Freud on the Brown Couch

There's a couple of interesting pieces in the opinion pages of today's Sydney Morning Herald. Please do have a look.

First, Damon Young takes apart the cliche of the 'dream' of homeownership, observing that the high cost of owning is an oppressive nightmare for many. Life-long renter Sigmund Freud, who knew a bit about dreams, preferred to spend his money on things that made his home-life beautiful, rather than interest payments.

(Sigmund Freud, tenant)

Secondly, in a letter to the editor Marco Fante of Katoomba has put together just about the neatest critique of the Australian housing bubble - and recent comments on the problem by Reserve Bank Governor Glenn Stevens and Prime Minister Kevin Rudd – that you'll find expressed in less than 200 words.

The bubble is there, but it has been with us for nine years. The higher cash grants have merely sustained an already inflated market. As reassuring as it is to see these misgivings emerge among banks, it seems to be a case of too little, too late.

The concerns of Mr Stevens about land values are well-founded, but supply factors do not come close to accounting for the near trebling of house prices in the earlier phase of the boom (when the word bubble was rarely heard).

The bubble may eventually burst or slowly deflate, but the lasting improvement in supply and affordability Stevens wants to see will never eventuate as long as government policy encourages speculative investment in established homes.

In his recent 6000-word essay, Kevin Rudd promised a tax system "that encourages productive investment". His Government could begin by reconsidering the largesse that successive administrations have heaped on the housing market in the form of grants, negative gearing and capital gains tax concessions.

The least it could do is ensure that the bulk of these benefits are directed toward those who would build new dwellings rather than those who gamble on the price of existing properties.

Well said, Mr Fante!

Furthermore...

Brown Couch reader and legendary tenants advocate, Robert Mowbray, has dropped me a line in response to last week's post about the Landlord and Tenant (Amendment) Act 1948. You'll recall that I mentioned that so-called protected tenants under that Act have great difficulty getting repairs done, and that landlords sometimes let their properties go to ruin in the hope of establishing one of the grounds for termination permitted by the Act (usually referred to as 'ground (m)'). Dr Mowbray and the Older Persons Tenants Service (OPTS) have recently been dealing with such a case. Here's a snap of the view from out of the tenant's ceiling.

(Used with permission of the tenant.)

In this case the tenant, 'Gladys', has occupied the premises for some 60 years, and lived on the same street for all of her 94 years. Because of its restrictions, premises subject to the 1948 Act ('controlled premises') are bought and sold at a significant discount, so Gladys has had a succession of landlords over the years, each, presumably, hoping that one way or another she'd shuffle off and thereby leave the owner with a handsome windfall. And, with the hole in the ceiling opening up and the need for reconstruction growing, 'ground (m)' looms.

I'll let Robert finish the story: he's written it up for the next article of 'Around the House', the newsletter of Shelter NSW. Do join up and get your copy. And if you or someone you know is a very long-standing private tenant (ie in the same place since before 1986), please consider getting in touch with OPTS to see if the 1948 Act might apply.

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And further to another recent post – our study of Friz Freleng's 1950 Room and Bird and its significance for landlord-tenant-pet relations – readers of the Brown Couch will be pleased to learn that agent-baiter par excellence David Thorne has recently corresponded with his landlord's strata manager about an alleged dog. Not to worry, writes Mr Thorne:

I am currently soundproofing my apartment with egg cartons as I realise my dogs can cause quite a bit of noise. Especially during feeding time when I release live rabbits.

Do follow the link and read the whole correspondence. He should write for the cartoons.

Rent and Sales Report No 88: rents flat

The latest Rent and Sales Report is out and, like last quarter's report, it shows that median rents for new tenancies have more or less flattened.

For the June quarter:

Sydney, inner ring: up 1.1 per cent

Sydney, middle ring: no change

Sydney, outer ring: no change

New South Wales: up 1.5 per cent.

As usual, with the arrival of a new Rent and Sales Report (itself an excellent publication) comes silly reporting. Contrary to the analysts at Yahoo!7 News, I don't think these data 'signal the end of the affordability crisis.'

The flattening of rents is the achievement of the recession, and nothing's affordable if you don't have a job.

I think the recession has done this work on rents by moderating demand, and this has been done through a number of different mechanisms:

1. Not so much bidding up, and more bidding down. I think it's fair to say that applicants for new tenancies are, overall, less confident about their employment, so may be making lower offers for vacant properties, or at least not bidding up asking rents. I expect, too, that agents may be anticipating this and moderating their asking rents.

(I expect similar things are happening in established tenancies, too (remember, the Rent and Sales Report refers to new tenancies, not established tenancies): when landlords are serving rent increase notices, more tenants are negotiating them down (eg 'things are tight, not getting as many shifts, can't afford it'), and landlords are anticipating this.))

2. The 'Packed to the Rafters' solution. Would-be applicants who are even less confident about their employment are not applying for tenancies. Younger persons are staying home with their parents. Renters who are living in share-houses are not moving out on their own. Some who have been renting are moving back in with parents, or into share-houses, and this is freeing up rentals.

(Packed to the Rafters - the 7 Network's heart-warming hit show about the unaffordable housing crisis.)

