Tuesday, October 10, 2017

Victoria's rental revolution - how does New South Wales compare?

Yesterday we celebrated Victoria's proposed tenancy law reforms, and reflected on some tired old lines that turn up every time we give serious contemplation to improved rights for renters. Today let's take a closer look at just what the Victorian Government's "Rent Fair" package includes, and how it compares to our own laws in New South Wales.

Victorian landlords: ready to cross the border at the first sign of tenants' rights
Victoria's proposed reforms are many and varied. They've been categorised into six different groups: rental security, tenants' rights, faster payments and rental bonds, fair priced rent, pets are welcome, and modifications.

Let's dive in.

Rental security
This includes the big one: landlords must give a reason to end a tenancy. This should be rolled out in every Australian state and territory, except Tasmania where it already applies. Along with others from the community sector we've been actively campaigning on this issue here in NSW (find out more at Make Renting Fair NSW). Allowing landlords to end a tenancy without a stated reason actively undermines tenants' confidence in renting laws because they worry they'll be evicted unfairly if they make a fuss or stand up for their rights. By now this should be well established, but if you still need some convincing we recommend a quick look over the recent Unsettled report published by Choice, National Shelter and the National Association of Tenants Organisations. Three cheers for Victoria for announcing this change!

We should note that Victoria already has a long list of reasonable grounds available for landlords to use, and their "no grounds" notice comes with 120 days notice. In New South Wales we are missing some key grounds, such as where the landlord needs to recover the property for their own personal use; and our notice period is a full month shorter at 90 days. Any suggestions we can fix our own laws in New South Wales by expanding the list of grounds for termination and leaving the "no grounds" option intact just took a bit of a hit.

But here's where it starts to get flakey: the law will limit the use of the ‘end of fixed term’ notices to vacate. This will allow landlords to use what is effectively a "no grounds" notice of termination at the end of the first fixed-term period (usually six or twelve months), but not in any subsequent period if the fixed-term is renewed rather than proceeding on the basis of an open ended agreement. Make no mistake, this would be an improvement and we'd welcome a similar change in New South Wales. But in practice it will turn fixed-terms into a "probationary" period. Tenants who stick up for their rights during an initial fixed term would still have no protection against an unfair eviction, so might hold off reporting repairs and maintenance needs, or raising other concerns about their tenancy, until after the fixed term expires. It would be better to just ban the use of no-grounds notices altogether, perhaps with an exception for longer fixed-terms of say three years or more (in the spirit of compromise). This might be something the Victorian lawmakers will consider as they're working out how to encourage more long term leases, which is also included under this heading.

As for the rest of the reforms under this heading - prohibiting false, misleading or deceptive representations and requiring pre-contractual disclosure of the presence of asbestos or an intention to sell, Victoria is mostly just catching up with New South Wales, but taking a few steps further while they're at it. The need for New South Wales landlords to disclose material facts prior to entering into a tenancy agreement was introduced with our Residential Tenancies Act 2010, but it wasn't given any measures for enforcement. We're still hoping this will be fixed - along with adding the presence of asbestos in the property as a fact for disclosure - as per the recommendations of the recent review of our own renting laws.

Tenants' rights
There are two proposals under this heading. A commissioner for residential tenancies who will "champion the rights of Victorian renters in the private sector" strikes us as an interesting idea, but we'll wait and see how that plays out for awhile before we get too hung up on it. A landlord blacklist seems like an odd thing for a government to introduce, when they could just encourage greater compliance with the law by investigating complaints and issuing penalties, but we'll keep an eye on this one as well.

Faster payments and rental bonds
A move to allow a 14 day automatic bond repayment is more or less in keeping with what we've long since known and loved in New South Wales - if you can't get an agreement and both signatures on a bond claim form, then either party can make a unilateral claim that will be paid out after 14 days unless the non-claiming party raises a dispute and takes it to NCAT. Sensible, although we do think it would be better if only tenants were allowed to make a unilateral claim, allowing landlords to dispute the claim or apply to NCAT after a reasonable time if they felt they were entitled to it. Changes  to the way the early release of bond works in Victoria will be of little consequence to us in New South Wales - our law allows this at any time as long as all parties agree, or the requesting party is handing it all over to the other, whereas the Victorian proposal will extend the right to an early refund to be available in the last fourteen days of a tenancy, rather than the last seven days. The same goes for updated bond cap & up-front rent cap for most properties - these are already in place in New South Wales, where a bond may not exceed four weeks rent and no more than two weeks rent in advance can be required regardless of the type of property or amount of rent payable. The move for faster repairs reimbursement, where tenants can seek reimbursement for the cost of urgent repairs they have effected because they couldn't wait for the landlord, is a small step ahead - Victorians will be entitled to this within seven days of a request, while we could still be waiting up to fourteen days. That is, of course, assuming we've followed the process correctly - never effect an urgent repair without reading up on the law first, because failing to follow all the steps could see you permanently out of pocket.

Fair priced rent
Victoria has announced a very modest change here, that will leave us in their dust. Rent increases are already restricted in Victoria - they can't happen more than once every six months, and under the proposal this will change to once every twelve months. Meanwhile, in New South Wales, there is no limit or cap on the frequency of rent increases. In theory, your rent could go up daily and there ain't a damned thing you could do about it - provided you've been given the proper notice on each occasion - other than apply to the Tribunal and argue that a proposed increase is "excessive". Limiting rent increases to a maximum of once a year would be alright in New South Wales, but we'd also need to rework the way tenants can respond to them. It should be up to the landlord to show that a significant increase is reasonable, rather than the tenant to show that it is excessive.

This plan also proposes cracking down on rental bidding, which is something we can all get behind. The law in New South Wales is not really clear on whether it's lawful for landlords to solicit bids, but it seems okay to accept a higher rent if a tenant jumps in first. Just because you can pay more doesn't mean you should, and landlords shouldn't dangle properties in front of desperate tenants with a wink, a nudge, and a sign saying "pssst, make me an offer" hidden in the top drawer. Victoria says it will prohibit landlords from "inviting" bids, which is bad news for a couple of rent bidding apps that are sniffing around at the moment, but perhaps it could go a little further. We should be clear - in an era when governments are relying on the private sector to make up the shortfall created by chronic under-investment in social and affordable housing, allowing those with greater means to push up prices for the rest of us should be well and truly outlawed.

Pets are welcome
Pets in rental property will be allowed by right of every Victorian tenant! Or will they? The proposal says tenants will need the landlord's written permission first. It also says the landlord won't be able to unreasonably refuse, but that leaves a lot of grey area around just how rigid this new "right" will be. Further, this seems to be more of a right for people who rent and want a pet than people who have a pet and want a home to rent. Landlords will still be able to discriminate at the point of application by simply declining to rent to people with pets.

