Tenants’ guide to tax reform

Housing affordability is a key issue during the 2016 federal election. The presumed impact of reducing tax concessions for landlords has been a strong feature in media discussions, and in commentary from political parties and candidates. Most of these focus on the cost of housing to buy.

But how do negative gearing and capital gains tax discounts affect the private rental market?

What is negative gearing?
An investor is negatively geared if the cost of holding an asset is greater than the income it generates. This occurs where an investor borrows money to purchase an asset, such as a rental property, and the income it produces doesn’t cover the cost of paying back the loan. Investments like this are made in the hope that the asset’s value will rise, and lost income will be rewarded with higher overall wealth.

For tax purposes, the losses that arise through a negatively geared investment are deductable against the income it generates. In Australia, losses on rental property investments are deductable against other income as well. This includes salaries and wages.

What is the Capital Gains Tax discount?
When an investor takes advantage of a rise in their asset’s value, by selling it at a profit, they pay Capital Gains Tax (CGT). This is paid on the difference between the amount they sell it for and the initial price they paid for it, minus some expenses.

CGT is payable on property investments. Exemptions apply to the “family home” and to property that has been used as an investor’s “main residence” within the six years prior to sale.

CGT is halved for any investment that has been held by an individual or small business for longer than 12 months – this is known as the CGT Discount. The CGT Discount applies to residential property, and most landlords pay CGT on only half their capital gains when they sell.

How do these tax concessions affect the housing market?
By allowing investment losses to be deducted against all income, and reducing liabilities for CGT, our tax system encourages Australians to enter into negatively geared investments. The housing market is seen as a safe investment for negative gearers, because of an expectation of continuing capital gains.

The largest part of the market – owner-occupiers – incurs no CGT liabilities upon sale at all. Their housing gains are not taxed like other forms of wealth, so they are prompted to divert spare financial capacity towards capital improvements. They do this by adding value to property through renovation, and/or spending more when upgrading. This increases the likelihood of capital gains across the market, and the expectation of perpetual gains encourages new entrants to pay more when buying in.

Landlords trade in the same market. The tax treatment of negatively geared investments enables them to manage larger debts than owner-occupiers, especially first homebuyers who have not already built up wealth through capital gains. Landlords who negatively gear can afford to pay more than other buyers for the properties they want, and are prepared to pay a premium for well-appointed and well-located properties that have high prospects for rapid capital gains.

How do these tax concessions affect the private rental market?
Proponents of Australia’s current tax settings suggest they increase the supply of housing and put downward pressure on rents by encouraging more investment in the housing market. They also suggest that without this investment, Australian governments would be left to make up the shortfall of affordable rental housing through their public housing systems.

 It is true that the number of Australian landlords continues to grow:

Australia's landlords (millions) Source: ATO

As does the amount of money they borrow in order to make their purchases. But the vast majority of this debt is used to trade already existing dwellings rather than build new homes, so it does not make a meaningful contribution to new housing supply:

Landlords' debt ($billions) Source: ABS

And the cost of servicing this debt is greater than all other costs to landlords combined – even as record low interest rates have reduced the interest payable on loans during recent years:

Landlords' expenses ($billions) Source: ATO

All of this means that our current tax settings are well suited to anyone with residential property to sell, and/or money to lend. But they are doing a poor job of increasing housing supply, so arguments about their impact on rental affordability are completely undermined.

On the contrary, we know they’re not really keeping rents low at all. Negatively geared landlords favour more expensive properties with greater prospects for high capital gains. Properties at the affordable end of the rental market have been in steady decline over the last decade or so, while the number of properties for rent at higher prices continues to grow, because of the type of investments landlords are encouraged to make.

Volume and price ($/2011) of Australian rental properties over time Source: AHURI

How do these tax concessions affect tenants?

