Defining affordable housing: a framework for delivery at scale
This week, CEDA and Urbis have published the report Fit for Purpose: Aligning affordable housing with need exploring how Australia can deliver more affordable and social housing. In this companion piece, Urbis housing experts Mark Dawson and Tiffany Allen argue for a nationally consistent framework to more effectively deliver housing that is affordable to very-low, low-income, and moderate-income households. Greater clarity for institutional investors, policy makers, and housing providers will enable more homes to be delivered where they are needed most – plus, tuning the system settings to consistent sub-categories also acknowledges the need to fix different market failures with different solutions.
Background: the case for change
Australia has no nationally consistent or practical definition of affordable housing. As we explore in our new report with CEDA, this lack of a definition directly impacts the ability of government and housing providers to supply housing to those who need it most. Lack of clarity also inadvertently disincentives housing suppliers, including private and non-for-profit organisations, from investing in this asset class.
Last month, the Member for Parliament for Bradfield, Nicolette Boele, introduced the first bill to establish a nationally consistent definition of affordable housing (supported by the Planning Institute of Australia, Australian Community Housing, and Property Council of Australia).
Urbis supports the pursuit of national consistency in how affordable housing is defined and applied. A common definition provides a useful starting point. However, a broader national framework is likely required to deliver the range of outcomes sought in the sector. This framework should incorporate consistent housing categories that both recognise varying levels of need, and support more targeted funding, planning, regulatory and investment outcomes.
This clarity would enable funding, planning incentives, regulation, and reporting to capture and reflect the cohorts served, and the depth and duration of the affordability provided. Under the umbrella of a single definition, the use of consistent sub-categories allows the delivery system to be better calibrated to meet different cohort needs, to support a feasible, investable, long-term affordable housing sector while preserving focus on delivering homes to those most in need.
Three key categories and a practical approach to funding
1. A nationally published and annually indexed income schedule should define:
Very-low income: below 50% of relevant median household income.
Low income: 50% to below 80%.
Moderate income: 80% to 120%.
Dollar thresholds should account for household composition and geography. Priority groups (e.g. homeless people, people with disabilities, domestic violence survivors, First Nations people, essential workers etc.) should inform allocation but not replace income eligibility.
2. Social Housing (very low income)
Defined as secure, long-term rental housing allocated according to income, housing need and priority status and managed within a regulated public, community or First Nations housing system. Social housing should provide secure and appropriate housing for households unable to obtain or sustain suitable private-market housing.
Target households are primarily very-low-income households and people with significant or urgent housing needs. Low-income households may also be eligible where suitable private rental housing is unavailable.
Affordability is determined by income-linked rents, with the tenant’s net contribution after Commonwealth Rent Assistance, where applicable, generally limited to 25–30% of assessable household income and subject to a market-rent ceiling.
Delivered by state and territory housing agencies, registered community housing providers and First Nations community-controlled housing organisations, including partnerships with private developers and institutional investors. Enabled and supported by capital grants, availability payments, concessional finance, land, operating subsidies and support services.
3. Low-Income Affordable Housing
Defined as regulated, long-term rental housing for households within the prescribed low-income band. Low-income affordable housing should reduce rental stress, provide a stable alternative to unaffordable private rental housing and help prevent households from experiencing housing insecurity or entering the social housing system.
Target households are low-income households. Very low-income households may also be accommodated where additional subsidy is available to maintain affordability.
Affordability is determined by net rent after Commonwealth Rent Assistance, where applicable, not exceeding 30% of assessable household income and remaining below an applicable market-rent or cost-rent ceiling.
Delivered by government, registered community housing providers, First Nations housing providers, or private and institutional owners operating under binding affordability, tenancy management and reporting requirements. Enabled and supported by grants, concessional finance, land contributions, Commonwealth Rent Assistance and indexed payments that bridge the gap between affordable rents and efficient project costs.
4. Moderate-Income Affordable Housing
Defined as regulated below-market rental housing for households within the prescribed moderate-income band, delivered under an approved rent-setting and affordability framework. Moderate-income affordable housing should expand access to secure, professionally managed and meaningfully below-market rental housing, particularly in high-cost locations close to employment, transport and essential services.
Target households are moderate-income households that have difficulty accessing suitable housing in the locations where they live or work. Key-worker status may inform allocation priority but should not replace income eligibility.
Affordability is determined by an agreed rent-setting approach that balances affordability with project viability, with rents set below market rates through discounted-rent or cost-based rental mechanisms. The method, scale of discount and future rent increases should reflect local market conditions and the value of any government funding, tax concessions (e.g. MIT), land contributions or planning benefits provided.
Delivered by institutional investors and private developers, as well as governments and community housing providers, operating under enforceable eligibility, rent-setting, affordability-duration and reporting requirements. Enabled and supported by build-to-rent and planning incentives, concessional finance, tax settings, land contributions and targeted gap funding, with the depth and duration of affordability proportionate to the public assistance provided.
Approach to funding
Australia should establish an ongoing national funding program with separate funding pools for social, low-income, and moderate-income affordable housing. Support could include regular government payments, low-cost loans and upfront grants. The amount provided should reflect what tenants can afford, local development costs and for how long the housing will remain affordable.
Value for money should be assessed separately within each category. Social housing should not be judged against moderate-income housing simply because moderate-income projects require less government support. One measure could be the amount of government funding provided for each year a dwelling remains affordable, adjusted for the depth of affordability and the needs of the households served. This would prevent funding being redirected toward cheaper, lightly discounted housing at the expense of homes for people in greater need.
Targets: ensuring the housing is supplied to the target cohorts
Targets should be based on how many households need affordable housing now, how that need is expected to change, household incomes and where people need to live. They should measure:
the share of all housing that should be social, low-income affordable or moderate-income affordable housing over the long term;
the yearly increase in affordable homes (subtracting homes that are demolished, sold or no longer required to remain affordable);
how many households are affordably housed, broken down by income and priority group;
how much of their income tenants spend on rent and whether their tenancies remain stable;
how long homes remain affordable, where they are located, whether they are accessible and whether the mix of dwelling sizes meets community needs.
Projects should be tracked separately when they are announced, funded, started, completed and being occupied or managed. Only completed homes with tenants living in them should count toward final delivery targets.
And finally, a consistent national assessment should determine how targets are distributed between states and territories. Local targets should identify where housing is needed, ensure enough land can accommodate it, make better use of public land and set appropriate requirements for private developers to provide or fund affordable housing.
Implementation and ongoing measurement
The framework could come together implementing the above recommendations. Further, a national register should record each dwelling’s category, location, funding, rent formula, affordability period, occupancy and compliance, preventing double counting. Private and institutional providers should be subject to affordability agreements and independent compliance, while government, community and First Nations providers retain allocation and tenancy management roles. State and local inclusionary housing requirements should use the same definitions. On-site dwellings transferred assets and cash contributions should supplement the public subsidy required for affordability.
Where to from here?
Australia does not lack ideas, funding commitments or investor interest in affordable housing. What it lacks is a common framework that clearly defines who housing is for, how affordability should be measured, and how success should be assessed. But a framework alone is not enough. It needs to be supported by a national strategy that aligns policy, funding, planning, investment and delivery around shared objectives. Together, they can provide greater certainty for governments, investors, housing providers and communities, and support the delivery of more homes across the affordability spectrum.