A better way to give tenants the right to keep pets would be to take a "don't ask, don't tell" approach. We should confirm once and for all that landlords have no business making decisions about who besides themselves shall get to keep a pet, and prohibit including a "no-pets" clause in tenancy agreements.

Ensuring that tenants can make minor modifications to their home is the final piece of news coming out of the Victorian proposals. It makes good sense, and again it brings Victorian laws in line with ours in New South Wales. With this kind of reform the devil is in the detail, as questions of who gets the value of an improvement if the tenancy ends prematurely will need to be considered thoughtfully. We haven't quite gotten this right in New South Wales yet, either.

Monday, October 9, 2017

More news from down the Hume

There's been massive news out of Victoria over the weekend, with the Andrews Government pledging to make renting fair!

The announcement refers to an "unprecedented package of tenancy reforms" that includes doing away with the Victorian equivalent of unfair evictions, preventing discrimination against tenants with pets, and cracking down on rental bidding. All of these sound pretty good to us here on the Brown Couch, and we look forward to seeing further details as these proposals are implemented by amendment to Victoria's Residential Tenancies Act 1997. Early details are available here.

Of course, not everyone was happy with this announcement. ABC online reports:
The Real Estate Institute of Victoria (REIV) said the changes would force up costs, which would be passed on to renters. 
"Rents will go up, people will leave the market, there'll be less supply and that's only going to push people out of the rental market and make it more difficult for those who are seeking to rent premises cheaply," chief executive Gil King said.
But our colleague from the Tenants' Union of Victoria, Mark O'Brien, wasn't having any of it:
"Every time there's reform of the residential tenancies law, the institute claims it's the end of the world as we know it and that's never what occurs," he said.
O'Brien's view is supported by a great deal of research, which suggests property investors tend to be motivated by financial considerations rather than tenancy laws.

Still, it's a line the investor lobby and landlord advocacy groups like to trot out at times like this and we expect a similar conversation will emerge in New South Wales when at last the results of our own review of renting laws make their way towards Parliament. We've been expecting this would occur before the year is out, but now that's looking unlikely. This means we've still got time to convince our own government they should be following Victoria's lead to make renting fair - you can lend your support to our claims here.

But it also means our own landlords' and real estate agents' groups will have more time to practice their lines about tenants' rights leading to all sorts of doom and gloom for renters. "Careful what you wish for," they might say. "The changes will force up costs, rents will go up, people will leave the market, there'll be less supply and that's only going to push people out of the rental market and make it more difficult for those who are seeking to rent premises cheaply".

The thing about all this is that there's not much stopping rents from going up as it is. For a quick refresher on why this is, have a look at our earlier post about why rental affordability continues to deteriorate.

But back to the specifics of the claim. The Real Estate Institute of Victoria seems to have skimmed over their suggestion that rents will go up to offset an increase in landlords' costs. Perhaps they've cottoned on that such claims are a furphy, because even though most landlords would go out backwards without them rents are a function of what tenants can pay rather than what landlords' choose to spend when buying and holding property. Or perhaps they just don't think the Victorian proposals will add significantly to their costs so they've steered clear of any further detail. Either way, they've put their emphasis on the slightly different argument of "people will leave the market, thereby reducing supply".

We should keep an ear out for this one in New South Wales, too. It's the idea perhaps that fair renting laws will take all the fun out of property investment, so landlords will take their money and spend it on other, much simpler things. Keep in mind the same argument was made when our current laws were drafted in 2009/10, and the private rental market was hands down the most likely place for a property in New South Wales to turn up in following sale or construction between the 2011 and 2016 Census events.

Still, given the prices property owners could expect at the moment it stands to reason some might be tempted to cash out. Some might even use the prospect of law reform as a cover for their decision. Rest assured they'll be factoring in capital gains before all else, and nobody likes to sell before hitting their targeted windfalls unless they really, really have to.

Those who do sell will be doing immediate damage to their sitting tenants - just as any landlord does when selling for any other purported reason. That is, unless they sell to another investor who is not so concerned about law reform (or other purported reason), and will keep the tenancy going. Given it's mostly an investors' market at the moment this scenario is becoming more and more likely. But, on the off chance an investor cashes out by selling to a first home buyer, the net impact on supply will be zero if the buyer is leaving the private rental market in order to take up home-ownership. And if a whole lot of investors suddenly decide to sell up all at the same time, prices might start to come down a little and first home buyer activity might find some renewed vigour.

It's the landlords who take their properties with them when exiting the market that are the real problem. These are likely to be in the very small minority, since most landlords run at a loss for tax purposes, and rely on any rental income to cover their main costs which includes the interest on their loans. Nevertheless, this risk could be easily countered with a vacant property tax, the likes of which the Victorian Government has also recently proposed. The revenue from such a tax could be used to fund new social housing dwellings.

Despite what we can expect to hear from the investor lobby in the coming months, the NSW Government would do well to start taking notes on Victoria's tenancy law reform proposals.

Thursday, September 21, 2017

How do you solve a problem like Airbnb?

With the deadline for comments on the Government's options paper around short-term holiday letting in New South Wales drawing near - they're due at the end of October - we're starting to see a resurgence of articles and musings about the impact of short-term holiday listing companies on Australia's fragile housing system. We thought we'd weigh in with some early thoughts.

The week kicked off with a comment from Stephen Goddard, strata lawyer and spokesperson for the Owners Corporation Network, in Domain. The OCN advocates that strata lot owners should be given the right to make rules about short-term letting at the micro-level - that is, owners within each individual apartment block should be able to decide for themselves whether they will allow short-term lettings in their building, and under what conditions. Goddard makes some strong points, and it's hard to disagree with the notion of short-term lettings being regulated at that very local level as far as strata is concerned.

It's worth pulling out a couple of items for further discussion. The first is that strata laws in New South Wales don't allow tenants to have any meaningful representation on strata committees, which is where by-laws that would include rules about short-term lettings would be made. Once a by-law is made, tenants can't really challenge them - only the owner of a lot can do that. This presents a problem for the "local democracy" model: those residents who do not want their building to allow short-term letting, and who rent, would be excluded from any discussions or decision around the relevant by-laws. On the other hand their landlords - who may not reside in the same town or city, let alone within the strata complex - would be invited to contribute. That means decisions about short-term lettings would be influenced by people who have no direct interest in the day-to-day concerns of their strata community. The issue could be fixed with a few tweaks of the Strata Schemes Management Act 2015, along the lines argued by the Tenants' Union prior to the Act's implementation, to allow tenants greater say on the management of their strata schemes.

The second is Goddard's comments about the impact of short-term letting on housing affordability more generally. On this he cites research from the University of Sydney's Urban Housing Lab which he says "recently found that short-term letting platforms have removed 6,000 properties from the long-term rental market throughout NSW". He links to an earlier article in which the research was discussed - it quotes the Housing Lab researcher and provides further context around the findings - but we'll have to wait until the research is published before we can get a clear look at what it tells us. Given the fluidity of Australia's housing markets, where properties are traded back and forth between owner-occupiers and investors with relative frequency, the growth of short-term letting raises some interesting questions around the interplay between existing and emerging residential property uses.

