Both members and families members have approached ADM in recent times regarding what they see to be a concerted attack on the pay and conditions of the ADF. The cost issue of Defence housing was raised at the end of last year by the Defence Force Welfare Association (DFWA), following hot on the heels of the Defence pay furore.
“Only weeks after providing a paltry 1.5 per cent pay increase to members of the ADF, the Government is now imposing charges for some married quarter rents well above the 1.5 per cent recommended by DHA,” according to a statement from DFWA National President David Jamison in December last year.
“Defence has imposed married quarter rent increases up to 4.2 per cent to take effect from early 2015, in addition charges imposed on members living in barracks will increase by up to 2.5 per cent for lower standards.
“We also contend that there is a lack of transparency in the way Defence calculates its charges imposed on ADF members which needs to be addressed. What makes it worse is that for some ADF families, the Defence increase is significantly more than the Defence Housing Authority (DHA) increase charged to Defence.
"I ask the Minister to immediately review the proposed increases to ensure any
Government imposed charges on members of the ADF are fair and raised by no more than the recent 1.5 per cent pay rise, and for rent increases to be no more than the DHA percentage increase.
“It’s the very least they should do,” he concluded.
A key element of the Defence conditions of service is the subsidised housing provided to members. Effectively, Defence pays Defence Housing Australia (DHA) market rent for the houses and then subsidises that cost, ensuring that members pay about 50 per cent of the actual cost averaged across Australia.
However, DHA, through its other business activities, also subsidises ADF member housing and provides far more in terms of quality, size and location than Defence policy requires. In order to deliver this housing, DHA must undertake numerous roles, including land and property development, provision of financial services to investors, provision of rental management services and allocation of on-base, off-base and barracks accommodation to all ADF members. Only 600 people manage over $10 billion worth of property and services nation wide.
DHA firmly has its sights set on the end user – the Defence members and their families. But there are some impressive numbers underpinning the organisation. From the 2013/2014 DHA Annual Report, total income was $1.184 billion (comprised of $250 million in Defence member contributions, $300 million from Defence, $386 million from sale and leasebacks and $200 million from other sources such as direct sales to the public). They have 18,577 dwellings under active management, valued at roughly $10 billion.
DHA’s outputs can be described as housing for Defence and non-defence families, a return to investors plus jobs and property development across Australia.
In that financial year, DHA provided $114 million to the government in terms of dividends and tax equivalent payments. In addition to member rental contributions, Defence paid $300 million to DHA for housing provision. This means that the total cost to government of DHA providing defence housing was $186 million. Imagine what the government would have to pay if all these arrangements were done under commercial rates and terms.
The organisation currently has only two shareholders – the departments of Defence and Finance. As mentioned above, DHA has a staff of 600 people who act as a contract management agency in the purest sense. They outsource everything including design, development, construction and maintenance tasks. From multimillion dollar developments in highly sought after areas (generally within 30 kilometres of a defence base) to over 1,000 regional tradies for home maintenance and repair, DHA does it all.
As urban consolidation occurs and more people are choosing to live in apartments, Defence members who have pets can be disadvantaged. Thanks to the terms outlined in the labyrinthine PACMAN documentation, the location of schooling amenities or relative location to a spouse’s workplace are not reasons for turning down a DHA home. But if the Defence member announces that they have cats or dogs and the rental property is not open to pets, the house can comfortably be rejected. Defence members are rumoured to have borrowed pets off friends and family to establish their cases!
Regional tradesmen love working with DHA for many reasons, but overnight processing of payments would have to be among the top reasons on the list. Hot water in your DHA house died? Call the DHA call centre, a local plumber from the region is assigned, images/details/costs of the problem are SMS’d between DHA and the plumber and the work is done on the spot. Payment goes through that evening. Naturally, DHA’s property maintenance is the envy of many and a key benefit to families in housing while the serving partner is overseas.
In August 2014, Minister for Finance Senator Mathias Cormann announced the appointment of business and legal advisers for the scoping study into the future ownership of DHA. The terms of the scoping study are available online and can be viewed by all. Lazard Pty Ltd was appointed as business advisers and Ashurst Australia was appointed as legal advisers.
“These firms will provide independent advice and recommendations around possible future ownership options ensuring the objectives for the scoping studies are met,” a statement from Minister Cormann said at the time of the announcement.
“With respect to DHA, the objectives are to:
- maintain service and quality levels for customers and private investors
- ensure any recommended outcome/s treat DHA employees in a fair manner, including through the preservation of accrued entitlements
- minimise any residual risks and liabilities to the Government, and
- maximise the benefits to the Government.
“The Government will consider the recommendations of the scoping studies as part of the 2015-16 Budget. No decision on future ownership options will be made until this time.”
What the statement failed to mentioned is that Lazard would be in charge of any sale of DHA should the scoping study recommend that a sale would be in the best interest of the government. Analogies of putting the fox in charge of the hen house to ADM numerous times during researching this article. Unsurprisingly, ADM understands that the scoping study has recommended that DHA be sold for around the $2 billion mark. There is a case to be made that the government would make back the sale price of $2 billion in less than a decade of operations and still have the asset base to leverage.
In these times of fiscal restraint, any potential sale of DHA would provide a short-term boost to government coffers but significantly cut the Defence budget as more would have to be paid to continue the current level of service.
The sale of the UK version of DHA is a sobering example of what can happen when privatisation does not provide the best outcome for the end user. The UK Defence Housing Executive (DHE) was sold in November 1996 for 1.67 billion pounds to manage 57,434 homes and related assets. In 2007, the UK National Audit office identified that 19,000 family homes or over 40 per cent of the total housing stock, were below standard.
Numerous reviews into UK Military Housing since 2007 have seen ongoing issues with the quality of housing and maintenance levels. One family finally turned to their local newspaper in 2013 revealing that they pay 500 pounds a month rent for a house that had been condemned years earlier after suffering mould, asbestos and general disrepair. Answers from Modern Housing Solutions, who now own the Defence housing stock in the UK, outline that these are ‘lifestyle issues’ that will be addressed as soon as possible. Is this the future for Australian Defence housing?
Given the level of service that DHA provides to Defence members and families, the minimal cost to government and major benefits to regional businesses arising from DHA operations, a strong case can be made for DHA to stay in public hands.
This article first appeared in Australian Defence Magazine VOL.23 No.3, March 2015