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Nov 30, 2023
Rental Reform On Way
The Cook government introduced legislation into the parliament this week that seeks to make sweeping changes to the Residential Tenancies Act that favour tenants. Assuming these changes pass into law the following key changes will impact residential tenancies: Tenants will be allowed to keep pets and the property owner will only be able to refuse in certain circumstances. Tenants will be able to make minor modifications to the property without permission from the owner. Rent increases are limited to once annually. The process of bond disposals can be commenced by either tenant or landlord. Disputes will mostly be heard by the Commissioner of Consumer Protection rather than the Magistrate’s Court. Rent bidding will be banned. Overall, the changes are moderate and align with tenancies laws in other states and territories. Importantly, the changes stop short of prohibiting ‘without grounds terminations’, a silly phrase used to describe circumstances where a tenant requests a further lease term after the end of a fixed term and the landlord refuses without giving a reason. REIWA conducted a survey into this particular element of the tenancy laws with an astonishing 61 percent of the 6,000-odd landlords surveyed saying they’d ‘consider selling’ the property if ‘without grounds terminations’ were prohibited. Given a fixed term lease has a clear end date, neither party should anticipate that an additional lease or reversion to a ‘periodic lease’ is assured. You don’t have to give a reason to end a fixed term agreement in any other circumstance, even a marriage! At a time where supply of rental homes are at crisis point across Australia, new laws that actively undermine the encouragement of supply risks further disincentivising the main cohort of property investors; unsophisticated, family investors the majority of whom own one additional property other than their home. Hopefully, investors consider the incoming changes reasonable and will continue to add to the rental pool by investing in residential real estate. Given family investors provide 9 in every 10 rentals in WA, we cannot afford to discourage them.
Nov 30, 2023
Giving at Christmas
Giving at Christmas The National Hotel and St. Patrick’s Community Support Centre held their legendary Long Table Christmas Dinner on Saturday 24th November and raised much-need funds to assist those without a place to call home. A shout-out to Karl and Janine Bullers for their inspiration. You see evidence of homelessness everywhere every day. I hear that Fremantle has a resident population of about 120 rough sleepers. Such is the confronting nature of homelessness that some of us opine that those in authority must ‘move them on’, put them elsewhere to make our lives less confronted. But this just locates the problem elsewhere. Family break-down, domestic and family violence, job-loss, addiction and untreated mental health issues all contribute to homelessness and most of us can’t imagine ever being amongst their number. It has been said we’re all a handful of catastrophic life events away from homelessness. It is not an incurable disease; it is rarely a choice and it can be overcome. There are dozens of organisations whose sole purpose is to help transition the homeless back into secure, affordable housing. Local heroes like St Pat’s do extraordinarily good work in supporting Fremantle’s homeless. Yet St. Pat’s is constrained by funding, they never have enough beds to house the needy and, amongst many other organisations, can only do so much with their small army of volunteers. REIWA members, through the Community REInvest program provide financial help to the Salvation Army’s various homeless assistance measures. So far, REIWA agents have donated more than $1,200,000. Local agents, Caporn Young, White House and Dethridge Groves support this program and I encourage other REIWA member agencies to join. Current government social housing systems mean eligible applicants can wait up to eight years to get into suitable housing. According to various sources, 60,000 households need social and affordable homes in WA, yet despite the overwhelming need for housing, 1 in 6 homes nationally remain underutilised. The state government has pledged to build 3300 more social homes within the next four year which should help but this is really only playing catch up. There are already 8,000 fewer privately owned investment homes in market now than a year ago. For every government-supplied home, mum and dad investors supply ten. Part of the solution to finding affordable homes for those on struggle street is to incentivise these modest investors. How about removing stamp duty for those that commit to buying affordable rental properties or guaranteeing attractive rent returns in exchange for providing affordable rents. Perhaps early access to superannuation with guaranteed buy-back at pre-determined returns into the future. The great work of benevolent groups is laudable, but investors need more encouragement in solving homelessness.
