Friday, December 9, 2016

21st Century Bonds - part 3

If you haven't already heard about the Rental Bonds Online service, chances are you soon will.
Rental Bonds Online: coming to all new tenancy agreements?
That's because the NSW Government has just changed to the Residential Tenancies Act 2010 to make it more or less mandatory for your next landlord or their real estate agent to tell you about the service, which allows tenants to electronically transfer a rental bond payment directly to the Rental Bond Board. This is great, as it means you'll no longer have to hand over wads of cash, or go out of your way to get bank cheques or money orders in order to pay a bond. It also means landlords and agents won't even have to see your bond money at all - unless they become entitled to some of it at the end of your tenancy...

The Government has made this change because, to date, only a relatively small number of new tenancies have had a bond lodged via the online service. This is despite a high number of landlords and agents having registered to use it, suggesting that many are not telling tenants about it. Instead, they continue to take tenants' bond money to lodge with the Rental Bond Board themselves.

The change will come into force on 30 January 2017. From that time on, a landlord or real estate agent will be prevented from "requiring or receiving a rental bond from a tenant" unless they have registered to use Rental Bonds Online, and have given the tenant an opportunity to pay their bond to the Rental Bond Board directly, using the service. The only way landlords and real estate agents will be able to lawfully avoid telling you about the service will be to refrain from taking a bond in the first place.

No doubt we'll be hearing more about this over the next couple of months...

Thursday, December 8, 2016

Running repairs? The cost of longer term tenancies: part 2

Last week on The Brown Couch we talked about how much it could end up costing tenants who sign up to a longer term lease in exchange for taking on responsibility for repairs and maintenance – if such a model for long fixed term tenancies is taken up by the Government.

One aspect we didn’t touch on was the question of what kind of repairs tenants might be liable for in this scenario, and how exactly liability would be set out?

Commercial tenancies have been suggested as an example of how this might be determined.

In commercial tenancies responsibility for repairs and maintenance of a premises is generally set out in the lease – though not always. The lease should outline what repairs a tenant is and isn’t expected to pay for. Clauses are commonly drafted to imply that the tenant has responsibility for the general repair and maintenance of premises, but exclude responsibility for repairs related to ‘fair wear and tear’, structural repairs or costs relating to capital expenditure (for example replacing air-conditioning units). If these are excluded they are not the tenant’s responsibility, but they are also not automatically the landlord’s responsibility. They are only the landlord’s responsibility if this has also been specifically outlined in the lease.

Not surprisingly perhaps, repairs and maintenance are a common area of dispute in commercial leases.

If tenants in private rentals were expected to take on repairs in exchange for longer term tenancies, we would certainly hope there were clear limits set on what repairs they were responsible for.  But we foresee that under an arrangement similar to those made in commercial tenancies a whole lot of confusion and disputes regarding repairs could arise. We can imagine many disagreements over where ‘general’ repair and maintenance ends and structural begins.

The first comment we received on our first discussion in this series spoke broadly to this concern. Anonymous told us:
I once rented a property where I was responsible for the first $20 worth of repairs (a number of years ago now). This caused no end of drama e.g. electrician visit of $87 was $20 mine, rest landlord but replacing washes was solely my problem as cost of washers was less than $20. Never again. It was 6 years of arguments.
Even where it seemed the terms were set out quite clearly (tenant responsible only for “the first $20 worth of repairs”) the result was: “6 years of arguments”.

Currently under the Residential Tenancies Act 2010 the landlord is responsible for providing and maintaining the rental premises in a 'reasonable state of repair'. They don’t, however, have to fix any damage caused by the tenants. Already many disputes arise between tenant and landlord because the landlord claims that the tenant is in some way responsible for the problem. Disagreements commonly come up around issues like vermin, mould and guttering – either the landlord claims the tenants caused it, or that they failed to notify them soon enough or take adequate measures to ‘mitigate’ the problem (i.e. take steps to limit the extent of the problem and subsequent costs of any repair or replacement).

