Caution following REI's lead over rent drop

Breathless good news on rental affordability from Tele land this week.

Citing Real Estate Institute of NSW data, the state's favourite tabloid told us that rent in some of Sydney’s blue chip neighbourhoods – including Bondi Junction, Neutral Bay, and Manly – is down by between $25 and $70 per week.

REI president Malcolm Gunning attributed this fall to a ‘glut’ of new apartments released onto the market in 2014. 

A strong second quarter does not a triumph make

But we suggest caution before jumping to any of the same conclusions. Whilst REI data is not freely available to the plebeian blogosphere, it’s worth noting that the basis for the article’s claims appears to be a REI study of the second quarter of 2015 alone. This is a perilously short period of time from which to be drawing any bold conclusions such as these.

What's more, as the second quarter takes place over both a university break and the feared ‘polar vortex’ period, autumn and winter variations for rent in student and waterfront neighbourhoods are also relevant. Indeed, of the ten suburbs cited in the article, six are beachside or waterfront, and two are situated in the immediate vicinity of Sydney University or the University of New South Wales. Bondi Junction arguably fits both criteria.

Remember too that REI data is based on asking rather than actual rents. As we noted recently, this paints a misleading picture of the market. Far more reliable is the equivalent data in the Rent and Sales Report – based on the rent paid in new tenancies, as discerned from rental bonds lodged with Fair Trading (i.e. almost all of them). And published free of the desire to push any particular narrative. 

That, too, is a quarterly publication, with the second quarter edition due in a tantalising 21 days. We will wait on its findings before making any breathless conclusions of our own.

Happy anniversary, Residential Tenancies Act - part 3

Here on the Brown Couch we're still celebrating the 5th anniversary of the Residential Tenancies Act 2010's passage into law - even though it's been more than a month since the actual date. We're excited because this anniversary means the Act must now be reviewed, and while it does have some good parts we reckon it needs more than just a tune-up.

It's a bit of a fixer-upper...

We started our celebrations with a look at the policy objectives or the Act, and we discussed how the New South Wales rental market has changed over the last five years. As it happens, there's a whole lot more of it... more tenants, more rent, more landlords, more debt, more high prices, more tenants, more rent - you get the picture. Now this might come as a surprise to some, such as those who suggested the market might dry up if, for example, landlords had to install water efficiency measures before passing on water usage costs to tenants. But it's no surprise to us.

And it's no surprise that tenants aren't doing as well as others out of it, either, given the architects of the Act set out to 'balance' the interests of those looking for wealth in the rental market with those who live in it. If such a balance is possible, or even desirable, it hasn't been achieved, and the New South Wales rental market remains a dangerous place to live. This can be fixed.

When the Act is reviewed, this question of balance needs to be revisited. Increased investment amid rocketing house prices over the last five years should give the NSW Government an incredible amount of comfort that shoring up the position of tenants will have no impact on landlords' appetite for more. Landlords will always occupy a position of relative power in their relationships with tenants - they own the property, they call the shots. Our renting laws should be designed to protect tenants from the careless, reckless or deliberate exercise of that power to their detriment, at the same time as ensuring they take responsibility for their own detrimental acts or omissions within this relationship. That's less about balance, and more about acknowledging how the power imbalance actually works.

There are a couple of key points where the Residential Tenancies Act completely fails to do this, and these should be the focus of its review. Most notably, the Act allows landlords to end tenancies without a reason, which makes the rental market extremely insecure for those who live in it. It also makes tenants very wary about how and why they approach landlords on questions of repairs and maintenance, or whether a rent increase is justified, or perhaps even how often they've been coming around to check up on the place...

The Tenants' Union says we should make ending tenancies without a reason a thing of the past. This will be very easy to do, by replacing the 'no grounds' provisions in the Act with a number of grounds on which landlords might genuinely need to end a tenancy. The question should be whether the landlord has a valid purpose that genuinely requires the property to be vacant, because displacing an established household should require nothing less than a good reason.

