Federal Budget Watch - housing affordability front and centre?

When Malcolm Turnbull became the 29th Prime Minister of Australia he promised that his will be "a thoroughly liberal government, committed to freedom, the individual and the market". His newly appointed Deputy, Julie Bishop, gave a hat-tip to Robert Menzies and the values that he instilled within the Liberal Party. We might assume this means placing a strong focus on home-ownership as a means of delivering social cohesion.

PM Malcolm Turnbull and Deputy Leader Julie Bishop
fronting the media on September 15th 2015

At the time we wondered what this would mean for housing policy, asking here on the Brown Couch:

So will a government lead by Turnbull and Bishop get back to work on the dream of a home-owning Australia, and wind back the tax incentives that are producing instead this nation of landlords? Or will they continue along the path their predecessors have set, and maintain that the only thing standing between you and liberation from the dogbox is a good job that pays good money?

In the fifteen or so months that have followed we've made progress from the "do nothing" days of the inquiry that made no recommendations to the appointment of an Assistant to the Treasurer on Housing Affordability, so things are looking good. Michael Sukkar, Member for the Melbourne seat of Deakin, was given the post in late January 2017. He's wasted no time in getting caught up on the basics, with reports today suggesting he views a strong economy as a key housing affordability measure, as this allows Australians to access highly paid jobs which is the first step to home-ownership.

New Assistant Minister to the Treasurer Michael Sukkar has been
tasked with solving Australia's housing affordability crisis

Aside from opening him up to the kinds of criticism his former colleague Joe Hockey copped for being a bit out of touch, this brings him more-or-less up to speed. But it's worth looking back over some of the other things he's said since taking the junior Ministerial position.

On January 24th he said there is no silver bullet that will solve Australia's housing affordability problem, and that:

(There will be a) multi-faceted approach that pulls the levers we can and assists the state governments to pull the levers that they can...

Which is as good a place as any to start.

The following day he spoke on RN Drive and explained that these levers would not include negative gearing and capital gains tax discounts, as they are not housing affordability measures. Further, he said that if we did make changes to negative gearing rents would go up all over the country. "We know that for a fact", he said. (We're not so sure about that, as we've argued many times, but we'll have to come back to that part of this discussion another time.)

More recently Mr Sukkar has been drawn into discussion about whether the Government would or would not countenance changes to capital gains tax discounts in the next Federal Budget. This was reported in The Australian yesterday as follows:

Mr Sukkar said there would be “a number of interrelated measures” in the budget and it was impossible to say at this stage what would be included in the final policy. 

“In some respects many of those will hang together, complement one another, and we’re not in a position yet to outline what exactly that is,” he told Sky News. 

“We are very serious about tackling this issue.” 

Asked if changes to capital gains were in the mix, Mr Sukkar would not say. 

“In answering that question, the basic point to make is we as a government have sought not to increase taxes. We think that increasing taxes on investment inevitably leads to less investment,” he said.“Having said that there are many ideas that are in the embryonic stage, as we speak, and we’re many months away from the budget.”

This follows reports from Fairfax late last week:

"The Treasurer and I have been methodically consulting with colleagues and developing policies that will help address housing affordability in our major cities. Addressing this issue will be a major priority in the next budget," he said.

"We [state and federal governments] all accept that addressing supply-side issues in the housing market is the primary issue in housing affordability and cannot be addressed by the federal government without the support and consent of state and territory governments."

None of this suggests he's made the very clear links between housing affordability and the culture of fear that resonates through our private rental markets. But no doubt the Assistant Minister to the Treasurer will be drawn into more conversations between now and budget night in early May, and we look forward to seeing what else he and the Treasurer might come up with.

Dealing with property as the landlord sees fit

Anyone with a passing interest in tenants' rights will know the biggest issue we face is housing insecurity. It's written into the very laws that claim to give us certainty and stability. Landlords are lawfully entitled to end tenancies without a reason, which completely undermines all the rights that tenants do have. It creates a deep, dark hole for tenants who fear that sticking up for themselves will just unsettle their ability to stay housed.

