Tuesday, November 23, 2010

Legislative Council questions Housing NSW's 'campaign of harassment'

The Brown Couch's parliamentary roundsperson draws our attention to today's notice paper for the Legislative Council, the New South Wales Parliament's upper house.

(The Legislative Council)

In particular:

Ms Cusack to move—

That this House:

(a) notes that during the period from 2005 to 2008, the Department of Housing made 46,404 applications to the Consumer Tenancy and Trader Tribunal against its own tenants,

(b) notes that in 2005 the number of applications was 9,747 but that this grew to 14,649 in the 2008 year - an astonishing increase of 55% over the four year period,

(c) notes that an examination of the Tribunal’s applications concerning public housing reveals 96% of applications are made by the Department of Housing and only 4% are made by tenants,

(d) notes that the Tribunal is substantially funded by interest earned on tenants bond money,

(e) questions the fairness of tenants cross-subsidising the Department of Housing’s relentless campaign of harassment against its own tenants, and

(f) calls on the Government to review application fees for NSW Housing and require it to fully fund the costs of these mass eviction notices being issued against its own residents.

Well put, Catherine Cusack MLC!

As Ms Cusack says, Housing NSW is a big user of the Tribunal: big relative to public housing tenants' own use of the Tribunal against Housing NSW and, we might add, big relative to other landlords.

Public housing tenancies represent about 16 per cent of all tenancies in New South Wales, but last year Housing NSW's applications in relation to 'breach' represented 58 per cent of all such applications by landlords, and its applications for termination on grounds relating to use of the premises (ie use for an illegal purpose, or nuisance and annoyance) represented 45 per cent of all such applications by landlords.

Housing NSW will say that this over-representation is because it has a distinctive clientele. That might be a factor - but community housing organisations have a similar clientele, and they are not so over-represented in the Tribunal's stats. For other factors I would point to some distinctive aspects of Housing NSW as a landlord.

First, about a third of its tenancies are in large estates, making them uniquely dense concentrations of contracts where infractions of order that might otherwise be dealt with informally (or ignored) may be dealt with as matters of contractual breach.

And secondly, Housing NSW is distinctively and intensely involved in the lives of its tenants. In some circumstances - especially where staff are overworked, or undertrained, and become cynical - this involvement can turn, as Ms Cusack says, to harassment. Certainly it is hard to view the two Payne cases as anything else.

And to this Housing NSW might say - rightly - that it tries to train its officers to work positively with their clients, and to value this sort of work over reactive, punitive action in the Tribunal. But perhaps these lessons needs to be reinforced by costs, as Ms Cusack proposes. Worth thinking about.

Tuesday, November 16, 2010

Agents get real (part 3)

Here we conclude our review of the Real Estate Institute's 'Real Tenancy Policy', its new statement on tenancy law reform. We got stuck into them last time for some silly arguments they made about the new Act, which was disappointing for us, because they started so well with a strong statement on the physical, psychological and social importance of the human right to housing.

Now, the REI's third and final point. As previously, the REI's blue, we're black.


[3] Proper resourcing of dispute resolution facilities
REINSW appreciates the role of the Tenancy and Social Housing Divisions of the Consumer, Trader and Tenancy Tribunal in providing access to relatively efficient and cost-effective dispute resolution facilities. Such facilities are vital to the effective operation of the residential rental market in New South Wales.

Well said: the REI's appreciation of the Tribunal is appropriate and much more reflective of reality than the assertion that you hear so often from landlords that the Tribunal is inefficient or helpful only to tenants. As the REI's comment indicates, landlords are in fact a major beneficiary of the Tribunal system; in fact, they are the major beneficiary, with landlord applications to the Tribunal outnumbering those of tenants by a factor of six.

And it is quick, too: on average, the Tribunal gets applications on for hearing 24 days after lodgement, and about three-quarters of all applications are finalised at or before the first hearing.

REINSW is concerned however about some aspects of the existing dispute resolution regime.