Then there are the provisions about repairs and maintenance. Currently, the law lets landlords off the hook too easily for failing to carry out repairs. Tenants can observe this in two ways: first, when they try to get repairs done; and second, if they try to end their tenancy because repairs are unsatisfactory. The problem is that landlords can avoid their repair obligation by showing they have acted with 'reasonable diligence' - which may sound fair enough on a first reading, but what it does is actually not fair enough at all. It moves the question of what the landlord has done to repair something away from the question of what else they could be doing, and places it instead within the question of whether there is a need to fix something at all. The Tenants' Union says this can be made better by moving the 'reasonable diligence' considerations to the question of remedy, rather than breach, when a tenant asks for repairs.

And of course, there are issues around how and when landlords can increase rents. We've been involved in quite a bit of talk about these issues of late, as have others. The law allows landlords to increase rents almost at will, leaving it up to tenants to put the brakes on rent hikes by showing them to be excessive. The Tenants' Union says this is not reasonable, as it is more often the case that landlords will have access to the kind of information needed to show such a thing. Instead, landlords should be required to show that a proposed increase is not excessive, if it is to exceed the consumer price index. For proposed increases that are below this index, it could remain up to tenants to show how they are excessive.

There are several other aspects of the legislation that should be given a seriously close look during the course of the coming review. These include the coverage of the Act, which expressly excludes a number of renters on the basis of the type of accommodation they rent, or the kind of agreement they have - and for most of these marginal renters there is no other statutory regime to give them consumer rights, or giving the Tribunal jurisdiction to mediate disputes with their accommodation providers. Included in this category are a growing number of share-house residents who might believe themselves to be tenants - and for whom the substance of their agreement with a head-tenant may give rise to such a belief - only to be left out of the Act because they have not committed to their agreement in writing. This needs to change.

Finally, there are the new provisions that regulate the use of residential tenancy databases. These are generally good, but they have left a few small gaps that need to be plugged so that database operators can't continue to exploit them. In particular, the definition of a residential tenancy database is too narrow; there needs to be a requirement to prove debts if they are to be the reason for a database listing; and database operators need to be discouraged, with penalty terms, from charging excessive fees to tenants who ask to see their listing.

Of course, after watching it, working with it, and living with it for nearly five years we know that many other parts of the Act could use a little attention. We've recently produced a detailed report outlining where we think more changes should be made, which you can download and share from our website.

The coming review is an opportunity for tenants and advocates to talk loudly about what we know - the big stuff, and the small stuff too. This opportunity may not come around again for some time, so let's make the most of it.

Let's make sure these questions continue to be asked: what do we like about our current renting laws? What needs to change? How do we bring about the kind of Residential Tenancies Act we want for New South Wales, where we live?

GST hit-ups stifle more valuable conversation

Like Stewart to Stewart, Mason to Foran, or Cherry-Evans to the Gold Coast (and back again), we were hit with a Northern Beaches 1-2 this week.

Try time

Ever the pugilist, the Prime Minister and Member for Warringah did the grunt work early. Way back in 2014, the first Abbott-Hockey budget downsized projected spending on health and education over the next decade, pushing $80 billion dollars of ‘cuts’ or ‘efficiency measures,’ depending on how you feel about that sort of thing.

His offload to NSW Premier, Member for Manly, and Liberal Party teammate Mike Baird was a while in the making. But arrive it did – the unstoppable force calling on us to save the health system by upping the GST from 10 to 15 per cent in a barnstorming Monday address.

Given Australia’s steadily low GST, it is perhaps no surprise that the debate around increasing our tax on consumption has been around for nearly as long as the tax itself. Most relevantly for our purposes, the No Land Tax party called for precisely the same rise before the recent state election, in a flurry of yellow bibs and clip art testimonials.

But both the Premier and No Land Tax pitch GST reform in artificially narrow terms – the one true path to health system deliverance, and to shifting fiscal responsibility away from landowners, respectively.

And, of course, as a regressive tax, low-income renters would feel the pinch of an increased GST more than most – even if it remains unclear precisely where the hypothetical compensation for this hypothetical rise would leave this vulnerable group.

This state would benefit from a broader discussion about tax reform than the one currently enveloping the GST alone. In particular, the Tenants’ Union is an established proponent of a broad-based tax, applying to all land in New South Wales, as a boon for renters and owners alike:

“Land tax is an important source of NSW State Government revenue. Land tax also has the potential to improve housing affordability for purchasers and renters, and economic activity generally. Our present system of land tax does not realise this potential, and should be reformed.”

