Only a few weeks into the new year and rental affordability is once again making headlines. Core Logic’s latest numbers put national rents at $601 per week, up from $437 per week four years ago. Inevitably, calls to make rents more affordable will follow with campaigners Everybody’s Home calling on the government to scrap negative gearing and capital gains discounts to fund more social homes. This group, amongst countless others, fail to recognise the fundamental fact that across Australia, 9 out of 10 rented homes are provided by private investors. Removing negative gearing and CGT discounts and hundreds of thousands of investors would sell, decimating supply and setting rents soaring.
Governments have very successfully shifted the blame for today’s housing affordability challenges away from their own housing policy failures and instead pointed the finger at property investors and the real estate agents that represent them. Politicians have very effectively shifted the narrative away from supporting private property investment to supply homes to the market whilst simultaneously blaming investors for spiralling rents and house prices. This is a remarkable achievement.
Like it or not, unsophisticated private investors – ordinary Australians – supply 27 percent of all homes in the nation to tenants. Government supply about 3 percent as social housing. Yet, in this time of greatest need, with supply of rental homes at severe lows, there are few housing policies that seeks to encourage the investor cohort into supplying more homes.
On the contrary; governments shun the idea of stamp duty reform, land taxes continue to rise and tenancy laws continue to swing in favour of tenants. Negative gearing and capital gains tax discounts are no longer sufficient incentives to encourage enough investors to buy. Appealing tax settings and returns in superannuation funds, commercial property and syndicated funds offer ‘mum and dad’ investors an alternative to direct residential property investment.
Prior to 2014, the volume of investors buying residential homes to add to the rental pool, ran at a higher rate than those selling rented homes. Talk of changes to negative gearing tax laws from the then opposition, along with broader market factors, began to see this trend reverse. Nowadays, there are far more rental homes being sold than purchased.
In Victoria, thanks to rising land taxes and changes to tenancy laws, for every three tenanted properties sold, only one remains in the rental market. In WA, there are now 18,000 fewer tenancy bonds being held today by the Bond Administrator than in 2019. When investors are inactive in the market, it falls to government to provide the housing; something they have failed to do.
Put simply, governments – supported by the media and tenancy advocates – have been busily whacking investors, whilst simultaneously failing to provide enough rental housing for Australians as the only alternative to the private investor market. And, somehow, they’ve so far been able to get away with it.
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May 10, 2024
More Edge Tinkering
The Cook government is trying to rebalance Western Australia’s rental market. There has been a flurry of affordable housing-related policy announcements recently to address surging rents and low vacancies. REIWA assesses Perth’s vacancy rate at 0.6 percent, a long way from a market parity 3.5 percent. The latest announcement aims to encourage property owners to convert their vacant homes into long-term rentals by offering a one-off $5,000 payment. Sorry to be cynical, but a property owner who can afford to leave their property vacant (Granny / Fonzie flats or vacant rooms are ineligible) for a period of longer than six months, doesn’t need a lazy $5,000 to convince them to lease it. The policy comes off the back of the recent Short Term Rental Accommodation (STRA) Incentive Scheme, which encouraged owners to convert their property from the short to long term market with a $10,000 payment. So far, 150 properties have converted their properties into the long-term market or a minute 0.05 percent of rented properties across WA. In announcing the latest policy, Premier Cook acknowledges the “significant demand for housing” and has committed to “leaving no stone unturned in our work to boost supply of homes.” Responsible Ministers shared the limelight with Treasurer Saffioti suggesting, “This initiative has the potential to bring up to 1,000 properties back onto the rental market.” Commerce Minister Ellery reckoned the STRA Incentive Scheme has been “a success” and Minister Carey (Planning and Housing) reflected on his government “continuing to think outside the box…to boost housing supply.” To give credit where credit is due, at least the government is doing something and, in this market, something is better than nothing. Unsophisticated private investors – ordinary West Australians – supply 27 percent of all homes to tenants, about 264,000 properties. Government supply about 3 percent. In this time of greatest need, with supply of rental homes at severe lows, these recent housing policies that seek to encourage the investor cohort into supplying more homes will barely scratch the surface. Meanwhile, big-ticket items that would significantly move the needle on supply are ignored. Stamp duty - where bracket creep means an investor tax of $27,000 at Perth’s median house price - and land tax rebates are obvious places to start. And why not (even temporarily) repeal the foreign investor tax where these buyers pay $76,000 in state tax when buying a $700,000 property? This group, very sensibly, choose to rent rather than pay the tax, soaking up valuable rental stock. Put simply, governments – supported by the media and tenancy advocates – have been busily whacking investors, whilst simultaneously failing to provide enough rental housing for West Australians as the only possible alternative to the private investor market. WA’s poor market performance in the years 2012-2020, has left our housing market underprepared for the surge in new arrivals and we’re playing catch up. There is time for meaningful reform to encourage investors into the market to add more supply and whilst relatively small cash incentives may tinker around the edges, they won’t make a meaningful impact.
May 3, 2024
Rent Bidding
As recently reported in these pages, the West Australian parliament passed into law changes to the Residential Tenancies Act designed to further protect the interest of tenants. Some of the changes bring WA into line with other states where substantial changes have altered tenant-landlord relationships and, in some cases, have deterred investment and pushed up rents. Many of the changes will be relatively benign, such as rent increases limited to no more than every twelve months (currently it is a minimum of six months). None of the laws encourage investors to further supply rental stock by improving protections for landlords from tenants that breach the lease agreement and / or wilfully damage the property. One of the changes will be to make it illegal for a landlord (or their property manager) to encourage a tenant to offer more rent to secure a lease. Known as ‘rent bidding’, in a tight rental market it is common for tenants to offer more than the advertised rent for a property. It’s important to note that the ban will not prevent a tenant from offering more rent than advertised. In other states, rent bidding is already banned, but the outcome of the ban has failed to afford any additional benefit for tenants. In the current market, most properties receive multiple applications to rent with many tenants prepared to offer more than the asking rent to secure the property. Under the current arrangement, tenants will typically seek guidance from the leasing agent as to what constitutes market rental value and without specifying the details of competing applications, tenants are able to secure a lease by offering a modest amount above the asking rent. With a ban on rent bidding, tenants will be ‘flying blind’. The leasing agent will have to be silent on proffering any advice as to the level of competition, or where the market sees value. What has occurred in other states is tenants are offering substantially more than the asking rent because the leasing manager is unable to guide them where fair market rent might lie. I am told desperate tenants in NSW will offer 20% above asking rent where a 5% increase would have been sufficient. Already, property managers are advertising asking rents with a “From” in front. This makes it more difficult for tenants to determine fair market rent, especially once rental bidding is formally banned. Mostly, landlords are seeking quality tenants at a reasonable rent. Many will choose the best tenant over one offering the highest rent. Property managers have a duty to their landlord to secure the best possible lease outcome for their client and the rent achieved is but one component. Banning rent bidding will do nothing to further the plight of tenants already dealing with a highly competitive, stressful market of limited supply and rising rents. Governments should spend their time thinking about how they can get more rental supply into the market by actively encouraging property investors. Everything else treats the symptom not the cause and rents will continue to rise.