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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.
Aug 24, 2023
National Cabinet Discuss Potential Rent Freezing
National Cabinet met in Brisbane last week and, despite significant political pressure from the federal Greens, emphatically ruled out imposing a rent freeze and/or rental cap system in the states and territories. I note that the federal government has no jurisdiction to legislate changes to residential tenancy laws, that rests with the states and territories. However, it is the first time that a Prime Minister has worked with the states and territories in implementing a nationally coordination plan in the interests of renters’ rights. On the whole, the nine-point plan that popped out of the National Cabinet meeting strikes a fairly reasonable balance between the rights of tenants and the suppliers of their homes, investors. Importantly, the plan gives the states and territories relative autonomy to tweak their legislative framework to align with the plan but account for their unique markets. The language used in the plan provides a degree of flexibility. For example, the first point of the plan states, “Develop a nationally consistent policy to implement a requirement for genuine reasonable grounds for eviction, having consideration to the current actions of some jurisdictions.” This gives the states plenty of scope. For instance, in Victoria if a tenant wishes to renew a fixed-term lease, the landlord must agree to it unless they wish to move in themselves, sell the property or substantially renovate it. Whereas the WA government has just finalised their review of residential tenancy laws and sensibly retained ‘no-grounds’ completions at the end of a fixed term lease whereby the landlord is not obliged to renew a lease for an existing tenant. for every three rented houses sold, only one remains a rental. Other points in the plan cover the opportunity for tenants to appeal against retaliatory evictions, seek to outlaw rent bidding and protect tenants in situations of domestic or family violence, most of which are legal protections already in place across Australia. Point 3 in the plan seeks to limit rent increases to annually which seems fair enough and is law in most states already. Queensland and WA are the only two states yet to make this change. The remaining points cover limiting break-lease fees for fixed term leases (which will simply give rise to fewer fixed-term leases being offered), designing rental applications to protect renters’ personal information, the phasing in of minimum quality standards for rented homes and better regulation of short-stay accommodation. Now that we have a nationally agreed framework for regulating rental homes, the impact on supply of rental properties is yet to fully play out. Amongst the Greens’ hysterical demands for rent freezes / caps, investors have been busily selling out their assets at the rate of 3:1 – for every three rented houses sold, only one remains a rental. Mortgage costs over the past twelve months have risen at three-times the rate that rents have gone up. Land taxes in some states have doubled. Insurance premiums, council rates and strata levies have all risen too. So, despite this neat, nationally coordinated plan to look after tenants, a crucial piece is missing; who is going to provide all the houses that tenants call home?
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.