protection from domestic violence all improve with social housing investment.

Increased social housing investment would offer employment opportunities in construction and would have a large multiplier for economic activity. This counter-cyclical investment approach would help smooth construction activity and investment through the business cycle. It is estimated an average of 80 construction jobs and 30 ongoing jobs are created for every 100 units of new public housing.

Commonwealth stimulus less than GFC

The Australian Federal Budget enabled the National Housing Finance and Investment Corporation to issue an additional $A1 billion worth of bonds to attract institutional investment to increase the supply of affordable housing. While this support is a step in the right direction, the overall level of support remains low compared with previous crises.

During the global financial crisis (GFC), the federal government’s Social Housing Initiative allocated $A5.6 billion for new construction and repairs and maintenance across all states and territories. This saw annual work done quadruple in two years. 19,700 new dwellings were built, and repairs and maintenance ensured a further 12,000 remained habitable. People experiencing homelessness, people with a disability and elderly people were the main beneficiaries.

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State support more direct

A number of state governments have made budget commitments for social housing this year. These will have two effects: stimulation of construction activity and preparation for elevated demand.

In contrast to the federal government, policies announced so far this year by state and territory governments are more direct. These are summarised below and do not include one-off payments in response to COVID-19, such as rental grants for households in rental arrears, one-off rebates for utility bills and one-off payments for workers with COVID-19 or awaiting test results.

Spending is highest in Victoria, by a large margin, with $A5.3 billion earmarked for social housing in the latest budget.

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Financial assistance as an alternative

Commonwealth rental assistance (CRA) is one alternative to social housing for vulnerable households. However, CRA does not fully shield households from rental stress, which is defined as spending more than 30 per cent of total take-home income on rent for lower income households. Some research suggests financial assistance for housing can be ineffective when rental markets are unregulated and vacancies are low.

However, CRA does go some way to alleviating rental stress. After receiving the CRA payment, 40.5 per cent of recipients in 2018-19 were no longer in rental stress, but 59.5 per cent remained in rental stress. In particular, almost three quarters of CRA recipients under 24 years of age remained in rental stress.

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Throughout the pandemic, workers under 25 years of age have been more likely to lose employment. Young people may be more vulnerable to homelessness or rental stress than other age groups, because they are less likely to have sufficient savings or superannuation accessible under the early-release program.

The historical rate of rental stress for people under 25 receiving the CRA suggests social housing may be more effective than financial assistance for this cohort.

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Adelaide Timbrell is Economist, Felicity Emmett is Senior Economist and Catherine Birch is Senior Economist at ANZ