The best way to spend $20 million? 90 slightly cheaper rentals in Crace?

johnboy 22 December 2010 19

Housing in Canberra is woefully over priced because there are more people trying to find somewhere to live than there are houses to put them in.

And yet. Brace yourselves this might make you angry when you think it through.

Chief Minister Stanhope has announced that the ACT Government is lending $20 million to CHC Affordable Housing so that organisation can buy 90 abodes in Crace to rent out at 74.9% of so called “market” rent.

So… we’re reducing the general housing supply to make a small reduction to the rents of a fortunate few who will be warehoused in Crace.

The answer remains increasing the housing supply. But then the objective is not affordable housing. It’s being seen to do something, anything.


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19 Responses to The best way to spend $20 million? 90 slightly cheaper rentals in Crace?
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breda breda 12:56 pm 26 Dec 10

Interesting read, JB. The trouble with this kind of theory, though, is that it mixes up economic and social issues. The idea that it is repugnant that people can earn money without having to work every day (from investments, or capital gains) is tangled up with economic growth and efficiency.

In fact, your super fund hopefully does exactly that. Investment and capital gains underpin all wealth generation. It is true that ‘undeserving’ individuals and companies profit from it, but the only reason to invest is to harvest the gains, which are real – otherwise a subsistence farmer would be as productive as a high tech corporate farm, or a home weaver would be equal to a textile firm.

There is always a risk in investing, whether it be it property, shares or other kinds of business. Plenty of people who have done it have gone broke.

The debate about land ownership and taxation/regulation has been going on for centuries, and isn’t about to stop anytime soon. If there was a simple answer, it would have been resolved long ago.

johnboy johnboy 12:04 pm 26 Dec 10
qedbynature qedbynature 11:38 am 26 Dec 10

So… we’re reducing the general housing supply to make a small reduction to the rents of a fortunate few who will be warehoused in Crace.

The answer remains increasing the housing supply. But then the objective is not affordable housing. It’s being seen to do something, anything.

Johnboy, your analysis is correct but you understate the extent of the problem. At the heart of the issue is the fact that governments are generally not interested in reducing the cost of housing since a reduction in house prices means just that. A correction in house prices generally would be a significant political negative affecting the property owning class amply demonstrated by the federal Labor’s recent attempts to protect the housing market from the effects of the GFC. The free market system prefers increasing asset prices. The collateral damage is ongoing social disadvantage. ACT Labor is particularly aware that a large number of its voters are now “winners” in the real estate game and is obviously not going to upset the status quo.

Mothy Mothy 11:40 am 23 Dec 10

JasonW1956 said I’m may be incorrect but thats an additional $20m on top of the $50m…

Bingo.

So if the target is 500 properties for sale and 500 for rent over 10 years, $20m gets you 90 rentals, and that was on top of $50m loan and $40 in property already ($110m in support so far), what’s the size of the total commitment? What’s the return the government is seeing on that loan?

schmeah schmeah 11:27 am 23 Dec 10

We’d be able to increase the housing supply pretty well if arseholes stopped buyingup all the decent inner suburbia property just so they can add it to their portfolios and brag to their cronnies over babycinos.

You don’t see them buying property in Crace do you – that’s left for the rest of us getting by on a dual income which, while substantial, still puts you in the housing dog – house.

Affordable housing in Canberra, whether renting or buying, is a five star joke!

JasonW1956 JasonW1956 12:06 am 23 Dec 10

I’m may be incorrect but thats an additional $20m on top of the $50m…

What could others do with that $70m spoon fed to them?? Are they running a tight ship in there…

This will all “fizzle out” but I guess panel builders and the decision makers are all happy from the kickbacks…

Maybe someone should do some digging?? Another ACT Government “Boy’s Club”…

affordable affordable 6:21 pm 22 Dec 10

sounds like Crace is having trouble selling there over priced slums
with Defence housing being a partner at Crace, they must not want these properties either

dtc dtc 5:48 pm 22 Dec 10

So if you get $9,140 pa in subsidies, that works out at $175pw (noting that its not always in cash).

If you are charging at $75% of ‘market rent’, then if the market rent is $700 (25% x 700 = 175) you ‘break even’ ie you get the same amount of money (reduced rent + subsidy) as you would if you just charged market rent.