Oct 12, 2023
Australian Housing and Urban Research: A Real Estate Perspective
Real Estate's Role in Housing Supply The Australian Housing and Urban Research Institute's (AHURI) annual conference is a crucial platform for addressing housing and urban planning policies, primarily supported by government funding. Surprisingly, the real estate sector has remained largely on the sidelines of AHURI's efforts. This is somewhat perplexing, considering that real estate represents and plays a pivotal role in approximately 97% of all homes in Australia. Real Estate's Limited Participation In a gathering of roughly 80 speakers at the conference, only a handful of real estate agents, including myself, were in attendance. Instead, the majority of speakers and participants hailed from the not-for-profit social housing sector, dedicated to supporting marginalized Australians who struggle to find stable housing. Housing as a Fundamental Right Stable and sustained shelter is a fundamental human right. Even as the housing market is a capital asset class, every Australian deserves a place to call home. Currently, about a third of Australians own their homes outright, another third hold mortgages, and the remainder rent. It's essential not to forget the approximately 160,000 individuals, as of the last census, who are without a home. The Global Housing Supply Challenge Participating in an international panel discussion on rental markets and systems, a common theme emerged — there's a significant housing supply problem. In the United States, there is an estimated four million home shortfall to meet demand. In Australia, we are projected to be 110,000 homes short within the next year, given the current pace of construction and migration trends. Rental Market Dynamics Our rental market is primarily supplied by ordinary Australians, with the majority owning a single investment property. However, this group of property owners has been facing challenges. Since the peak of COVID-19, investors have had to deal with rental moratoriums, rising mortgage costs, increased maintenance and insurance expenses, substantial changes to tenancy laws, higher land taxes, and criticism from various quarters. Reevaluating Housing Policies There appears to be a shift away from relying heavily on individual investors to supply rental homes. With the current supply crisis, there is an urgent need for housing policies that actively encourage investors. The Role of Government Housing While there's a call for more government housing, these should primarily serve those genuinely unable to participate in the open housing market. It should not be the ambition of ordinary Australians to receive taxpayer-funded housing. Build-to-Rent (BTR) Sector The BTR sector is often considered the "supply saviour." However, it primarily caters to investors looking for appealing returns on investment. They deliver high-end lifestyle rentals in premium locations, but affordability remains a challenge for many. Supporting Property Investors It's imperative to acknowledge the contributions of everyday investors, often labelled as 'mum and dad' or unsophisticated investors. They play a significant role in supplying rental homes in Australia. Let's stop undermining the individuals who provide much-needed homes to the market.
Sep 7, 2023
Short Stay Rentals Australia
A recent visit to the Gold Coast on REIA business revealed one of the more vexing issues around rental affordability in Australia. In one of Australia’s favourite holiday destinations for both domestic and international travellers, the Gold Coast region has a high number of apartment homes traditionally used as a holiday flat or rented investment properties. A search of rental homes available across the Gold Coast region reveals about 1800 properties available for lease. By comparison there are some 5500 short-stay properties available. REIA’s analysis shows investors favouring the short stay market for a typical 2-bedroom apartment earn the same income in 156 days compared to a long-term rented property across a twelve month lease. a deep-dive study into short-stay accommodation Armed with this information, REIA undertook a deep-dive study into short-stay accommodation (SSA) across the nation which we released this week. The numbers reveal a remarkable level of growth for this sector with 133,968 (81.9 percent of which are entire dwellings) short-stay accommodation places across Australia, an increase of 22.8 percent for the period March 2022 to March 2023. Tasmania has witnessed the largest increase in SSA places, up an incredible 66.4 percent in twelve months to 4255 properties. Canberra came in second with a 49.6 percent increase in SSA places, followed by Victoria’s 32.4 percent, NSW’s 25.3 percent and Queensland’s 23.7 percent. Here in WA, there are 8,056 SSA places, an increase of 16.2 percent across the same twelve-month period; the lowest growth rate across the nation. Regional areas have the highest proportion of SSA places, making up 61.2 percent of all properties, with the highest differential between city and regional places found in Queensland (thanks to the Gold Coast and other coastal holiday destinations) at a ratio of 82:18 regional to capital city. In WA, 45.9 percent of SSA places are in the Perth metro area, the remaining 54.1 percent in the regions. Mature tourism destinations along with those more recently discovered thanks to the COVID-19 pandemic, welcome SSA opportunities for visitors with tourists contributing to local economies. Yet, the increase of SSA places has meant fewer properties available to traditional long-term renters with this shortening supply contributing to recent rent increases. SSA investments can be an appealing alternative to the long-term rental market. In Perth, an average two bedroom dwelling in the rental pool, earns $25,800 per year. The equivalent dwelling in the SSA market, based on average nightly rates, earns the same revenue in just 132 days. In regional WA, the gap in earnings from SSA and a long-term rental is even wider, taking just 107 days for a SSA property to earn the equivalent in the long term annual rental market. However, higher management costs (15-25 percent), no regulatory protections, risk of property damage and increased wear and tear are important considerations for SSA investments. The ‘gap’ in earning potential between short and long stay renting poses an immediate threat to further deterioration in rental affordability. Longer-term though, I predict the combination of cost of living pressures, slowing domestic tourism, potential excessive supply of SSA and risks associated with the SSA asset class will see long term rental investments regain favour.