There is no single path in tax reform - the PM and Premier’s fancy footwork in pushing the line notwithstanding. And we say land tax reform should play a prominent part in a much-expanded conversation.

Read more about the Tenants’ Union’s land tax reform position here

Caps, Controls and CPI

American TV provides insights into many of life's trickiest situations. Adolescence, relationships, crime, and poverty have all been reflected back at us and even changed by focus of the camera lens. Affordable housing sneaks in there from time to time too, and one phrase bubbles up particularly in New York. Friends, Seinfeld, Sex and the City have all grappled with the ups and downs of rent control. Housing affordability discussions and recent changes in Berlin and New York have brought discussions of how best to regulate rent up around the world.

What is the deal with rent control?

On the home front, the Greens Member for Newtown Jenny Leong has been quoted as calling for a "cap on rent" and even calling for rent control, however this may have been a slip of the tongue, and confused in the media by an association with the Berlin system. The NSW Greens platform calls for a stricter control on rent increases for existing tenants. That control is limited to tenants in existing tenancies, and doesn't appear to be intended to apply to the rent that is able to be set at the very beginning of a tenancy.
The Real Estate Institute naturally wasn't keen on the idea and President Malcolm Gunning said a couple of things that are worth digging into. First, that capping rent increases would actually hurt tenants in the long run. "What they're proposing in a few years' time will bite them in the arse," he said. "Rent control has never worked in the past; it won't work again."

But what exactly does Mr Gunning mean when he scolds supporters of rent control? Is anyone even suggesting rent control in NSW?

A rent cap or rent control in its classic meaning really applies to the property, rather than the tenancy agreement. In rent controlled properties, the rent is set at a specific amount and increased periodically by a legislative or administrative power outside of the landlord or the market.

New York has the most famous rent regulation system, where more than a million homes have rents heavily regulated, under two separate systems known as rent stabilisation and rent control. New York's system is tied to the tenant as well as the property however, limiting rent control only to sitting tenants or their successors.

In Berlin, the example pointed to in some of the media recently, existing tenants have had protection against rent increases based on for a considerable amount of time, but if that tenant left the landlord was able to increase the rent to whatever price they thought the market could handle. In response to reports of landlords evicting tenants in order to increase rents, and rapid gentrification of some areas of Berlin, the city has now introduced a requirement that the price cannot rise more than a certain amount between tenants as well. This is rent control beyond the New York system.

The Greens platform so far is calling for a rent increase system more similar to that which Berlin had before their recent change, rather than after. Landlords will still be able to set rents at market rates between tenants, but it introduces a check and balance on the amount a landlord can increase the rent during a tenancy. Jenny Leong's bill may move from that position, but for now we will deal with the platform as written.

This leads us to our next question: What would rents in Sydney look like if rent increases were tied to CPI?

Source: FACS Rent and Sales Report, ABS Consumer Price Index

Well, if you'd managed to hold on to a property from March 1990 to today, and the rent had increased in line with CPI every year since then, then the rent payable would be almost $150 per week less than the equivalent property under the market. The median house rents are measuring new rents each quarter- that is, where a tenant has just moved in.
We do consider it highly unlikely that a landlord who currently has no practical limit on their ability to increase the rent, but does not increase it every year, would begin to do so in response to a change in this ability. The landlords who already increase the rent yearly, or even more often, will naturally feel an effect, though that is rather the point.
However, we must note that this is comparison pits current market rents for newly leased premises with a measure assuming some form of CPI-restricted rents on the property for 25 years! Not impossible, but rather unlikely. Since no one is proposing rent control, the effect of the Greens proposal will lie somewhere between that extreme and the status quo. What we really need is a real world example of how this system might work, in the Australian context. If only there was somewhere close by testing this proposal out...

Canberra!

As it happens, we've got an example of something very close to the Greens suggestion inside, or at least encircled by our very own state. In Canberra, if the rent is to be increased more than 20% above the CPI increase for the period since the last rise, the onus falls on the landlord to show that that increase is not excessive. If a proposed increase falls below this mark, the onus is on the tenant. This measure, introduced in 1998, is very similar to the Greens' proposal.
So, what difference has this made to the rents in Canberra? It is hard to say for sure, as Canberra does have some peculiarities- very high student and public servant populations for a capital city, and a tight bind to the political cycle. However, what we can see is that for the most part Canberra rents have tracked very closely to Sydney's since the introduction of the scheme. Though it is hard to pinpoint the precise effect the policy has had, it is clear that landlords should not run in fear at the thought of this proposal being introduced in NSW.

