Tuesday, August 29, 2017

Building to let

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

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

Just imagine!

Perhaps the reason this would appeal to so many Australian renters is that it is the polar opposite of what our private rental market currently delivers. As we discussed in a recent post, Australia's landlords are
... mostly one-off or small-time investors, "mums and dads" who are more interested in property for its capacity to generate wealth than providing homes for families. They'll hang onto a property for maybe five years or so then sell it, banking the gains or putting them towards their next investment. For the most part, Australian landlords are not interested in building large portfolios, and they don't want to concern themselves with the day-to-day workings of property investment. They tend not to engage with things like renting laws, tribunal procedures, or tenants' rights unless they have to. Many are happy to ignore these aspects of investment altogether, handing them all over to real estate agents who know only too well they won't have anyone looking over their shoulder as long as the rent rolls in and the outgoings stay under control.
Building to let offers a genuine counter to this. At least, it does in theory.

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

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

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

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

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

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

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

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

Friday, August 25, 2017

New Bonds data released but more is needed

Yesterday Fair Trading released bond data for the first time other than through the Rent and Sales Report. We welcome the release of this data as it will be very useful to enhance understanding of issues and trends in the rental sector. As the Minister for Innovation and Better Regulation, Matt Kean said in his media release, “I want to put consumers first and this data does that by allowing open, transparent access to useful rental information.” Sounds good to us, Minister!

However, it pays to understand what this data tells us - and just as importantly what it does not.

An article this morning helped to demonstrate the limits of this data. Looking over the data, the journalists discovered that a much larger proportion of bonds being refunded in some areas of Sydney and New South Wales were going to the landlord rather than the tenant. The problem is we don't know the context of those bond refunds, and how they were claimed.

Click for full size!

Bonds can be released from the Rental Bond Board in one of three ways. The landlord and tenant can come to a mutual agreement and lodge a bond refund form with both parties agreeing to amounts payable either way. If the parties can't come to an agreement, one or other of them  can make a unilateral claim for what they think is appropriate, without the other party's signature. The person who didn't sign is given 14 days to lodge an application to the Tribunal if they disagree with the claim. If they do not take it to the Tribunal the bond is paid out as requested. This is the second option. The last option is that the dispute does go to the Tribunal and the bond is decided either by a final negotiation, or as decided by the Tribunal Member.

Tenants and landlords should both be aware that the bond is the tenants' money. It is held in trust by the Rental Bond Board - it is not some common pool of money and landlords should not regard it as theirs for the taking. Vulnerable tenants may be unaware of their ability to dispute a claim against the bond, or indeed feel unable to assert their rights due to their vulnerability in the rental sector.

Whether bond refunds are agreed upon, or disputed, and whether a claim made by the landlord has been tested in the Tribunal is a crucial piece of information which the Rental Bond Board already has in its data banks and could release. It would go a long way to allowing researchers and journalists to peer behind the information that's already been released and examine the geographic differences that have been drawn out.

We've also heard that exit surveys on bonds have been considered - we think this is an excellent idea. For instance there is no information currently collected about how and why tenancies in NSW end - this means a government and community making decisions about how effectively tenancy legislation is working have a very deep and dark blind spot on an incredibly important aspect of renting law. An exit survey on the bond claim form would be a simple and effective way of adding a depth of knowledge to our collective understanding of the renting experience in our state.

In the spirit of open and transparent access to information, we encourage the Minister and Fair Trading NSW to consider releasing both the currently available information of whether bond claims are disputed and tested, and strongly consider implementing the bond survey to develop a truly excellent source of data.