A closer look at Rent Assistance increases
Leo Patterson Ross • 19/09/2024
The most notable announcement for renters in the 2024 Federal Budget was an increase in the maximum rate of Commonwealth Rent Assistance (CRA). The federal government has trumpeted the increase in CRA as a cost-of-living relief, but what will this mean for people receiving CRA? Starting 20th September 2024, the maximum rate for rent assistance will increase by 10% and will come alongside the next indexation of the payment. However, eligibility criteria remain unchanged, leaving many renters without the support they need.
What even is Rent Assistance?
Let's first start with a quick explainer. The Commonwealth Rent Assistance is a supplementary payment to people in receipt of a welfare payment through Centrelink who also rent their home.
It's calculated as 75c per dollar of rent where rent is paid above a minimum amount, and capped at a maximum rate. These minimum and maximum thresholds are adjusted for household size and type. CRA is payable to one person within an 'income unit' - broadly equivalent to a family. People in sharehouses receive significantly less per person (2/3 the max rate) through each individual can receive CRA.
We can compare it to other countries' equivalents:
| Country | Who receives it | How its calculated |
|---|---|---|
| Australia - Commonwealth Rent Assistance | Tenant | 75c per $1 of rent within minimum and maximum thresholds |
| England - Local Housing Allowance | Tenant | A fixed sum equivalent to low rent in an area |
| USA - Section 8 Housing Choice voucher | Landlord | Contribution equivalent to 30-40% tenant income |
One of the features of CRA that sets it apart from the US 'Housing choice' voucher in particular is that the tenant receives it and can spend the money however they see fit. Of course, at a practical level the rent often eats first - it is often the biggest weekly cost, the hardest cost to reduce in a tight week, and one of the least forgiving industries with no hardship provisions, and the risk of eviction hangs heavy in your mind.
Still in many ways CRA is better thought of as an overall increase to the welfare payment, in recognition of the higher net costs that renters face. Changing that philosophy is risky and has serious implications for reducing rent stress and not inflating rent prices.
Who Benefits from the Increase?
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2 in 3 Low-Income Renters: Currently, one out of every three low-income private renters do not receive Commonwealth Rent Assistance (CRA) at all. This means a significant portion of vulnerable renters will see no benefit from the increase.
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7 in 10 CRA Recipients: Three out of ten renters receiving CRA do not receive the maximum payment. Unless their rent increases enough to push them into the maximum rate bracket, they will not see any increase in their support (and if the rent does increase, it's likely to dwarf the increase).
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Current renters only: People who would be eligible for the payment but who can't find a property to move in to can't access CRA. This potentially makes quite a difference, because you might find yourself unable to apply for a property without the additional assistance to begin with.
It might be surprising to some to learn that in the end, only 14% of people receiving a payment from Centrelink will see the direct benefit of increasing the maximum rate of rent assistance. 22% receive rent assistance, but a significant number won't end up with the increase in their pocket. Only 1 in 3 Jobseeker recipients receive rent assistance at all (1 in 2 renting JSP recipients), while just 1 in 5 receive the maximum rate (1 in 3 renting JSP recipients). In large part this is because the welfare payments are well recognised as insufficient to live on, and so people are making a range of compromises that can remove them from eligibility.
Impact on rent stress
At the budget estimates hearing on 4 June, Senator David Pocock asked about the impact the reform will have on rates of rent stress. The answer from the Department of Social Services was that 2% of people who currently receive CRA will move from in to out of rent stress, using the 30% rule.
Another way to think about whether someone is in rent stress is whether they have enough to meet their other needs after paying rent.
Impact on Rent Prices
The most comprehensive study on this in Australia suggest that the increase in rent assistance can drive rent prices up by 6% to 30% of the increase. The level of impact was related to the relative disadvantage of the area, because CRA increases are simply lost in the noise in areas where renters mostly don't receive it. That means for CRA recipients who receive the CRA increase, there is still a net benefit. However, for those 1 in 5 and 3 in 10 renters not benefiting from the maximum increase, it means higher rents without additional support.
The impact on rent prices in areas where a higher impact on rents is likely equates to about $3 more per week, a small amount compared to likely rent hikes generally. So the bad-good news is that any inflationary effect is going to be swallowed up by the other effects. We are concerned that some groups of renters might face more direct impacts – people living in boarding houses for instance, where perhaps every resident is receiving income support. In this kind of situation the provider may be in a strong position to know exactly how much extra income the residents have through the CRA increase, and to increase rents to capture it, without these renters having alternative accomodation options.
