Renting with pets: a canary in the coal mine

To keep, or not to keep a pet? Ever since we raised the issue in our contribution to the review of NSW renting laws, debate has raged about whether this should be a decision for investors or homemakers to make. Unless you've got a particular love for, or an aversion to animals yourself, the side you come down on will perhaps be influenced by whether you spend your time talking to landlords or tenants.

Our views on this issue have been clearly and firmly put, and are a matter of public record. Today we're going to step back a little to explore what this discussion tells us about the state of our housing market. Our conclusion is that the "renting with pets" debate is a study in all that is wrong with our housing system, and a clear indicator of why it needs to change.

There are two stories to tell here. The first is how the private rental market has become the long-term landing place for a growing number of Australians looking to establish a new home, with limited prospects for debt-free home-ownership in the lifetimes of many. The second is how the residential property market remains dominated by small-time investors who are not motivated by the needs of householders, nor any broad sense of social responsibility, but by capital gains.

In New South Wales, there were 83,870 more rented dwellings at the 2016 Census than there were in 2011. Compare this to owner-occupied dwellings, which grew by 35,362 over the same period - with 19,649 more owned outright, and 15,713 more owned with a mortgage. The number of unoccupied dwellings grew by 19,403, which means any new dwelling built in the last five years, or established dwelling that changed hands during that time, is more likely to have become a rented home than anything else.

Of the 2.15 million renters in New South Wales at the Census, almost 90% were in the private rental market relying on so-called "mum and dad" investors for a place to call home. That's up from about 83% in 2011. The lion's share of renters are aged between 20 and 40, and a quarter are aged between 40 and 65. 41% of renter households are families with children, making them the single largest group of renters, while 20% are couples making a home together. 27% of renters are single and living alone, and 9% are sharing with others. Many would like to bring a pet into their homes.

Analysis from the 2011 Census confirmed that a growing number of households are renting for ten years or longer - not necessarily in the same home - and we expect to see this pattern continue as academics and researchers crunch the 2016 data. The proportion of dwellings that are owner-occupied is in slow decline, but those that are rented is rising more sharply, showing that fewer renters are now exiting the market to take on home ownership.

Critically, the number of people taking on debt to achieve home ownership has tapered off quite considerably. The growth of homes owned with a mortgage has slowed in each Census period since 2001. Compared to rented dwellings, for which that sharp rise has been recorded, this growth has been particularly slow in the last five years.

The number of homes owned outright has recorded similarly slow growth, which provides an ominous sign for the growing ranks of long-term renter households - even if you do manage to buy a home some day, chances are you'll never pay it off. In a nation that has defined itself as egalitarian and propertied, that's a source of frustration in its own right. Add the lack of agency Australia's renter households have over basic questions such as whether to plant a tree, paint a wall, or keep a pet, and it's easy to see why the "renting with pets" issue continues to flare up. For those who would write these frustrations off as mere indulgence, bear in mind that for the large numbers of tenants who are grown-up, pursuing long-term relationships and raising families in their rented homes they are simply the issues of the day. In another ten or fifteen years from now we may well be wondering why our aged-care and retirement systems - designed with a home-owning population in mind - have simply collapsed in a heap around us, but for now the "renting with pets" debate is a clear sign that all is not well and those most affected are not going to forget it anytime soon.

On the other side of this equation are our landlords, who by definition do not find themselves in the position of having "missed out" on property ownership. It's a little harder to get a handle on them, but we can use statistics from the Australian Tax Office to paint ourselves a picture. The last data we have available is from the 2014/15 financial year, and it tells us that the vast majority of Australia's tax-paying landlords own only a single rental property or two.

They're mostly one-off or small-time investors, "mums and dads" who are more interested in property for its capacity to generate wealth than providing homes for families. They'll hang onto a property for maybe five years or so then sell it, banking the gains or putting them towards their next investment. For the most part, Australian landlords are not interested in building large portfolios, and they don't want to concern themselves with the day-to-day workings of property investment. They tend not to engage with things like renting laws, tribunal procedures, or tenants' rights unless they have to. Many are happy to ignore these aspects of investment altogether, handing them all over to real estate agents who know only too well they won't have anyone looking over their shoulder as long as the rent rolls in and the outgoings stay under control.

Because they're not building economies of scale, landlords tend to stick to a simple and rigid formula. The tax data also shows that while they're holding property, almost two-thirds of Australia's landlords are operating at a loss.

They do this because they can count their investment losses against non-investment income, such as salaries and wages, for income tax purposes. By running at a loss, landlords can reduce their day-to-day tax liabilities, masking the expense of holding property. They also expect property to go up in value, providing tax-discounted windfalls when they sell. In a sense they're gambling - losing a little money today in the hope of making it all back and more in the future, and our tax system encourages this through negative gearing and capital gains tax discounts. But in the meantime the majority of Australia's landlords are still running at a loss, which makes them highly sensitive to unanticipated expenses.

For many, this sensitivity is built into their investment strategy, such that they will be overly concerned with the type of household they will rent their property to - and just as importantly, who they wont. Tenants with pets are seen as a risk, even though they are clearly liable under renting laws for any damage their pets might cause. Our renting laws are less clear on whether a landlord can over-rule a tenant's decision to keep a pet, but many take this as a given. It is common practice for tenancy agreements to include a "no pets" clause at the insistence of the landlord or their agent.

The "pets and renting" debate helps us identify key changes we need to make to our inequitable housing system in order that it may provide greater equality of experience. At the federal level we need to rethink the way property is taxed, and find ways to foster a view of investment that delivers homes for families rather than just bricks and mortar. At the state level we need to revisit renting laws, and give tenants greater agency over the decisions they may make, and the responsibilities they take on, as householders.