We know the best way to give housing security to tenants is to get rid of any legal right for landlords to end tenancies without grounds. In New South Wales this means making some changes to sections 84 and 85 of the Residential Tenancies Act 2010. When we try to bring this up in polite conversation we're often chided for our naïveté and told such change would impinge upon a landlord's right to deal with their own property as they see fit. This, we're assured, is just a stretch too far.

Indeed, when Fair Trading NSW kicked off the statutory review of the Act they included some commentary and questions around ending tenancies without grounds:

Commentary: There have been suggestions that 'no grounds' terminations be removed and that the landlord be required to provide a ground for termination from a prescriptive list of possible reasons. This proposal would need to balanced against the view that landlords are entitled to deal with their property as they see fit. 

Question 33: Should landlords be required to provide a reason for terminating a tenancy? If so, what types of reasons should be considered?

... and of the 180 or so responses they received, about half indicated they would like landlords to be required to give a reason to end a tenancy. One in about three responses had nothing to say on the matter, and the remaining one in five said they're okay with the way things are.

One of those who indicated they're comfortable with the status quo was the Law Society of NSW. They said:

Landlords should not be required to provide a reason for terminating a tenancy, provided the landlord complies with the requirements for notice, the landlord should be entitled to deal with the property as the landlord sees fit.

Tsk tsk. Lawyers should know better. There are many, many ways the law intervenes to prevent landlords from dealing in property as they see fit.

But they're also a pedantic bunch, and we know they like to get this stuff right. Our Principal Legal Officer has drawn up a quick guide for any lawyers looking to brush up. Over to you, Counsel...

What about the landlord’s absolute right to possession of the property?

... the landlord should be entitled to deal with the property as the landlord sees fit.*

This “should” statement turns out to be wishful thinking. It was almost true in feudalism. But, the landlord was still subject to the terrible power of the Crown. Not even the Church was safe - see Henry VIII.

In modern Australia all land is held by or of the Crown. This mirrors feudalism, but the whole picture is more complex.

The landlord has limited control of the use of the land. There is much control of what land is used for. There is control of what happens under the surface and in the sky above. For example, the Mining Act 1992 and the Civil Aviation Act 1988 (Cth).

The landlord cannot build anything substantial on the land without approval - Environmental Planning and Assessment Act 1979. Approval of the use of land is controlled by zoning – Local Environmental Plan. Growing certain plants is prohibited – Drug Misuse and Trafficking Act 1985. Some other plants are subject to controls as weeds – Noxious Weeds Act 1993.

The title can be taken away. Our governments can compulsorily acquire private land for various purposes. There is legislation for this at state and commonwealth level. For example:

· Local Government Act 1993, Chapter 8 Part 1
· Roads Act 1993, Part 12
· Land Acquisition (Just Terms Compensation) Act 1991
· Lands Acquisition Act 1989 (Cth)

And by random strangers, by adverse possession – Limitation Act 1969.

The landlord is not entitled to deal with the property as he or she sees fit. The landlord’s entitlements in relation to land are conditional and controlled.

The power the landlord has to evict tenants without a reason is less a power in relation to land than a power over people: a power to cause inconvenience, cost and distress.

No grounds termination is an anomaly. The Residential Tenancies Act 2010 should be amended to require grounds for eviction.

*1 February 2016, Law Society of NSW submission to the statutory review of the Residential Tenancies Act 2010, at 33

Unsettled - life in Australia's private rental market

Last year Choice, the National Association of Tenant Organisations* and National Shelter conducted a survey of Australian tenants. It asked questions about life in Australia's private rental market, like how easy it is to find a place to live and what it's like applying for a tenancy, what condition is your home in and how easy is it to get the landlord to follow through with repairs, how often do you move and why, and how much does it all cost?

Today the findings from this survey will be published in UNSETTLED - Life in Australia's Private Rental Market.

It makes for interesting reading. From the report:

Our survey indicates that for the increasing number of Australians who rent, housing is frequently poor quality, insecure and unaffordable. Many tenants feel they are not catered to when searching for a new home. Some face discrimination on a range of grounds. Rental properties are not always in an acceptable condition and landlords are not always responsive to requests for repairs and maintenance needs. Tenants can be reluctant to ask for repairs or complain about their housing, because they're concerned about eviction or a rent increase they can't afford.

