Wednesday, March 8, 2017

News from down the Hume...

The Victorian Government has shown plenty of good form of late, kicking goals by announcing a suite of new housing policies: funds for social housing, new supply, first home buyer grant boosts, stamp duty exemptions, shared-equity schemes, a vacant property tax and long fixed term tenancies! Ticking all the boxes, right? Could this be the game changer Victorians have been waiting for, and should New South Wales promptly follow suit? Or is it yet another case of a government dropping the ball on housing?

Let's take a look.

Reform, growth and better outcomes for social housing
Announced late in February, this includes the establishment of a $1billion Social Housing Growth Fund as part of a collaboration amongst "government, the private and philanthropic sectors", an additional loan scheme to give community housing landlords access to cheaper finance, the transfer of some 4000 properties from public housing to community housing management, and a commitment to push the federal government not to abandon the National Affordable Housing Agreement.

What does this mean?
There has been a long and steady push across Australia, over many years, to move away from Government owned and managed social housing - or what many of us might once have called "public housing" - and place it in the hands of the non-government sector. This is reflected in the National Affordable Housing Agreement and the relatively recent establishment of a National Regulatory Scheme for Community Housing. It explains the continued rise of the Community Housing sector.

Governments are spending less and less on the construction of new public housing, and hoping more and more that the non-government sector will partner with private interests to build and manage it for them. As these partnerships develop, large swathes of our governments' existing public housing stock is being transferred over to Community Housing landlords to manage, and in some cases title has also been transferred. In other places, public housing is being demolished and rebuilt, with Community Housing landlords and private developers dividing up the new stock between them.

Should NSW do this?
Growing the social housing sector by supporting and funding Community Housing landlords makes sense, but it shouldn't come at the expense of our existing public housing system. In New South Wales the horse has already started to bolt. We've got a long history of transferring properties from the Land and Housing Corporation to a range of registered Community Housing landlords, and we have plans to transfer about another 18,000 towards the end of this year. We've established our own Social and Affordable Housing Fund, which looks remarkably similar to the Victorian model, that is intended to give Community Housing landlords access to a guaranteed revenue stream if they build and manage new social housing dwellings without the help of government.

We don't as yet have a guaranteed low-interest lending facility for Community Housing landlords, and our Government has made no public commitment to the National Affordable Housing Agreement. Given the direction our social housing policies are taking, these would both be good things for New South Wales to do.

Unlocking new communities and affordable housing
Also a late February announcement, this is essentially a rezoning package that will allow new residential housing to be built across the outer suburbs of Melbourne. It comes with a commitment to build 100 new social housing dwellings, and makes reference to experimentation with "inclusionary housing".

What does this mean?
New supply means more affordable housing, right? Well, taken on its own that's not always the case. This was explained quite well in a recent article by Peter Phibbs and Nicole Gurran in The Conversation - well worth a look if you haven't already seen it. Essentially, housing markets are not like other markets, where supply and demand are said to impact upon one another in predictable ways. With housing, bringing new supply online tends to coincide with rising prices, because it is rising prices that stimulates demand.

The Victorian Government's mention of inclusionary housing here is interesting. We expect this would require developers to set aside a proportion of any newly constructed housing for Community Housing landlords to manage as affordable rental housing. This usually means setting rents at around 80% of market value, and renting to low income workers. It's not clear what the impact of rezoning and redevelopment would be on rents in affected locations, though, but we can expect them to go up because affordability will be set against the value of newly developed, higher value homes. Thus "affordable housing" rents might actually not be as as affordable as we'd have hoped.

Should NSW do this?
Any discussion about housing affordability should place a strong focus on increasing supply - this is especially especially true for policies at state and local government levels. This is reflected in a number of rezoning and urban renewal discussions around Sydney, such as for Arncliffe and surrounds, the Central to Eveliegh corridor, Sydenham to Bankstown, the Bays Precinct, Riverwood and Telopea, to name a few. As these discussions progress, it is clear that urban renewal and redevelopment must be approached with sensitivity to established communities who stand to lose as much as others might gain. It is also clear that good urban renewal requires well developed transport and infrastructure policies as well as a focus on the design and delivery of good housing options.

The Greater Sydney Commission is toying with small targets for inclusionary zoning as part of its grand new plan. This is great, but it needs to go further. Indeed, our Government could implement an inclusionary zoning scheme that covers even greater parts of the state, so that more affordable housing becomes a feature of every new residential development where it's needed. But, as we've cautioned above, this shouldn't be seen as a solution in isolation because affordability will be set against the value of newly developed homes. Renewal and redevelopment implies bringing higher-value stock into the neighbourhood, and this puts upward pressure on final costs to the householder. It is also not in renters' best interests if new developments are driven by investors' appetite for capital gains, rather than stable housing for families and others who need it.