Source: ABS Consumer Price Index

So then, what exactly is the point? Well, this form of rent increase does not, and nor is it intended to, deal with housing affordability at a broad level. All that is intended by this kind of proposal is that landlords who do wish to increase the rent above a certain level, take on the burden of demonstrating why it is justified in those circumstances.
Currently, tenants bear this burden in all cases, despite the landlord and their agent holding most of the information relevant to any decision to increase the rent. Shifting this responsibility in cases of large increases seems a reasonable thing to ask, and certainly not something to be nervous about.
To truly deal with housing affordability across our state, there are other, much more powerful levers available to government that they can and should use.
For more on the TU's policy platforms around rent increases and other housing affordability concerns, see our policy page.

Highest rent increases in 5 years?

There are a few things to keep in mind when reading these articles. Let's have a closer look.

Domain use asking rents, not what places actually go for. As discussed in our rent tracker articles (more to come!) RBB data is a much better data source because it records what rent places are actually going for.
If we go back a year into the Brown Couch archives, we can put into context Domain's claim that this is the highest rent increase in 5 years.

For more than 2 years, Domain (APM) had houses pegged at 500 per week. That spike in September 2012? That is actually a higher percentage jump than the one reported today (a full 2% rather than the 1.9%). More importantly, they are both $10 a week- so the same dollar value. That jump was also described as the highest increases, as was the subsequent rise in March 2014.

The real story was seen in the authoritative Rental Bond Board data, which showed a more regular set of increases with some large jumps over 2014.

Now let's dig a little deeper into the reporting. While house rents were reported as increasing with the usual hyperbole not a peep was heard in the article about apartments. Guess why? Check out the quarterly change in apartments below. 0% rent increases. We'll wait for the release of the June Rental Bond Board data, as again there may be a different story in the real world, but it doesn't fit with Domain's narrative, so it doesn't rate a mention.



Dr Wilson, the senior economist at Domain Group, says some other things worth challenging in that article too: "We would have thought that given that we have record numbers of investors, supply might have caught up to demand, but the new supply just can't match the demand," he stated.

There are two things to notice- a record number of investors does not automatically translate into new supply, it could just as easily mean less owner occupiers. The low rate of first home owners buying in would suggest that may be a likely scenario. While we're at it, the low rate of first home buyers becoming first home owners is not to blame for rent increases- they're not the ones setting the rents!

More importantly though, most new supply, particularly investor-driven supply, is in apartments, not stand alone houses. Domain's data shows very flat growth in apartment rents. We're surprised they missed that.

The real deal
What this data, and the Rental Bond Board data doesn't show is what is happening to the people already in their homes. To an extent, the CPI rent index might capture some of that, but it is mixed in with new rentals as well.

From our Housing Affordability Survey of 2014, and many subsequent conversations with tenants, what is clear is that people are worried about making a fuss about various issues with their houses, because of possible termination or rent increase. Both outcomes lead to another data point for Domain and the RBB data as it is unlikely the rent will stay at the same level between tenants.

Also we'd like to point out that not everyone who rents is a frustrated home owner- many people who rent are just frustrated home makers. A recent article put it marvellously

"The point of the iconic quarter-acre aspiration in the Australian psyche is not the actual white picket fence or the big backyard; it’s stability and comfort. Our rental market is the opposite not because of the large number of apartments, but because a sense of ownership and security is virtually impossible for many."

As more people stay in rental market for longer, government should consider making that stay more comfortable. They can easily do so, and soon.

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For more on the Tenants' Union platform of fair Rent Increases and more, check out our Just Renting policy page.

NSW Budget 2015

We don't have a lot to say about the most recent NSW Budget, released last week, as it doesn't have a lot to say about renters! Apart from a modest promise to increase supply, the government was largely happy to take its share of the boom without addressing what it meant for large parts of the population. At least the gorillas and meerkats at Taronga are getting new homes.