Key findings include:

• 83% of renters in Australia have no fixed-term lease or are on a lease less than 12 months long
• 62% of people say they feel like they can’t ask for changes
• 50% of renters report experiencing discrimination when applying for a rental property
• 50% of renters worried about being listed on a residential tenancy database
• 20% renters experiencing leaking, flooding and issues with mould 
• 8% of renters are living in a property in need of urgent repairs

Sound familiar? Australia's housing system is doing a poor job for tenants in the private rental market. That accounts for about a third of the population, but tenants experiences rarely feature in discussions about national housing policy. These discussions need to focus on more than just affordability and whether or not we'll ever be able to buy - Australia needs to take a good look at just what we're getting when we pay the rent.

***

Discussing the report this morning, CHOICE CEO Alan Kirkland said:

For Australians who don't own a home, renting should be a secure and affordable option free of fear and discrimination. Unfortunately, the research reveals a significant power imbalance between tenants and landlords, leading to a culture of fear that means many renters stay silent when something goes wrong. 

It’s deeply concerning that common features of everyday life like having children, receiving a government payment or owning a pet can be major barriers for renters trying to find a home.

NATO spokesperson Ned Cutcher said:

All too often, we hear that people are reluctant to complain to agents or landlords because they’re worried about rent increases or eviction. This research shows that this fear is widespread with 50% of renters worried about being listed on a so-called “bad tenant database". 

When people do raise an issue with a property, landlords and agents can really drag their feet before they fix the problem with 21% of renters waiting over a week to get a response about an urgent repair request.

National Shelter's Executive Officer, Adrian Pisarski said:

Tenants are often the last group to be asked about the housing challenges Australia faces. This research has tenants talking about their experiences of the system in a way that’s not often considered in debates about housing. 

Renters face constant insecurity, 83% are without a fixed-term lease or are on a lease less than 12 months long.

As more Australians enter the rental market, we need a national plan to boost supply, especially for low income households, whilst also addressing security, rights and amenity.

Download the report here

*TUNSW is a member of the National Association of Tenant Organisations.

NAHA is dead? Long live public housing!

Alarming reports have emerged today that the National Affordable Housing Agreement (NAHA) could be axed in the next federal budget.

The NAHA is the current iteration of a long running agreement between the federal and state & territory governments about the provision of public and social housing in Australia. The first iteration was the 1945 Commonwealth State Housing Agreement, and while public housing has copped a few knocks in the meantime, the scrapping of NAHA could mean the death of public housing as we know it.

From news.com:

The National Housing Affordability Agreement, which has cost the Federal Government almost $9 billion since it was launched in 2009 by the Rudd Government, will be axed in the May budget, The Australian reports. 

Instead of the public housing stock rising since the agreement was launched, figures released in the 2017 Report on Government Services last month show the supply has actually gone backwards by 16,000 homes. 

And 20 per cent of the existing housing stock was now considered in an unacceptable state, while 8 per cent was uninhabitable.

None of this will come as news to those who keep an eye on such things - in fact, we've been making noise about both of these issues for what seems like an eternity (see here and here, for example). But axing the agreement is not the way to fix these problems - getting a better agreement is.

A key problem for the NAHA is that it altered the way federal and state & territory governments share responsibilities for funding the supply and maintenance of public and social housing. Times were those costs were shared - specifically, state & territory governments were required to match federal funds dollar for dollar. But the NAHA let the states and territories off the hook, on the basis that the emerging not-for-profit landlords - the Community Housing sector - could take on a greater role in delivering these services while tapping other sources of revenue.

For the record: we've always agreed that they could, but not at the expense of continued investment in social and affordable housing by all levels of government. It stands to reason, then, that our support of any new "bond aggregator" model that is currently being considered by the Turnbull Government would be similarly qualified.

National Shelter has issued the following media release, along similar lines:

National Affordable Housing Agreement Essential 

Reports to axe the National Affordable Housing Agreement (NAHA) reported in news.com and the Australian today have been met with shocked disbelief by National Shelter the peak affordable housing body. 