Where a tenant becomes responsible for the general repairs and maintenance of a property, we're worried landlords might similarly try to push 'structural' repairs on tenants on the basis they are a result of the tenants failing to meet their end of the bargain and keep up with the general repairs and maintenance required.

Tenants, under such a model, might also become vulnerable to arguments around ‘waste’. 'Waste' as a legal concept refers to any permanent damage done or allowed to a property by a person who is legally in possession of it, and where the damage or harm has diminished the value of the property. A landlord can seek compensation for 'waste', and this can include the cost of restoring the property to its original condition after any changes have been made, even if these changes were intended as improvements.

Currently we believe an action for damages because of 'waste' is unlikely to succeed against a tenant covered by the provisions of the Residential Tenancies Act 2010, largely because of the landlord’s current obligations around repairs and maintenance. This wouldn't necessarily be the case if long fixed term tenancies were offered that varied or shifted the obligations relating to repairs to tenants.

We mentioned in our previous post that many private rental tenants are already facing very high housing costs. They may not be able to attend to repair and maintenance issues as they occur, or even perhaps during the duration of the lease.

In this situation, in addition to seeking compensation to undertake any required repairs at the end of a tenancy, a landlord might also take an action for damage on the basis of ‘waste’.  So they could seek further compensation (that might, for example, cover significant structural repairs) claiming the tenant’s failure to attend to repairs in a timely manner had led to a diminishment in value of their property. However a landlord also may be able to seek termination of an agreement during the lease, on the basis that that the tenant has failed to meet their obligations to undertake repairs and maintenance work.

If the Government really wants to improve security for tenants there is a much easier way (and yes, we've talked about this before) - they need to look at changing the current provisions in NSW tenancy legislation that mean tenants can be evicted for no reason. Because it's clear the costs of long fixed term tenancies are just too high.

Tuesday, December 6, 2016

MyHousing Online - public housing goes digital

It’s taken a while but FACS Housing is catching up with the 21st century and are getting more of their services and forms online. At the end of October they launched MyHousing, a ‘suite of online services’ that mean people can now go online 24/7 to:
  • apply for housing 
  • manage their accounts (rent and utilities) 
  • pay accounts 
  • and request repairs (lodge non urgent maintenance requests). 

You enter MyHousing via the front page of FACS Housing’s website. The ‘look’ of it is reasonably familiar, with the main interface a little bit reminiscent of the myGov portal - though transitions through to specific pages from the initial interface are a little clunky. The ‘Accounts and Information’ pages follow the same design style and logic as Centrelink’s online self service portal. Importantly – because just over 40% of public housing tenants reported no internet connection in their homes in the 2011 Census (ABS 2011) – MyHousing is generally mobile friendly.

Since MyHousing launched on the 31st of October it has had a fair bit of traffic. Over 1000 online housing applications have been submitted, and another 500 are ‘in progress’. Just over 400 clients have registered to access and manage their accounts. Most (80% of visitors) have been looking at ‘Accounts and Information’ to view their rent ledger or utilities accounts, but many (50% of visitors) are also taking the opportunity to update their current contact details. Some have already made use of the ‘e-payments’ facility where you can make rent, water and other payments online with BPAY and internet payments.

Of course you can still do all of these things in real life at a local office. Payment of rent and utilities or other debts can still be done at Service NSW offices. And maintenance requests, general enquiries and - since the middle of this year - applications for housing can all be done over the phone.

FACS reports that the feedback they’ve received from users about MyHousing has been good. Users have told them the online application form is easy to use and that they’ve had a positive experience on the Accounts Information page. The TU has also heard from tenants that the accounts information, and in particular the rent ledger available online, is much clearer than the paper version tenants generally receive (you can actually tell if you are in credit or arrears - which is useful!).

And there is more to come. Eventually all Housing forms will go online, and additional online ‘services’ will be added. FACS is also looking into developing a mobile ‘app’ with a range of functions that could include things like sending reminders or alerts, providing updates on the progress of applications, linking applicants to Link2Home and temporary accommodation, updating info, and repairs requests.

