Tuesday, February 23, 2010

Owners, renters, repairs and defects

Time for some charts and graphs – these come from the ABS's survey of housing mobility and conditions 2007-08, a new survey that is a veritable treasure trove of data about housing. We'll present more of it in further posts; first up, let's look at what it says about dwellings with structural defects, repairs and maintenance, and residents' satisfaction with their homes.

For present purposes, I've lumped all the owners (ie those subject to a mortgage, and those who are not) together, but I've left the tenants of private landlords distinct from the public housing tenants, because that's where the surprise is.

What's not surprising, I'm afraid, is that private tenants and public housing tenants are both more likely than owners to live with 'major structural defects' in their dwellings, as shown in figure 1.

(Figure 1. Major structural problems (%). ABS Australian Housing Mobility and Conditions 2007-08, table 14. Click on image for a better view.)

The surprising thing, for me at least, is that difference between the results for private rental and public housing is not greater. The troubles that the State and Territory housing authorities, such as our own Housing NSW, have had with properly maintaining their dwellings have been well-known for years. It seems that the private landlords have not been doing that much better.

It's a similar story with repairs and maintenance. For most categories of repairs and maintenance, owners got the work done more often than did either private tenants or public housing tenants. (Interestingly, the exception was plumbing, and electrical work was a fairly close call. I suspect that's because this sort of work is rarely cosmetic, and the repair work is being done in response to problems that obviously – and legally, as a matter of contract – need to be fixed. Good luck getting painting done.)

(Figure 2. Repairs and maintenance (%). ABS Australian Housing Mobility and Conditions 2007-08, table 15. Click on image for a better view.)

And this time, in each category of repair the public housing tenants actually received a greater degree of service than the private renters. I suppose that stands to reason: because public housing's maintenance problems are so well known, these landlords have been more on the job in recent years. And I'm sure the relative insecurity of private renting is a factor: many repairs go undone because private renters are afraid they'll lose their tenancy if they ask for them.

Finally, who's satisfied and who's not satisfied with their housing. Again, no surprises that the owners are most satisfied: in fact, 91 per cent are 'satisfied' or 'very satisfied' with their dwelling. Rather fewer tenants – 78.3 per cent, the same for private tenants and public housing tenants – felt the same way.

(Figure 3. Satisfaction (%). ABS Australian Housing Mobility and Conditions 2007-08, table 16. Click on image for a better view.)

Of course, one might say '78.3 per cent satisfied or very satisfied – that's pretty good, isn't it?' On the contrary, because this is about something that looms as large in people's lives as the place they live and call home, I think we should mark these results pretty hard and say that if a quarter of people renting are not satisfied with their houses, that's not good. (And I must say I'm a little dubious that such a relatively large proportion of private tenants can actually maintain that delicately poised state of Zen-like ambivalence 'neither satisfied nor dissatisfied'. I suspect they're being polite. Or perhaps they are just weary, watching the paint peel.)

Wednesday, February 17, 2010

Rent and Sales Report 90 (Dec 09)

The latest issue of the always interesting Rent and Sales Report is out, and in its analysis this morning the Herald is doing the property spruikers jobs for them. Their headline:

Rents in outer suburbs rise 9.4%

Here's another they might have used:

Rents in inner and middle suburbs stagnate

As always, the Rent and Sales Report bares closer and more careful reading than the headlines suggest.

The main breakdown for median 'new agreement' rents:

  • Inner ring: up 2.2 per cent for the quarter to December, 0 per cent for the year
  • Middle ring: 0 per cent for the quarter, 0 per cent for the year
  • Outer ring: up 2.9 per cent for the quarter, 6.1 per cent for the year
  • Sydney overall: up 1.3 per cent for the quarter, 3.9 per cent for the year
  • New South Wales overall: up 2.9 per cent for the quarter, 6.1 per cent for the year.

Where did the Herald's figure – 9.4 per cent – come from?