Aug 31, 2023
10 Ways to Fix Rental Crisis
Earlier this week, I appeared before a Senate Inquiry on behalf of the real estate industry looking into renters’ rights. It is widely recognised that insufficient supply of housing is the main cause of rising rents. It’s a simply supply and demand equation; low supply plus high demand equals higher rents. Astonishingly, the main supplier of the rental homes - family investors – are ignored by governments and are actively vilified by the Greens. Policies that disincentivise the suppliers of rental homes, such as rent caps or rent freezes, end up diminishing the supply and rents continue to rise. It is baffling that the Greens continue to oppose the Housing Australia Future Fund legislation which aims to supply affordable housing, but reckon imposing a two-year rent freeze (which sees investors sell) would improve long-term rental affordability. Instead of playing politics, the Real Estate Institute of Australia has come up with a ten-point plan to help tenants: Coordinate State and Territory bond agencies to track data on tenancy numbers and tenures. Monitor rental pain points, particularly tenancies not professionally managed. Develop a cohesive national industry-government program of awareness materials for renters. Develop incentives for vacant properties and short stay rentals to bring them back to long-term rentals. Commit to long term stamp duty reform; and offer immediate stamp duty waivers for purchases of rental properties in areas of high need. Commission an immediate occupancy audit across Government owned and funded housing. Develop a feasibility study for re-purposing non-residential real estate into residential housing. Examine options for non-conventional rapid build homes in high areas of economic growth and housing need. Implement the National Cabinet target to build 1.2 million homes by 2030 and have performance mechanisms that hold governments and industry accountable to achieve this. Pass the Housing Australia Future Fund Bill. Meanwhile, you can contribute to the debate by making a submission to the Inquiry. Just search, “Worsening Rental Crisis” and go to the parliamentary page.
Jul 14, 2023
New listings are down a nation-leading 30.3 percent
By Hayden Groves This week, REIWA reported that there are 2,395 houses, 1,461 units and 1,364 vacant lots listed for sale on reiwa.com. This meagre total of 5,220 properties is about 40 percent lower than the same week last year. Meanwhile, sales volumes remain relatively high at 880 last week, unchanged from the corresponding week in 2022. Five years ago, reiwa.com listings numbered 12,417 and there were 29,000 property transactions. Last year, there were 58,000 sales across land, units and houses. Unsurprisingly, this shortage of supply matched with stronger sales volumes leads to one thing – higher prices. The same thing is happening in the rental market. Rental stock hit record highs in January 2018 with 12,000 homes available for lease, last week there 2,123. Rents are rising as a result of constrained supply. The problem of low housing supply for either sale or rent is not confined to the WA market. According to the latest Core Logic data, national listings for dwellings is down 13.2 percent on last year and 28.7 percent below the five-year average. In Perth, total new listings are down a nation-leading 30.3 percent from last year, way below the 18.9 percent average decline. Rental prices are rising at a rapid rate, up 13.4 percent in Perth since last year. Median house rents in Perth have moved from $370 per week in July 2020 to $575 per week today. A decade of relatively flat weekly rents, rapidly rising interest rates (which have risen 35 percent in a year), cost of living pressures and higher migration intake fuelling demand are the core reasons for the current rent price increases. new listings are down a nation-leading 30.3 percent Investors remain cautious about buying in the current fiscal environment and many, faced with spiralling mortgage costs are opting to sell. With 70 percent of all rental homes in Australia owned by persons holding a single property other than their primary home, selling the rental property is often a sensible option is your home mortgage repayments are rising. Chatter about rent freezes, high stamp and land taxes, a wobbly national economy, tenancy risk and yet-to-be tamed inflation disincentivise private investment. The structural nature of our rental housing sector has for generations relied on family investors to supply the market and in the absence of an alternative – such as governments supply more housing – we need thriving investment in housing from ordinary Australians to supply the homes tenants need. Yet, some politicians, advocates and the media have lashed these ordinary investors as being ‘greedy’ or even labelled them ‘dodgy’. Sure, there are some unscrupulous landlords out there – in the tiny minority. But this modern, anti-aspirational rhetoric threatens the fundamental underpinnings of our rental system. The government is unable to supply the $3 trillion worth of rental stock in Australia anytime soon, if that is the aspiration of those looking to undermine private investment in residential property.