The journalist who wrote the earlier story also sought comment from the Tenants' Union prior to publication. Our remarks were not included in the piece, but reference was made to our own research into the impact of Airbnb on Sydney's rental market. This research found no clear correlation between rising rents and an increase in listings in Sydney's Airbnb hot spots, suggesting that deteriorating rental affordability across the city is not necessarily down to Airbnb. This is in keeping with other analysis we've presented about declining rental affordability and the changing shape of the private rental market.

Not surprisingly, vocal opponents of short-term letting are unimpressed with our report, and we've been accused as recently as last week of "cosying up to Airbnb". To be fair, Airbnb Australia has taken to citing our report as part of their arsenal in fending off claims about their company's negative impact on housing affordability - and well they might. But let's be clear, where short-term lettings are concerned the impact on rental affordability is not the only game in town. Far more concerning is the impact on housing security for people who rent, and who can be evicted without grounds by landlords who might consider themselves simply experimenting with a new investment strategy by trying their luck with short-term letting. To be fair again, our "cosying up" accuser has agreed with us on this point.

As our report highlighted, listings for short-term lettings tend to spike during peak tourist times, and many listings do not result in numerous or frequent bookings. This is in keeping with Airbnb's repeated claims that the majority of people listing on their platform are just ordinary folk looking to cover their own costs while taking time away from home. Available data doesn't tell us how many listings are made by owner-occupiers or renters, and how many are made by investors, so we're only able to guess as to the specific impact of landlords turning away residential tenants over the summer in order to take on short-term holiday makers. But there can be no doubt such an impact has long been felt in popular tourist areas across New South Wales, and there can similarly be no doubt the increased ease by which property owners can solicit short-term lettings by using Airbnb is making this worse. Reforming the Residential Tenancies Act 2010 to ensure tenants can't be evicted "without grounds" to allow experimentation with short-term lettings will be critical to solving this problem.

Even with the above-mentioned reforms in mind, there will still be a need to regulate the short-term letting sector. Findings in our report suggest landlords would need to operate on a more-or-less commercial basis if they are to make short-term letting a viable financial alternative to simply renting a place out, but of course there are some who are already doing that. With various examples of third-parties offering their services to manage such operations there is a huge risk this practice will grow, particularly in high demand tourist areas that are already struggling with affordability issues. This is clearly a problem. A commercially operated short-term letting business should only be allowed subject to local government approval, and there should be clear guidelines as to what constitutes a "commercial operation" and the conditions under which it will be approved.

We'll return here to Airbnb's oft quoted claim that the majority of their hosts are not commercial operators, but everyday people simply sharing a spare room for extra cash or keeping their homes lived in and looked after while taking some time away - all part of the global "sharing economy" that some are even calling a financial lifeline. As far as a corporate narrative goes, it's not a bad one, but it clearly sidesteps some of the problems that are created or exacerbated by this highly profitable business. If they were genuine about the claim, they could very easily make it true by limiting the number of bookings a host could solicit via their online platform. There is no doubt they'd lose listings, as the commercial operators would take their business elsewhere, but they'd recover some credibility and perhaps even restore a little faith in their so-called sharing economy. They could trade a bit of money for some moral high-ground. But they don't.

Make sure you get your response to the Government's short-term holiday letting options paper by October 31st.

Tuesday, August 29, 2017

Building to let

The concept of "building-to-let" seems to be gaining some traction as a solution to Australia's housing affordability woes. As the name suggests, building-to-let happens when a developer builds residential dwellings - presumably apartments - with the intention of renting them out rather than selling them off once complete. As circumstances (aka house prices) are forcing many of us to re-imagine the great Australian dream, this is just the kind of blue sky thinking we need.

Imagine...! A landlord who is interested in a relationship with tenants rather than property! Who won't cringe at the thought of picture hooks, curtains, a new light fitting. Who will let you keep a pet, subject to reasonable by-laws. Who won't put the rent up just because everyone else is doing it. Who won't kick you out because they want the place for their kids, or to sell it, or simply for no reason at all.

Just imagine!

Perhaps the reason this would appeal to so many Australian renters is that it is the polar opposite of what our private rental market currently delivers. As we discussed in a recent post, Australia's landlords are
... mostly one-off or small-time investors, "mums and dads" who are more interested in property for its capacity to generate wealth than providing homes for families. They'll hang onto a property for maybe five years or so then sell it, banking the gains or putting them towards their next investment. For the most part, Australian landlords are not interested in building large portfolios, and they don't want to concern themselves with the day-to-day workings of property investment. They tend not to engage with things like renting laws, tribunal procedures, or tenants' rights unless they have to. Many are happy to ignore these aspects of investment altogether, handing them all over to real estate agents who know only too well they won't have anyone looking over their shoulder as long as the rent rolls in and the outgoings stay under control.
Building to let offers a genuine counter to this. At least, it does in theory.

But there's a problem, and it's one of culture. Australia's approach to housing is built on the assumption that you rent when you're young, then you buy a home, and then you buy an investment property. There's been a recent shift in this assumption, at least for some, so that you rent when you're young and then buy an investment property so you might be able to afford a home when you retire.

No doubt the sudden emergence of this build-to-let discussion is an indicator that whatever underpins these assumptions is faltering. That in itself is a very interesting development. But it will take a great deal more to change Australia's values when it comes to renting versus owning your own home for the long term. This is important, because it affects the rules and regulations under which our rental markets operate, and how they might change.

The establishment of "build-to-let" schemes could aide in the evolution of Australia's renting laws, as a new class of landlord emerges with interests that are somewhat less in conflict with tenants' than our millions of "mum and dad" investors' are. On the other hand, pushing against long-established cultural norms may prove all too difficult, or even undesirable, for such landlords. As always, the proof will be in the pudding.

Institutional investment does not mean investment in tenants' interests. For all the good they may do, consider the dearth of support from community housing landlords for a simple proposal to make renting fair: more than eighty organisations from across New South Wales are calling on the Government to end unfair evictions by removing no-grounds notices of termination and expanding the list of reasonable grounds available for landlords to use when a tenancy must be brought to an end - but socially responsible, not-for-profit landlords are notably absent from that list. You might think institutional landlords with a mission to improve outcomes for the households who need it most would be the first to engage with such ideas, but evidently the status quo suits.

So when you read statements from major developers who say things like
I believe, and based on the experience in other parts of the world, institutional grade multi-family housing tends to streamline the process of renting by providing tenants with the stability to live long term in rental property, should they elect to do so, without the risk of the owner selling, greater reaction time to any repairs and maintenance, access to modern properties within sought after locations and security in tenure over the property
Creating a sustainable, affordable housing market in NSW means providing a diverse range of housing options and build to rent could be a viable choice to provide certainty and security of tenure to people who want to rent rather than buy
... without reference to tenancy law reform, it should be taken with a grain of salt. If we can't even get our social housing landlords to commit to improved security of tenure for renters, what hope do we have for the private sector?

