Tuesday, August 29, 2017

Building to let

The concept of "building-to-let" seems to be gaining some traction as a solution to Australia's housing affordability woes. As the name suggests, building-to-let happens when a developer builds residential dwellings - presumably apartments - with the intention of renting them out rather than selling them off once complete. As circumstances (aka house prices) are forcing many of us to re-imagine the great Australian dream, this is just the kind of blue sky thinking we need.


Imagine...! A landlord who is interested in a relationship with tenants rather than property! Who won't cringe at the thought of picture hooks, curtains, a new light fitting. Who will let you keep a pet, subject to reasonable by-laws. Who won't put the rent up just because everyone else is doing it. Who won't kick you out because they want the place for their kids, or to sell it, or simply for no reason at all.

Just imagine!

Perhaps the reason this would appeal to so many Australian renters is that it is the polar opposite of what our private rental market currently delivers. As we discussed in a recent post, Australia's landlords are
... 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.
Building to let offers a genuine counter to this. At least, it does in theory.

But there's a problem, and it's one of culture. Australia's approach to housing is built on the assumption that you rent when you're young, then you buy a home, and then you buy an investment property. There's been a recent shift in this assumption, at least for some, so that you rent when you're young and then buy an investment property so you might be able to afford a home when you retire.

No doubt the sudden emergence of this build-to-let discussion is an indicator that whatever underpins these assumptions is faltering. That in itself is a very interesting development. But it will take a great deal more to change Australia's values when it comes to renting versus owning your own home for the long term. This is important, because it affects the rules and regulations under which our rental markets operate, and how they might change.

The establishment of "build-to-let" schemes could aide in the evolution of Australia's renting laws, as a new class of landlord emerges with interests that are somewhat less in conflict with tenants' than our millions of "mum and dad" investors' are. On the other hand, pushing against long-established cultural norms may prove all too difficult, or even undesirable, for such landlords. As always, the proof will be in the pudding.

Institutional investment does not mean investment in tenants' interests. For all the good they may do, consider the dearth of support from community housing landlords for a simple proposal to make renting fair: more than eighty organisations from across New South Wales are calling on the Government to end unfair evictions by removing no-grounds notices of termination and expanding the list of reasonable grounds available for landlords to use when a tenancy must be brought to an end - but socially responsible, not-for-profit landlords are notably absent from that list. You might think institutional landlords with a mission to improve outcomes for the households who need it most would be the first to engage with such ideas, but evidently the status quo suits.

So when you read statements from major developers who say things like
I believe, and based on the experience in other parts of the world, institutional grade multi-family housing tends to streamline the process of renting by providing tenants with the stability to live long term in rental property, should they elect to do so, without the risk of the owner selling, greater reaction time to any repairs and maintenance, access to modern properties within sought after locations and security in tenure over the property
Or
Creating a sustainable, affordable housing market in NSW means providing a diverse range of housing options and build to rent could be a viable choice to provide certainty and security of tenure to people who want to rent rather than buy
... without reference to tenancy law reform, it should be taken with a grain of salt. If we can't even get our social housing landlords to commit to improved security of tenure for renters, what hope do we have for the private sector?

Consider comments attributed to Treasurer Dominic Perrottet while discussing the NSW Government's possible support for build-to-let schemes recently, that "finding ways to give renters that security without excessively curtailing the rights of property owners is a fine line to walk". Evidently the build-to-let solution has already surrendered to Australia's established housing culture.

Again, the proof will be in the pudding. We're aware that some developers in Sydney are already building to let - we know this because we sometimes hear from their tenants. What we're hearing are stories of unlawful, non-refundable "pet licenses", and evictions without grounds.

We'd like to see building to let flourish in New South Wales. A genuine market intervention from institutional landlords could be just what many of Australia's long-term renters need. Unfortunately, for the time being at least, it looks like it would be just another sideline for developers.

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