Do Community Housing Providers use the correct structure?
This is part of a series of sessions on Finance for Pensioners and a solution to the Housing and Rental crisis in Australia
It is generally said that the only organisations that can provide
affordable housing are the not-for-profit organisations. Affordable Housing is not very profitable and superannuation funds and institutional investors must make profits for their members and are therefore not suitable for investment in Affordable Housing.
But is that true?
It ignores the tax structure of these organisations.
I have included a spread sheet ( See session 10) that clearly shows that property investment taking into account tax deductibility of interest paid and depreciation are more profitable the more tax you pay.
In the top tax bracket you are paying less for building a house.
So why has the Government chosen Community Housing Providers to provide the majority of Community and Affordable Housing ?
They are the last organization that should build houses.
They attract subsidies but would it not be better if these subsidies would go to the actual people that are building the houses desperately needed everywhere?
It would be better to give subsidies to private builders and developers who are paying a lot of tax rather than to not-for profit organisations who pay no tax and therefore are not the best organisations to build houses.
Community Housing Providers have a number of other flaws in their structure.
60% of the demand for Affordable Housing is for 1-bedroom houses.
Divorce is one of the main reasons. All of a sudden at least one of the partners or both is in need of rental accommodation. If a partner of a married pensioner dies, the surviving party may also be in need of a 1-Bedroom unit. Single mothers with one child are quite happy in a 1 Bedroom dwelling. Single people and even young couples are happy in 0ne-bedroom accommodation.
The main reason that there is such demand for 1 Bedroom houses is that Community Housing Providers are not building any 1 Bedroom accommodation.
The argument is that the management and administration is the same for a 1-Bedroom unit as it is for a 2 or 3 bedroom unit. The 2 bedroom unit will give a higher rent and Community Housing Providers who are already struggling to break even need every cent to continue operating. It is therefore more logical to build 2 and 3 bedroom houses.
Town Planning requirements are also relevant as in a strata title development you need 325m2 per building whether it is a 1,2or 2 bedroom
If, however, you can build 2x 1 Bedroom instead of 1 x 2Bedroom dwellings the situation changes.
This cannot be done on land zoned residential because of the limited number of dwelling allowed on a particular size of land.
It can be done on several other zonings such as Village, Local Business and Urban Mixed Use . Another solution is to build on leased council and Crown land which is often not zoned residential and will allow greater densities.
There is another restriction on building 1 Bedroom units. An ideal way of increasing the number of dwellings is to build more granny flats or ancillary dwellings. The only restriction is the size of the dwelling which cannot be greater than 60m2. You can build 2x 30m2 buildings together as it does not matter what the building is as long as it is less than 60m2. It will still be regarded as a single ancillary dwelling.
This cannot be done In a strata title development where it will be regarded as 2 dwellings and needs 650m2 of land.
You may also have to provide extra parking spaces.
All Community Housing must be built according to Livable Housing Design, Silver level criteria.
You cannot build a 1 Bedroom 30m2 silver level building. Just a few minor changes like a corridor of 1.2m instead of 1.1m, a bedroom of 10m2 instead of 9.8m2 or a wall 3.0m long instead of 2.9m will increase the size of the dwelling from 30m2 to 42m2 and in a residential zone you also need another parking space.
Would a pensioner rather sleep in a car than in a building with only a 2.9m wall ?
Community Housing Providers are not-for-profit but have high operating costs . There must be a board of 6 members, strict regulations, audits, compliance and managements of rents.
The average cost of these elements is $7,500 per dwelling. It could be cheaper to use the local real estate agent as management . But that is not allowed.
One solution could be that they sell Management Rights to their complexes. Income under Management Rights is 10% of the rent plus a salary which may be cheaper than their present costs.
And the Housing Provider gets extra money by selling the Managements Rights . Sale price of Management rights is 4 x income (Salary + 10% management) which will help cashflow of Housing Providers.
It is worth researching alternative solution to the Community Housing Providers ( See session 31,33 )