Hidden within the coronavirus-devastated tourism market is a related impact: the loss of customers could be financially devastating for small investors who dominate short-term letting platforms such as Airbnb. After a decade of high returns, they may now wonder whether a return to the secure, if slightly less lucrative, long-term residential tenancy market is a safer bet. If investors shift from short-term letting to long-term rentals in search of greater security, this would benefit the growing numbers of Australians in rental housing.
With the coronavirus pandemic there are signs this is already happening. In Dublin, for example, a 64% rise in long-term rental properties has been reported this month. It’s thought landlords are withdrawing from short-term listing sites and offering properties on the rental market.
Until now, rising property prices have forced more Australians into long-term renting even as short-term letting has eaten into the supply of properties. Young adults once dominated the rental market. It’s fast becoming a more permanent solution for families and even for older Australians. One in three households now rent their homes.
So, with almost 350,000 Australian properties having been listed on Airbnb, the impact on local communities can be significant. The increase in short-term lettings has been linked to increasing homelessness.
Beyond the immediate impact of coronavirus on tourism in Australia, it’s possible the increased risks in the holiday lettings market may provide the impetus to align the interests of landlords and tenants around longer-term tenure.
Despite Prime Minister Scott Morrison urging vacationers not to ask for refunds from struggling operators, the tourism downturn has introduced a new level of risk for hosts. Airbnb has enacted a policy of full refunds for cancellations, which is reported to be “completely obliterating smaller hosts”.
Other platforms are advising hosts to manage COVID-19 risk themselves. This leaves many investor-landlords navigating a complex, public health crisis largely on their own.
With some of our most popular destinations facing an existential crisis, the impacts on small business, working families and low-income Australians may be both obscured but far-reaching, as the Airbnb example shows. Big players in the tourism industry can lobby federal government for support. Individual agents in the share economy are largely unprotected.
To date, the home-share concept has been a winner for property investors. Holiday letting has largely moved on from the original Airbnb model of sharing one’s primary residence. Letting through digital platforms with access to a global market of tourists has brought high-rent, low-risk dividends for people with investment properties.
The coronavirus pandemic, however, is revealing cracks in the foundations of the holiday-letting model.
Research suggests the digital disruption of the holiday accommodation sector has had significant impacts on local renters. There is little doubt tourist demand through online letting platforms has reduced the supply and increased prices of long-term rental housing in Australia, particularly in parts of our capital cities.
Likewise in Europe, where one in four rental properties in some tourist destinations is now a holiday property. This has led some governments to introduce strict regulation. It includes licensing, fines and limits on the number of days a property can be let each year.
Australia has been slower to respond, despite observations that Airbnb is “impacting the rental market and … bringing the cost of housing up”. Even in Tasmania, which has the strongest market regulation, one in every 27 Hobart homes remains listed for short-term lease. Similarly, in Sydney and Melbourne, growth in the sector has driven up rental housing costs.
In New South Wales, fines for unregistered holiday lets have increased by 500%. But councils struggle to enforce laws that landlords are either unaware of or actively avoid complying with.
Home ownership has become a privilege in Australia, one driving disadvantage among those who are locked out. For a single age pensioner, for example less than 1% of rental housing is affordable. And long-term rental housing stock is often of poor quality.
Australia’s rental housing system undeniably needs a rethink. The sector presents a growing problem for state and territory governments, in terms of both the supply of affordable rental properties and finding the right balance between landlord and tenant rights.
Government measures to increase the availability of rental housing through tax incentives, such as negative gearing, are unfortunately not restricted to landlords who offer longer-term tenure. To date there has been little financial incentive to eschew the higher returns of the Airbnb model for the relative stability of residential tenancies.
In times of crisis, Australians pull together. During the summer bushfires, we saw Airbnb hosts offer emergency housing to displaced families. They recognised the critical importance of a safe and secure home – a sanctuary. We need to recognise this critical function of home beyond times of crisis, to ensure every Australian has a home for good.
Per Capita’s Centre for Applied Policy in Positive Ageing is launching its Home for Good project in collaboration with The Australian Centre for Social Innovation today. You can read their policy brief on Australia’s private rental housing market here.
The coronavirus and its attendant emergency measures are set to deliver a profound shock to the residential tenancy market.
How it will work out is anybody’s guess, but it is looking like a crisis.
Banks and governments have acted quickly.
The major banks are deferring mortgage payments for up to six months for customers whose income is hit by the coronavirus.
NSW and Tasmania have introduced bills that will make it difficult for landlords to evict tenants or terminate leases during the crisis.
The rushed laws are designed to prevent a raft of evictions and a spike in homelessness, but they raise almost as many questions as they answer.
Both laws put power in the hands of the minister, giving that person the power to make regulations during the coronavirus pandemic. Tasmania’s more closely prescribes what the minister can do.
Neither law excuses tenants from their liability to pay rent. They merely prevent evictions during the emergency period.
In effect they say that although tenants can stay, their landlords can later sue them for arrears.
While on paper, this suggests landlords will get their money, in practice they might not, and some will be tempted to issue notices of termination ahead of the minister taking action.
The minister’s regulations would most likely be prospective, meaning landlords would seem to be able to get away with it. But whether a tribunal would enforce the notices is another question.
The Tasmanian bill only permits landlords to apply for terminations where the landlord is in hardship. The NSW law has less detail, but would probably do the same.
In any event, most landlords who evicted would want to re-let, and that will prove difficult with inspections prohibited.
Sick tenants are unlikely to be evicted whatever the law. That is in nobody’s interests.