Indexation Issues
The upcoming change coincides with the indexation of CRA, which raises the lower threshold of rent required to qualify for assistance. Consequently, some renters in cheaper or substandard housing may see their rent assistance decrease. For example, renters in cheaper areas like Cobar or Millicent or anyone paying $200 per week could receive $1 less in CRA starting in September.
CRA covers a sliding scale of rent increasing as it heads towards the max payment and then decreasing once passed it. This is why a portion of folk are worse off after indexation and despite a max rate increase. How many? In 2021, there were about 144,000 private dwellings in that range, as well as however many sharers (who get 2/3 the max rate). DSS publishes quarterly updates and around 1 in 4 CRA recipients don't receive the maximum rate - generally because their rent or share of the rent isn't enough to hit it. This is especially relevant at lower rent levels. So it's not small numbers, and folk more likely to be on CRA than not!
Broader Implications
While $200 per week might seem affordable compared to big city rents, it still represents more than 40% of the income for those on Jobseeker. Raising the CRA rate to at least the Henderson poverty line, or establishing a new, improved poverty line, would provide more meaningful support.
However, it's crucial to remember that 1 in 5 low-income private renters receive no CRA, often due to ineligibility for Jobseeker or other government support. A comprehensive plan is needed to address their needs as well.
Although it's not ultimately helpful to think of CRA as a payment to be set off against rent, it is still useful to look at how the level of CRA assists people in different areas, and the decisions about how to house yourself that the current structure can force on people. In the next two charts we can see the lowest 25% of new rents paid by the lowest 25% of incomes in NSW as either a single person living alone, or a single person sharing a 2 bedroom unit.
We can easily see how a person can feel pushed into sharing, even if that wouldn't be a good choice for their personal needs, because in many ways, shared accommodation can be the only 'affordable' housing available! But this also puts people at greater risk of unsafe, exploitative or just unpleasant living arrangements.
Community Housing Tenants
A little more than 100,000 households receiving CRA live in community housing or state owned Aboriginal housing such as NSW's Aboriginal Housing Office. These tenants will most likely see their rent increase as Community Housing Providers (CHPs) utilise the CRA maximisation to take 100% of CRA received, including the increase, leaving them with no additional disposable income from the new rates. There is no visibility of exactly how much CRA is collected, it isn't reported publicly anywhere and not everyone is receiving the maximum rate. However, our rough calculations suggest this is likely to be at least an additional $10million pa across the country. We should expect to see a clear indication of how this boost to the sector's funding will be used - ideally, on repairs, maintenance and ensuring tenants can engage meaningfully in the decision-making of the organisation.
What else can we do?
The increase in rent assistance, while a step in the right direction, falls well short of addressing the broader issues faced by renters. Many will see little to no benefit, and some may even face decreased support. The government must consider more substantial measures to ensure all low-income renters receive the help they need. Reducing the real level of rent paid without sacrificing quality or safety, whether through market dynamics, regulation or some other mechanism, should be a priority. But we can also increase the level of support.
The 2020 AHURI-backed modelling of the options to improve CRA found that merely raising the CRA maximum rate would improve affordability outcomes for 623,800 income units or 44 per cent of low-income private renters. However, it was also the costliest of the three modelled reforms, requiring additional annual expenditure of $1 billion to amount to a total cost of $5.6 billion and 17% of low income private renters would still be in housing stress (on their definition of 30% of income)
Reforming the CRA eligibility rules to reflect housing need was found to achieve the greatest housing affordability improvements among the three modelled reforms, and at the lowest cost. The reform would reduce the CRA target error rate to zero and cut the population of low-income private renter income units in housing stress by 371,200 or 44 per cent. At the same time, it would generate an annual cost saving of $1.2 billion. Mostly, this would be achieved by restricting payments to people who receive payment while not in housing stress (on the 30% of income rule) - generally people of moderate incomes receiving only the family tax benefit and no other payments.
A challenge for broadening coverage is that at a high level eligibility for Centrelink payments are defined in the Australian Constitution. There is more we can do there too, for instance by better recognising underemployment or low working incomes as a form of unemployment and therefore expanding eligibility for Jobseeker payments.
As I finished writing, a whole new proposal was launched which sought to combine tax concessions such as negative gearing, and payment of CRA into a more coordinated set of incentives for tax and social services to create a better standard of renting in Australia. While the overall concept of using these levers to drive reform is attractive I haven't had the opportunity to consider fully - but definitely worth reading and considering!
Whatever route we pursue CRA reform will be much more convincing if it addresses some of these concerns and includes the input and experiences of people struggling under the current system. This likely means a significant redesign or even folded entirely into other support structures to retain the important features such as a direct payment to renters they can spend as needed, while providing more universal coverage and ensuring the support is pegged at a level that ensure renters have enough to live on after paying rent.
