Landlords: always in control?

Last night Triple J's Hack program aired an interesting segment about Australia's relatively weak renting laws. If you missed it, you can find the podcast here.

The segment was inspired by a recent Choice Magazine report, which is published on pages 34-37 of the current edition (May 2013). Its focus is on the unusual provisions common to Australia's renting laws (other than Tasmania) that allow landlords to end tenancies without having to explain why. As the Choice report explains, "of the 34 OECD (Organisation for Economic Cooperation & Development) countries, Australia is one of the few that allows "no-grounds" evictions. Plus, renters are forced to accept short leases and very few restrictions on rent increases."

We've talked about how Australia's renting laws compare internationally before, and the TU's Senior Policy Officer was quoted in the Choice report, so we're not exactly surprised by what they had to say. But the discussion around this report on Triple J's Hack - which has spilled over onto its Facebook page - has been most interesting indeed. Many tenants have confirmed that asking for things like repairs and maintenance does actually make them nervous. And many landlords have jumped in to defend themselves. Of course, everyone has their story...

But there are a couple of running themes within this discussion that are worth a closer look. The first comes from a comment made by the Real Estate Institute of Victoria's Robert Larocca during the set piece in Hack's report. Larocca says that the abolition of terminations with no grounds would be a "problematic move for the people we expect to be putting their property out there for rent", and that landlords should have the right to recover a property without a reason. "After all," he says, "this represents the fact that the property belongs to somebody else, and they need to be able to work out what they want to do with it."

This begs the question - what, aside from rent it out, can a landlord do with property? There are two easy answers to this: they can sell it (and cash in on its value), or they can leave it vacant (and forego rental income). Whether or not they do either will depend on how much they owe the bank, the price they can get for the property, and whether they can afford to meet the cost of keeping the property without the help of a tenant.

The other common theme is the rather odious idea that landlords are doing us all a favour by speculating on property prices. The argument runs a little something like this:

I work hard for my money

And I bought a house

And rented it out

(So that I could make more money)

But if tenants have too many rights

(And cost me too much money)

Then people like me will stop.

Where will you all be then?

Of course, these are really just two expressions of the same theme. Property investment is not about building houses, it's about building wealth... and landlords in Australia reserve the right to dispose of any tenant who stands in the way of wealth.

Being able to evict a tenant without explaining why allows landlords to end tenancies that are costing too much money (eg because the tenant keeps asking for repairs, or kicks up an almighty fuss any time the rent goes up); or that stand in the way of capital gains (eg because the landlord wants to sell, but having a tenant in place might turn off potential buyers).

Landlords usually avoid selling properties unless they stand to make a profit, even though it costs a lot to keep one in the meantime. Many can't actually afford it year to year, but due to the generosity our governments show them they press on, copping incredible losses as they go. They're hoping that sooner or later someone will come along and offer to buy the property for more than it cost them to purchase it in the beginning - notwithstanding that they've probably done nothing to add any value to the place themselves - in order to recoup their losses and make a little extra on the side. But, if that happens, and the new buyer wants to move in, landlords can issue a notice of termination on the grounds that they are selling* - they wont be hindered in explaining that they wish to end the tenancy in order to realise a capital gain (or indeed, a loss).

So, let's assume for a minute that landlords don't insist on the right to end tenancies without explanation because they hope to sell at a profit. Where does that leave us? Quite simply, it leaves us with landlords reserving the right to avoid the cost of being a landlord. Because, as the Choice report says, a tenant who knows how easily they can be forced to move is less likely to ask for money to be spent on the property by way of repairs, or complain about a hefty rent increase, etc. It is ironic, of course, that sometimes landlords will make good on this ever-present threat. Ending a tenancy without grounds will usually end up costing just as much money as it saves - perhaps even more - due to the costs and losses associated with finding a new tenant. But still, it happens.

Presumably, landlords don't like to see it this way. Nobody likes to be told they are miserly or mean, which is kind of fair enough. There are any number of ready-made justifications for cutting ties with a tenancy - and you'll see quite a few of them on Hack's Facebook page. Everyone has their story.

As we've already acknowledged, being a landlord is a costly business. Like any speculative investment, it's a risky one, too. A lot of landlords have borrowed too much to pay for their investment properties, on the expectation that prices will always go up. No wonder so many flinch when the hot water service goes bust and needs to be fixed urgently, or when a tenant takes ill and can't pay the rent for a couple of weeks... All of a sudden that pathway to wealth becomes an albatross around a highly indebted neck.

Perhaps the "no grounds eviction" trump-card is simply a way for landlords to remind themselves that, no matter what happens, they are always in control.

* As long as the tenancy is not for a fixed-term, and vacant possession is required as a condition of sale - see our Landlord ends agreement factsheet for more information.