It is likely that given the additional compliance obligations under the 2010 Act the volume of applications will increase, with the attendant danger of lengthier delays between application and determination. There is already a tacit omission [sic] in s 88(4) of the Residential Tenancies Act 2010 that current delays are hindering landlords obtaining swift outcomes in the Tribunal.

It is true that the 2010 Act does provide that tenants may apply to the Tribunal for resolution of disputes in relation to things that the 1987 Act does not: for example, where a tenant asks to sublet a spare room and the landlord unreasonably refuses consent. But we don't expect a boom in tenant applications.

On the other hand, there is the potential for a boom in landlord applications in relation to rent arrears, because of new s 88(4). Under the 1987 Act, a landlord may serve a 14 day notice of termination on the ground of rent arrears, and then apply for termination orders - once the 14 days are up. Under s 88(4) of the new Act, a landlord will not have to wait - they'll be able to apply at the same time as they serve the notice (the Tribunal, however, will have to wait until the 14 days are up before it puts on a hearing). Section 88(4) is something that the landlords and agents have been asking for. It has the potential to create an awful lot of useless work for the Tribunal in taking applications and listing matters for hearing when in fact so many matters will never go that far, because on receiving the notice the tenant will pay up.

It's a bit rich to blame any expansion in the Tribunal's workload on 'additional compliance obligations', when a provision of the agents' own asking poses a much bigger source of applications - and useless ones at that.

(Indeed, given the current housing affordability crisis it is likely that the number of applications will increase simply by virtue of the growing number of tenanted properties).

(Hmm... so it doesn't look like landlords will be fleeing the market after all.)

The Tribunal must have necessary additional personnel and other resources to meet growth in demand for its services.

The commitment of additional resources must extend to rural and regional New South Wales. Anecdotal evidence suggests that unacceptably lengthy delays exist in some parts of the State in having matters listed for determination.

More resources for the regions is something we can get behind. A particular problem in rural and regional areas is the venues. All too often the Tribunal uses the rooms of the Local Court, and many tenants, especially Aboriginal tenants, just won't go to a hearing held in a court room.

There has been some disquiet in the industry about apparent inconsistencies in decisions made by different Tribunal members on some of the more common categories of disputes. Such inconsistencies create uncertainty in the sector. One way of minimising the possibility of those uncertainties arising is for more decisions to be available online. Another would be for an increased use of Chairperson’s Directions. Still another would be to allocate tenancy matters to a specialised panel of Members with particular expertise in the area (indeed, it may be appropriate to reinstate a separate Tenancy Tribunal as was the case prior to the formation of the CTTT).

Here's a couple of other things we are happy to support. Where the Tribunal gives written reasons for a decision, it makes them available on austlii, and we'd like to see more of this. And a specialist residential tenancy tribunal is something we've always supported.

And that's it. As we said at the outset of our review, it's generally a more sober contribution to tenancy law reform than previous REI postures. Some of the arguments are flawed, and some are just not backed up by evidence or analysis, but there's also a few things on which we might agree and that initial recognition of the human right to housing is promising.

Tuesday, November 9, 2010

Agents get real (part 2)

In our previous post, we commenced a review of the Real Estate Institute's new 'Real Tenancy Policy' (as distinct from their unreal policy of last year). We were genuinely impressed with the REI's upfront recognition of housing as a human right and as a matter of physical, psychological and social need. We were less impressed with their argument about 'impediments for investors'; indeed, the evidence shows that over the past two decades punters have been piling into the market, and borrowing up big to do so.

Now we look at point 2 (again, the REI's in blue, we're in black).


[2] A needlessly complex and prescriptive regulatory regime

REINSW recognises the need for a legislative and regulatory framework which appropriately protects the interests of landlords and tenants of residential property. The far-reaching changes to the Residential Tenancies Act 1987 set out in the Residential Tenancies Act 2010 (uncommenced as at October 2010) have been the subject of detailed comment by REINSW.

'Far-reaching?' We wouldn't have said that, but let's see if the REI identify any 'far-reaching changes' in their new policy.