I suspect there's also a factor at work on the supply side, too, but it's difficult to say anything confidently because of deficiencies in the short-run data about rental housing supply (ie the vacancy rate). At a guess:

3. Unoccupied dwellings coming onto the rental market. As previously observed, Australia has a huge reservoir of unoccupied dwellings. I expect the owners of a few of these dwellings are now thinking if they should do something productive with them – like rent them out and actually derive an income from them.

And finally, we can anticipate that another factor might be put forward on the supply-side: the First Home Owners Boost. But I don't think so – a lot of the Boost will have gone to purchases of existing properties that might otherwise have been on the rental market, so even as a new first home owner frees up a rental property (assuming they have not been practicing the 'Packed to the Rafters' solution), they also often take up another. To the extent that the Boost has gone to new dwellings, it could free up more rental properties, but plenty of those new dwellings would not yet be ready to be occupied and, as I say, I expect it is the smaller component of the Boost program.

The Landlord and Tenant (Amendment) Act 1948

Submissions have just closed on the proposed Landlord and Tenant Regulation 2009. It sounds grand, but neither the Regulation nor its parent, the Landlord and Tenant (Amendment) Act 1948, will ever touch the very great majority of landlords or tenants in New South Wales.

The 1948 Act is the last remaining piece of rent control legislation in the State. Most people are aware of 'rent control' only through American TV shows, and over the past few years of painfully high rents I received numerous calls for journalists and others wondering if we too should implement such a system. In fact, New South Wales has had rent control, on and off, since 1912. The 1948 Act still stands, but over the years it has been amended to progressively limit its application, so that only a relative few long-standing 'protected tenancies' (no-one knows how many, maybe a couple of hundred) are still subject to its provisions. No new protected tenancies have been created since 1986.

The 1948 Act is based on national rent and price controls implemented in the Second World War, and for 'controlled premises' (strictly speaking, the Act applies to premises, not persons or tenancies), rents are limited to 'fair rents', as determined by a Fair Rents Board, which may be considerably less than the market rent. (It might be noted that this is much tougher on landlords than the rent increase reforms proposed by the Tenants' Union in relation to the Residential Tenancies Act 1987.)

The corollary of rent control is, so to speak, eviction control, which is another purpose of the Act (they go together: you can't keep rents down if landlords can readily replace a tenant with someone who'll pay more, and you can't keep tenants in place if landlords can increase the rent prohibitively). Protected tenants can be evicted only on certain prescribed grounds (again, this is generally much more restrictive on landlords than the reasonable grounds for termination proposed by the TU). The 1948 Act also provides additional protections for certain classes of protected tenants ('protected persons' – mostly persons with a connection to the armed forces, reflecting the wartime origins of the Act), who are even more difficult to dislodge than other protected tenants.

Landlords, of course, hate the 1948 Act. (In fact, the policy behind the Act is not so much pro-tenant as pro-owner-occupier: it was one factor – along with war service home loans, subsidies to building societies and public housing sales – for the strong increase in the rate of owner-occupation through the 1950s and 1960s.) And it's not entirely a picnic for tenants either. It's very difficult for protected tenants to get repairs done, and many landlords deliberately let their controlled properties go to ruin in order to establish one of the grounds for eviction (if the tenant has not moved out along the way). Protected tenants also often have to put up with landlords' attempts to oust them from the protection of the Act by trickery (eg getting the tenant to give possession back to the landlord on the pretext of having repairs done) or outright harassment (eg cutting off the power).

And anyone who cherishes clarity of legal drafting is going to have trouble with the 1948 Act too. Have a read of it, if you dare – it can permanently change you. The litigious landlord and outlaw lawyer Peter Clyne, having 'worked with it, sneered at it, ranted about it and begged a succession of governments to give it the coup de grace', confessed to having grown to like 'this exciting and damnable statute':

Like the dark lady of one's dreams, it is a stimulating statute, full of warm little corners of dark mystery where no amount of illumination will ever spread light – pulsating with mini-wars, an intellectual challenge to the confident, and a source of comfort to the underconfident. They can sharpen their teeth on the orgies of obscurity with which the courts, attempting to interpret my friend, occasionally enlighten us. After all, if you can understand the High Court's decision in Allen v Belmore Property Co Pty Ltd (114 CLR 454), you have passed your baptism of fire, and should be able to understand anything.

We don't hold it out as a model for contemporary tenancy law, but the TU likes having the 1948 Act on the books too, and for a proper reason. The persons to whom it applies made their housing arrangements on the basis of the Act long ago. They should not be disturbed now.

Anyway, back to the proposed Regulation. It's basically an update of the previous Regulation, so the TU supports it... except in one respect. The proposed Regulation omits a definition from the previous Regulations, and the effect of the omission is to remove from the status of 'protected persons' (ie those with additional protections against eviction) veterans of the Malayan Emergency of the 1950s, and their dependents. The TU, therefore, submitted that the definition should be retained, and any protected tenants who are veterans of the Malayan Emergency, or who are the dependents of Malayan Emergency veterans, should keep their status as 'protected persons' under the Act.

(As I said, the Act has a way of getting to you.)