The NRAS The Story to Date

and the FutureMark Fowler

Neumann & Turnour LawyersACPNS, CHFA & ACLA Day Seminar

Thursday 05 December 2013

© N & T Lawyers Pty Ltd trading as Neumann & Turnour Lawyers (A.B.N. 11 955 351 885)

Overview• NRAS

– What is it?

• What’s the problem? – Charitable heads: common law & statute– Responses to date– Further charitable recognition

• Managed Investment Schemes• NRAS Futures: Institutional Investment• NRAS and NRSCH

National Rental Affordability Scheme (NRAS) and Charity

• Enacted with bipartisan support in 2008• Aims :- 1. stimulate the supply of up to 50,000 new affordable

rental dwellings; 2. reduce rental costs for low and moderate income

households by making these dwellings available for rent at a rate that is at least 20 per cent below the prevailing market rate; and

3. encourage large-scale investment and innovative delivery of affordable housing.

NRAS – What is it?

• Allocations issued to Approved Participants with conditions

• NRAS Incentive CPI-ed to basket of rents index each year, currently:

Contributed by Amount

Australian Government Contribution $7,763.00

State/Territory Contribution $ 2,587.00

Total $ 10,350.00

NRAS – What is it?

• NRAS Incentive is:– Cth: Refundable tax offset certificate or

payment (NFPs)– State Government: in kind or payment

• Paid to party entitled to rent if relying on Division 380 ITAA (investor models)

• Head Lease and NRAS Consortiums

Who’s relieved?

• Comparable incomes childcare workers, nurses, police officers and fire-fighters

Household compositionInitial household income

limit ($) Existing tenant income

limit ($)

One adult 45,956 57,445

Two adults 63,535 79,419

Sole parent with two children 78,822 98,528

Couple with two children 94,021 117,526

Obstacles

• Overcome:– Legislation stifling innovation and uncertain– Finance Institutions– Tenant awareness

• To be met:– Managed Investment Schemes– Institutional Investment– Charitable treatments(?)

Charitable Housing:Applicable CL Heads of Charity

1. Relief of poverty: provision of housing for the poor

2. Other beneficial purposes head

3. Word Investments.

Charitable Housing:Statutory Definition of Charity

• Charitable purpose: ‘relief of poverty’ under common law now subset of ‘advancing social or public welfare’ (ss 12 & 15)– EM: ‘providing housing and accommodation support for people with

special needs or who are otherwise in a special disadvantage in terms of their access to housing’

– Addendum: ‘something more than the issues commonly experienced by the public, such as general problems with housing affordability.’

• Section 12(1)(k) ‘Other beneficial purposes’ under common law.

• Word Investments– Preserved?– June 2013 amendments to ITAA charity must “apply its income and

assets solely for the purpose for which the entity/fund is established”. Effect?

Helena Partnerships Case, per Lloyd LJ:

• The provision of housing without regard to a charitable need for the tenant is not charitable as: – Housing not in spirit of preamble, either directly or by

analogy with existing public utility heads (e.g. sea wall or fire brigade)

– The private benefit ‘confers an especially significant benefit’ on tenants, so substantial that it cannot be considered to be subordinate to public benefit, it is not incidental or subsidiary (ECHR recognition reinforces this).

Application to Australia?

• Common Equity Housing Ltd (1994), SCV per Ashley J:– ‘Had I concluded that…the provision of “housing

assistance and co-operative education … to low income persons” did not disclose a purpose of relief of poverty I would nonetheless have concluded that the provision of such assistance (by way of secure, low-cost rental) to low income persons not owning their own homes – a description unfortunately, of a significant and identifiable section of the community – fitted the fourth head identified in Pemsel.’

NRAS and Charitable Housing

• NRAS – Relief of poverty – Word Investments– Fourth charity head: other beneficial purposes

• NRAS and PBI: Hunger Project Case

Responses to date

• Extension of Charitable Purposes Act 2001– Parliamentary declaration NRAS activity in Rounds

1 and 2 is charitable?– Is this a recognition that the affordability crisis

requires charitable intervention?

• Treasurer’s letter 14 January 2010

UBIT and NRAS

• UBIT consultation paper 27 May 2011:- ‘NFP entities who participate in the 50,000 National Rental Affordability Scheme allocations will be allowed to use their tax concessions in support of that activity.’

Relief of Poverty and NRAS

• ‘Working classes’ cases: – Guinness Trust (London Fund) v Green [1955] (per

Denning LJ).– Re Niyazi’s Will Trusts ‘working men’s hostel’

• Re Gardom [1914] 1 Ch 662 at 668]• Tenants had an income, but were too poor to provide a

home of that nature in the area without assistance.

• Hayes and Gubbins (1992/93)

Affordable Housing Crisis?

• 2008 Senate Inquiry – ‘Ontario measure’– ‘On this definition it is estimated that there are

now over one million low and middle income families and singles in housing stress. This represents about 10 per cent of the population.’

Affordable Housing Crisis?• October 2012 ACOSS Report

– 12.8% of Australians are living in poverty after housing costs.

• COAG Affordable Housing Report 2011– 41.7% of low income households (lowest 40% by income)

were in housing stress in 2009-2010– 60.8% of the lowest 10% of households were in rental

stress 2009-2010.