From our point of view, the Residential Tenancies Act 2010 mostly improves on the existing law, in a fairly technical, problem-solving sort of way. It does not radically recast the balance of power between landlords and tenants. You can find our own detailed comments here and (in very much more detail) here.

It is of concern that it is considered necessary to regulate the rights and obligations of residential landlords and tenants in a statute which comprises 227 sections (with many more provisions in as yet unfinalised regulations). The Residential Tenancies Acts in both South Australia and the ACT consist of approximately 120 sections. Western Australia manages the task in under 100 sections. While some jurisdictions (for example, Victoria and Queensland) have lengthier statutes than even New South Wales, those statistics strongly suggest that the sector in New South Wales is comparatively over-regulated.

As a measure of over-regulation, the number of sections in a piece of legislation is, with respect, not very good. The Landlord and Tenant (Amendment) Act 1948 (NSW) has 113 sections, almost exactly half the number of the new Act's. Is the 1948 Act simpler and less onerous by half?

Comparing the lengths of the Acts of each State or Territory shows nothing except that their respective Offices of Parliamentary Counsel do their drafting differently. Looking just at New South Wales, it is true that the 2010 Act has stacked on a few sections. Part of the reason for this is that it now includes bond provisions previously in the Landlord and Tenant Amendment (Rental Bonds) Act 1977. Another, bigger part of the reason is that the new Act is designed so that the casual reader can find all they need in one place, rather than skipping about throughout the Act. This means there is a bit of repetition (especially in relation to what sort of remedies are available through the Tribunal), but it is in the cause of making the Act more user-friendly.

In case it is thought that somehow New South Wales real estate has some unique feature which necessitates extensive regulation, it is notable that no other category of real estate in this state bears the same compliance burden as bedevils residential tenancies. For retail leases, the governing statute comprises some 156 sections (and no Regulation); for farming leases, the relevant legislation comprises 45 sections (with a Regulation containing 8 clauses). For other commercial property, no specific legislation has been enacted.

OK, we were being polite before, but it has to be said: this is a ludicrous measure of 'compliance burden'. Comparing consumer protection legislation with commercial legislation doesn't make much sense either.

A would-be landlord confronted with a choice between owning a property where recovery of water consumption depended, on the one hand, on agreement between landlord and tenant, and on the other hand on numerous factors including not exceeding a prescribed rate of water flow from taps (with one leaking tap at the commencement of a lease disentitling recovery) may think twice about becoming a residential landlord.

The water provisions are actually a lot easier for landlords than the REI makes out. It's all in the Reg (presuming the draft Reg is implemented): if the tenant is to pay for water, make sure there's no leaking taps and that the taps run at a maximum of nine litres per minute. Pretty simple. Sorry, but if you cannot operate a tap and a stopwatch at the same time, or find someone else who can do this for you, you really should think twice before becoming a residential landlord.

To take a further example of over-regulation, it is doubtful whether requiring a separate information statement to be given to a prospective tenant prior to the tenant entering into the agreement adds anything to the transaction. The residential tenancy agreement is in a standard, prescribed form; that document should be sufficiently clear on its face to render an additional information statement redundant. If it is not sufficiently clear, it should be re-drafted to make it so.

The 'information statement' they're referring to is the Renting Guide. It's been around for years: it used to be a little yellow booklet; a few years ago it slimmed down and is now a slip of paper with some handy phone numbers and basic info on it. It's handy for tenants, utterly harmless for landlords and agents. Is the REI seriously saying that would-be property investors are baulking when they find out that landlords have to give out the Renting Guide?

It is vital that the changes to residential tenancies legislation be monitored and reviewed to ensure that the new legislation does not impede the effective operation of the sector. If that review were only to occur after five years as contemplated in the new Act the results for the rental market would be potentially disastrous. Any review must occur sooner, and must include meaningful consultation with all stakeholders.

Wait a second - is that it? The water provisions and the Renting Guide? If this is all the REI can offer in support of their argument for an early review of the new Act (lest 'disaster' result), Fair Trading might feel well-pleased with its legislation.