As Shelter NSW put it, “The $2.1 billion surplus is the government’s share of the speculative boom driving housing unaffordability and causing deep hardship to many low-income households... “Shelter recognises that the Government is spending more to support new housing supply, but notes that the planned growth is insufficient to meet the growing need. It’s unlikely to even slow the affordability crisis for low and very low income renters." You can read more from Shelter's release here.

The most interesting part of the Budget for tenants came in the Labor Opposition's response. Luke Foley is advocating for 20 000 properties to be transferred across to Community Housing Providers, including property title, and flagging an intention to see all public housing properties moved out of government hands.

“Existing tenants, the users of social housing, will benefit because the associations are closer to them and avoid the characteristics of old style monolithic bureaucracies. This is an area of public policy where I believe the not-for-profit sector will do better than the state."

“Over time all of the state’s public housing should be transferred to not-for-profit community housing associations. They are more responsive and they are best placed to lift the quality and quantity of social housing stock."

The Tenants' Union does not oppose the expansion of community housing, any plan to increase social housing is welcome. We do question some of the assumptions in this plan, particularly about the true differences between public housing and community housing and their ability to deliver for their tenants. For example, the characteristic of a "monolothic bureaucracy" is often a function of the organisation's size- so what happens to that justification if a community housing provider gets as large as a government department?

There is no one above us - Tenant Participation resources

“I feel good about myself because I’m doing something for the community. When you look how far we’ve got and how others have listened to us, it’s wonderful. I feel we’ve achieved things by talking to people. Once I would have thought I’m a nobody but now I know I can speak out … And you know what? You know we talk a lot about people ‘above us’, well, we have found out there is no one above us!” 

-Macarthur Animation Program participant

You may have noticed from other posts that the TU has a soft spot for tenants in Campbelltown.  It could be because our EO, Julie Foreman worked alongside some of the community for nearly 10 years before she came to us. Well, in May about 100 people joined together to celebrate a local and successful community education program. 

The celebration included the launch of two new resources about working collaborative with social housing tenants. Published by St Vincent de Paul, the resources tell the story of the ‘Macarthur Animation Project’
One of the books is the story of the innovative community program and the other is a training kit based on the lessons collectively learned as the project developed. One thing tenants consistently said was that they really felt they had something to say to workers and organisations who want to work with communities.

“The Story of the Animation Project” outlines what happened  – how community lunches, the use of art as a form of reflection and the gradual drawing together of a spirited group of women in Claymore started something which continues today, 18 years later. The initial success with the change of a bus route inspired a series of other initiatives across four public housing estates – a community laundromat and coffee shop, the campaign for a footbridge over the M5 freeway, Minto Kids Community Park, community celebrations, lobbying for public phones, resident action groups, bringing about tenant focused changes to public housing re-development policy, the recording and publishing of community histories and the development of training programs in community action and human rights. Its not just all the shiny good stuff either. You will also read how some community initiatives have petered out and the real challenges that are yet to be overcome.

The training kit goes further explaining the principles and values of the program.  However, it is not a simple how-to guide. If it was, it would contain just two words: respect and listen. Sounds simple and yet the workers involved in the program have had to constantly learn and re learn what these two words really mean in different situations. So simple to say, so hard to really put into action. So this kit is providing content, reflections and questions on how we all can continue to struggle to put these two words into action. And to imagine what our communities would be like if we did.

Participants in the project said "you know how they, [workers], talk about our communities needing capacity building well we reckon we've got something to say about workers capacity and how their capacity can be built” and that was the start of the kit.  To share some of the thinking, reflecting and struggles of workers and community members as they learnt together. And it invites others to think, reflect and change too.

The first Program Coordinator, the TU’s Julie Foreman said at the launch “I have learnt much from community members, volunteers and friends. I have learnt that the story of a community doesn't start when I or other workers enter a community, its history and development has gone before and will continue, I have learnt about the stereotypes and their real impact.  I have learnt that community work is about power -recognising it, owning it, analysing it and sharing it, I have learnt to ask not what can I teach but what can I learn. I have learnt about hope, generosity and resilience. I have learnt that if you truly want community change ask those most affected for the answers”.

So if you get a chance take a look at the publications, please do!

“Respect and Resilience: The story of the Animation Project 1998-2012”

“Being Real in Community Work: A community development training kit in the Animation tradition”