• Vacancy rates well below 3%, benchmark for fully utilised supply.

NRAS and Charity Evolution

• Incorporated Council of Law Reporting CA [1972], Sachs LJ:– The fourth head ‘has an admirable breadth and

flexibility which enables it to be reasonably applied from generation to generation meeting changing circumstances’

NRAS and Charitable Endorsement

• Scottish Burial Reform [1968], HL, per Lord Wilberforce re fourth head:– ‘decisions given by the courts … which have endevoured to

keep the law as to charities moving according as new social needs arise. The law of charity is a moving subject which may well have evolved even since 1891’

• National Anti-Vivisection Society [1948](HL), Wright LJ: ‘approval by the common understanding of enlightened opinion for the time being’

HMRC Guidelines on Affordable Housing

• In 2009 HM Revenue and Customs, the Charity Commission and the Homes and Communities Agency issued Affordable Home Ownership-Charitable Status and Tax (May 2009).

• The following are relevant to charitable status:

– that key workers are not priced out

– better mix of housing tenures creating stable, mixed-income communities

– urban and rural regeneration

– promotion of sustainable development

NRAS Goals• Governments, the business sector and community

organisations recognise housing affordability is an issue of community concern. The increasing cost of housing is having an impact on the ability of many Australians to meet their financial commitments.

• Rental housing has become increasingly unaffordable and vacancy rates in all capital cities have fallen well below the three per cent level which is widely used as a benchmark of fully-utilised supply.

NRAS Goals

• The NRAS Policy Guidelines note that the income brackets for NRAS incorporate those who fall within the key worker demographic and that NRAS:– … can provide significant benefits, including

increasing the availability of affordable housing for key workers whose low to moderate incomes would impinge on their ability to pay rent in the area.

NRAS Assessment Criteria• NRAS Assessment criteria et. al:

– (c) the proposal delivers accessibility and sustainability outcomes, including the following:

• (i) proximity of dwellings to transport, schools, shops, health services and employment opportunities;

• (ii) types of dwellings and proposed household compositions that facilitate a balanced social mix;

• (iii) use of universal design principles or other measures that make properties more accessible to people who are ageing or live with disabilities; …

NRAS Assessment Criteria (cont)

• (f) the proposal details or forecasts, for each dwelling:

(i) the energy rating of the dwelling; and(ii) the extent to which the dwelling incorporates efficient lighting, environmentally friendly hot water systems, ventilation and water tanks.

Overseas Examples: Charity Definition

• Is there scope for housing affordability?• Charities Act 2006 England and Wales head ‘the

advancement of citizenship or community development’ (cf ‘welfare’) includes:– urban and rural regeneration– the promotion of civic responsibility

• Also in Ireland, Northern Ireland and Scotland• Ireland ‘Harmonious community relations’.

Charity Definition• EM Addendum:

– ‘Charitable housing may also address particular or special physical, social or psychological needs or other special disadvantages of individuals and families.’

• ‘advancing health’• ‘advancing education’ (citizenship)• ‘promoting or protecting human rights’• ‘promoting reconciliation, mutual respect and

tolerance between groups of individuals’

NRAS and the Fourth Head• NRAS indirectly decreases the strain on social

housing by increasing housing options for lower income households.

• Allows tenants to put aside $ for a deposit, therefore moving out of rental stress.

• Do these outweigh the benefit to the individuals who receive:– Accommodation?– The NRAS Incentive?

NRAS - Special Treatment?• Why a specific recognition for affordable

housing providers operating in NRAS?• a number have entered into the fray and grown

sizeable holdings, either business or stock (to require transfer out would incur large tax burdens on recipient)

• Has worked to date• Government encouragement of the NFP Sector

to utilise tax concessions in NRAS, e.g. GST benefits or stamp duty right downs.

What then are we to do?

• Tenant profiles reflecting the common law definition of charity:– Relative to local area average income cf income

needed to acquire open market rental– Eligibility for other governmental rental assistance

• Clear demarcation and direction of funds from commercial (non-relief of poverty or beneficial purposes) activities to charitable activities.

• Pemsel’s Fourth Head(?)

NRAS and MIS• Five elements:

– Contribution of money or money’s worth– Rights or benefits of scheme as consideration– Pooling or common enterprise– Objective or expectation of benefits to

persons holding the rights– Lack of day to day control

• ASIC Relief• Class Order

Institutional Investment• AHURI March 2013: Institutional investment

requires: – higher rental yields

• Diverse rental portfolio: improve scalability, rate of return and offset risks

– larger scale investment • Scale is $50 to $250 million for an individual institution• Investors would need to invest at least $500 million per

annum in aggregate to create liquidity and establish a sustainable market

– good market information, and certainty (incl in NRAS)• Financial incentives and credit support will be essential to

achieve increased supply at the affordable end of the market, and more diverse forms of government support

Institutional Investment• Opportunities

– Steady predicable return based on cash-flow

– Government superfunds housing for members

– Proven demand

– Need for Government stimulation and innovation

– Use of intermediaries

– Offshore investment

– Construction: land release, credit support, planning favouring affordable housing.

NRSCHP

• National Regulatory System– Comes into effect on 01 January 2014

• Double reporting requirements?

• MoU with ACNC yet to be released

Questions