Australia’s current tax settings affect high and moderate earning tenants by making it difficult for them to achieve home-ownership, keeping them in the rental market for longer. Landlords can take on higher levels of debt so they can afford to offer more for the properties they want than most first home buyers can. This has a general inflationary impact on prices too, and it has increased the difficulty for those who aspire to buy but are not yet able to. Would-be homeowners have to set themselves increasingly large savings targets in order to raise a deposit for a home loan.

Australia’s current tax settings affect tenants on lower incomes by reducing the number of affordable homes in the rental market, and increasing the number of people hoping to rent the ones that are available. Landlords tend to favour properties that have high prospects for quick capital gains, rather than low-end housing that could be let at affordable rents under long-term tenancy agreements. But where low-end housing is available there is no guarantee that low-income tenants will secure it, as they must compete for tenancies with higher earners who are hoping to minimise their housing costs.

Australia’s current tax settings affect all tenants by making the private rental market chronically insecure, because they encourage landlords to chase rapid gains rather than steady tenancies. They want to realise these capital gains when it suits them, and prefer not to limit their pool of prospective purchasers by selling with a sitting tenant. Tenancies are often brought to an end, and tenants forced to move, when landlords decide to offload their residential property investments.

What are the proposed reforms?
Both the Australian Labor Party and the Australian Greens have adopted policies to reform negative gearing and Capital Gains Tax discounts, raising housing affordability as a key issue for the 2016 federal election.

The Greens propose to end the current tax treatment of any negatively geared investment that is not a “business asset”, which means affected investors would only be able to claim losses against their relevant investment income. This reform would be grand-parented so that existing arrangements are not affected. The Greens would also phase out the CGT Discount over 5 years, by reducing the discount at a rate of 10% each year. These proposals focus on the budgetary impact – costed at $7.028billion in new tax revenue over four years – and The Greens would put this increased revenue towards the construction of new Social Housing.

Labor propose to limit the current tax treatment of negatively geared investments, to apply it only to newly built housing. Landlords who buy established dwellings would no longer be able to claim losses against their salaries and wages as well as their rental income. This reform would be grand-parented so that existing arrangements are not affected. Labor would also reduce the CGT Discount from 50% to 25% for “non-business assets” purchased after July 1 2017. These proposals focus on economic transition and budget reform. Costed at $32.1billion in savings over ten years, Labor says they would use the revenue raised through these reforms to “fund priorities”.

The Coalition does not propose to reform the tax treatment of negatively geared investments, or alter CGT discounts.

We have not conducted any analysis of minor- or micro-parties’ housing and tax related policies.

What would be the impact of the proposed reforms?
There have been many suggestions that reforms to negative gearing and CGT discounts would lead to an increase in rents, because it would reduce the level of investment in the housing market. This is unlikely. Proposed tax reform may have some impact on investors’ strategies, which would be a desirable outcome, but it would be unlikely to change the common preference for investment in residential property.

Significant demand for rental housing would continue, as home-ownership would remain out of reach for many households. Residential property would continue to attract capital gains, as owner-occupiers would remain exempt from CGT liabilities and would continue to make capital improvements to their homes.

But without preferential tax treatment of their negatively geared investments, landlords may be less inclined to take on the large amounts of debt that currently enables them to bid up the cost of housing. They may be less inclined to invest in housing based on the prospect of quick capital gains, and consider more closely the demand factors coming from the rental market itself. They may be more amenable to entering into stable, liveable and affordable agreements with tenants, rather than chasing quick capital gains.

Where can I get more information?
For more detailed information and commentary about the impact of Australia’s tax settings on tenants and rental housing, please visit: http://tunswblog.blogspot.com.au/search/label/Negative%20Gearing

A version of this post is available for download, so you can print it off and share it with your friends.

Can I hang electoral material in my rented property?

It's election time in Australia, and political signs on front lawns and windows are cropping up across the country. We've been contacted by a number of tenants in recent days asking about their rights to have a sign up in their property - some have been approached by landlords asking them to take the advertising down again.