Consider comments attributed to Treasurer Dominic Perrottet while discussing the NSW Government's possible support for build-to-let schemes recently, that "finding ways to give renters that security without excessively curtailing the rights of property owners is a fine line to walk". Evidently the build-to-let solution has already surrendered to Australia's established housing culture.

Again, the proof will be in the pudding. We're aware that some developers in Sydney are already building to let - we know this because we sometimes hear from their tenants. What we're hearing are stories of unlawful, non-refundable "pet licenses", and evictions without grounds.

We'd like to see building to let flourish in New South Wales. A genuine market intervention from institutional landlords could be just what many of Australia's long-term renters need. Unfortunately, for the time being at least, it looks like it would be just another sideline for developers.

Friday, August 25, 2017

New Bonds data released but more is needed

Yesterday Fair Trading released bond data for the first time other than through the Rent and Sales Report. We welcome the release of this data as it will be very useful to enhance understanding of issues and trends in the rental sector. As the Minister for Innovation and Better Regulation, Matt Kean said in his media release, “I want to put consumers first and this data does that by allowing open, transparent access to useful rental information.” Sounds good to us, Minister!

However, it pays to understand what this data tells us - and just as importantly what it does not.

An article this morning helped to demonstrate the limits of this data. Looking over the data, the journalists discovered that a much larger proportion of bonds being refunded in some areas of Sydney and New South Wales were going to the landlord rather than the tenant. The problem is we don't know the context of those bond refunds, and how they were claimed.

Click for full size!

Bonds can be released from the Rental Bond Board in one of three ways. The landlord and tenant can come to a mutual agreement and lodge a bond refund form with both parties agreeing to amounts payable either way. If the parties can't come to an agreement, one or other of them  can make a unilateral claim for what they think is appropriate, without the other party's signature. The person who didn't sign is given 14 days to lodge an application to the Tribunal if they disagree with the claim. If they do not take it to the Tribunal the bond is paid out as requested. This is the second option. The last option is that the dispute does go to the Tribunal and the bond is decided either by a final negotiation, or as decided by the Tribunal Member.

Tenants and landlords should both be aware that the bond is the tenants' money. It is held in trust by the Rental Bond Board - it is not some common pool of money and landlords should not regard it as theirs for the taking. Vulnerable tenants may be unaware of their ability to dispute a claim against the bond, or indeed feel unable to assert their rights due to their vulnerability in the rental sector.

Whether bond refunds are agreed upon, or disputed, and whether a claim made by the landlord has been tested in the Tribunal is a crucial piece of information which the Rental Bond Board already has in its data banks and could release. It would go a long way to allowing researchers and journalists to peer behind the information that's already been released and examine the geographic differences that have been drawn out.

We've also heard that exit surveys on bonds have been considered - we think this is an excellent idea. For instance there is no information currently collected about how and why tenancies in NSW end - this means a government and community making decisions about how effectively tenancy legislation is working have a very deep and dark blind spot on an incredibly important aspect of renting law. An exit survey on the bond claim form would be a simple and effective way of adding a depth of knowledge to our collective understanding of the renting experience in our state.

In the spirit of open and transparent access to information, we encourage the Minister and Fair Trading NSW to consider releasing both the currently available information of whether bond claims are disputed and tested, and strongly consider implementing the bond survey to develop a truly excellent source of data.

Monday, July 31, 2017

Tenants’ Union welcomes Labor’s flagged shift on renters’ rights

The Tenants' Union of NSW has released the following statement about reported changes to the NSW Labor Party's Sustainable Communities platform

NSW Labor has flagged a new policy agenda that could change the game for renters, says Tenants’ Union NSW.

Over the weekend, the NSW Labor party’s conference recognised a growing number of families rent their homes in New South Wales, and pledged to modernise rental laws to provide certainty, balance and fairness in the rental market. Early reports suggest this could include placing limits on rent increases, ending unfair evictions, and strengthening rights for renters with pets.

“These would be significant reforms, they’d be welcomed by renters right across New South Wales,” said Ned Cutcher, Senior Policy Officer with the state’s peak body for renters. “The Tenants’ Union of NSW has been calling for this kind of reform for years and it is extremely encouraging to see the discussion taking prominence.”

Mr Cutcher was quick to point out that the NSW Labor party changing its platform at conference time, while in opposition, does not necessarily lead to reform.

“The timing is good because the Government has still not brought in the changes it promised over a year ago, following a statutory review of our renting laws,” Mr Cutcher said. “We’re obviously following that pretty closely, and now we’ll be watching to see how Labor responds when those changes are brought through.”

“We know the NSW Greens have a strong renters’ rights platform so it makes for some healthy debate in Parliament when the time comes.”

Mr Cutcher said a limit on the frequency of rent increases would bring New South Wales into line with the rest of the country, but ending unfair evictions and strengthening rights for renters with pets would be genuine innovations in the Australian context.

“All over the country tenants can be evicted without a good reason, and all over the country families are prevented from making decisions about keeping pets because their landlords say no. For the growing number of renters across Australia these rules seem pretty harsh,” Mr Cutcher said.

“We’d love to see this change in New South Wales and we’ll happily work with NSW Labor to help develop these policies.”

For that matter, we’d love to work with Minister Matt Kean and the NSW Government on this all the more.

Thursday, July 27, 2017

Hit the pause button

Front page of The Sydney Morning Herald, 26 July 2017
A fortnight ago ABC News reported that Australia looks almost certain to win a seat on the United Nations Human Rights Council. However, do we deserve a seat?

In recent years Australia's human rights record has become very blemished ... not just in the area of treatment of asylum seekers and refugees. Back in August 2014 Ms Kim Boettcher, solicitor for Seniors Rights Service addressed the United Nations' Open-Ended Working Group on Ageing (5th session), and drew attention to the plight of tenants of social housing at Millers Point and The Rocks. She told the Working Group how one of the elderly residents said to relocate her away from her community is ‘one step short of putting you up against a wall and shooting you because it’s saying you are of no value to society. You are worthless.’ You may read her full address here. Indeed, last year The Millers Point Community Working Party and Tenants Union of NSW made submissions to the Australian Law Reform Commission on 'Protecting the Rights of Older Australians from Abuse', arguing that the actions of the NSW Government in Millers Point constitute systemic elder abuse.

The NSW Government's sale of public housing in Millers Point continues. As at 11 July 2017, there have been 151 sales, some of multiple properties. Altogether the sale of 200 properties at Millers Point has raised $422.77 million (with a further $22.09 million being generated in Stamp Duty!). You may check the NSW Government's dedicated website for their figures at the end of June 2017 here.