First home buyer grant doubled for regional Victoria
Announced in early March, the Victorian first home owner grant - or first home builder grant as it might better be known - will double from $10,000 to $20,000 for regional properties from July 1st.

What does this mean?
The grant is only available for first home buyers who purchase or build new homes valued at $750,000 or less. In theory it encourages first time buyers to increase supply by commissioning new construction or buying off the plan - but homes at below $750,000 are getting harder and harder to find. Doubling the grant for "regional" buyer/builders is likely to stimulate construction and development outside of Victoria's metropolitan centres, and give first timers an even shot against investors who are happy to borrow up big and negatively gear. But it's not likely to have much impact in areas where highly paid jobs are hard to come by. It might just end up pushing up prices in parts of the state where housing is still nominally affordable, as the availability of grants are factored into land values and developer costs.

Should NSW do this?
NSW already limits first home owner grants to newly built dwellings, but it doesn't double the grant for regional buyers. The newly announced Victorian scheme does bear some resemblance to the old Regional Relocation Home Buyers Grant, which could be applied to any home 100 kilometres or more from any metropolitan centre in NSW purchased for less than $600,000 (or land under $450,000). It was later amended to apply to homes 50 kilometres or more from a metropolitan centre, to give it a bit of a kick-along. The scheme ended late in 2014 amidst claims that demand for it was weak. Reports at the time confirm this, citing then Deputy Premier Andrew Stonor:
The Regional Relocation Homebuyers Grant - which has no direct tie to employment - has not been as successful as the Skilled Regional Relocation Incentive in stimulating growth and employment in regional NSW and therefore it will not be continued.
So, any inflationary concerns of a first home builders grants aside, it appears attracting first home builders to regional areas is not the best way to develop regional economies. You've got to put jobs there first. Even so, if first home buyer/builders aren't so easily lured from the city to take up an option in the regions, the impact on rental markets in the city will be negligible. On the other hand, rental markets in the regions could start to falter, as local renters move to owner-occupation while increasing supply and creating new vacancies, and this could prompt regional investors to look to city markets instead. Given the majority of investors buy established dwellings rather than newly built homes, and those who do buy off-the-plan buy properties that are not well suited to the needs of renters, this would compound the affordability problems that are already at play for renters in New South Wales' metropolitan centres.

Stamp duty abolished for first home buyers
Also announced in early March, stamp duties will be abolished for Victorian first home buyers on properties valued at under $600,000. Concessions will apply for properties valued between $600,000 and $750,000. Significantly, this will apply to both newly built and established dwellings, while exemptions for investors purchasing newly built homes will be wound back.

What does this mean?
Stamp duties are levied as a percentage of a property's purchase price, on a sliding scale. In Victoria, properties purchased at between $130,000 and $960,000 attract duties of $2870 plus 6 per cent of the value that exceeds $130,000. Thus, a first home buyer purchasing a property worth $600,000 will save around $15,000. Or, as is more likely, first home buyers looking to buy at around the $600,000 mark will feel like they have an extra $15,000 to spend. Set against an investor who is prepared to borrow up big because they can negatively gear, this could help to level the playing field. But it won't make houses more affordable. It will instead bring first home buyers back into the bidding war, with more money in their pockets. As it wont do anything to stimulate new supply, it is unlikely to create new rental vacancies by removing frustrated home buyers from the rental market. They'll most likely be displacing a household and creating new demand for another property anyway.

Should NSW do this?
First home buyers in New South Wales are already exempt from paying stamp duties on the purchase of newly built homes valued at up to $550,000, and concessions apply for newly built homes valued at between $550,000 and $650,000. Exemptions also apply to land valued at up to $350,000, and concessions for land valued at between $350,00 and $450,000. Stamp duties are payable where a first home buyer purchases an established dwelling.

Theoretically the New South Wales exemptions are preferable to those announced for Victoria, because they act as a direct stimulus for new supply. However, property in New South Wales is no more affordable today than it was when these exemptions were introduced in 2012. Stamp duty exemptions and concessions can not rightly be regarded as a housing affordability measure.

Shared-equity schemes
The Victorian Government will set up a new scheme to purchase up to 400 homes and on-sell a 75% stake in them to first home buyers. The scheme will retain the remaining 25% interest in each property.

What does this mean?
There are a number of variables that need to be considered before this can be properly answered - what, aside from equity, does a 75% stake in property get you? Who covers the costs of ongoing repairs and maintenance? Who receives the gain from any capital improvements? Can the property be placed into the private rental market some time down the track?

There's no doubt these questions and more can be answered. There's also no doubt they'll need to be before the scheme can be properly rolled out, and we look forward to seeing the detail. But questions aside, there's still the matter of whether or not it's a good idea. Some have suggested it will encourage home buyers to take on a more expensive home than they might otherwise have considered - or even have been able to afford! - which could have an inflationary impact. We're inclined to agree, but in a policy environment in which house price reductions are never, ever contemplated a well designed shared equity scheme might be about the best a frustrated home buyer could ask for.