Our legal eagles got interested in the question so here's the skinny on your rights to hang political signage.

The TU does not endorse political parties or candidates. The TU does endorse Pedro.

The High Court

First things first, Australians do have a right to political expression. In 1992 in Nationwide News Pty Ltd v Wills and Australian Capital Television Pty Ltd v Commonwealth (ACTV) 177 CLR 1 the High Court made a decision confirming that right despite there not being a specific constitutional protection as in other countries like the USA. Read more here.

Council Requirements

Councils have rules around signage on properties and on the street. While it might be unlikely a little sign in your front yard or window needs approval, it could be worth checking with your local council about the size and type of signage you propose to hang, particularly if it's on the bigger end.

Strata by-laws

Most strata blocks have by-laws that restrict you from changing the external appearance of the lot without first gaining consent of the owner's corporation. Arguably election material may fall afoul of this by-law - if your strata brings it up with you, check out our factsheet on living in strata and get advice!

Tenancy Rights

When you rent premises, you become entitled to the ‘reasonable peace, comfort and privacy’ in your use of the premises. The landlord/agent must not interfere with, or cause or permit anyone to interfere with, your peace, comfort and privacy.

In relation to electoral signage, we consider it a breach of a tenant's reasonable peace, comfort and privacy for a landlord to demand the removal of political signage so long as the signs are legal, and not causing damage to the property.

However, all these rights can't stop New South Wales landlords from giving you a "No Grounds" termination notice, and it's unlikely that the retaliatory provisions will help. This alone may prevent many tenants from participating fully in the election process. One more reason to support stronger tenancy rights, for democracy!

If you are getting hassled by your landlord about political signage, get advice from your local Tenants' Advice and Advocacy Service.

Lessons from America - Evicted

"Three generations of Hinkstons, eight people all up, lived in a two bedroom, one bathroom apartment in Milwaukee. It was cramped and mouldy, there were roaches everywhere and no repairs got done. They were there because they had been evicted from their five bedroom house, home for 7 years, and had nowhere else to go. Now sharing couches and the floor, the children couldn't get a proper night's sleep and fell asleep during the day, even through classes. The adults had to find a way to scrape together enough money to find somewhere better."

But the rent has to be paid in the meantime - so will they get to move in their own time, or will they be evicted first?

Evicted should be required reading for all. The holistic nature of the issues raised mean there is no one with a passing effect on our housing system who should not feel some responsibility for that effect.

Evicted is written by Harvard sociologist Matthew Desmond, who lived in the communities he writes about and has previously experienced homelessness first hand. His work excoriates any lingering doubt that society does have an ongoing responsibility to make sure its people not only have a roof above their head at any one time, but a home in which they can plant roots.

Desmond followed the eviction experiences of 8 families in Milwaukee, Wisconsin. These stories demonstrate some part of the range of issues preventing poorer people in the United States from housing themselves and their families. There are single mothers, recovering addicts, crowded multi-generation families. Evicted also pulls back the curtain on the thinking of landlords by following both sides of an eviction. Empathy, understanding and flexibility are all demonstrated - but so is the ultimate divergence of interests. If the rent isn't paid, or the repairs aren't worth the hassle, there is only one response: eviction.

Milwaukee is not Sydney or Dubbo or Albury. Australia is not the United States. What lessons can we take from Evicted? There is a temptation to take the US as a warning, a guide of how not to house people. It can be comforting to feel that things are not as bad here, but that is dangerous thinking which allows things to get exactly as bad here as they are shown to be there.

For instance, Desmond cites the American Housing Survey 2013 that between 50-70% of low-income renters in America are paying 50% of their income on housing (including rent, utilities, and other charges required to house yourself). Our figures look better at first blush - somewhere between 20-40% of low income renters are paying more than 50% income on rent. However, our measures are generally limited to rent. Housing costs properly includes all the things needed to make a dwelling habitable - no one should live in a home without running water or electricity. When utilities are thrown back into the mix, we start to look very similar to the US. An examination of the 2011 Census suggests that at least 50% of low income renting households report paying more than 50% of their household income on housing costs under the same definition as the US.