“If true this will be an act of vandalism by the commonwealth against a vital essential funding program which supports the most vulnerable including funding two thirds of all the homelessness services in Australia.” 

“The NAHA wasn’t well conceived and has not been well managed but axing the only funding for public housing and homelessness services without discussion, consultation or any alternative plan amounts to vandalism against many of the most vulnerable in our community”, said Adrian Pisarski National Shelter Executive Officer. 

The NAHA funds the maintenance of our social housing system as well as homelessness services provision and this looks like the Commonwealth is abandoning the field by removing essential funding for social housing and homelessness services. 

“At a time when rough sleeping is rampant in our cities and housing affordability a daily headline this is not the time for the Commonwealth to cut and run.” Mr Pisarski said. 

“National Shelter has been critical of the performance of the NAHA and plead with the Commonwealth and States to address issues of, sufficiency, transparency, accountability and performance but ditching it is not the answer”, Mr Pisarski added. 

“We need a national plan which supports social housing, homelessness and addresses housing affordability more generally thru attracting private and public investment and broader reforms of planning, taxation and tenant rights at state levels. This is not an either or situation, we need every tool at our disposal, including a reformed NAHA.” 

The Commonwealth needs to negotiate these reforms with State Governments and the community sector not abandon the field. National Shelter remains available to advise all parties on reforms to housing and homelessness.

Why all politicians should support tenants' rights

Yesterday the Australian Senate passed a motion seeking the implementation of a national minimum standard of tenancy rights. Senators Lee Rhiannon of the Greens, and Doug Cameron of the ALP introduced the motion, and Senator Rhiannon tweeted about it after it passed.

The full text reads that the Senate:

a) Notes that: 

i) The proportion of Australians leasing in the private rental housing market is the highest in over 50 years; 

ii) Long-run structural changes in Australia' s housing system are leading to increasing numbers of households choosing to rent on a long-term and in some cases, a permanent basis; 

iii) Comparative international studies, including a 2011 study by the Australian Housing and Urban Research Institute, show that tenancy laws administered by the Australian States and Territories perform poorly in the provision of tenant protections against arbitrary eviction, excessive rent increases and allowing tenants the full enjoyment of their home; 

iv) In the absence of affordable owner-occupied housing, life-long renting is now a prospect for many people; 

v) Australian tenancy laws may no longer be fit for purpose; and

b) Calls on the government to: 

i) Work with the States, Territories and relevant non-government organisations to set national minimum tenancy standards to ensure that tenants' rights are protected in relation to matters including fairer processes around lease terminations and evictions, fair standards to govern the amounts by which rents can be increased and provide for long-term residential leases that enable households the full enjoyment of a secure home.

This is a welcome development - while the states and territories administer their own tenancy laws, the cultural conceptions and attitudes towards renting are fairly common throughout the country. Each of the laws reflect this. No state in Australia has banned "no grounds" evictions as a way of promoting long-term residential leases, though the ACT and Tasmania have come the closest. No state in Australia effectively protects tenants against excessive rent increases, though again the ACT comes the closest.

What this motion really tells us is that the changing profile of households renting their home is beginning to make a difference in electoral politics. In the last NSW election, we saw the seat of Newtown won by the Greens' Jenny Leong who, among other things, ran on a tenants' rights platform. As the number of people affected by poor renting laws grows, the conversation of how we as a community value the safety and stability of a rented home will only grow as an electoral issue. It will especially grow away from the inner city.

Indeed politicians of all parties should take note as the profile of whole electorates will change with the growth of the tenant population. We noted before the previous Federal Election, some particular marginal seats and their renting populations. It will be interesting to do the same again in April with new Census figures and the current parliament. The increasing inaccessibility of property ownership through ever rising prices means the pool of landlords may also begin to shrink. Already some are reporting an increase in the size of individual landlords' portfolios, and this is something we've noted ourselves before, too.

More people staying in the rental market for longer - particularly those whose upbringing might have delivered an expectation of home-ownership at some stage in life - means an increasing range of political views and allegiances will start to converge on the question of tenants' rights. Voters from across the spectrum will inevitably begin to question why the law allows them to be removed from their homes when they have done nothing wrong. While it can be easy to point people further and further from the city in search of affordable home ownership as their means of achieving some security of tenure, this will not last long as a solution.

