The housing minister has ruled out lifting Commonwealth rent assistance to help tenants cover soaring rents.
A Productivity Commission report found government rent assistance payments were falling behind the surging rental market.
The independent advisory body suggested pegging the payments to rents, or regularly reviewing them, to ensure they keep pace with fluctuations in the rental market.
Housing Minister Julie Collins told ABC radio higher rental payments were not on the agenda.
"We are focused on delivering our election commitments," she said when asked about hiking the payments.
The commission made the recommendations on rental payments as part of a damning review of the $1.6 billion National Housing and Homelessness Agreement, which funnelled Commonwealth cash into state and territory services.
The deal was deemed ineffective and found to be doing little to prevent homelessness and housing stress.
"Over the life of the NHHA, housing affordability has deteriorated for many people, especially people renting in the private market," commissioner Malcolm Roberts said.
The average low-income renter spends more than one-third of their income on rent.
"The NHHA, intended to improve access to affordable, safe and sustainable housing, is ineffective," Mr Roberts said.
"It does not foster collaboration between governments or hold governments to account. It is a funding contract, not a blueprint for reform."
Ms Collins welcomed the commission's findings and said they would inform the national housing supply and affordability council and a homelessness and housing plan, which were Labor election commitments.
"This report confirms that the last decade of policy inaction by the former Liberal-National government has left us with serious housing challenges across the country," Ms Collins said.
The Productivity Commission says two things need to happen to fix the housing crisis: Low-income renters need more support to pay for housing, and barriers to boosting housing supply need to be eradicated.
Constructing more social housing is only part of the solution.
"Building more social housing will increase the supply of housing affordable for low-income households, but social housing is relatively costly and can only be a partial solution to affordability," the report says.
The commission recommends reserving social housing for those most at risk of long-term homelessness. It says for other low-income households, the focus should be on improving the affordability of the private rental market.
"Governments should trial a housing assistance model that provides equivalent assistance to people in need, regardless of whether they live in public, community or privately owned housing," the report says.
The commission also called for firm targets for new housing supply, underpinned by planning reforms and better infrastructure planning.
It has also taken aim at first-home buyer supports, saying they do little to improve affordability.
"State and territory governments should phase out assistance provided to first-home buyers through grants and stamp duty concessions, unless measures are tightly targeted to support people experiencing marginalisation in the market and who would otherwise be locked out of home ownership," the report says.
However, the federal government has stuck by its regional first home guarantee scheme, which it has brought forward.
The program will provide a government guarantee of up to 15 per cent to 10,000 eligible first home buyers, starting on October 1.
The commission wants to see a new agreement drafted covering the full spectrum of housing assistance provided by governments.