So if market rent is less than $700, you actually receive more money – say market rent is $400pw, you charge $300pw and you get $175pw subsidy – total $475pw

Is this right?

This does not take into account any GST benefits. Or any benefits from cheaper govt loans.

That said, if CHC is non profit, then there are no shareholders receiving massive profits, although its employees might be getting good money.

And it doesnt ‘reduce supply’ – the people renting these houses would still have had to rent somewhere. The only potential effect is that some people will now rent more ‘expensive’ houses than they would otherwise (ie 25% more expensive) and thus vacate the cheaper housing they are currently renting. But since cheaper housing is in demand, thats a good outcome as it frees up the cheaper stock (although an economist would actually say that by increasing supply of cheaper housing and reducing the demand, as people move into more expensive housing, it pushes down the price of the cheaper housing).

From what I can see, the only cost to the rest of us is the income re-distribution via our tax system.

Which in no way negates the argument that there should be more housing allowed.

Skidbladnir Skidbladnir 3:30 pm 22 Dec 10

NRAS also requires entirely new housing stock, it can’t have been fit for human habitation prior to signing on for the duration.

hax said:
It would kind of suck to live nearby in a similar property, paying “normal” price..
Well, if you’re not eligible for NRAS subsidised housing, you’re deemed to be earning enough to get by.
Those who -are- eligible and remain eligible, have a certain amount of economic suckiness that you’d have to be mad to envy.

Skidbladnir Skidbladnir 3:04 pm 22 Dec 10

Property Manager:

You’re about as wrong as you can be, remind me to never let you do Accounts Receivable.
If it helps, the incentive amount is paid annually, and is in addition to rental income.
(and assume they’re renting to individuals and families making the gross annual incomes shown here.
They’re not the kind of families renting at $936pw.

hax hax 2:52 pm 22 Dec 10

This governments answer to affordable housing never has anything to do with actually making it affordable. I suppose it’s all too hard, easier just to give taxpayers money away to a few instead of doing some hard work to fix the causes (many their own doing over the years).

So what will this strategy accomplish? Prices continue going up, more people need subsidizing, taxes need to go up to pay for it, more people need subsidizing, etc.. (don’t even get me started on land rent)

Instead of heading towards communism, why not do some ‘hard work’ and actually look at why it’s not affordable (beyond self-inflicted supply pressures)?

Also – if you provide 90 tennants/couples/families subsidized rental, do you not remove them from the “normal” rental pool, thus reducing demand in the “normal” rental market (and therefore cost)?

I wouldn’t think so – there’s no increase in supply per se, because those properties would have been there either way (these ones are just cheaper than they would have been).
It would kind of suck to live nearby in a similar property, paying “normal” price..

Property Manager Property Manager 1:59 pm 22 Dec 10

Mothy @ 5:

I can’t say I know the technicalities, but would it add up if the ACT Government retained the title to the land (like under the land rent scheme)?

I would guess they pay no stamp duty either, but I doubt that would make the numbers work on its own.

Property Manager Property Manager 1:45 pm 22 Dec 10

I like a challenge – thanks Skiddy.

By my calculations CHC will benefit under this arrangement for any rental property that would rent for under $936pw on the open market – call it the break even point, higher than that and the loss they make on the rental value is greater than the subsidy the Gov offers. The less the property is worth at full market rent the greater the margin CHC will be making under the arrangement you have illustrated. I bet they’ll be buying the cheapest, most basic properties available.

I haven’t verified any of your info or data, just taken it at face value.

What do you reckon the interest rate was on the $20M that WE loaned them to buy these properties?

TVStar TVStar 1:40 pm 22 Dec 10

The 74.9% market rent target is a tax dodge.

Non-profit housing providers are able to aviod paying the GST on the property (while also claiming back the GST paid) if it is rented for less than 75 per cent of the “market rate”. (This reference to “market rate” has some vague relationship with the housing market; unlike “market rent” paid to ACT Housing which is made up by communists in ACT Housing to justify their Fabian Socialist housing programs.)

NRAS is a bit of a tax dodge! All the employees of CHC get $30,000 each in fringe benefits tax free, and the private devleopers actually building the properties do pretty well at taxpayers expense also!

Good to see Stanhope has finally got a serious approach to housing affordability: ask charity groups funded by the Commonwealth to save us poor Canberrans from his Government’s failures.