Perhaps they will even question why it is that investors appear to be living quite so large on the public purse - through tax breaks that cost the national budget literally billions of dollars each year - without ever having to justify the results. And while many will retain the aspiration and appetite to invest in property, if they are not lucky enough to come from a property owning family the barriers to entry will continue to grow faster than they can keep up. This will leave some wondering whether their vote is worth leaving with any political parties who may continue to have a tin ear to their plight.

Some politicians are starting to cotton onto this, and that's a good sign for those of us working for better tenancy laws across the country. Let's keep it up!

The wrong kind of supply

When it comes to housing affordability, we have a bit of a mantra here at the Brown Couch: it's not supply and demand, but the type of supply and demand that matters.

Jennifer Duke's recent article in the Sun Herald shines another light on this. Drawing on data provided by Don't Rent Me's Anthony Ziebell, Duke writes:

The vast majority of apartments in NSW are two-bedrooms – with 2298 – followed by 1322 one-bedroom apartments. And in many suburbs, one-bedroom apartments aren’t substantially cheaper than two-bedroom apartments, forcing some tenants to change their wishlist.

Ziebell is a friend of the Brown Couch, and he's run his data by us as well. He points out that more than half of new rental listings across the eastern states of Australia are 1 and 2 bedroom units. In New South Wales it was at 56 per cent the last time he pulled this data, which he obtains by regularly scanning online rental advertisements. This data comes hot on the trail of our own Rent Tracker report, which last week showed how rents have climbed even in parts of Sydney where thousands of new rental bonds have recently been lodged, indicating growth in rental supply.

So what's going on?

Ziebell suggests activity in Australian housing markets places too high a focus on investors' interests, rather than housing need. From Duke's article:

Don’t Rent Me founder Anthony Ziebell warned too much of a focus on investors, rather than those who will actually be living in the properties, is leaving Sydney filled with “inappropriate” homes.  

“Sydney’s rentals are the smallest in the country,” he said.

“If you’re building an apartment block, how many one-bedroom apartments can you sell compared to three-bedroom apartments? 

“It’s not about providing suitable housing, it’s about getting the maximum profit. This is leaving renters without anywhere suitable to live,” he said.

He's onto something. But before we get to that, let's back-track to October 2013 - when first home buyers were still vaguely a thing, and Catherine Cashmore penned an article for Property Observer called Investors or owner-occupiers: who are we really building housing for?. (Hint: it wasn't owner-occupiers then and it's not owner-occupiers now.) Cashmore was talking about conditions in Victoria, but the general themes could be applied anywhere:

The relatively small one and two bedroom units featured as 'affordable' tend to fall into the investment sector of the market, not just because of tight lending restrictions banks impose on first home buyers for this type of accommodation, but also due to high owners’ corporation fees set aside to service the lifts and other security features.

A great deal has happened since 2013, including the steady decline of first home buyer activity and a slowly rising interest in the plight of the poor old renter. But as we can see, those still standing in our dysfunctional housing system are yet to catch on. Or perhaps they just don't want to?

Like others, we've often cited the ABS Lending and Finance data, as we did in December 2013, to show that about 92% of money lent to property investors goes towards established dwellings. The remaining 8% contributes to new supply, as landlords are far, far more likely to trade in existing housing stock than invest in new construction. Property investment finance has more or less continued in these proportions despite recent development activity.

Even so there are considerable chunks of money being poured into new apartment blocks by investors, and this has been particularly so in areas close to jobs and transport over the last couple of years. Whether these dwellings are purchased by investors 'off-the-plan' or through a subsequent sale is beside the point for this discussion. What's not beside the point is that development is being propped up - if not driven - by this investment, and investment is being driven by something other than what Australian households need.

So what's driving investment?

We've written extensively about the impact of federal tax settings on the type and nature of investment in Australia's residential property, so we won't go over it again today. Suffice to say that it has changed the shape of the rental market. Investors purchase dwellings with prospects for capital gains in mind rather than any consideration of need or demand from tenants.

The recent insights from Don't Rent Me and the Tenants Union are yet more evidence of this.