In part our better position is because of the Commonwealth Rent Assistance. Of Australian renters receiving CRA, which includes renters who are in moderate, or even high, ranges of incomes, more than 25% of CRA recipients would pay more than 50% of their income just on their rent. Include the CRA payment and the number is halved to just 13%.

Evicted also brings to light the structural nature of continuing impoverishment. In the United States structural housing insecurity comes down most strongly on people of colour, and especially black men and women:

There are no figures on similar rates of eviction for Aboriginal people in NSW. In fact, there are no figures on rates of eviction for anyone in NSW, or Australia. We simply do not know how many people are booted every year, nor the cost of those forced moves both to the families being evicted, and to the economy in lost wages, increased support services, and motivated workers. Desmond knows these figures because he previously designed and carried out the Milwaukee Area Renters Survey, a truly impressive piece of work that Sydney and Australia sorely needs to replicate.

The final element of interest to us here in Australia is the impact of tenancy legislation. In Milwaukee, no grounds notices are permitted - and are explicitly used to cover the same multitude of sins we see here in New South Wales. Repairs do have strict codes but enforcing the standards often means becoming vulnerable to eviction in response.

Tenant representation in eviction proceedings in Milwaukee is rare and expensive - only generally available to well-off tenants. In New South Wales we are better off - though our Tenant Advocacy services are severely underfunded and unable to offer assistance to all who need it. The bread and butter work of the Civil and Administrative Tribunal (and its predecessor the CTTT) is tenancy evictions, making up approximately 60% of its entire workload.

If we want renters to have stable, affordable and liveable homes, we need to make a conscious effort to create that environment. It will require significant changes to the way renting is viewed by lawmakers and landlords. Separating the interests of those two groups may be the biggest change of all.

An excerpt from Evicted was published in the New Yorker and is available here: http://www.newyorker.com/magazine/2016/02/08/forced-out

Battlefield: rent

A number of large and powerful real estate agencies look set to recommend landlords increase your rent if Australia votes for changes to negative gearing and capital gains tax discounts on July 2nd. We're not sure how else to read the "Negative Gearing Affects Everyone" campaign that's recently attracted media attention.

The agents will smite you if you vote for tax reform

The campaign suggests that "should current taxation arrangements for property be changed, as many are suggesting, rents could be expected to rise substantially". It provides nothing to support this theory, other than a couple of lines about supply and demand:

Because the incentive to buy property to rent out will be severely curtailed, fewer people will buy residential investments, meaning the supply of rental stock will contract: fewer houses means higher rents charged to those who don't own their own homes.

Nobody can argue with these fundamentals, right? Well...

When you're thinking about taxes, housing supply and rents, it's important to remember these two things:
1. Where rents and real estate are concerned, supply and demand dynamics get complicated by the tax system.
2. No matter what federal tax settings look like, the only way your rent can go up is if your landlord serves you with a valid notice of increase.

Let's explore this.

This "incentive to buy property to rent out" that the real estate agents' campaign refers to is, of course, capital gains. According to the campaign authors, the way to keep our rents down is to ensure that property values continue to go up. The idea is obvious enough - increasing property values draws more people into the housing market to buy investment properties, so more properties become available to rent. That's supply taken care of, right?

Well, no, because around 90% of money lent to landlords each year goes to purchase established dwellings. The majority of "new" supply into the rental market is actually existing housing that's just being recycled - moving in from the owner-occupier market or just transferring from one landlord to another. Even if it is new to the rental market, it probably isn't a new home, in which case it can't really be considered new supply. It's just borrowing from Peter to pay back Paul.

