What is NRAS?

Overview

The National Rental Affordability Scheme (NRAS) is a long term commitment by the Australian Government to invest in affordable rental housing. Affordable Housing in the context of NRAS is a term that describes the sector between social housing and full priced rental accommodation.

It is worth noting that the USA successfully implemented a similar program in the 1980s, resulting in over 1.5 million homes being built and US$5 billion in tax credits being paid annually.

The Australian NRAS Scheme seeks to address the shortage of affordable rental housing by offering tax free financial incentives to property investors who build and then rent dwellings to low and moderate income households at 20 per cent below market rates.

The Australian Government has committed $1 billion to the Scheme over four years (commenced 1 July 2008) to stimulate construction of up to 50,000 high quality homes and apartments, providing affordable private rental properties for Australians and their families. 

  • Dwellings must either:
    • not have been lived in as a residence; or
    • not have been lived in as a residence since having been made fit for occupancy where otherwise the dwelling was recognised as being uninhabitable; or
    • if it has been converted to create additional residences, then a part of the dwelling or building that is capable of being lived in as a separate residence must not have been lived in as a separate residence.

Financial Incentives for Property Investors

The NRAS scheme offers annual tax free Incentives to property investors for ten years. The two key elements of the Incentive are:

  • A Commonwealth Government Incentive currently of $7,486 per dwelling per year as a refundable tax offset or payment; and
  • A State or Territory Government Incentive currently of $2,495 per dwelling per year cash payment.

The NRAS Incentive is indexed according to movements in the Rents component of the Housing Group Consumer Price Index for the year, December quarter to December quarter as at 1 March, using the weighted average rate of eight capital cities housing component, and is effective from 1 May. On 1 May 2009 the Incentive increased by 8.4%. On 1 May 2010 the Incentive increased by 5.4%. On 1 May 2011 the Incentive increased by 4.85%. On 1 May 2012 the Incentive increased by 4.15%.

If future increases average 5% p.a. then the cash Incentives will total $125,000 over 10 years.

Subject to meeting the terms of any existing tenancy agreement, NRAS accredited properties can be exited from the scheme at any time. This can be achieved by, for example,

  • Renting the property at full market rent ; or
  • Exiting the tenant and moving in as owner occupier

Tenant Income Levels

The NRAS scheme was created to reduce the rent payable by “key workers” within the community, such as police officers, nurses, childcare workers, ambulance service workers, paramedics, teachers, fire-fighters and other critical community members. Other types of tenants include sole parents, apprentices, students, pensioners and retirees as well as family members including brothers, sisters, children, parents and people with disabilities.

NRAS homes are required to be rented to eligible tenants at least 20 per cent below the market rent to be eligible for the National Rental Incentive annually. The income levels for eligible tenants are specified in the NRAS Regulations. Initial tenant income levels are assessed against gross income according to the household composition. Example household income limits are as follows;

Household type Initial income limit $ Upper income limit $
One adult 42,386 52,983
2 adults 58,596 73,246
3 adults 74,808 93,510
4 adults 91,048 113,773
Sole parent with 1 child 58,638 73,298
Sole parent with 2 children 72,695 90,869
Sole parent with 3 children 86,752 108,440
Couple with 1 child 72,653 90,817
Couple with 2 children 86,710 108,388
Couple with 3 children 100,768 125,960
 

Household income limits are indexed annually on 1 May in accordance with the NRAS tenant income index. Household income is defined as the combined annual income of all persons ordinarily residing in the dwelling.

Eligible tenants’ gross income must be equal to or less than the Initial Income Limit when they become a tenant of an NRAS dwelling. Eligible tenants cease to be eligible tenants if their gross income exceeds the Upper Income Limit (the initial income limit for their household plus 25%) in 2 consecutive eligibility years.

Incoming NRAS eligibility for household types not covered above can be calculated using the values below:

Income level
First adult $42,386
Each additional adult $16,210
Each child $14,057
First sole parent $44,581
 

Tenancy Management

Standard State and Territory residential tenancy laws apply to NRAS properties, NRAS landlords and NRAS tenants,  just as they do for any other private residential investment property. This includes laws applying to registration and licensing requirements for property managers.  The laws regarding evictions, maintenance obligations and responsibilities of tenants apply to NRAS tenants just as they do to other tenants in the private rental market.