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What does ‘Affordable Housing’ mean?

Affordable housing has various meanings to various people.

In Australia, the Federal and State Governments have in some form or another adopted the AHURI (Yates and Gabriel, 2006) definition: affordable housing is appropriate housing for people who cannot participate in “market” housing without entering “housing stress” (spending so much on accommodation that other basic needs are not met). This includes people eligible but unable to be accommodated in public housing, through to people earning moderate incomes (80 per cent-120 per cent of median income) who can support a mortgage, but who may not be able to purchase a dwelling, possibly due to a deposit gap.

The commonly held position is that housing stress begins when households in the lower 40 per cent of household incomes spend more than 30 per cent of their household income on meeting their housing needs.

Affordable housing can be in the form of affordable rental housing and affordable purchase (home ownership) housing. There are several affordable housing products that target different market segments, from very low and low to moderate income households, all between the first and seventh income deciles (the lower 70 per cent of the income range). This may include people on Centrelink incomes, low income wage earners or key workers, and moderate income renters and purchasers.

So if we consider very low, low and moderate income earners, we need a variety of housing options to support affordable housing and try to alleviate the problem we have today. The models for the delivery of affordable housing extend beyond just public and social housing.

There are also a number of other models that should also be considered in developing housing policy such as:

Affordable by design

By developing compact housing on small lots, developers can provide affordable housing options that can be purchased by low to moderate income households. Incorporating sustainable design features in dwellings and subdivisions – such as north-facing windows, solar panels, energy/water efficiency measures, and planting canopy street trees – can reduce utility rates.

Affordable purchase

This is a form of price-controlled purchase housing that is accessible for purchase by those on defined incomes. So far, only South Australia has fully recognised affordable purchase as a mechanism for providing affordable housing. The key principles of affordable purchase models are as follows:

  • The dwelling must be offered for sale at or below a nominated ‘affordable’ price
  • The dwelling must be offered for sale to eligible buyers
  • The discount for affordable housing for the first purchaser is preserved for future purchasers

In Victoria, The Nightingale housing model has a transparent process for documenting land purchase and development costs. The purchase price is based on the development achieving a return of 15 per cent.

Under this model, there is a system to control purchase price as well as mechanisms to prevent the first purchaser having a windfall gain at the expense of future owners. Title covenants have been developed that provide a formula for the resale of the property. The model recognises capital growth for each progressive purchaser/seller and it also recognises that the market opportunity provided to the first purchaser should be transferred.

Shared equity

These arrangements cover a range of products, schemes and initiatives that enable the division of the value of a dwelling between a purchaser and a second party who also holds equity in the dwelling. The essential feature of shared equity models is that the buyer shares the capital cost of purchasing a home with an equity partner, thereby permitting households to buy a home with lower income levels than would otherwise be required. In simple terms, this umbrella term is used to encompass government-backed and private sector-led schemes based on arrangements whereby the purchaser enters into an agreement with a partner to share the cost of purchasing a property.

Build to rent

Developers and their financiers build multi-unit buildings and, instead of selling the units, retain them to let to tenant households. Rents may be set at market rent or, for affordable and social housing, at an appropriate discount to market rents. The NRAS was a build to rent model.

Rent to buy

The homes are offered at a fixed (sometimes below market) rent for a minimum of five years and let on assured short-hold tenancies for a fixed term. The model being adapted in Australia is that, after five years of renting, the tenant has first option to purchase the dwelling at price agreed at the commencement of the five year term. If the tenants don’t want to buy, the landlord can retain the property as rented housing or sell it on the open market. MAKE and Assemble are developing the first of “hopefully” many developments in Kensington.

Social housing

This is owned by a state government or by a community housing organisation. Community housing organisations are not-for-profit corporations that own and/or manage community housing and are registered by Federal and/or state housing regulators. Housing Associations and Providers are independent companies that are overseen by a skills-based board.

Tier 1 Housing Associations are seen by government as organisations that:

  • Own, manage and develop affordable rental housing
  • Provide housing support and assistance to clients
  • Are viable businesses, partnering with government and the community
  • Have met registration criteria and meet ongoing regulatory compliance against performance standards.

Affordable Housing in most OECD countries takes on many and varied forms and we, in Australia, need to start and think of multiple solutions to a going problem.