But even if we pretend not to notice this glaring hole in the real estate agents' logic, they still have a problem with their argument. The idea that rising prices can put downward pressure on rents is not just counter-intuitive - it's also demonstrably wrong. And it's not merely a question of ever increasing prices (landlords' expenses) dragging up rents (landlords' income), it's about which properties find their way into the rental market, who ends up paying to live in them, and how much they are willing to spend.

In short, it's the the type of supply and demand you're getting in the market that matters. Negative gearing and capital gains tax discounts actively distort the market by affecting supply and demand.

This happens in a couple of different ways.

First, these tax settings affect the supply of rental housing, by manipulating investor demand. The "incentive" to buy properties to rent causes landlord's to pick and choose their purchases based on the prospect of gains. Or, as the real estate agents' campaign authors have put it in another part of their website, to make "strategic investments":

If negative gearing is abolished on all but newly-built dwellings, investors will no longer be able to buy strategic investments, looking to acquire high value properties in prime locations that will realise the best gains over time.

We've talked about what this kind of "strategic investment" does to the shape of the rental market before, but here's a quick reprise: landlords don't buy the cheap stuff because the prospects for gains just aren't the same. 15% of 100 is better than 15% of 10, even at the same rate of growth. Rents at the lower end of the market are increasing faster than rents at the top, because affordable rental housing is actually disappearing from the market.

The shape-shifting private rental market: driven by gains

For six long years Anglicare's Rental Affordability Snapshot has told us what this means for low income households. In the latest snapshot there were only 902 properties advertised across Sydney at what could be considered affordable for a family whose income is made up of a minimum wage and some Family Tax Benefits. 902 properties, or 6.4% of what was advertised for rent during the snapshot period. For a single person on Newstart allowance, there was not a single property advertised during the snapshot that could have been considered affordable. Nada. Zip. Nothing.

National Shelter's Rental Affordability Index provides a somewhat more rigorous analysis. In it's inaugural release in November 2015 it noted that New South Wales faces "rental unaffordability across the board, and a dire situation for low income households".

Second, these tax settings affect the demand for rental housing, by reducing the supply of affordable housing to buy. Negative gearing encourages landlords to carry month-to-month losses by reducing their pay-as-you-go tax liabilities, while capital gains tax discounts increase the chances of these losses being fully recovered in the long-run. Thus landlords can afford to take on greater amounts of debt than their competition, the owner-occupier. They outbid would-be owner-occupiers for properties they do not intend to live in, using them instead to build wealth. This pushes prices higher, faster (and encourages more people to follow this investment strategy if they can).

This is generally understood to be a problem for first-home-buyers, and it is this concern that seems to be driving the current political discussions around tax reform. What these discussions fail to address is that most of these frustrated home-buyers are making homes in the private rental market in the meantime, as tenants. They're earning a decent enough income and can manage the high rents, even if they can't keep up with landlords bidding against them at auction. Then there are those who have simply given up on home-ownership: as house prices scale new heights, they simply wonder how they could ever come up with a deposit in the first place. They're still earning decent money, though, and they're contributing to demand for rental housing while dragging up rents because of what they can afford to pay.

Our housing market dynamics have been working to these conditions for many, many years. They are entrenched. Giving our federal tax settings a few necessary tweaks will not result in immediate or drastic change. Fundamentally, tax reform will not reset the incentive for buying and renting out property. Instead, it should alter the way capital gains are achieved, providing for more tenant friendly "strategic investment" by landlords. The system would adjust. New, more functional dynamics would emerge. But this would take time.

Nobody should expect wholesale rent increases in the short term, unless landlords strategically decided to put them up. We'll come back to that soon, for further discussion.

Ivanhoe Estate Tenant Group - Ryde Council's Volunteer Group of the Year, 2016

Today on the Brown Couch: former Ivanhoe Estate resident Marie Sillars talks about the strength of a community, the shock of relocation, and how to ensure all is not lost to "renewal".

***

My time with the Ivanhoe Estate Tenant Group Inc. started some 6 years ago and I am a Founder Member of the Group. We established a Community Centre (pictured) and started organising BBQs, meetings and getting involved in our community.

