One of the issues under consideration was the possibility of introducing what are called mixed models. At present, social housing is reserved for those on low to very low incomes and, increasingly, for priority cases with complex needs. One effect is that rental streams have been dropping, maintenance costs rising, leading to an increasing financial loss across the whole system. In simple terms, social housing is going broke.
A mixed model involves relaxing the income eligibility and priority needs constraint to allow a greater variety of people to access social housing at varying rents up to market rents and beyond. This approach offers a number of social benefits:
- It allows people to stay in social housing as their income rises, just paying more. This can be combined with home ownership options, moving the social housing system back towards its original social advancement role.
- It reduces the potential disincentive created by income eligibility rules that are so tight that people may knock back work or reduce working hours for fear of losing their home.
- It means greater variety in social housing tenants, thus reducing the problems that can arise when you concentrate the most disadvantaged in particular locations.
- Importantly, it improves the financial viability of the social housing system itself.
Mind you, it would be easier to sell if governments were to say that we are going to have a mixed model, but will build a certain quantity of additional houses to cushion the short term effects.
Earlier, I referred to market rents and beyond. How on earth can you charge more than market rent for a social housing property? To understand this, you need to understand something about the dynamics of the rental market place.
Rental properties fall into two primary groups. The first are owner occupied properties that have come onto the market because the owners have moved away for a period. Lease terms are generally short or shorter term. The second group is investor owned properties. Here you can get terms that roll out to years, but the market is still unstable as investor circumstances change and they decide to sell the property.
This creates two problems from the viewpoint of renters. One is simply uncertainty, when will things change? The second is the transaction costs associated dwelling shifts.To illustrate the second, we came down to Sydney in 1996. Over the period to the final break-up of the household in early 2013, we moved six times. One move was our choice, the others were all instigated by owners whose circumstances had changed. Each move cost us over $2,000 as well as inconvenience, costs that have to be added to weekly rentals to get the real rental cost.
This simple maths explains why social housing providers as long term providers may be able to charge a premium above notional market rents. Ignoring the uncertainty factors associated with rental and the inconvenience factors in moving, if the transaction costs associated with moving average out to $20 per week over a ten year period, then the social housing provider might charge $15 extra a week and still leave the tenant better off. That would certainly help the viability of the social housing system.
It would also increase the capital management options open to the social housing system in that parcels of houses under longer term lease at good rents could be packaged and sold to an insatiable superannuation market place. The system might retain the property and tenancy management functions on a fee for service basis.
In the world I am talking about, the private sector is likely to follow if it looks like they are going to make money. As they do, the social need for this type of public or NGO provided housing will decline.