STATE governments unable to deliver value for money in building houses in remote indigenous areas will face the prospect of losing future funding.

The Council of Australian Governments agreed yesterday to renegotiate the national partnership agreement on indigenous housing after concerns that it was flawed.

The renegotiation follows concerns raised in The Australian this year that new housing for indigenous communities in the Northern Territory was behind schedule and over cost.

In response, Indigenous Affairs Minister Jenny Macklin placed federal officials in all state government department delivering the housing.

But yesterday she said COAG, meeting in Brisbane, had agreed to go further, changing the rules so that states would compete with each other for the funding to create an incentive for those that could deliver on time and on budget.

Grants would initially be notionally distributed on a per-capita basis across the nation but if states performed poorly, they could lose future allocations.

“We’ve been concerned about making sure we get the houses built where we want them built,” Ms Macklin said.

“We’ve been very pleased with the speed with which they have responded about social housing, which has been done on a competitive basis.

“In the future they will need to bid for the money and we will look at moving money from one jurisdiction to another.”

The commonwealth is spending $5.5 billion over 10 years on housing in remote indigenous areas, with new houses as well as repairs of existing but uninhabitable homes.

She said decent housing was essential for protecting children, improving health, education and employment and building positive community norms.

“The commonwealth has worked in good faith to agree implementation plans and capital works plans with each jurisdiction,” Ms Macklin said.

“Work that has already been agreed for this financial year will continue under current arrangements.”

Negotiations on the revised agreement will begin as a matter of priority, with a view to the revised agreement coming into effect from July 1 next year.