Victorian Auditor-General’s report
28 March 2012

Access to Public Housing
Audit summary
Safe, secure housing is essential for good health, employment, education and community wellbeing. Without access to affordable housing, some people risk homelessness or struggle to meet utility, food and other basic living costs. Public housing is an important way that government assists those in housing need.
The Housing and Community Building Division (the division) of the Department of Human Services (DHS) is responsible for the management of public housing, which is generally government owned and managed. At June 2011, there were 65 352 dwellings and 127 357 tenants in public housing, and 38 244 eligible households on the public housing waiting list.
Public housing is facing significant challenges. Against a background of finite government resources, demand has grown due to reduced housing affordability and demographic changes such as population ageing, and more and smaller households. Increased targeting of public housing has changed the tenant profile to those with more complex needs and lower incomes. Public housing infrastructure is also ageing, requiring significantly increased maintenance. These challenges highlight the importance of effective asset management that not only delivers portfolio value but also provides access to housing that allows people to live, work and thrive.
Providing access to public housing, now and into the future, requires a sustainable asset base that meets community need. Careful planning using accurate information, for example, about housing demand, the current and projected tenant profile, and the asset condition, is a prerequisite. Long-term direction detailing service outcomes, comprehensive asset management strategies that consider the full life of assets, opportunities for innovation, and adequate performance measures to track progress are also vital.
This audit examined how effectively the division plans for, and maintains public housing assets, to support current and future access for eligible tenants. 
Conclusions
The situation for public housing is critical. The current operating model and asset management approach places the long-term provision of this vital public service at risk. Despite a growing need for housing support in our community, DHS has not set overarching direction for public housing or taken a strategic, comprehensive approach to managing this $17.8 billion property portfolio.
The operating model for public housing, with costs increasingly exceeding revenues, is unsustainable. By using short-term strategies, such as reducing acquisitions and preventative maintenance, the division is deferring the problem. However, this cannot continue indefinitely. The seriousness of the situation is expressed in a 2011 report, for the Minister for Housing, that forecasts cash running out in 2012–13 and the division in deficit.
It is unclear why the division has not introduced longer-term strategies to address this acute situation given that it has developed over at least a decade. Since at least 2006, other departments, including the Department of Treasury and Finance (DTF) and the Department of Premier and Cabinet, have also been aware of the deteriorating state of public housing, yet this has not spurred action. 
There are no clear long-term objectives for public housing. Long-term objectives are important to guide management of an asset base with a long life span that requires substantial lead times for redevelopment or renewal. Now that public housing is nearing a crisis, it will be all the more challenging to address.  
The division’s lack of comprehensive asset management has meant missed opportunities to more strategically position the public housing portfolio. The division has an estimated 10 000, or 14 per cent of properties nearing obsolescence and a significant mismatch of properties to tenant need. Yet, there is no asset management strategy in place. Past strategies fall well short of DTF and other established asset management guidelines, and the division lacks basic information, such as accurate property condition data, to inform decisions. These failings expose a serious deficit in asset management skills within DHS, which must be addressed. Effective asset management is fundamental to supporting current and future public housing provision. 
Work is underway to develop a new housing framework for the future direction of public housing. While developing a sustainable operating model is a central goal of the framework, at the time of the audit the division had yet to fully assess the financial impact of policy options under consideration. Accordingly there is no evidence at this point that the framework will address sustainability. The current operating approach is not working, and cost and demand pressures are unlikely to abate, so change is necessary. New directions must explore innovative options for providing public housing and should consider the future role of the division, so that access to public housing can be better managed and sustainable into the future.  
Findings
An unsustainable operating model
Public housing rents are set at no more than 25 per cent of tenant income. Prioritisation of public housing to those in greatest need has increased the proportion of unemployed tenants who are receiving benefits. In turn, this decreases the division’s rental revenues. At the same time, the division’s operating costs have substantially increased. Despite this, the division has never reviewed its efficiency. 
