National Rental Affordability Scheme to Benefit Renters

In October, the federal government announced the outcome of the latest round of the National Rental Affordability Scheme (‘NRAS’). The NRAS is aimed at delivering affordable rental housing to low and moderate income earners over the course of a decade. In this article, we look at the NRAS and its implications for renters and investors.

At a Glance: The National Rental Affordability Scheme

The NRAS began running in 2008, when the federal government incorporated it as a major component in its $3.7 billion housing package. The main goal of the scheme is to boost rental housing stocks for low to medium income earners.  In order to deliver this goal, the State and Federal governments have incentivized investors to rent out approved new properties at a discounted rent by offering them a Tax-Free payment each year for 10 years. This property investment option is suitable for many investors in relation to many approved properties all around Australia.

Under the NRAS scheme:

• Up to 1.5 million households will be tenants under the NRAS over the long term.
• Properties are rented out at a minimum of 20 per cent below market rate.
• Properties can be newly constructed under the scheme, a partially constructed project to be completed, or otherwise new, completed properties that have never been occupied.
• Investors receive a Tax-Free National Rental Incentive (‘NRI’) to rent out the dwellings at a discounted rent. The NRI is paid annually and is indexed to the annual CPI.
• The NRI is currently $9,524 per dwelling per year for up to 10 years, and is partly paid as a refundable tax offset from the Federal Government and partly in cash by the State government.

Participants in the NRAS

As a class of investment property, the NRAS provides considerable incentives for investors as properties are in most cases positively geared. Applications for participation are assessed jointly by respective state/territory government and the federal government. Most investors are private developers, financial institutions, investors, not-for-profit organisations, and community housing providers.

NRAS Round Four

The latest round of the NRAS will provide over 17,000 additional rental properties across the country. The states with the largest numbers of additional properties in this round include:

• Queensland. The largest beneficiary of this round, with over 5,600 properties to be provided to flood-affected areas and other specified locations. The total number of QLD rental properties supported by the NRAS will come to 11,200.
• New South Wales. The fourth round will bring more than 4,700 properties to NSW, having also been affected by floods and other natural disasters in the past year. The total number of NRAS supported properties will come to 6,800.
• Western Australia. The fourth round will see WA build another 2300 NRAS properties, to a total over 5,000 properties under the scheme.

The ACT, Northern Territory, and Tasmania will have an additional 1,500, 400, and 1,600 properties, respectively. Victoria and South Australia will see another 900 and 400 properties built under the scheme, respectively.

This additional $15 billion to be invested by the government through the NRAS over the next five years will provide the construction industry with a significant boost. These outlays outlays by the government are a very strong indicator of the very tight housing and rental markets around Australia.