About 400,000 Australian households live in social housing, which covers public housing, community housing, Indigenous community housing, and Indigenous housing provided by governments.

The sector has many issues, including:

• In public housing, many dwellings fail adequacy standards, and numerous tenants are dissatisfied and living in housing that is too small or too large for their needs.

• The waiting list is long, with most new tenants in Sydney waiting for more than ten years to enter public housing. Being on the waiting list creates substantial disincentives to work.

• Tenants lack choice and housing providers have little incentive to respond to tenant needs and preferences.

• Housing assistance has substantial inequities.

• Public housing is arguably financially unsustainable, and community housing providers face difficulties in obtaining loans and finance.

• On one measure, rental affordability for public housing tenants has declined, though other measures of affordability show no change.

The government is proposing to address financing issues for social housing by setting up a ‘bond aggregator’ to borrow on their behalf.

There is some value in establishing an aggregator without government subsidy. However, a subsidised aggregator would be inefficient, non-transparent and discourage sectoral reforms, compared to direct subsidies to housing providers.

• A government loan guarantee to an aggregator would also increase financial system risks.

Instead, to encourage sectoral reforms, the National Affordable Housing Agreement should be refocussed and reduced in size so that states share in the costs of increased rent assistance and receive incentives to implement reform. Public and community housing should be treated similarly, including through public housing tenants receiving Commonwealth Rent Assistance and each sector being treated similarly for regulation, funding and taxation.

New social housing tenants should be given much more choice over dwellings and pay rents that are differentiated based on dwelling quality and location. The community sector should increasingly take over public housing, and state governments should drive community housing reform through contracting and contestability.

Instead of increased rent assistance or government assistance to social housing, costs in the sector should be reduced by relaxing planning regulations. Together, these reforms should:

• improve tenant choice, autonomy, and satisfaction;

• encourage housing providers to meet tenant preferences;

• reduce housing mismatches;

• improve housing quality;

• increase the supply of social and affordable housing;

• reduce inequities in the system, leading to shorter waiting lists; and

• ensure the sector becomes more sustainable.

These solutions to the community sector’s financing issues are much better than a subsidised bond aggregator as they improve the sector’s efficiency and reduce its call on taxpayer funds.

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