But at what cost? At the time of the Minister's announcement to sell all social housing stock in Millers Point, there were 579 residents in 399 tenancies in the portfolio.

At 19 July 2017, 16 residents in 10 tenancies remain. So, altogether 563 tenant and household members in 389 tenancies have either vacated or are committed to moving. There are 2 tenants remaining in the Sirius Building. We have previous reported extensively on the impact of forced relocation on the residents.

So when is enough, enough? This once proud and historic community indeed, the only community to have bestowed upon it the status of 'A Living Heritage', has been decimated by the cruel edict in March 2014 to remove all social housing tenants from their community and sell off their homes, resulting in great pain and suffering! The last few surviving elderly, vulnerable tenants ask the NSW Premier, Gladys Berejiklian, to end this abuse of their basic human rights and allow the few to stay, and 'age-in-place'.

A new development gives our Premier the opportunity to redress this great injustice. On Tuesday of this week, the NSW Land and Environment Court made a ruling that the NSW Government's decision not to put the iconic Sirius Building on the heritage list was invalid. This gained wide media coverage on the ABC News , The Sydney Morning Herald and The Guardian . Shaun Carter, Save Our Sirius chairperson, said it was a good day for the building, the local community and the whole of NSW. He urged the Premier to hit pause on the demolition and and sale of Sirius. He said let's talk about the heritage listing of Sirius and how the building could be used for social housing again. He added: 'We are desperately short of social and affordable housing, let's now use it for what it was intended.'
Last two remaining Sirius residents Myra Demetriou and Cherie Johnson
and Save our Sirius chairperson Shaun Carter. (ABC News)
So the question becomes: Will the NSW Government show compassion and allow Myra and Cherie (and the other older residents of Millers Point) to age-in-place in their homes? Yes, stop the evictions, with more residents facing hearings at the NSW Civil and Administrative Tribunal. Yes, seize the opportunity which the Land and Environment Court has provided and let's talk again about the importance of retaining social housing in Millers Point. You have received oodles of cash from the sales to date and you also announced a billion dollar windfall in revenue from stamp duty in this year's State Budget. If you still insist on selling the homes which are not in the Sirius building, then defer this and do so when these few remaining residents don't require them. 

Over to you, Premier! Show the nations of the world that our great state, New South Wales, has a government that leads the way by being fair and compassionate when it comes to its citizens, no matter of age, race or creed! Let's make a seat on the United Nations Human Rights Council more than mere words.

The authors of this post are Barney Gardner, member of the Millers Point Community Working Party, and Robert Mowbray, Project Officer - Older Tenants with the Tenants' Union of NSW.

Monday, July 24, 2017

Renting with pets: a canary in the coal mine

To keep, or not to keep a pet? Ever since we raised the issue in our contribution to the review of NSW renting laws, debate has raged about whether this should be a decision for investors or homemakers to make. Unless you've got a particular love for, or an aversion to animals yourself, the side you come down on will perhaps be influenced by whether you spend your time talking to landlords or tenants.

Our views on this issue have been clearly and firmly put, and are a matter of public record. Today we're going to step back a little to explore what this discussion tells us about the state of our housing market. Our conclusion is that the "renting with pets" debate is a study in all that is wrong with our housing system, and a clear indicator of why it needs to change.

There are two stories to tell here. The first is how the private rental market has become the long-term landing place for a growing number of Australians looking to establish a new home, with limited prospects for debt-free home-ownership in the lifetimes of many. The second is how the residential property market remains dominated by small-time investors who are not motivated by the needs of householders, nor any broad sense of social responsibility, but by capital gains.

In New South Wales, there were 83,870 more rented dwellings at the 2016 Census than there were in 2011. Compare this to owner-occupied dwellings, which grew by 35,362 over the same period - with 19,649 more owned outright, and 15,713 more owned with a mortgage. The number of unoccupied dwellings grew by 19,403, which means any new dwelling built in the last five years, or established dwelling that changed hands during that time, is more likely to have become a rented home than anything else.

Of the 2.15 million renters in New South Wales at the Census, almost 90% were in the private rental market relying on so-called "mum and dad" investors for a place to call home. That's up from about 83% in 2011. The lion's share of renters are aged between 20 and 40, and a quarter are aged between 40 and 65. 41% of renter households are families with children, making them the single largest group of renters, while 20% are couples making a home together. 27% of renters are single and living alone, and 9% are sharing with others. Many would like to bring a pet into their homes.

Analysis from the 2011 Census confirmed that a growing number of households are renting for ten years or longer - not necessarily in the same home - and we expect to see this pattern continue as academics and researchers crunch the 2016 data. The proportion of dwellings that are owner-occupied is in slow decline, but those that are rented is rising more sharply, showing that fewer renters are now exiting the market to take on home ownership.

Critically, the number of people taking on debt to achieve home ownership has tapered off quite considerably. The growth of homes owned with a mortgage has slowed in each Census period since 2001. Compared to rented dwellings, for which that sharp rise has been recorded, this growth has been particularly slow in the last five years.

The number of homes owned outright has recorded similarly slow growth, which provides an ominous sign for the growing ranks of long-term renter households - even if you do manage to buy a home some day, chances are you'll never pay it off. In a nation that has defined itself as egalitarian and propertied, that's a source of frustration in its own right. Add the lack of agency Australia's renter households have over basic questions such as whether to plant a tree, paint a wall, or keep a pet, and it's easy to see why the "renting with pets" issue continues to flare up. For those who would write these frustrations off as mere indulgence, bear in mind that for the large numbers of tenants who are grown-up, pursuing long-term relationships and raising families in their rented homes they are simply the issues of the day. In another ten or fifteen years from now we may well be wondering why our aged-care and retirement systems - designed with a home-owning population in mind - have simply collapsed in a heap around us, but for now the "renting with pets" debate is a clear sign that all is not well and those most affected are not going to forget it anytime soon.

On the other side of this equation are our landlords, who by definition do not find themselves in the position of having "missed out" on property ownership. It's a little harder to get a handle on them, but we can use statistics from the Australian Tax Office to paint ourselves a picture. The last data we have available is from the 2014/15 financial year, and it tells us that the vast majority of Australia's tax-paying landlords own only a single rental property or two.

They're mostly one-off or small-time investors, "mums and dads" who are more interested in property for its capacity to generate wealth than providing homes for families. They'll hang onto a property for maybe five years or so then sell it, banking the gains or putting them towards their next investment. For the most part, Australian landlords are not interested in building large portfolios, and they don't want to concern themselves with the day-to-day workings of property investment. They tend not to engage with things like renting laws, tribunal procedures, or tenants' rights unless they have to. Many are happy to ignore these aspects of investment altogether, handing them all over to real estate agents who know only too well they won't have anyone looking over their shoulder as long as the rent rolls in and the outgoings stay under control.

