If affordable housing looks like other housing and is built to the same standards, what makes it affordable?
Affordable housing refers to the rent or purchase price charged rather than the cost of production.
Most affordable housing rental projects charge people either a percentage of their income as rent or offer rents that are lower than market rents. A common rental charge for low-income households is 25% of the household income.
Some projects charge increasing rent levels as household income increases, for example 25% for very low, 27% for low and 30% for moderate incomes. This approach means that people’s rent never exceeds the common affordability benchmarks.
By mixing low and moderate income earners in a project where people pay a fixed percentage of their income, the rent obtained from moderate income households can cross-subsidise very low or low income households so the project can remain financially viable overall.
City West Housing uses a mixed income model and has operated on a financially viable basis since its establishment in 1994.
A different approach is to charge a discounted market rent. In these cases, the average market rent for a particular property type is calculated and a discount applied. The most common figure is 75% of market rent. While this approach does not guarantee that rent never exceeds affordability benchmarks, it does allow for people who need to live in a particular area to have access to rent that is significantly cheaper than in the private market. It also provides much greater certainty of income for the housing manager.
Brisbane Housing Company uses a discounted market rent approach.
While affordable housing refers to the rent or purchase price, some affordable purchase projects have been able to achieve efficiencies in construction, which make it easier to charge an affordable rent or purchase price. For example, City West Housing can use its specialised experience to achieve savings in construction costs in comparison with the private sector. Another example is the Forest Glade Project at Parklea where Landcom and Cosmopolitan Developments produced housing at a reduced cost for sale to moderate-income earners.
In high cost markets, where even moderate-income earners may have difficulty purchasing a home, one way of making housing more affordable is through shared equity schemes.
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