Analysing the effectiveness of demand-side rental subsidies: the case of Australia’s Commonwealth Rent Assistance scheme

Abstract

Proponents of demand-side rental subsidy programmes have argued that they enhance consumer choice while costing less than supply-side interventions. However, unanswered questions remain on the effectiveness of demand-side rental subsidies in reducing affordability stress among low-income renters. This paper analyses Australia’s Commonwealth Rent Assistance (CRA) as a case study for evaluating the effectiveness of housing allowance interventions. Our evaluation exemplifies some important policy principles. First, we demonstrate that a multi-pronged package can simultaneously improve adequacy and targeting on those in greatest housing stress, while maintaining revenue neutrality. Second, whether CRA is designed as an income-oriented or housing-oriented subsidy can affect its effectiveness in improving rental affordability. Third, country-specific institutional contexts cannot be ignored. In Australia, constitutional amendments may be required if CRA is to be paid as a stand-alone housing payment rather than as a supplement to other social security payments. Furthermore, given the role of CRA in the esoteric funding structure of social housing, reforms to payment structure must incorporate meaningful measures to avoid unintended damaging consequences in this arena. Finally, any implementation of reforms should be embedded within a strong housing logic that aims to reduce affordability stress rather than as part of a fiscal cost reduction exercise.