This figure is for three-bedroom houses and flats in the outer ring of suburbs. It's the largest annualised figure on the first table of the report – that's why they ran with it (that's how time-pressed journalists read the Rent and Sales Report: scan the first table for the biggest number – there's your story).

And, as always, the figure relates to rents for new tenancies commencing in the relevant quarter. Tenancies commencing in the December 2009 quarter represent about 9.2 per cent of all private tenancies in the outer suburbs (and tenancies in three-bedroom dwellings would be somewhat less). Outer suburb tenancies commencing in the December quarter represent less than 3.5 per cent of all tenancies in Sydney.

Thursday, February 11, 2010

NSW State Opposition comments on draft Bill

After consulting with various stakeholders (including the Tenants' Union), the Shadow Minister for Fair Trading, Greg Aplin, has commented on the draft Residential Tenancies Bill.

The comment is interesting not because of what it says about the draft Bill, nor because of what it says about the Opposition's position on tenancy law reform, but rather for what it says about the position of landlords and agents in New South Wales.

Mr Aplin says:

What I am hearing is this:
  1. Tenants could be offered short-term, probationary leases of 3 months duration.
  2. At the end of a fixed term tenancy the tenant might have to sign up immediately for a new fixed term rather than simply hold over under the previous agreement.
  3. In order to secure income to pay their mortgages, landlords might take out insurance for the new risks proposed in the draft bill, and then effectively pass the premium cost onto the tenant.
  4. New clauses will appear in tenancy agreements giving blanket ‘disclosures’ which negate the real purpose of a timely and helpful disclosure.
  5. Greater reliance will be placed on tenancy databases and more detailed inquiries about a prospective tenant’s renting history and commitment to honouring agreements for housing, at the workplace and more.
  6. Leases might only have a single tenant’s name on them.
  7. More tenants will find themselves in the Tribunal more often, facing unnecessary stress and uncertainty over their home. The draft bill has over 60 sections which send the parties to the Tribunal for a decision.
The important thing is that none of these things is mandated by the draft Bill. Not a single one. Every one of them is a hypothetical reaction by agents and landlords.

And by 'hypothetical reaction', I mean 'threat'.

What Mr Aplin is hearing is the sound of the agents and landlords throwing their weight around. The REI has been at this for months, with wild talk about landlords fleeing the State and those staying put jacking up rents by 20 per cent.

The further threats reported by Mr Aplin are just more proof of the asymmetry of the landlord-tenant relationship – as if more proof were needed. We all know this: before a tenancy begins, it is always the prospective tenant who has to prove their credentials (provide references, hand over payslips, get run through a database, etc) to the landlord, never the other way round. And during a tenancy, a tenant who is unhappy with the quality of service they are receiving cannot take their business elsewhere without incurring considerable financial and emotional costs; landlords, on the other hand, feel little difficulty in getting satisfaction by enforcing the tenancy contract, including through termination proceedings.

If it were not for tenancy legislation, landlords and agents would dictate terms to tenants. The threats disclosed by the Shadow Minister show that tenants' interests need to be protected in strong tenancy legislation, and that if the draft Bill is to be changed, it should be to improve its protections of tenants against the abuses of power being threatened by agents and landlords.

Tuesday, February 9, 2010

Australian Rules

AFL legend and inaugural coach of the Greater Western Sydney team, Kevin Sheedy, will next week move to Sydney and, at least for the time being, rent a house. He and Mrs Sheedy will be tenants.

(Kevin Sheedy, prospective tenant.)

I'm sure I speak for all Brown Couch readers – even those who do not follow any of the teams with which Sheedy has been associated (go Hawks!) – when I wish him all good fortune on entering the New South Wales rental market, and offer these words of advice.

Now, Sheedy, you'll find things are done here a little differently to Victoria. You're probably used to landlords giving 'without grounds' termination notices of 120 days; here, it's just 60 days (and if the draft Residential Tenancies Bill goes through as is, it will go up to 90 days). So keep your guard up.