Should NSW do this?
There is no comparable program in New South Wales. As we've suggested, we're not entirely convinced it's the best idea ever, but we'll be keeping an eye on it. Again, if it is to have any beneficial effect on the rental market it would need to be directly linked to the construction of new homes.

Vacant residential property tax
The proposed introduction of a Vancouver style vacant property tax has also been announced. This will be a 1% levy on the "capital improved" value of property in Melbourne's inner and middle rings that sits vacant for more than six months in any year. Of course, exemptions will apply, and it will be up to property owners to self-nominate their liability to pay the tax. Exemptions include properties used as a holiday home, those needed for city-based workers who principally reside elsewhere, deceased estates and homes whose owners are temporarily overseas.

What does this mean?
Put simply, habitable properties in Melbourne's inner suburbs, that are left vacant, will attract a new tax. This will encourage property owners to put their dwellings to more effective use, either by selling them or renting them out. But the exemptions may be too broad, and too easily applied, for the tax to have any real impact. Property owners - especially those who do not live in Australia - might be prepared to try their luck and avoid notifying the authorities that their property qualifies for this new tax. Nevertheless, the introduction of a vacant property tax sends an important message.

Should NSW do this?
There is no similar tax for Sydney, and there ought to be. The ideal solution of a broad based land tax that would apply regardless of whether a property is vacant remains our hope, but a vacant property tax is a good step along the way.

Long fixed term tenancies
... and now for our favourite announcement: long term security for tenants and landlords. The Victorian Residential Tenancies Act will be amended so that fixed term tenancy agreements of five years or more are no longer excluded from its coverage, and a new standard long term tenancy agreement will be developed. A website will be developed to help landlords and tenants who want a long term tenancy agreement to find each other.

What does this mean?
Long fixed term tenancies of five years or more are rare throughout Australia, and Victorian tenancies are no exception. The Victorian law reform process seems to have concluded that bringing five year agreements under their renting laws will encourage their use - but actually the opposite is more likely to be true. Not being bound by the provisions of a Residential Tenancies Act means that parties are free to contract with one another as they see fit, and can enter into agreements that are suited to their specific needs. When forming a long term legal relationship as a landlord and tenant, being able to determine who takes responsibility for what, and how proprietary interests are to be shared between the parties without regard to a particular regulatory scheme, should encourage people to negotiate and take on such agreements in much higher numbers. But it has not, which tells us that it is not the prevailing regulatory environment that is hindering the establishment of long fixed term tenancies.

None-the-less, the idea that long fixed term tenancies need to be encouraged by producing "standard long term agreements" that alter the established, legislated rights of tenants and landlords - such as we have recently been discussing in New South Wales - persists. The Victorian announcement suggests a new standard form long term tenancy agreement will be developed in consultation with stakeholders - much as we have been discussing in New South Wales. From what we are hearing, one of the first suggestions to find its way into these discussions is to shift the repairs and maintenance obligations from landlords to tenants - much as we have been discussing here in New South Wales.

Should NSW do this?
Encouraging the use of longer fixed term tenancies is certainly a worthy discussion, but as we've seen it is not really the regulatory environment that will drive them. Our Residential Tenancies Act already covers long fixed term tenancy agreements, and it already allows certain mandatory terms of a tenancy agreement to be waived for fixed term agreements of 20 years or more. But, just like in Victoria, long fixed term tenancies are very hard to come by in New South Wales. Trying to encourage their use by legislating reduced rights and increased costs for tenants who would like one is not something we're comfortable with.

On the other hand, we know that stability and security are critical issues for tenants, so we can understand the appeal of an announcement like this. When people hear "long term tenancies" they probably think "protection against unfair eviction". That's something we'd like to see built into our renting laws, too, and it is possible that long fixed term tenancy agreements could deliver this. But to do that in any kind of meaningful way long fixed terms would need to become the standard, rather than something that could be offered by landlords on a take-it-or-leave it basis. This does not appear to be what's getting traction in Victoria, and it is not what's being considered in New South Wales.

The website is an interesting idea though, and it could be worth setting something up along similar lines and using it to inform any decision about introducing a new standard long fixed term agreement in New South Wales. It would give a clear indication of the demand for long fixed term tenancies, and could also give us some insight into the kinds of terms on which landlords would be willing to offer them. Moreover, it could tell us whether tenants would genuinely accept those terms. For this to be useful, landlords would need to share information and data relevant to the terms they are prepared to offer. For instance, if a long term tenancy is to be offered on the condition that a tenant takes on repairs and maintenance obligations, details of the condition of the property would need to be disclosed. This would include, for instance, an independent assessment of projected repairs and maintenance costs over the course of the agreement.

1 comment:

  1. Hi Ned. Hope to chat about this soon. Very reflective of and germane to my action research outcomes.... Including a similar website idea. Cheers Angela B


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