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May 29, 2024

New Laws Arrive

The state government has introduced its first tranche of tenancy law changes designed to further protect renters in the face of stubbornly low vacancy rates, rising rents and ongoing supply shortages. As national debate about the ‘housing crisis’ rages on, becoming more political by the day, the frustrations of those impacted by housing affordability constraint continues to rise. Thankfully, everyone agrees that the lack of housing supply goes to the heart of the problem of housing affordability, yet there is yet to be substantive, needle-shifting policies from our state or federal governments that has meaningfully focused on this core issue. So far, we’ve seen a series of back-slapping fringe policies that are either promissory or tinker around the edges. there’s no law against being a rude, vindictive narcissist For example, the federal government’s promise of building 1.2 million new affordable homes by 2029 came off the back of protracted negotiations with the Greens over the Housing Australia Future Fund; a political promise that sets a wildly ambitious construction target. Housing approvals over the past five years reached about 925,000 boosted by the HomeBuilder grants of 2020/21. The trajectory for new approvals is troubling for adding supply having fallen back (down 9.5% in December) sharply as construction material costs continue to rise, up 32.5% since 2020. Add to this rising inflation elsewhere in the economy, poor productivity, NIMBYism, high property taxes, planning constraints, lack of building innovation, higher interest rates and falling employment, we’ll miss the 1.2 million home target by miles. Meanwhile, our state government celebrates fringe policies such as the $5,000 landlord incentive for property owners who, after having their ‘extra’ property lay empty for six months, can claim the $5k for putting in a tenant. Our Treasurer reckons this could add an additional 1000 homes to the rental pool. Sorry, but anyone that can afford leave their investment property empty for six months, won’t be swayed by five grand. Other government actions around housing included changes to the Residential Tenancy Laws, two of which came into effect this week. Firstly, there is now a ban on ‘rent bidding’. This effectively means landlords and property agents are banned from encouraging tenants to “pay extra” to secure a rental home. Nor can properties be advertised at a “from” weekly rent. The intention is sound but in response, initial asking rents will rise to account for the competition in the market. Tenants can still offer more than the asking rent if they choose to. The second new law is referred to as the ‘retaliatory rule’ whereby a landlord cannot respond to reasonable requests from a tenant regarding property maintenance and other matters by not renewing the lease, for example. Some tenants can be unreasonable to deal with and there’s no law against being a rude, vindictive narcissist. It will be interesting to see how the new law deals with circumstances like this where the property owner seeks to not renew a lease on the grounds of their tenant being unreasonably difficult. There is no quick fix to the housing crisis, but every effort to add supply to the housing stock in an affordable way must be the priority.

Feb 29, 2024

Sorry, Disconnected

Sometimes, governments make decisions that have unintended consequences that impact the practical ways certain industries work. Canberra’s latest effort to over-regulate comes in the form of changes to the Fair Work Act that formalise an employee’s ‘right to disconnect’. The changes effectively mean an employee may refuse to monitor, read or respond to contact from an employer outside of the employee’s normal working hours. As an employer, I think it’s perfectly reasonable for an employee to ignore my phone call after hours, and unless it was a serious emergency, I wouldn’t be calling them after hours anyway. But, do we really need to make a law for it? For the real estate industry, the implications could be significant. The business of real estate – sales or property management – doesn’t happen during usual business hours. The laws extend to an employee (sales representative or property manager) refusing to monitor, read or respond to contact from a third party if the contact relates to their work. This includes contact from vendors, tenants, buyers and lessors. The obvious issues for national companies operating in Western Australia have been neatly overlooked by east coasters with the 3-hour time difference in summer could mean an effective workday starting in midday in Melbourne and Sydney and ending here two hours later. The changes could result in lost business if employees refuse to take urgent calls on a critical matter, such as a live sale negotiation. And what about a matter concerning safety at a property where property or person is at risk where a worker is required to manage such emergencies? The new laws are set to become law in July this year. After which, a tenant, needing assistance to get into their home after losing their keys at 6 pm can expect no reply from their property manager. A vendor, - in theory - wanting to know how Saturday’s home open went, can’t demand a response from their sales agent until Monday morning. As a result, many real estate employees will ignore the new laws and carry on providing service to their clients, tenants and buyers outside normal working hours. It won’t be until something goes wrong with the employer / employee relationship that challenges might arise. Employers could find themselves in strife with the Fair Work Commission if a disgruntled employee claims they were expected to work outside normal business hours without the right to disconnect. Employees working from home further muddies the water given these arrangements enable a degree of flexibility that transcends normal work hours anyway. Time will tell what impacts come from these laws that seem to be an answer to a question no one ever really asked.

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.

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.