Four years ago we heard (on TV News) that Ivanhoe was to be demolished as it had gone past "its use by date" and very quickly we started to gather information, attend meetings, take part in Community Reference Group meetings and even became involved with a Parliamentary Committee on public housing. At the same time the group were running craft classes (we have knitted and crocheted scores of blankets, beanies, scarves etc. which will be donated to a homeless shelter & local hospital) computers for the elderly, breakfasts at the Centre, established a community garden (tenants were invited to take any herbs or veggies that they needed) and generally made ourselves busy with the day to day matters that a community needs. We had Oz Harvest for 2 years where we distributed up to 150 kilos of food on a Saturday afternoon and we had the greatest fun. Most of the Oz Harvest Committee were over the age of 60 and it was a great way to make sure that the elderly tenants had enough fruit, vegetables and groceries to keep them going until the next Saturday. Rain, hail and shine we worked our way through the food with an incredible energy for people of our age.

We knew the time was coming when the final decision would be made but somehow just kept working away trying not to think about the inevitable time when the FACS people would deliver the letters and we would then we would have to decide how we would deal with this. Late last year the letters were delivered and even though we knew it was coming the whole place went into shock and we were called to a meeting at the Community Centre where we were introduced to the officers who would become our Relocation Officers. It was an awful day and it had quite a negative effect upon the tenants, especially the elderly folk. We decided on that day that the Committee would go ahead "business as usual" and try hard to get through what was to become a difficult period. As Christmas at Ivanhoe came and went we all knew that this would probably be our last Christmas together as a group, and the atmosphere around the Centre changed. People were sad and a bit down and together with the Salvation Army on the Estate we tried very hard to keep people's spirits up and tried to make a positive side of the relocations.

As time went on and we were still attending meetings the interviews with our respective Relocation Officers were conducted and we were then told to wait as the Officers searched for places for us. As this has been happening tenants started to move away and so I contacted some people outside of the Estate to help establish a "Footprints" Committee to gather information, pictures and stories about the Estate so that when the new places are built, people there will know that there was a thriving, exciting community existing before. Ryde Council, Salvation Army, Macquarie University, FACS, and many of our wonderful supporters have come on board with this idea to create media, films, interviews and many other ways to show how a great Community CAN work and that Public Housing Tenants can work in a positive and intelligent way to come together and be proud of what they have achieved.

Two weeks ago I myself had to move and I am not very far away from the Ivanhoe Estate so I am able to keep craft classes happening on Mondays for those who are still there. The Committee who had worked so hard at Oz Harvest had started to move away also and we will all keep in touch in the future. As this Community fades away we are keen to let people know that through the Footprints Programme the Ivanhoe Committee will not be forgotten.

Last week (5th May 2016) some of the Committee attended a Volunteer of the Year Evening with Ryde Council and I was so very honoured to be nominated as Volunteer of the Year. I did not win but the Ivanhoe Estate Tenant Group DID win Volunteer Group of the Year 2016 and I have to say it was one of the proudest moments of my life. Even through our times of sadness it just shows that a community such as the Ivanhoe Estate can shine through, smile and move on to other communities. As they say "Onwards and Upwards" but in the end it has been a great achievement and one I will never forget!

Marie Sillars May 2016

Curb negative gearing, increase rents - or not

In awkward news for the Coalition Government, currently seeking re-election on a platform of sensible tax-reform-avoidance, it's been revealed that the Reserve Bank of Australia once suggested curbing negative gearing could be good for financial stability. In awkward news for us, the RBA also wondered whether curbing negative gearing might lead to an increase in rents. Find the RBA's memo on negative gearing here.

It's a common assumption that reforming negative gearing on residential property investments would result in a surge in rents. Indeed, property lobbyists have been dining out on the suggestion for years, hoping to keep the policy in their back pockets. But we've never been captive to such a notion, as we explained back in 2011 with one of our most read blog posts: Negative gearing is not your friend.