Fortunately, we can offer a few more reasons to keep the law under review: the completely unsatisfactory state of the law for marginal renters, such as boarders and lodgers, who are excluded from residential tenancies legislation and have common law contracts only; the need to improve standards in rental housing, especially in relation to electrical safety switches and child-safe windows; the need to give tenants greater peace of mind and security through abolition of 'no grounds' termination notices....

In the meantime, we look forward to agents doing their own bit to reduce over-regulation by dumping all the additional terms from their tenancy agreements.

Next: point 3.

Saturday, November 6, 2010

Agents get real (part 1)

The Real Estate Institute of NSW has just issued a new statement on tenancy law reform: its 'Real Tenancy Policy'. Whereas previous commentary by the REI on tenancy law reform was, with respect, somewhat shrill, this new statement shows promise.

We'll review it in detail in this and subsequent posts. The Real Tenancy Policy is reproduced below in blue; our comments are in black.


REINSW seeks amendments to the existing regulatory regime for residential tenancies to strike a proper balance between the legitimate interests of residential investors and the provision of proper safeguards for residential tenants.

Fair enough. We'd like residential tenancies law to strike a balance too. Of course, you have to keep in mind that the landlord-tenant relationship is unbalanced from the get-go, with landlords having the upper hand.

After all, it's always landlords and their agents who ask to see prospective tenants' references, bank statements and payslips, and run them through tenancy databases - never the other way round. Similarly, during a tenancy, landlords can generally enforce tenants' obligations by threatening to end their tenancies; tenants, however, can rarely make such threats effectively, because of the cost they bear (financial and emotional) if they end it and move. Compared to other types of consumers, tenants find it very difficult to shop around and take their custom elsewhere, and landlords feel very little pressure to compete with other landlords.

This means tenancies law strikes a balance when it is consciously directed to strengthening the position of tenants.

The REI goes on to propose that striking a proper balance involves three things. Here's point 1.

[1] Removal of unnecessary impediments for residential investors

“Everyone shares the right to a decent standard of living. Essential to the achievement of this standard and therefore to the fulfillment of human life beyond simple survival is access to adequate housing. Housing fulfills physical needs by providing security and shelter from weather and climate. It fulfills psychological needs by providing a sense of personal space and privacy. It fulfills social needs by providing a gathering area and communal space for the human family, the basic unit of society. In many societies, it also fulfills economic needs by functioning as a center for commercial production.”

We like this quote very much. The REI cites a human rights NGO as the author and, seriously, good on the REI for taking a look at their business - rental housing - from this perspective. Hopefully it's a perspective they'll be bringing to the training they do with their members. All agents and landlords should spend a little time reflecting on it.

In New South Wales, residential accommodation plays a key role in maximising access to adequate housing. There are currently some 800,000 residential rental properties in New South Wales, of which approximately 82% are held by private landlords (as distinct from social housing). The vast majority of landlords rely on the services of licensed real estate agents to let and/or manage the property on their behalf. Just under one third of the population live in rented premises.

All true – lots of people rent.

The past two decades in particular have seen a broadening of the available opportunities for investment of capital. The advice that “the best and safest investment is bricks and mortar” is no longer followed as frequently as it was last century.

Hang on a second - let's just have a look at some measure of investment in rental 'bricks and mortar' over the past two decades
(albeit Australia-wide measures, not just New South Wales). First, let's look at the number of persons making this sort of investment. As we said, lots of people rent, but over the last two decades, lots and lots of people have become landlords. Here's a graph from the ATO and Morgan Stanley, via the Unconventional Economist:

(Rental Property Investors as a Percentage of Tax Payers)

Yes - over the last two decades the number of Australian landlords has almost tripled!

And they've sunk an awful lot of money into housing. Not including whatever savings they've put into their investments, here's what they owe:

(Source: RBA Table D2 Credit Aggregates: Credit - Investor housing (non-seasonally adjusted))

Today's figure is $344 billion, and it's never been higher. Over the last two decades, then, about a million people have gotten into rental property investment, borrowing about $334 billion to do so.

Back to the policy.

