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Abstract
Growing concern about a lack of rental housing affordable to low-income Australian households has prompted consideration of possible policy interventions. This paper estimates the potential housing market impacts of a tax credit targeted on rental housing affordable to low-income Australian households. The study finds that existing landlords in low-income rental housing benefit from a one-third or more reduction in their effective tax burdens. If these tax benefits are passed on in the form of lower market rents, it is estimated that the percentage of households paying more than 30 per cent of gross income in rents falls from 26 to 21 per cent. This impact would be larger but for eligible households in receipt of demand-side subsidies in the form of rent assistance. As a consequence, many low-income households receive only part of the low income housing tax credit benefits that are passed on into lower market rents. Moreover, higher income tenants occupy some of the cheaper rental housing targeted by tax credits, and this weakens the policy rationale for such supply-side measures. The paper advocates the adoption of headleasing arrangements to increase the share of benefits received by low-income tenants.