Negative gearing does not cause individual landlords to charge less rent, nor does it create additional supply of housing. It has contributed to more higher-income households renting for longer, as they are priced out of buying a home by investors who can afford to borrow just that little bit more. In a competitive market, this pushes lower-income households out of affordable properties, as higher earners tend to be more attractive to landlords regardless of the asking rent. And it has contributed to property investors passing over lower-rent housing stock in favour of properties with potential for higher capital gains, meaning that lower-rent stock has vanished from the rental market.

In short, negative gearing increases demand while reducing supply of rental housing, especially at the affordable end of the market.

Even so, the myth prevails. To be fair, we can easily envisage countless overstretched landlords crying poor if their tax-break rugs were suddenly pulled out from under them. Indeed they might try to put the rent up to compensate. Spend some time talking about tax reform on social media and you'll come across many landlords suggesting they'll do just that.

The problem for these landlords is that their tenants are already maxed out.

For some, putting the rent up might backfire, as tenants leave over-priced properties for more affordable arrangements. Overstretched landlords might then find themselves lacking the cash-flow needed to cover their no longer tax-subsidised debts, while still enjoying all the fine things life has to offer. They might even have to consider selling an investment property or two in order to make ends meet.

We understand such a thing would be completely unAustralian, so we've come up with a few alternative cost-saving measures for your landlord to consider in the event that negative gearing gets a trim.

Here are our top three tips for cash-strapped landlords:

3. Stop using real estate agents. According to the Australian Tax Office, Australian landlords spent more than $2.4billion on property agents fees and commissions in the 2013/14 financial year. Giving agents up might seem hard at first, but as you begin to gain an understanding of what it means to take care of another person's home, you'll find it's not rocket science. Tenants do it all the time.

2. Get your investment properties in good order. Spend up big on repairs and maintenance now, make capital improvements and invest in attractive additions that your tenants will love. The Tax Office says Australian landlords spent over $2.4billion on repairs and maintenance in 2013/14, and claimed over $5billion in deductions for capital works and plant depreciation. Bringing your repairs and maintenance spend forward makes good financial sense - not only could it save you money in future non-subsidised financial years (to a point), it would improve the quality of housing for someone who has been locked out of home-ownership. Just make sure you do everything properly the first time so you won't have to come back and spend the money again...

1. Pay down your debt. The single most useful thing landlords can do to reduce their expenses is to pay down their debt. Tax data shows Australian landlords paid an astonishing $21.1billion to cover interest on loans in 2013/14. This is far and away the most significant cost of being a landlord, so it makes sense to pay down the principal to reduce the interest payments over time. Eventually, you might end up owning the place, so you wont even need to worry so much about capital gains. That would make the housing market more affordable for all, making it an absolute win/win option!

Keep these in mind and remember them the next time you're assured negative gearing is keeping your rent down. The simple fact is that changes to negative gearing won't put your rent up - only your landlord can do that...!

2016 Budget to deliver income management for Social Housing tenants?

A few weeks ago we noted the NSW Government's continued interest in a Compulsory Rent Deduction Scheme for social housing tenants, as they took the idea to the recent Council of Australian Governments meeting.

Such a scheme would make it compulsory for tenants in social housing to have their rent taken from a social security payment and paid directly to the landlord. As we have noted many times before, such a scheme already exists, but it works on a voluntary basis. Direct rent deductions work for some people some of the time, but they won't work for all people all of the time. Making the use of such a scheme compulsory will produce awkward results.

Now the idea has resurfaced as an expense measure in the 2016 Federal Budget. Here's what the budget papers say:

The Government will establish a Compulsory Rent Deduction (CRD) Scheme. 

Under the Scheme, occupants of public and some community housing who receive income support payments or Family Tax Benefit will have their rent and related tenancy costs deducted from their payments and automatically transferred to the relevant public and state approved community housing providers. 