Because they're not building economies of scale, landlords tend to stick to a simple and rigid formula. The tax data also shows that while they're holding property, almost two-thirds of Australia's landlords are operating at a loss.

They do this because they can count their investment losses against non-investment income, such as salaries and wages, for income tax purposes. By running at a loss, landlords can reduce their day-to-day tax liabilities, masking the expense of holding property. They also expect property to go up in value, providing tax-discounted windfalls when they sell. In a sense they're gambling - losing a little money today in the hope of making it all back and more in the future, and our tax system encourages this through negative gearing and capital gains tax discounts. But in the meantime the majority of Australia's landlords are still running at a loss, which makes them highly sensitive to unanticipated expenses.

For many, this sensitivity is built into their investment strategy, such that they will be overly concerned with the type of household they will rent their property to - and just as importantly, who they wont. Tenants with pets are seen as a risk, even though they are clearly liable under renting laws for any damage their pets might cause. Our renting laws are less clear on whether a landlord can over-rule a tenant's decision to keep a pet, but many take this as a given. It is common practice for tenancy agreements to include a "no pets" clause at the insistence of the landlord or their agent.

The "pets and renting" debate helps us identify key changes we need to make to our inequitable housing system in order that it may provide greater equality of experience. At the federal level we need to rethink the way property is taxed, and find ways to foster a view of investment that delivers homes for families rather than just bricks and mortar. At the state level we need to revisit renting laws, and give tenants greater agency over the decisions they may make, and the responsibilities they take on, as householders.

Friday, July 21, 2017

Australia's 10 million spare bedrooms

This morning The Guardian published an article using recent data released from the Australian Institute of Health and Welfare. It was a good piece, but it had a somewhat misleading headline. The Brown Couch's founder had this to say:

If the vacancy rate in public housing is only 3% what was the headline trying to say? They were measuring the use of bedrooms in public housing and noting that one in six bedrooms is "under-utilised."

As it happens, this year the Census data introduced a specific measure of "Housing Suitability" which measures whether a household has spare bedrooms, or needs extra. Let's take a look at the state of bedroom use.

Not the typical use of a bed
The data shows about 75% of our spare bedrooms are in owner occupied housing. It isn't just that a majority of Australian homes are owner-occupied - 87% of homes owned outright have at least one spare bedroom, and almost 60% have two or more. Mortgaged homes are slightly better, as only 77% of these have a spare bedroom. 41% have two spare rooms or more.

Australia wide, the story is the same. There are more than 10 million spare bedrooms in Australia. Around two thirds of our mortgaged homes have spare rooms, as do 80% of homes that are owned outright.

Social housing looks very different. Not only do less than a third of tenanted social housing properties have a spare room, there are more in this tenure type that are mildly overcrowded. 2 in every 5 social housing dwellings are in need of at least one extra bedroom.

Renters both in the private rental market and social housing are much better at utilising their bedrooms than owner-occupiers. There are different reasons for this - where private renters are pushed to efficiency by price signals and competition (ie you generally only rent as many rooms as you need, unless you're either bonkers or rich), social housing renters are pushed by the allocation strategies of their landlords. Social housing tenants who do have a "spare" bedroom do so because they need it, and are entitled to it under the policies of their provider. For example, households may be given an additional room for a live-in carer, for family members who reside with them part-time, or for cultural reasons.

Of course, the other major reason we hear of social housing tenants ending up with a spare bedroom is that their allocation is not really suited to their needs, or their needs have changed since their allocation  made. You can't really blame a household for so-called "under utilising" if they're occupying the only property that is available to them - our failure to build enough social housing properties throughout the ages means many people have nowhere to downsize to as their needs change.

Despite this, social housing tenants are clearly putting their part of the nation's housing stock to the most efficient use, relative to the rest of the population.

Well done to you all!

Thursday, July 13, 2017

Economically viable supply

Speaking at a Sydney Alliance assembly on housing affordability last night, the NSW Minister for Planning and Housing, the Hon. Anthony Roberts MP, dismissed targets for affordable housing in new residential developments as a simplistic and unrealistic housing solution. "In reality all these targets do is reduce the supply of affordable rental housing because it makes many developments economically unviable." Instead, he talked up the Government's intention to solve Sydney's housing affordability crisis by rezoning large swathes of the city and fast-tracking new supply.

Inclusionary zoning is like a box of chocolates...?
This is a curious position for a Housing Minister in the Berejiklian "housing-affordability-matters" Government to take, given the overwhelming evidence suggests a single-minded focus on new supply is a simplistic and unrealistic housing solution.

Since the beginning of 2017 - dubbed "the year of the renter" by Domain as there will soon be more renters than homeowners in Sydney - we've discussed the issue of housing affordability and supply many times on the Brown Couch.

In late January we released a Rent Tracker report, which highlighted how rents have gone up even in suburbs where large numbers of properties are being added to the rental market. In February we discussed how Sydney's new housing development is producing the wrong kind of supply, driven by the demands of investors rather than householders and home makers. In April we noted the findings of Anglicare's seventh Rental Affordability Snapshot, showing that rental affordability is as bad as it has ever been and still gets worse every year.

In May the latest Rental Affordability Index was released, confirming what Rent Tracker and the Rental Affordability Snapshot had already suggested about deteriorating rental affordability despite increasing residential development activity. We dug in a little to look at exactly what's going on, exploring how the wrong kind of supply has changed the shape of the rental market. It produces higher rents rather than improving rental affordability.

In June we joined the dots on housing affordability, looking at how the NSW Government's housing affordability package is likely to impact upon the market for supply. We suggested it might be combined with both the NSW Opposition's housing affordability package, which includes targets for affordable housing, and some of the Australian Government's Federal Budget measures, which includes a method for funding new affordable housing, to help keep residential property developers afloat while ensuring at least some new supply is delivered into the affordable rental housing sector.

Also in June we discussed the release of data from the 2016 Census, which shows that the renting population is still growing faster than the population generally, and the stress of high housing costs affects renters far more than it does homeowners.

Something we haven't yet discussed is the Australian Housing and Urban Research Institute's recent report into "Housing supply responsiveness in Australia". This report found that most of the growth in Australia's housing supply has been taking place in the mid-to-high price segments, rather than low price segments, and suggests "there seems to be structural impediments to the trickle-down of new housing supply". It also says that "targeted government intervention might be needed in order to ensure an adequate supply of affordable housing." The report hasn't received a lot of attention other than a quick report in the Guardian when it was released earlier this year. It could do with some more, so we'll take a closer look at it when we can.

In the meantime, let's get back to the Minister's words from last night. "In reality all these targets do is reduce the supply of affordable rental housing because it makes many developments economically unviable."

On the other hand, current developments are causing rental affordability to deteriorate again, and again, and again. So at what point do we stop and wonder - if we still can't afford to live in them, what is the value of an economically viable development after all?

The answer to that question might make more sense to someone who values housing as nothing more than a financial asset, rather than a place to call home.