Investments in shares or financial derivatives do not generate the positive financial by-product of providing accommodation for families.

Hang on here too. It's true that building a house is a productive and beneficial thing to do – much more so than speculating in the fictitious financial creations of contemporary casino capitalism. But how many of those property 'investors' actually produce houses - that is, build something new, rather than just buy something that already exists? A landlord buying an existing dwelling does not produce housing: at best it 'produces' rental housing at the expense of owner-occupied housing. The graph below shows how much money property investors borrow every month (so it's not aggregated like the graph above) and what they spend it on: whether they pay for new houses to be built (productive), or simply buy a house that already exists (non-productive).

(Source: RBA Table D6 Lending Commitments- All Lenders: Investment housing. $ million, seasonally adjusted.)

So, let's be clear: most of those 'investors' aren't really 'producing' any housing and, if you cast your eye back to that ATO/Morgan Stanley graph, you can see that most are not producing an income for themselves either - they're losing money. This means, of course, they're in it for capital gains. Sorry, but buying existing properties in the hope of later selling them for more is speculation, not productive investment.

Government should, at the very least, not take steps which actively discourage availability of housing stock. The adverse effects on the availability of accommodation as a result of the changes to the tax treatment of negative gearing interest expenses between mid-1985 and September 1987 should never be forgotten.

There's a couple of things to say about this. First there's the implicit comparison of tenancy law reform to tax law reform - that is to say, the REI is suggesting that tenancy law reform, like tax reform, can affect investment and the availability of housing. This is an apples and oranges comparison. Whenever anyone has researched the investment of decisions of landlords, economic factors, such as the tax treatment of housing, dominate their decision-making. Tenancy law, by contrast, barely rates a mention.

Secondly, the implicit connection between negative gearing and housing stock doesn't stack up either - as the graph of the RBA's Table D6 shows, so much of that negatively geared investment is in houses that already exist. True, if we were to scrap negative gearing we might expect that many of the current lot of speculators might want to get out of the market - but they won't dismantle the houses when they go. And we might expect to that fewer 'investors' would be so keen to pour so much borrowed money into the market for existing dwellings, giving would-be owner-occupiers a break... there's a thought.

Thirdly, the REI implicitly invokes the rent increases that occurred when negative gearing was restricted in 1985-87. But is there actually a causal connection? Another graph from the Unconventional Economist (and the article there is an excellent short analysis of negative gearing) shows that this is not clear at all. True, Sydney's rents did go up strongly at that time (the period is indicated on the graph by the two vertical dotted lines), and so did Perth's, but not the other capitals'.

(CPI Deflated Rents Index, 1972-2008, with focus on the period of the restriction of negative gearing, 1985-87)

Probably better to say that the effects of changes to negative gearing should never be misrepresented or misunderstood.

We'll return to points 2 and 3 later.

Wednesday, November 3, 2010

Sandy Duncanson Social Justice Fund

In June this year, tenants, advocates and activists lost a fine friend when Sandy Duncanson, the principal solicitor of the Tenants' Union of Tasmania, died. He was 37, and had survived cancer for 16 years.

(Sandy Duncanson)

Happily, the memory of this brilliant fellow continues to do good work through the Sandy Duncanson Social Justice Fund at the University of Tasmania. The fund will provide bursaries to students to help them further their studies and social justice causes. The fund is open for donations – please consider making a contribution through the University of Tasmania Foundation.

Monday, November 1, 2010

And the winner is...

And now, the answer to our quiz:

How many private market tenancies have been created under the soon-to-be-repealed Residential Tenancies Act 1987 (NSW)?

The envelope please, Dr Mowbray...

... and the answer is 5.7 million, which means Brown Couch reader Leo PR is the winner!

Leo's guess – 5.5 million – is just 3.5 per cent off the right answer (as determined by Dr Mowbray and the good people who prepare the Rent and Sales Report), which makes him both a very canny judge of the private rental market in New South Wales and a very worthy winner of our prize, a copy of the 1990 horror-story-for-landlords, Pacific Heights.

Congratulations Leo, and thanks everyone for playing.