In 2011, the Minister for Housing commissioned a review of the financial position of public housing. The review found that 2011 operating costs exceeded rental revenue by 42 per cent, up from 30 per cent in 2002. The review forecasts the division’s deficit to more than double from $56.4 million in 2011 to $115.1 million in 2015 and that all cash reserves will be exhausted in 2012–13. To date, the division has used short-term strategies to address the financial situation. These strategies include reducing acquisitions, deferring preventative maintenance, and funding deficits by utilising cash meant for long-term programs. This only compounds the issue, particularly the growing maintenance liability. The public housing portfolio is now in a seriously deteriorating condition with the division estimating that 10 000 properties, 14 per cent of the total, will reach obsolescence over the next four years. 
Planning for the future
Apart from increased prioritisation of public housing to people in greatest need, there has been little change in public housing policy regarding the operating model over the past decade. Pursuing growth of community housing and initiatives under national partnership agreements through time-limited Commonwealth funding has been the main focus.  
Over this period, the division has not articulated long-term objectives for the public housing portfolio, or undertaken long-term planning. This is problematic as changes to these fixed assets require substantial lead time. Stock turnover is slow, given the long life span of houses, and new builds and redevelopments take years from concept to completion. Challenges which emerged a decade ago, such as the increase in demand for one-bedroom properties and the increasing operating deficit, continue not to be addressed. The division has not adequately explored alternative models to manage public housing sustainably or reassessed its own role in the provision of public housing.
The new housing framework is under development and due to go to public consultation in the first half of 2012. However, financial modelling of proposed policy options is not complete, and so it is not yet clear how the framework will address the unsustainable operating model.  
Poor asset management
Such a large property portfolio warrants comprehensive asset management, yet there is no current asset management strategy. The division’s past asset management strategies lacked basic elements such as annual updating, consideration of the full life cycle of assets, and comparison of current to desired stock, in terms of size or location. The last asset management strategy, which expired in 2011, neither aligned with overarching DHS strategic plans and objectives, nor articulated any desired future for public housing. There was no gap analysis or any articulation of how planned activities would meet future need. The strategy also did not analyse options for portfolio management or identify where or how value could be extracted from the property portfolio.
Past asset management strategies were not reviewed and updated regularly. The division uses no performance measures for its asset management, and as such, its performance in this area has not been evaluated.  
Poorly informed decision-making
Effective asset management decisions require a reliable evidence base. The division collects information on tenant characteristics and preferences from waitlist and census data, and affordable housing supply information that it applies to individual asset decisions. However, the division does not have accurate, up-to-date property condition data, does minimal forecasting of future need, and obtains limited input from important stakeholders such as its regional offices and tenants. It does not apply this information systematically, for example to a broader asset strategy or future plan. 
While the division can demonstrate progress in the better matching of housing stock to tenant needs, there is still a substantial mismatch between public housing property types and tenant requirements. The portfolio contains too many large properties, while current demand is for single bedroom accommodation. Earlier system-level forecasting of future need, linked to asset strategies, would have helped mitigate this. Better property condition data would also have highlighted maintenance issues earlier.
The rationale for the division’s investment decisions is also unclear, with no clearly documented and communicated decision-making criteria. This is particularly difficult for regional offices that do not understand, and therefore can only provide limited input into, central office decision-making.
Recommendations
Number	Recommendation	Page	
	The Department of Human Services should:		
1.	develop and apply options to overcome the unsustainable operating model	14	
2.	assess its operational efficiency and role in public housing	14	
3.	develop a long-term plan for public housing with clear objectives 	14	
4.	develop a comprehensive asset management strategy and vigorously monitor performance	25	
5.	at the regional level, capture local knowledge and communicate investment criteria	25	
6.	update and strengthen property condition data across the portfolio	25	
7.	apply relevant data and medium- and longer-term forecasts to asset management strategies.	25	
Submissions and comments received
In addition to progressive engagement during the course of the audit, in accordance with section 16(3) of the Audit Act 1994 a copy of this report was provided to the Department of Human Services with a request for submissions or comments.
Agency views have been considered in reaching our audit conclusions and are represented to the extent relevant and warranted in preparing this report. Their full section 16(3) submissions and comments however, are included in Appendix A.