Tuesday, July 11, 2017

Caveat Rentor 2 - Tenancy Economics

Today's post is a guest entry from our Principal Solicitor, Grant Arbuthnot. Grant has more than 20 years experience advising tenants, their advocates, and has worked for the Tribunal and community legal centres as well as the Tenants' Union. Here are his thoughts on tenants as consumers.

Economists and accountants both agree this joke stinks. 
The assumption a healthy consumer market has suppliers competing on price, quality and service for the business of consumers allows another examination of our rental market.

At present, there is a shortage of supply of affordable premises for rent. Competition between prospective tenants for available premises is understandable.

Consumers competing for the business of suppliers is not healthy. Consumer competition means that pricing favours the suppliers, and that quality and service are not significant issues.

Tenants might expect that once a tenancy has been secured the competition will cease. However, this is not the case. Sitting tenants compete with prospective tenants to retain their tenancy.

In a fixed term tenancy, tenants are aware that they can be required to leave at the end of the fixed term. Fixed terms are rarely greater than a year. In a periodic tenancy the vulnerability is present and constant.

This is because the law allows landlords to dispose of tenants without having to give a reason.

Tenants who demand contract performance by the landlord risk being replaced from the surplus of prospective tenants.

This is usually about repairs. It is the most popular breach of contract by landlords. The likelihood of receiving a termination notice (without grounds) is increased by demanding repairs.

It is not surprising that many tenants put up with expensive and substandard premises to avoid the stress, cost and inconvenience of having to move house.

Amending the Residential Tenancies Act cannot undo the problems of supply and demand. But abolishing no grounds termination can relieve sitting tenants of the constant competition with prospective tenants. They might even get some repairs done.

To find out more about how tenants are affected by unfair evictions, visit Make Renting Fair.

Wednesday, July 5, 2017

NAIDOC week 2017 - Our languages matter

This article written by the TU's Legal Officer (Aboriginal Support), Jessica Hall. Jessica works closely with the Aboriginal Tenants Advice and Advocacy Services across NSW.

It’s NAIDOC week, and once again the TU is reflecting on and recognising Aboriginal and Torres Strait Island culture, talent and resilience, and the contributions that Indigenous Australians make to our country and our society.

This year’s theme is Our Languages Matter. The 2017 theme aims to “celebrate the essential role that Indigenous languages play in both cultural identity, linking people to their land and water, and in the transmission of Aboriginal and Torres Strait Islander history, spirituality and rites, through story and song”.

From the earliest days of European contact there was often an assumption that Indigenous Australian languages were of less value than English and this view soon hardened into government policy, reinforced through education and employment practices. Aboriginal and Torres Strait Islander people were discouraged from speaking their languages, so that many children had little or no knowledge of their traditional languages.

This year’s NAIDOC week theme comes at a time of important discussion and proposed NSW legislation to review treatment of, and to recognise and protect, Indigenous Australian languages, with NSW to become the first state to pass a law protecting Indigenous languages. The recently released draft Aboriginal Languages Bill 2017 seeks to implement measures to protect and revive NSW Aboriginal languages by a focused and sustained effort, including a Strategic Plan and a new Centre for Aboriginal Languages of NSW.

Aboriginal languages also became available as a HSC subject for the first time in 2016. Prior to this, students were only able to take Aboriginal language courses from kindergarten to year 10. The moves towards education reform will aid Aboriginal young people to become the future custodians and caretakers of their languages. This renewed focus to support and maintain Aboriginal Languages is a step in the right direction.

Dhubany by Millmullian, 2015
Indigenous languages and oral storytelling are integral for linking Aboriginal people to their lands, and maintaining cultural identity through the passing of stories through generations. Historically, colonial relocation was a significant contribution to the disruption of Indigenous language and storytelling. According to the Australian Institute of Aboriginal and Torres Strait Islander Studies, over 250 Indigenous Australian language groups covered the continent at the time of European settlement in 1788. Today only around 120 of those languages are still spoken.

This historic relocation and the effect it had on Indigenous languages is being echoed today by a continued forced relocation of Aboriginal people - by the use of no grounds notices, which force Aboriginal tenants from their homes without reasonable cause. The Aboriginal Tenants Advice and Advocacy Services across NSW are now consistently quoting no-grounds evictions as one of the major issues facing Aboriginal tenants, both in social housing and private tenancies. There should be legislation in place that allows the Tribunal to refuse such notice by taking into account an Aboriginal tenant’s cultural connection to country. The movement from dispossession and displacement to eviction without grounds draws worrying contrasts.

With reflection on the clear lessons that Indigenous languages must be recognised in Australia, we hope that the government will also move towards bettering Aboriginal and Torres Strait Islander rights in all areas, including Aboriginal housing. Here at the TU, we will celebrate NAIDOC week at a number of events, including a stall in association with CLCNSW at WEAVE’s annual NAIDOC Woolloomooloo festival on Saturday 8 July.

Happy NAIDOC week!

Monday, July 3, 2017

How will your tenancy end?

There are over two-dozen ways your legal interest in property - aka your tenancy - could end if you're renting in New South Wales; even more if you're in social housing.

In most cases, your tenancy doesn't end without you relinquishing the property to the landlord. In all cases, a trigger of some kind is required. A tenancy doesn't end simply because the fixed-term period concludes - after the fixed period your tenancy continues as a "periodic agreement" under the same conditions as before.

Some triggers for termination are less common than others. For instance, your tenancy might end if your landlord's interests become vested in you - perhaps if you were to marry, or form some other legal union under which all your property interests merge. Or it might end if a person with superior title, such as a mortgagee, becomes entitled to exclusive possession of your home. Similarly, your tenancy might end if a person succeeding title, such as the beneficiary of a reversion of your landlord's property rights, becomes entitled to the property at the exclusion of others.

Your interest in a tenancy ends if a final apprehended violence order that excludes you from the premises is ordered against you.

Your tenancy could end if you die.

Your tenancy could end if your home becomes unlivable through no fault of your own or the landlord's - for example a severe storm taking out part of the property.

Your tenancy could end by returning the property to the landlord by prior agreement. For that matter, it could end by returning the property to the landlord without prior agreement - although that method will generally always cost you something.

You could end your interest in a co-tenancy by giving notice and moving out. You could end your co-tenant's interest by taking them to the Tribunal and getting an order, in exceptional cases.

You could trigger the end of your tenancy by obtaining a Tribunal order for termination on hardship grounds. Your landlord could do the same.

You could end your tenancy because the landlord isn't keeping their part of the bargain. If you're not meeting your own obligations, your landlord could do the same.

Your landlord could apply to the Tribunal to end your tenancy if you've been using the place for an illegal purpose. They could also do that if you've threatened, abused, intimidated or harassed them, or if you've caused serious damage to the place or injury to them or a neighbour. They'd have to prove it, though...