We’re glad to see that FACS is moving in this direction – and that the team behind the online upgrades seem genuinely committed to design that is ‘fit for purpose’ and makes life easier for people engaging with FACS Housing’s various processes. They’ve reached out and have been engaging with community groups from the sector, and have also said they are keen to hear feedback from tenants – current and future.

If you’re a tenant in social housing or have recently applied for housing (or you’re an advocate or worker and have assisted someone who has used MyHousing) we’d love to hear what you think …

Wednesday, November 30, 2016

Running repairs? The cost of longer term tenancies: part 1

Recently we reported on a round table meeting convened by the Minister for Innovation and Better Regulation (which includes Fair Trading) to discuss options for longer term residential tenancies. One of the ideas that was kicked around at the round table was that if landlords agreed to offer longer term leases they should get something in return – for example, tenants taking on the responsibility for repairs and maintenance of the premises.

We don’t think tenants giving up their established right to repairs is a very good idea.

In general housing available to renters is of lower quality than housing for owner occupiers. It is more likely to be in need of repairs, and almost three times more likely to require ‘essential and urgent’ repairs (ABS 2002).
So renters who trade away their right to repairs, if allowed, should generally expect that they will need to front up for repair costs through the year. But how much?

Estimating repair costs for a rental property is not an easy ask – the age of the house, size, fixtures, and number of people who might be living in it all need to be taken account of.

Property management ‘experts’ advise landlords to put aside funds for repairs and maintenance costs each year. They offer a range of methods to calculate what this amount should be, including for example:
Following these methods, if a tenant was considering how much to put aside for repairs for this recently listed Kogarah rental – a 2 bedroom house on a 300m square block of land, advertised for rent at $550 a week, and estimated to be worth around $900,000 - they’d be looking at around:
  • 5% of rental income: $1,430 annually 
  • 1% of value of property: $9,000 annually 
  • ‘Square metre rule’: $3,000 annually 
These methods of estimation assume that while the tenant may not spend the full amount one year, they might be up for higher costs the next (or vice versa). Note the significant variance in the figures above. Despite this, experts do not recommend any one method above another - reinforcing the point that there is no clear or reliable method for predicting what repair and maintenance expenses might be. The only thing that a tenant can confidently predict is that as the property and the fixtures within it age, repair and maintenance issues will come up more often. And they may cost more to fix.

Alternatively a tenant could look at how much has previously been spent annually on repairs for rental homes. The most recently available data on this is from the Australian Tax Office from 2013 – 2014. It indicates that around 75% of NSW landlords did repairs to their rental properties during this period and on average they spent around $1,200 (if you are keen to look at these numbers in closer detail you can download the 2013 - 2014 ATO tax statistics on rental income here). This tells us how much landlords claimed as deductible repair expenses during this period (so a rough guide to how much was actually spent by landlords over the year), but might not be the most accurate indicator of how much should have been spent on repairs each year.

Renters often call up their local Tenant Advice and Advocacy Service because their landlord is avoiding or attempting to minimise the amount they spend on repairs for a rental property. Perhaps a more accurate figure then comes from an older source – the ABS Australian Social Trends report on ‘Housing Stock: Housing condition and maintenance’ from 2002. This reports that on average an owner-occupier household spent $1960 each year (i.e. this is the amount home owners spent repairing the home they live in). Allowing for inflation this would suggest tenants could more reasonably expect to pay around $3,115 every year on repair and maintenance costs.

These figures are averages. So while some tenants who agreed to take on repair costs during their tenancy might expect to pay less, some could be facing considerably more.

Of course, tenants will be hit harder by repair costs than their landlords were. Repairs undertaken by landlords for a rental property can be claimed as a deductible expense against a landlord’s taxable income – so landlords effectively pay less to repair the property than a tenant would.