Jul 3, 2023
Data Gurus: Less Pain, More Gain
By Hayden Groves Data gurus Core Logic produce a quarterly report aptly named the Pain and Gain, providing insight into the profitability of property sales across Australia. The report assess each property sale from its previous selling price in order to determine if the property was sold on a positive or negative margin. It doesn’t take into account the holding (interest payable, land taxes, rates, etc.) or purchasing costs such as stamp duty. The losses or ‘pains’ could therefore be worse than reported. Looking at the figures, it’s unsurprising that when assessed over a ten year period, Perth’s property market has had its fair share of pain during that time. Since the market peak of 2014, the proportion of properties sold for profit steadily declined from 95 percent to near 50 percent by late 2019. Usefully, Core Logic splits the data into detached houses and units with Perth houses performing significantly better than units since 2013. For houses, the portion of profit-making sales on a rolling quarter basis back in 2013 through to early 2016 held steady at 95 percent. It steadily fell thereafter to reach 60 percent April 2019. The market must have been dire for 40 percent of all houses sold in mid 2019 selling for less than their previous sale price. The numbers are even bleaker for units for a period in mid-2020 where only 40 percent of units sold realised a profit. During this ‘peak-COVID’ period we had rental moratoriums, a great deal of uncertainty and a decade of zero growth. Investors fled the market in large numbers, with – as it turns out – 60 percent of them willing to take a loss on the investment in the process. Roll forward to now and unit sales still lag behind houses in terms of profit-making. Perth’s market is still in recovery across the unit sector with only 64 percent of sales profit-making, well below the national average. Comparatively, profit-making house sales represented 94 percent of all houses sold last quarter. The discrepancy here can be attributed to the natural inclination of larger households to sell less frequently coupled with units being more favoured by investors, making them a more liquid asset. For Fremantle, 17 percent of all sales in the March quarter sold for a median value loss of $51,500. Inversely, 83 percent of Fremantle sellers made a median gain of $171,500 across a hold period of 8.9 years when they sold in the March quarter. In Cockburn, the median loss was less at 13 percent at $40,000 with 87 percent of sellers making a tidy $130,000 median profit if holding the property for about 9 years. Overall, the trend for Perth property being sold at profit is upwards as property values continue to grow. Values are up 1.9 percent across April and May this year with the likelihood of further gains adding to the recovery in profit-making sales as the year progresses.
Jun 9, 2023
Buyers Competing
By Hayden Groves Property listings throughout the metropolitan area are down to 5,400 on reiwa.com. Four years ago, there were 14,000 properties on offer. Sales volumes are consistently at around 950 per week, outpacing supply so it is hardly surprising that buyers find themselves making an offer to purchase in competition with others. Agents have differing approaches as to how to deal with multiple offers but normally will inform buyers that their offer is one amongst others. When a property is offered for sale by private treaty, details of competing buyers’ offers are not normally revealed so as a buyer offering in competition with others, it is difficult to know what price and conditions will ensure purchasing success without paying significantly more than the next highest offer. ask the agent if there are any other current offers Buyers should remember that agents have a responsibility to act in the best interests of the seller unless it is unlawful or unethical to do so. Agents have a legal responsibility to work at getting the buyer to pay the highest possible price on terms favourable to the seller they represent. One of the most effective ways to achieve this and discharge their fiduciary responsibility is to have multiple purchasers competing to buy. Naturally, buyers don’t like having to compete as it is much harder to gain a negotiable advantage in such circumstances. My advice to buyers is to always ask the agent if there are any other current offers on the property before submitting your own offer. Agents are not obliged to tell you that there are, so this knowledge might influence your initial offer. Also, consider removing any less-essential conditions of your offer such a timber pest inspection clause if one had been done recently, especially for more modern homes and consider aligning the settlement date to suit the seller. A bigger deposit might make your offer more appealing or an ‘odd’ price offering rather than neat 5 or 10-thousand increments might make your offer stand out from the others. The notion that agents should assume the buyer’s first offer is not their “best offer” is nonsense. A buyer who tells the agent that this is their best offer should not assume the agent thinks it is a lie and remember that the seller is under no obligation to provide you an opportunity to negotiate further. Buyers who miss out through competition are naturally disappointed but ought to come away from the experience knowing they gave it their best shot. In this competitive market, buyers will find it difficult to gain any negotiating advantage.