You could end your tenancy if the landlord decides to sell. Your landlord could end your tenancy if they do sell, and the buyer wants to move in - but only if you're in a periodic tenancy.

You could end your tenancy if you need to move into an aged-care facility, or are offered a place with a social housing landlord.

If you're a social housing tenant, your tenancy could end if you become ineligible for social housing, or if your landlord wants to move you to another place and you decline. Strict procedures are to be followed in either of these scenarios.

You could end your tenancy because the rent is increased, if you're in a fixed-term agreement of two years or more (but hardly anybody is...)

You could end your tenancy without a reason, at the end of a fixed term or during a periodic agreement. Your landlord could do the same.

But there is always a reason to end a tenancy.

As a tenant, being able to end a tenancy "without a reason" is appropriate, as it allows you the basic freedom to relocate as your housing needs change. In general, there is no reason to justify those needs to your landlord, or explain to them how your circumstances have changed such that you now wish to move house. Your landlord should have no concern beyond knowing when the property will become available to them again, so that the comparatively simple process of finding a new tenant can be commenced.

On the other hand, landlords being able to end tenancies "without a reason" is bad public policy. It undermines tenants' abilities to establish their homes with any certainty. As we see it, landlords tend to use the "no reason" option in one of three circumstances: where they have a good reason that the law does not accommodate, where they have a good reason but would rather not be put to the trouble of proving it, or where they have a questionable reason that they'd rather not go into.

A fairer renting law would give landlords a couple of additional reasonable grounds, and remove their ability to end tenancies without a good reason. With this in mind the Tenants' Union of NSW, along with more than 40 allies and supporters, are calling on the Government to Make Renting Fair. Visit rentingfair.org.au to find out more.

Tuesday, June 27, 2017

2016 Census confirms housing unaffordability is for renters

Population and housing data from the 2016 Census has been released today, which means it's time to get your nerd on.

There are three critical things it tells us about housing in New South Wales.

First - there's been an increase in the number of households living in our state over the last five years, up from 2,471,305 in 2011 to 2,604,320 in 2016. The number of unoccupied dwellings has also increased, from 265,338 to 284,741. In percentage terms, unoccupied dwellings have risen from 9.7% to 9.9% of all dwellings. The idea of a sustained influx of foreign investors who leave properties empty is looking a little shaky on these numbers, but even so we're going backwards. It's clear we should be doing more to encourage property owners to put those empty dwellings to use, like taxing the unimproved value of land rather than transactions and transfers.

Click for full size!

Next - there's been a significant increase in the number of people renting in New South Wales. There were 826,922 renter households at the 2016 Census, which was 83,870 more than there were in 2011. To put this into context, that's almost double the increase we saw between 2006 and 2011. It also means our renting population has gone up in percentage terms since 2011, too - from 30.1% to 31.8% in 2016. There are more owner-occupiers, too, but as a percentage they've gone backwards. Households who own outright have gone from 33.2% to 32.2% of the population, while households who own with a mortgage have gone from 33.4% to 32.3%. That means home ownership across New South Wales has declined overall since 2011, from 66.6% to 64.5%. It also means that more people are renting for longer.

Finally - it will come as no surprise that making the rent is a growing struggle. The median rent across New South Wales has risen from $300/week in 2011 to $380/week in 2016. More telling is the number of renters whose rent takes up more than 30% of their income - that's gone up from 11.6% to 12.9% of the renter population. On the other hand, the number of home owners with a mortgage who find themselves in similar financial circumstances, paying more than 30% of their income towards their loan, has decreased from 10.5% to 7.4%. In case it wasn't already clear, low interest rates are great for those who already own a home, but they're not so good for anyone hoping to join their ranks in the foreseeable future. As much as they might appreciate grants and stamp duty discounts, what prospective homeowners need most is to be able to save.

So, here's our take-home message for policy makers at all levels: there can be no housing affordability without fixing the rent.

Monday, June 19, 2017

Joining the dots on affordability

This week is Budget Week for New South Wales. There's still time for the Berejiklian Government to announce the forgotten part of their housing affordability package - the one that tackles Sydney's high rents. So far they've covered tweaking taxes and grants in favour of first home buyers over investors, and fast-tracking supply. But they've left off any policy that would directly affect the rent.

As we've noted before, the shift of incentives from investors to first home buyers is designed to have the strongest impact in the market for newly built properties. We've also previously noted that while the majority of investors do not purchase newly built properties, there has been a significant increase in investor driven demand lately for off-the-plan units. It is worth considering how this change will impact demand for new dwellings over the next few years.

Understanding your standard first home buyer is no easy task. We can go back to the ABS Feature Article from 2012, First Home Buyers in Australia, which tells us that just prior to the height of Australia's post-GFC first home buyer boom there were about 430,000 of them over the three years to 2010. Driven by stamp duty concessions and the Rudd Government's First Home Owner Boost that put either $14,000 and $21,000 into their hands depending on whether they bought an established or new home, slightly less than one-fifth of them bought a newly built property during that time. In the three years prior to that, when the grants were not quite so generous, there were around 320,00 of them with less than one-tenth buying off-the-plan.

This tells us that first home buyers do seem to respond to stamp duty concessions and direct grants, but just like their investor counterparts they are much more inclined to buy established properties than newly built ones. Of course, this is based on how they behaved in the bad old days when property prices were merely exorbitant, but the latest Digital Finance Analytics' Property Imperative Survey suggests these numbers remain in the ballpark - they've identified 330,000 first time buyers in their March report, noting that 80% are buying or intending to buy an established dwelling. But we must note here that an increasing proportion of these first timers identified by Digital Finance Analytics are investors, so they are buying another person's home rather than their own.

Now that prices are scandalous, it remains to be seen if anything much will change after the tweaking of stamp duties and grants. It is possible that 100% of Sydney's first time buyers will rush to the new apartment market to see what they can afford, since the houses they'd evidently prefer to buy are still likely to cost too much. But it's just as likely many will continue to rent the homes they want (or can afford) to live in. Either way, the removal of incentives for investors to buy off-the-plan is likely to see them withdraw from the new apartment market, and this wont be completely offset by any increased demand from first home buyers. Construction activity may well start to fall away in response. If that happens, no amount of rezoning to fast-track supply will save us from the plague of rising rents - assuming it ever could.

This brings us back to the forgotten part of the NSW Government's housing affordability package. Given the recent Federal Budget foreshadows a new Affordable Housing and Homelessness Agreement requiring the states to consider affordable housing targets, along with an Affordable Housing Finance and Investment Corporation that will provide a funding mechanism for the supply of new sub-market dwellings, the Berejiklian Government would do well to adopt planning and zoning reforms along similar lines to those announced by the NSW Opposition a couple of weeks ago. In the face of their own affordability package that might otherwise reduce demand for their services, this could be just the tonic our developers will need - to say nothing of our neighbourhoods and communities who are already crying out for some downward pressure on rents.