And the impact of taking on repair costs in tenancies would not be felt equally by all tenants. Low income tenants would be disproportionately hit by repair and maintenance costs. They generally rent older, lower quality housing - but while their housing or the fixtures within it might be of a lower standard, it won’t necessarily cost them any less to repair or maintain the property. In fact they will likely face repair and maintenance costs more frequently, and have to pay more for these repairs (ABS 2002).

Let’s look at some common scenarios regarding repairs while renting. What could each of these end up costing a tenant?
Problem: Your phone line or internet is playing up        
Costs start from: Phone technician (Telstra?) call out costs start at around $150

Problem: Toilet clogged up or leaking
Costs start from: Plumber call out costs start at around $150

Problem: Gas oven won’t light
Costs start from: Electrician call out costs start at around $150

Problem: hot water system’s broke
Costs start from: Electrician call out costs start at around $150

Problem: Cockroaches start creeping out of the woodwork
Costs start from: Professional pest control packages start from around $149

Problem: Lock not locking
Costs start from: Locksmith call out costs start at around $135

These are just the starting costs. In each example a spare part, or additional labour could be required. Perhaps a fixture (dishwasher, ceiling fan, oven, etc) needs to be replaced altogether – so just start adding on the dollars from there.

Many tenants are already close to or at their budget limit for housing costs in rent (especially given the current lack of affordable rentals across NSW). Tenants may not have the financial resources to attend to repair and maintenance issues as and when they occur. Perhaps not even for the duration of their lease. Instead they may be forced to live with housing in a state of disrepair throughout the remainder of their lease, and then be hit up with a very large bill to complete these repairs when they move out.

Tenants certainly want more security. They want stability so they can confidently make a home for themselves and their family in their rented housing. They shouldn’t be forced to trade away established rights at considerable cost just to get this.

Monday, November 28, 2016

Airbnb doesn't put rents up, landlords do

Over the weekend a story broke regarding a tenant who was evicted and later found that their former home had been listed on Airbnb. We thought this a good opportunity to give a preview of some of our research into the impact of Airbnb in Sydney.

Domain reports that after his eviction, Nicholas’s landlord listed the property on Airbnb at up to “three times the rent”, partly by listing separate rooms rather than the whole of the premises, but partly simply by making the nightly rate far more than could have been made from weekly rent. One element of our research into Airbnb is looking at how much business the Airbnb host really needs in order to replace the equivalent rent for that property.

As anyone who's rented in Sydney lately knows, our rents are extraordinarily high. Unsurprisingly then, our research finds that Sydney Airbnbs have to actually be booked for significant amounts of time in order to replace the rent. Of the top 10 Sydney post codes where entire homes are listed on Airbnb, 9 would need paid up bookings for well more than 6 months of the year.

This is about in line with research carried out by the city of San Francisco in 2015 which recommended the Mayor's proposal of limiting listings to no more than 120 days. It does not make financial sense for a landlord to remove a private rental from the market unless they could be assured of Airbnb bookings at least within cooee of the rental replacement number.  San Francisco has subsequently adopted a limit of 60 days.

The recent inquiry into short-term lettings in NSW has also recommended a limit of sorts, where an Airbnb host would need to seek council approval before using the property on Airbnb over a certain number of days. A common number discussed was from the City of Sydney, which suggested 100 days in a year should be the limit.

Across Sydney, there are very few listings which go over 100 days, and even fewer who come close to replacing the rent.

Readers of the property pages know that not all property owners, or landlords, always act in the most economically rationalist way. The host of Nicholas' former home is a bit unique as far as Airbnb hosts go – from the info on Airbnb it appears he manages 3 other properties around Sydney, all divided into multiple listings. He also links to his TV appearance regarding his commitment to the ‘sharing economy’. It's entirely possible that this host, and others, would choose to list properties even if they didn't happen to be more profitable than the regular rent.

But let us step back and consider who - aside from tenants, of course - would be so upset if someone was evicted in order for a landlord to take another tenant at a much higher rent. We suspect the response would largely be “let the market decide!”, “it’s the landlords right” and "who can blame them if that's what the tenant is willing to pay?" It is curious then that a landlord responding to a market demand for short-term lettings does not attract the same type of response.