If we're talking about a termination notice at the end of the fixed term of your tenancy, you'd be used to expecting 90 days notice if the fixed term is six months or more, and 60 days' notice if the fixed term is less than that. Here, it's just 14 days (again, the draft Bill would put it up, to 30 days).

And if the termination notice is because the landlord is selling the place, you'd be used to 60 days' notice; here, you'll get just 30 days.

Mind you, if you're the one giving a termination notice, you don't need to give 28 days' notice like you're used to; here it's 21 days.

Now, about rent increases: you'd be used to being assured that you'll get no more than one rent increase in a six month period. No limits like that up here, Sheedy.

You'll be wondering about the landlord's right to inspect the premises. You'll be used to landlords being allowed one inspection every six months, and none in the first three months of your tenancy; here it can be up to four in 12 months (and they could all be in the first month, if the landlord wanted). It's not all bad news, though; you might be used to expecting just 24 hours' notice of an inspection; here you're entitled to seven days' notice.

And what you call a security deposit we call a bond (and you'll find some agents say 'deposit' to mean 'reservation fee'. Which will become a 'holding fee', if and when the draft Bill is passed.)

Any questions? 'Why aren't the rules the same all over Australia?' Good question, Sheedy, very good question.

Sunday, February 7, 2010

For Whom the Bell Tolls

Matthew Bell, an economist at Australian Property Monitors, reckons we've just had 'the year of the renter', and now we should get ready for 'the decade of the landlord.'

Says Bell:

Renters were the winners last year when median asking rents for both houses and units in Sydney rose by just $10 per week, up to $460 a week for houses and $420 a week for units. Such growth of just over 2 per cent was well below the longer-term trend of 6-7per cent annual growth, and down heavily on the 12-13 per cent growth rates experienced in 2007 and 2008.... It is hard to see this continuing.

It won't continue, according to Bell, because of improved employment prospects, rising interest rates, population growth, undersupply of housing, low vacancy rates - the usual suspects.

Here's a few things worth keeping in mind when reading Bell's forecast:

First of all, always remember that APM is a business and they're flogging a product: specifically, data about property prices, packaged up in reports for the discerning investor/speculator. To move this product, they've got to get people thinking now is the time to buy a property. Depending on the circumstances, they make the pitch in one of several different ways. Usually the line is: rents just keep going up and up, you better get into the market (and buy an APM property report before you do). This year it seems to be: it was a lean year for landlords last year, but rents are set to go up and up, so get in on the ground floor (and buy an APM property report before you do).

So, whatever their talents, APM have an interest in predicting great things for landlords. No surprises there - and it's not unique to APM. All the other forecasters have an interest too.

Now, more specifically about APM: when Bell talks about rents, he talks about 'asking rents', which are what APM reports on by monitoring agents' 'to let' ads. As discussed previously, 'asking rents' are different from the rents tenants actually sign up to (last time we called these 'new agreement rents', and these are what Housing NSW reports on in the Rent and Sales Report, using data from the Rental Bonds Board), and these are different again from the rents that all tenants - new and longstanding - pay ('established rents', which can be derived from the Census and the Consumer Price Index).

In that previous discussion, we saw how median 'asking rents' were a lot higher than median 'new agreement rents': on average over several quarters, they were higher by $45-50 per week. This meant, we suggested, that exuberantly greedy landlords and agents had lost the plot and were overshooting what the market could bear.

I wonder if what happened over the past year is that landlords and agents felt less exuberant and overshot less - that is, they narrowed the gap between asking rents and new agreement rents. We get an indication of this looking at the Rent and Sales Report and the CPI. Keeping in mind that the available figures are not directly comparable, these sets of data show rents increasing through 2009 – new agreement rents up 3.9 per cent (Sept 08-Sept 09) established rents up 5.7 per cent (Dec 08-Dec 09) – not as much as in previous years, but still more than APM's 'asking rents' measure indicates. Nor is it exactly consistent with APM's line that tenants have had a year off from rent increases and are ready to pay them again.

