Private landlords expect a return on their investment – a profit, in other words. In a scheme like the NRAS, it’s the government that’s effectively paying that profit. If the government provides housing itself, it saves itself that cost.

Simple, right?

Here’s the policy dilemma.

Direct government investment would require spending up to $500,000 per dwelling. Leveraging private capital can supply the same dwelling for one year at a fraction of the capital cost to the government – $11,000 per dwelling in the case of NRAS.

If the federal government had spent the $3 billion it paid out through the NRAS on instead building its own affordable housing, it might have been able to provide about 6,000 affordable dwellings for rent.

With the NRAS, the federal government instead provided rent relief to about 35,000 households for 10 years.

There’s a tortoise and hare dilemma to this policy choice; should the government have a much bigger impact on the affordable housing problem in the short term, or slowly build up its own stock of social and affordable housing to ultimately help more people in the long term?

Few aspects of government housing policy are simple. For example, Coates and Horder-Geraghty recommend increasing Commonwealth Rent Assistance for stressed households. But without action to also boost supply, this will most likely push up rents.

The crisis in housing affordability is now so monumentally large that the full troika of policy measures is required: income support, direct government investment and private sector leveraging.

Read more: Australia's social housing policy needs stronger leadership and an investment overhaul

Attracting institutional investors

Something like NRAS needs to be part of the mix. But it will require tweaking.

The bridging subsidy for private investors needs to be set at just the right level to attract super funds and other institutional investors, just as it has in the US.

Australia has some peculiar challenges in this respect because of the tax treatment of housing investment.

Yields from private rental housing are quite low compared to the returns typically sought by institutional investors. In part, this is because the sector is largely a cottage industry, dominated by “mum and dad” landlords.

They are primarily driven by the prospect of capital gains, which are tax advantaged. The availability of negative gearing also means investors are not always motivated to maximise yield.

Institutional investors, however, are concerned with yield (net rental income). By and large, the NRAS subsidy was not enough for them to participate. They were also deterred by the risks of managing large-scale residential portfolios.

These issues would need to be tackled in a future version of NRAS, but they are not insurmountable.

This article was first published in The Conversation.