Could it be that concern for this particular tenant is a little on the shallow side? Why do we only hear about the evils of property owners extracting maximum value from their investments when it's actually something else that's bothering us? We understand there's a party going on across the hall that it seems everyone else was invited to, and no doubt that can be frustrating... but for tenants it's been someone else's party all along.

Of course, Nicholas couldn’t have been evicted to make way for Airbnb at all without NSW's tenancy laws that allow for terminations without a good reason. From the article it appears that Nicholas was misled into believing that the owner would be moving back in themselves. This kind of disappointment is well known to tenants as a consequence of no grounds notices.

Those dismayed at this story must recognise that no complaint about the impact of Airbnb can match the impact of our unfair and one-sided housing system. We do not mean that Airbnb has had no negative impact – but whatever impact exists is a direct result of the way our housing system has been designed, and the values that we place upon it.

Wednesday, November 23, 2016

Full houses

Vancouver is currently in the process of implementing an empty homes tax to try to make sure that the city uses its existing house stock more efficiently. As one of the most unaffordable cities for housing in the world, Vancouver's mayor is desperate to bring these costs under control and is prepared to try inventive policies to achieve it. Sydney is more unaffordable than Vancouver, so it's unsurprising that when Jessica Irvine asked economists and planners whether the idea would work here, she found little opposition.

In Vancouver, all property owners will need to declare whether the property is vacant, and if it is, then the owner will pay an annual tax of 1% of the property's value. The median value in Vancouver is $1million Canadian (roughly equivalent of Australian dollars), so the tax on a median dwelling would be $10,000.

A vacant dwelling is defined as a property that is not either a principal place of residence, or a property that is rented for more than 180 days in a year, in periods of at least 30 consecutive days.

Owner-occupiers and others already have to make a yearly declaration that they reside in the property in order to receive the exemption from paying land taxes, so this extra paperwork isn't much of a big deal. If an owner fails to declare their property's status, it is deemed empty, and the 1% tax applied.

There is a good incentive, then, to declare the property "not vacant". Perhaps some owners will be tempted to fib, and make the claim even if the property is vacant. To address this, the city will conduct both targeted and random checks of properties each year to assess the validity of such claims. If a declaration is found to be false, the fines can be $10,000 a day. The cost of administering the scheme, including enforcement, is budgeted at $1.5million.

Of course, there are exemptions - 8 of them. Properties may be vacant without attracting the tax if:
  • The property is undergoing major renovations, or is under construction or redevelopment (with permits).
  • The registered owner (or other occupier) is undergoing medical or supportive care.
  • The owner is deceased and grant of probate or administration is pending.
  • Ownership of the property changed during the previous year.
  • The property is subject to existing strata rental restrictions.
  • The registered owner uses the property for six months of the year for work purposes but claims principal residence elsewhere.
  • The property is under a court order prohibiting occupancy.
  • The property is limited to vehicle parking or the size, shape or inherent limitation such that a residential building cannot be constructed.
These exemptions and the nature of enforcing a scheme like this leaves open the possibility of a property owner taking steps to avoid the tax. One obvious way would be to keep properties furnished to give them that "lived in" look, and sign sham tenancy agreements with people who charge less than $10,000 a year for their trouble.

Vancouver is doing this to address something up to 20,000 possibly empty homes. They've identified around 10,000 homes as empty, and there are another 10,000 they're not so sure about. Many will get exemptions. So the possible revenue from the tax is up to $200m, and it's likely a lot less than that. But even if the city only receives this tax from 3,000 median homes that's $30m odd more than the administrative costs of the program. The process would hopefully have made the other 17,000 property owners think about what they're doing, and perhaps bring some back into the rental market.

Vancouver is quite small, half the size of Adelaide, so 20,000 homes is quite significant. Proportionally, it's about on par with the roughly 80,000 empty homes that Prosper Australia finds in Melbourne each year.

