Govt to close housing scheme loophole

Tougher restrictions are to be placed on compliance of a scheme designed to help low-income Australian households find affordable rental properties.

The federal government is planning to crack down on the National Rental Affordability Scheme amid reports it's benefiting wealthy foreign students instead of low-income householders and that incentives are being traded on the market.

The $4.5 billion scheme was initiated by the Rudd government to help low-income households find affordable rental properties.

However, The Australian reports the scheme is being manipulated to build student housing to let to wealthy foreign students.

Social Services Minister Kevin Andrews concedes there is a problem and says the government will try to close the loophole on new properties.

Mr Andrews says the way the scheme is being run is unacceptable, not just because its immediate beneficiaries appear to be foreign students but also because NRAS incentives are being traded.

He told ABC radio people who take up the scheme and get a $10,000 incentive from the government are selling their "licences" in a "futures-like" market.

In response, the Department of Social Services will implement a more stringent process to test compliance under the scheme and stamp out any instances of non-compliance.

"I am looking at ways to reform and improve the scheme, and welcome comments from states, territories, investors, developers and the housing sector," Mr Andrews told AAP in a statement on Wednesday.

The NRAS legislation was too "broad and flexible" and did not exclude international students from occupying NRAS dwellings.

The department is seeking to better target the scheme by imposing conditions on offers such as those in relation to tenancy preferences.

"NRAS was rushed in design and implementation under Labor and includes numerous design flaws, ambiguous legal requirements and red tape," Mr Andrews said.