Aug 3, 2023

Use a REIWA Property Manager

By Hayden Groves Property management is more about managing the tenancy than it is about managing the property. The property manager’s primary role is managing the tenancy agreement as expressed by the terms of a lease and regulated by the Residential Tenancies Act.  The property manager can only inspect the property on four occasions per year on behalf of the owner, so it is important that the tenant understands that it is them as the occupant, that effectively manages the property itself. For tenancies longer than three months, the Residential Tenancies Act (the ‘Act’) applies automatically (whether there is a formal lease or not) and it is foolhardy not to utilise the services of a competent property manager for a property asset, particularly during times of short supply and high demand. There is great value in having a property manager act at ‘arm’s length’ Management fees are not exorbitant and are tax deductible. And for the sake of saving a relatively small portion of the rental income in management fees, the risks of self-management are significant. A sound working knowledge of ever evolving legislation is essential, as is the capacity to properly reference check a prospective tenant. But, perhaps most importantly, much of the risk and responsibility attached to the management process is borne by the managing agent, giving property owners someone to rely on if the tenancy goes wrong. Even thoroughly assessed tenancies go off the rails on occasion due to a change in circumstances of the occupants; job loss, relationship failure and health issues are common reasons. A professional, well trained local agent is equipped to deal with this challenging issues when they arise. Finding the right tenant can be tricky too. Prospective tenants almost exclusively rely on the internet to find themselves a property, so owners without access to the favoured websites will find it difficult to attract the right tenant in the first place. There is great value in having a property manager act at ‘arm’s length’. Many a self-managing landlord has fallen into the trap of sympathising with their defaulting tenant and allowing rent arrears to build up over time hoping that they’ll “make good”. Acting at arm’s length affords the property manager a compassionate ‘just business’ approach to rent payments and the lease agreement more broadly. This is particularly important in these times of rising rents and inflationary pressures.  Self-management often works well and for extended periods, but when a tenancy goes wrong, it is costly and stressful and it has been my experience that with all things considered, it is not worth the risk.

Jul 31, 2023

Greens Policy Would Push Rents Higher

By Hayden Groves Greens’ leader Adam Bandt’s impassioned address at the National Press Club earlier this year, demanding the government immediately impose a national rent freeze, continues to feature in the rental crisis discussion. The recently announced National Rental Inquiry initiated by the Greens will be dominated by their supporters’ calls for a rent freeze. Victoria Premier, Dan Andrews chimed in during the week suggesting he’d consider ‘rent caps or freezes’ too. Investors have responded by suggesting that such a move, on top of recent massive land tax hikes and higher interest rates, would be the ‘tipping point’, forcing them to sell their properties. all your policies are designed to whack investors Last time I looked, it is the private investor market that supplies 89 percent of all rental homes in the nation. The government provides 11 percent. If seems obvious that if you disincentive private investors (with things like rent freezes), investors will stop providing enough houses for renters. This leads to shorter supply (investors will sell) which pushes rents even higher. Yet, somehow, the Greens and the Victorian Premier have missed this fundamental economic point. Investors selling is exactly what is unfolding across the nation right now. The CEO of First National Real Estate told me this week that their Bendigo, Victoria office that normally sells about 10 properties per month, sold 38 listings from their rental portfolio in June. In WA, there are 16,000 fewer residential tenancy bonds now than a year ago. Other policies such as calling for changes to negative gearing and capital gains tax discounts (another Greens policy) would demolish the current rental housing system, causing a rental crisis far worse than currently experienced. The Greens say they want solutions to address the rental crisis ‘right now’. Well, you don’t and simply can’t solve it by turning on the very people that supply the houses; you can’t magic more housing supply out of thin air if all your policies are designed to whack investors. The Greens have also called on more government built housing, something desperately needed. Yet they refused to back the $10b Housing Australia Future Fund which aims to deliver 30,000 more affordable homes, blocking it in the Senate. To get more supply in the market immediately, you could start with stamp duty reform. Imagine offering a stamp duty rebate for investors that offered property at a below-market rent that guaranteed a certain reasonable return with fixed moderate annual rent increases. Investors would buy and re-supply the market. Treasurer Jim Chalmers is on the record as a supporter of reforming stamp duty; that unfair tax that stifles economic growth and impacts affordability. Everyone from the Henry Tax Review through to the National Housing Finance and Investment Corporation (NHFIC) agree with what real estate agents have always known; that stamp duty is a significant barrier to property ownership and rental affordability and is a transaction-killing tax that should be reformed. There is no avoiding that the only way to address rental affordability is by increasing supply and unhelpful policies that seek to diminish supply rather than incentivise it is counter-intuitive madness.

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.

Apr 21, 2023

Investors Not to Blame

By Hayden Groves 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 is not a single new housing policy that seeks to encourage the investor cohort into supplying more homes. there is not a single new housing policy On the contrary; governments shun the idea of stamp duty reform, land taxes continue to rise and tenancy laws continue to swing in favour or 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. Recent comments made by an industry leader in NSW that suggested property investors were selling their properties because, ‘they’re tired of being labelled “greedy landlords”’, was criticised, but is absolutely true. A Queensland ‘shock-jock’, locked horns with the REIQ’s CEO recently over unaffordable rents and tenancy laws in that state saying he ‘didn’t care’ how landlords felt. Adam Bandt, leader of the Greens, after his party called for a two-year rent freeze, is on the public record as saying, ‘they’re a landlord, they can afford it,’ when questioned about the impact of a rent freeze on investors carrying rising mortgage costs. 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 – 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.