With vacancy rates for rentals across Sydney stuck below 2% for many years now and rents at all time highs something needs to change. Addressing the problem of wasted property is a good idea. It is a better supply-side solution than naively relying on developers to deliver tens of thousands of apartments all at once to create a market shock, rather than staging releases to ensure maximum prices, and having little impact as population grows to meet the new supply.

An even better idea is a broad-based land tax which encourages the productive use of all properties, not just empty ones. Land tax is very easy to collect (and hard to avoid), and is more reliable than stamp duty as a revenue source for government. But an Empty Homes Tax could be a good first step towards a fairer approach to housing taxation.

Tuesday, November 22, 2016

Who would benefit from long fixed term tenancies?

Questions raised in the recent review of the Residential Tenancies Act included "what incentives would encourage the use of longer term leases?" and "what are the key challenges for landlords in offering longer term leases?"

For our part, we offered in response a reprise of an old Brown Couch favourite: long fixed terms are not the solution. Tenants would be better served by expanding the list of grounds upon which tenancies can be brought to an end, and getting rid of the "no grounds" provisions that allow landlords to end tenancies without a good reason.

But the review concluded with a report recommending:
The Act’s provisions in relation to no grounds terminations should remain unchanged. The Government should consider other ways of improving security of tenure in the rental market, including through facilitating the use of longer fixed term leases (recommendation #17).
... and:
That the Government give further consideration to other changes that could be made to the Act to further incentivise the use of longer fixed term tenancies (recommendation #16).
It was with these recommendations in mind that the Minister for Innovation and Better Regulation, whose portfolio includes Fair Trading NSW and the administration of the Residential Tenancies Act, recently convened a round table meeting to discuss options for long term residential tenancies. The Tenants' Union scored an invite, as did the Property Owners' Association, the Real Estate Institute, and a number of other interested parties.

Despite our reservations, we entered the discussion with an open mind. We hoped some useful and interesting ideas for reform might emerge, given the growing acceptance that the private rental market is doing such a poor job of delivering secure homes for those who live there. Instead, we got raw insight into what landlords would be looking for in exchange for long fixed term tenancies: more money/reduced costs, minimal loss of control, and a right of veto. Anything short of that, and apparently landlords would all go on strike.

In other words, landlords won't be compelled to offer secure tenancies - they'll only do it when it suits them, and interested tenants would have to make it worth their while. It's almost as though they know they've got tenants over a barrel, and they can sense a way to juice them for just that little bit extra...

This might include asking for a higher rent, or being allowed to levy extra charges, in exchange for a long fixed term tenancy. Or it might include asking tenants to trade off some of their established rights, like agreeing to attend to the property's repairs and maintenance needs for the duration of the agreement. The law already allows for some "mandatory terms" to be varied in agreements that are for a fixed term of 20 years or more, but to date nobody seems interested. It is hoped that landlords might offer longer tenancies, and tenants sign up to them, if such terms could be varied for a more realistic five year fixed term.

Our worry is that optional long fixed tenancies, with reduced rights for tenants, would be offered on a take-it-or-leave-it basis. Tenants seeking properties at the higher end of the market might be able to strike a decent enough bargain for themselves, securing a long term tenancy by virtue of their relative economic wellbeing - but of course that is already possible. Those in need of low cost housing, probably considering properties with higher repairs and maintenance needs, will be in less of a position to bargain. They could find themselves locked into long term agreements they don't necessarily need, and lumped with costly obligations that would be difficult to fulfil. They might be slugged with a hefty repair bill at the end of the tenancy, if they fail to live up to the landlord's expectations about how the the property would be maintained. For that matter, they might still have their tenancy ended without grounds once the long fixed term is up.

But even if we could ignore that possibility, we can't ignore this basic proposition: landlords would have a scheme that requires households to purchase a secure tenancy. Only some households, though, and only at the landlord's discretion. Others would have to stick with rolling short fixed terms or insecure periodic tenancies, and the ever-present fear of eviction without grounds.

It appears the New South Wales Government may give serious thought to this option.

So... something to think about in the meantime: what's a secure tenancy really going to be worth?