The CRD Scheme will reduce the likelihood of individuals accumulating rental debt, leading to an expected reduction in evictions and improved social outcomes. It will also improve rental income streams for housing providers and so encourage investment in public housing stock. 

The expenditure for this measure is not for publication as the arrangement is subject to negotiation with the States and Territories.

We're not sure either claim - reducing evictions and increasing revenue collection - will hold true in New South Wales. Whenever we've raised concerns about the over-zealous management of rental arrears and recovery of related amounts by FACS Housing we've been politely informed that only a very small number of their tenants are ever in rental arrears, and that in monetary terms the outstanding amounts do not dramatically affect their bottom line.

On the other hand, current arrears management practice is to issue a notice of termination and apply to the Tribunal, rather than enter into sensible discussions with a tenant about getting arrears under control. We're told this is because tenants who are in rental arrears do not read their mail or answer their phones, but we're not convinced. We've heard of many Social Housing tenants who have started diligently paying off a rent arrears debt only to find themselves in the Tribunal to fend off a notice of termination anyway.

We're all for FACS Housing and other Social Housing landlords taking steps to reduce their use of the Tribunal for managing rental arrears, but allowing them to compulsorily redirect tenants' Centrelink benefits into their own accounts is nothing short of overreach.

Further information about the proposed CRD is available on the Department of Human Services website. Notably it provides that the Scheme is subject to the "passage of legislation", which suggests a change to Social Security laws is on the cards.

Of course, there's an election to be had in the meantime, which begs the question - will Labor support this Scheme? They tried to introduce something similar when in Government back in 2013. They even got as far as introducing an amendment bill into Parliament, before dropping it cold. Here's hoping they leave it there, where it belongs.

Vale Dr John Kaye, MLC

Today we remember and pay our respects to Dr John Kaye, Member of the NSW Legislative Council and senior member of the NSW Greens in Parliament.

Dr John Kaye was elected to the Legislative Council in 2007, becoming just the fourth member of the Greens to win a seat in the NSW upper house. As the longest serving current NSW Greens MLC, Dr Kaye has a long list of achievements as a Parliamentarian. After a short battle with an aggressive cancer, Dr Kaye has passed away.

We recall in particular his role in the 2010 Standing Committee on Social Issues Inquiry into Homelessness and Low-Cost Rental Accommodation, where he drew a very clear link between private rental market failings and the ongoing lack of enthusiasm for "public sector solutions to housing".

As their senior Parliamentarian, Dr Kaye took the lead in promoting many of the NSW Greens 2015 election policies. This included an economic platform that would see key infrastructure, including new social and affordable housing, built and paid for by borrowing funds and raising additional tax revenue. The reintroduction of a Vendor Duty - payable on all land other than owner-occupied homes and family farms, where the value since purchase had increased by 12% - was among the new revenue measures put forward. Such a tax would address a fundamental issue with Stamp Duties, in that they effectively fine owner-occupiers for moving house, but it would also act as a kind disincentive against speculative investment in property. At the very least it would ensure some of the speculative gains being realised in residential housing could be recovered by the whole of New South Wales through the tax system, rather than simply landing in the pockets of landlords and their financiers.

And, importantly, Kaye and the NSW Greens adopted much of the federal wing of the party's Better Deal for Renters platform, at a time when no other established party wanted to talk about housing affordability. The Greens campaigned heavily on the issue of Renters Rights in their bid to win the newly established seat of Newtown, with their candidate Jenny Leong ultimately claiming victory.

A great deal of work still lies ahead in promoting policies that acknowledge the basic needs of tenants, particularly those on low incomes, do need to be taken seriously. Part of that involves convincing our Parliamentarians and political hopefuls that ignoring tenants rights, and maintaining an unaffordable private rental market, should no longer be considered acceptable. Dr John Kaye is one such politician who seems to have already understood this, and the tenants of NSW are a half-step closer to this political achievement for his tenure in the NSW Parliament.

Vale.