Another thing to keep in mind about APM: there's an issue with their figures changing from report to report. We noted this last year: then, in so many of their reports the figure they gave for the 'asking rent' for the same time one year previously was lower than the figure they actually reported at that time; this made the increase in asking rents over the period appear larger. This time round, the figure APM gives for the median asking rent for Sydney units one year ago (that is, December 2008) is $10 more than the figure they actually gave in December 2008. This change makes the increase in asking rents smaller than it would otherwise have been – which is in keeping with APM's line this time about tenants having a year off from rent increases.

(There might be an innocent explanation for APM's changing figures – if there is we'd be pleased to hear it. Without an explanation, people might draw their own conclusions from the fact that direction of each of the changes – whether down or up, and consequently whether the increase in asking rents is larger or small – always assists the line APM is taking at the time.)

Tuesday, February 2, 2010

UPDATE: Our take on the draft Bill, in brief

The Good

Residential tenancy databases. Finally: the draft Bill proposes legislated rules about residential tenant databases that will apply to landlords, agents and database operators. It will oversee how listings occur and how to find out about a listing, and provides for the resolution of disputes. Given the importance of this reform, it is vital that the legislation gets it right.

Co-tenants. Under current laws, a departing co-tenant cannot end their liability for rent and other costs, while other co-tenants remain. The draft Bill would allow the termination of a co-tenancy, and the severance of liabilities, by giving notice to the landlord and remaining co-tenants.

Domestic violence. Where a final Apprehended Violence Order excludes a violent co-tenant from their premises, the draft Bill would automatically terminate their tenancy. The tenancies of other co-tenants would remain on foot. This proposal will enable the rental liabilities of victims and perpetrators of domestic violence to be severed.

Rent arrears. While landlords would be able to commence termination proceedings more quickly, tenants would be assured that if they pay their arrears, their tenancy will be saved – even if the Tribunal has already ordered termination. Tenants facing eviction for arrears would not be tempted to keep their money for a new bond, and landlords would be better equipped to recover arrears.

Break fees. Tenants who move out during the fixed term of a tenancy would be liable to compensate the landlord with a pre-determined ‘break fee’. This is much less complicated than the current “breach/loss/mitigation” model. The proposal is controversial – the draft Bill seems to create a statutory right for tenants to unilaterally end a fixed term tenancy. It should simply seek to codify the manner in which appropriate compensation is calculated. It would be unfortunate if this reform is abandoned on account of this controversy.

Terminations by tenants. Tenants would be able to end a tenancy with no penalty if they are offered a social housing tenancy, or take up residence in an aged-care facility, during their fixed term.

The Bad

Access to premises for sale. The Bill envisages landlords and tenants making agreements about days and times to show a property to prospective purchasers. But any negotiations would be undermined, by giving landlords access on 24 hours’ notice without limiting the number of visits, as well as fines of up $2 200 for tenants who refuse to give ‘reasonable’ access. Agreements will only happen when landlords’ rights of access are restricted and they have a reason to negotiate for more. These proposals are a step backwards, and will lead to more disputes between landlords and tenants.

Uncollected goods. The time allowed for collecting goods at the end of a tenancy would be decreased to just 14 days, before a landlord can dispose of them. The draft Bill would give a former-tenant a right to compensation if the landlord disposes of goods unlawfully – but given the options for a landlord to dispose of goods may include giving them away, this could well be meaningless.

Unfinished Business

Terminations ‘without grounds’. Renting in NSW will remain unnecessarily insecure, as landlords would retain their current ability to end tenancies ‘without grounds’. Notice periods would be increased, but the Tribunal would lose its discretion to take ‘circumstances of the case’ into account during termination proceedings. Under these proposals, termination notices without grounds will always end a tenancy. The law should be trying to discourage landlords from using notices without grounds, not making them more attractive.

Exclusions. Those renters who are kept out of the current Act – particularly boarders and lodgers – will continue to be excluded by the draft Bill. These exclusions highlight the urgent need for occupancy legislation that covers all marginal rental housing in NSW.