Mothy Mothy 1:26 pm 22 Dec 10

Just curious,

Accepting that CHC buying the properties adds to demand, it also takes stock off developers hands, and replenishes their supply of cash for reinvestment in the next project. Without this process, who is going to provide the future supply that you hope will drive prices down?

Also – if you provide 90 tennants/couples/families subsidized rental, do you not remove them from the “normal” rental pool, thus reducing demand in the “normal” rental market (and therefore cost)?

Meanwhile, what worries me is the numbers that are thrown around in that press release;

* On this occasion, $20m = 90 properties. Unless CHC’s cost is $222,222 per property (give me some of that action, please), the ACT Govt contribution is but a part of the whole picture, and credit isn’t being given to the other side of this little coin.

* Previously, CHC were given a $50m loan and $40m in stock, where “The initial $50 million loan facility was to deliver 500 affordable dwellings for sale and 500 for affordable rental over 10 years,” Mr Stanhope said. “By June 30 this year CHC had delivered 101 dwellings for sale and 110 for rent throughout Canberra…”. Again, unless CHC are able to magic up some serious bang for their buck, either the governments actual commitment here over the life of the agreement is greater than the headline, or someone else is putting up some $ and not getting the credit they deserve.

Skidbladnir Skidbladnir 12:48 pm 22 Dec 10

Way to go for totally misunderstanding what is going on here.
That 74.9% relative to market is the giveaway, as 75% and above is the threshold for the definition of non-commercial accomodation rental activity before an organisation loses tax-exempt status and it becomes a taxable income stream.
CHC Affordable Housing, a part of COMMUNITY HOUSING CANBERRA LTD, a Public Benevolent Institution

NRAS

NRAS provides discounted (no greater than 80% market) rental accomodation to low\moderate income persons and families, and the property attracts a subsidy as incentive.

A Commonwealth Government Incentive currently of $6,855 per dwelling per year as a refundable tax offset or payment; and
A State or Territory Government Incentive currently of $2,285 per dwelling per year in direct or in kind financial support.
This amount (totallin $9,140 in 2011) increases in line with Rental CPI, weighting averaged across capital cities.

By renting below 80% market rate to people in low-income bands, a PBI landlord attracts the subsidy as cash at the Federal level, with State\Territories sorting out how their is delivered.

A challenge:
Do your own maths tell me why CHC loves the idea.

Property Manager Property Manager 11:56 am 22 Dec 10

Thanks to JB for bringing this forward. Here’s some brief info on the rental market in Crace:

* Present and recent 3 bedroom properties – $500pw; $500pw & $530pw.
* Present and recent 2 bedroom properties – $450pw; $485pw; $485pw & $420pw.

So, even using the average value for loose calculations, full market rent for a 2 bedroom property in Crace is about $460pw, or for a 3 bedroom is $510pw.

Most of these properties appear to be terrace style on small blocks (like, SMALL!), and feature limited inclusions by comparison with other properties – wall panel heaters and ceiling fans – no ducted heating or air conditioning in sight. For the money you can do better (IMHO).

So, for a small property on a small block with limited features 90 people will pay $382 for a 3 bedroom house, or $345 for a 2 bedroom. That’s around $20,000 / $18,000 per year respectively out of your household’s NET income.

Take a look at CHC’s eligibility criteria (http://www.chcaffordablehousing.com.au/uploadedFile/chc_eligibility_criteria.pdf) and see if you think that these prices represent “affordability” against the income of those eligible.

EG:
A single mum with a daughter earning the highest amount possible to be eligible for assistance ($59,099) is taking home $909pw after tax, and paying $345 for her home in Crace. This leaves $555 to pay for childcare at around $100 a day, food, transport costs, insurances, electricity, phone, healthcare… and these are just the essentials.

Affordable my ass.

D2 D2 10:55 am 22 Dec 10

The moral of this story is invest in housing in Crace.

georgesgenitals georgesgenitals 10:38 am 22 Dec 10

It will be interesting to see what the actual rent numbers come out at. By reducing general market supply (if only by a bit), rents will trend upward, meaning that 74.9% will be a higher number than first thought.

Ouch.

More land at sensible prices and more tradies is the only real solution. New land in Molonglo Valley is going to cost almost $1000 per square metre!

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