Cooperation in a crisis is desirable, but it is fraught in practice.
Representations made by landlords with the best of intentions can become binding under the equitable law of estoppel.
In essence, once landlords make representations they can be estopped (stopped) from going back on those representations.
In an environment where fortunes change quickly, this might become problematic.
Contract law is replete with cases of agreements varied or entered into with the best of intentions that ultimately turn sour.
Given there are tough and uncertain times ahead, a better approach than rushed laws might be a pragmatic one of exhorting both landlords and tenants to take the legitimate interests of each other into account.
If laws are to be made, there ought to be extensive consultation.
Even in the coronavirus pandemic this is doable and a good idea.
Staying home and social distancing are now essential to control the spread of COVID-19. Suitable accommodation for quarantine and isolation are critical, but Australia’s broken housing system leaves us all exposed.
By now, almost every Australian will have thought about the coronavirus pandemic in terms of their own housing. For many home owners, this is an economic concern. They are dangerously in debt after a 20-year housing boom. Renters face greater uncertainty.
But it’s people in overcrowded, informal or no housing at all who are most exposed. Crowded housing conditions are bad for all occupants, largely through the increased risks of infections, as WHO Guidelines on Health and Housing clearly identify.
The increased risk of COVID-19 infection will have impacts on both the residents of crammed dwellings and the rest of the community. Improving the housing conditions of the most marginalised members of our society is an important biosecurity measure.
This trend includes a sharp rise in older people living in crowded or marginal housing.
Crowding is endemic in Indigenous communities. Poorly maintained and inadequate dwelling conditions make the impacts of crowding worse.
Previous experience with swine flu – Influenza A (H1N1) – indicates contagious disease outbreaks in Indigenous communities will be catastrophic. After over a decade of making remote areas harder places to be – as a result of cuts to housing and infrastructure allocations and increased water insecurity – they are now expected to operate as refuges.
Tertiary students, including international students, are also likely to be living in overcrowded share houses and room-share rentals. These arrangements already breach basic health and sanitation standards.
These problems aren’t due to a shortage of housing. Census data show the number of unoccupied dwellings increased during the same period that homelessness grew.
Rather than an absolute shortage of homes, our increasingly financialised property market has distorted access to decent accommodation. Housing is now treated as an asset instead of a basic right. In recent years platforms such as Airbnb have made this situation worse by transforming permanent rentals into short-term accommodation for tourists.
Securing adequate housing for those in unstable accommodation, particularly those who need to isolate, is the next phase in this public health response. Suitable housing must be made available immediately in locations near hospitals and key health services. This can be triaged.
Options might include:
local hotels or motels – for people in metropolitan and some regional centres this seems to be an obvious option as many are likely empty of travellers
vacant holiday homes or temporary workforce housing
other health accommodation used for rehabilitation that can be repurposed
construction of temporary dwellings.
Hotels close to major teaching (university) hospitals could be commandeered for patients with COVID-19 who need quarantined nursing care, but not intubation to help them breathe.
These hotels could also provide places of rest for health workers who might wish to isolate themselves from their families while they fight in our favour. For example, the University of Tasmania has provided one of its hotel buildings, which has been used for student housing, to the Tasmanian government for this purpose.
Access to hotels and motels for civilian isolation practices more broadly is an obvious solution across urban areas and regional centres.
To reduce the risks arising from inadequate housing, the nation’s vast holiday rental supply should also be considered for people on priority waiting lists for social housing who are in crowded accommodation. Owners of currently empty holiday accommodation could receive the equivalent of rent assistance payments from the Commonwealth for making their housing available.
A vast tourism workforce of property managers, maintenance and cleaning staff, already reeling from the bushfire crisis, is likely ready and able to repurpose residential tourist accommodation for those in need.
On the other side of the health crisis, it’s clear a rapid, nation-building expansion in social and affordable housing must be part of Australia’s plan. Well-designed, secure and maintained housing should be Australia’s first defence, not our weakest link, in combating health, climate and economic crises.
Nicole Gurran, Professor of Urban and Regional Planning, University of Sydney; Peter Phibbs, Director, Henry Halloran Trust, University of Sydney, and Tess Lea, Associate Professor, Gender and Cultural Studies, University of Sydney
The COVID-19 pandemic is a double crisis affecting public health and the economy. And both aspects are playing out in our housing system – in our homes.
More and more of us are being directed to stay home, to work from home, or to socially isolate at home. Our homes are the “first line of defence against the COVID-19 outbreak”, as the UN’s Special Rapporteur on Housing puts it. But, depending on how our housing system responds, it could make the double crisis worse.
More and more workers are losing shifts, or losing jobs altogether, as well as the incomes they use to pay for their homes – whether it’s the rent or the mortgage. On Friday, the prime minister announced that states would work on model rules to provide relief to tenants in “hardship conditions”. On Sunday, the federal government moved to replace some of the income households have lost, temporarily doubling some social security payments and making cash grants to businesses.
The risk of people becoming homeless during the pandemic is still high. Some more specific actions are needed to shore up our first line of defence. Governments must implement a moratorium on evictions as long as the crisis lasts. Similar changes have already been made overseas.
A sudden loss of wages puts renters at risk of arrears and owner-occupiers at risk of mortgage default. This may result in legal proceedings to terminate the tenancy or give possession to the bank or other lender, and ultimately eviction. Tenants are vulnerable to termination and eviction for a host of other reasons, too.
Renters are at particular risk because rent arrears termination proceedings are quick. You can go from a missed payment to termination orders in about eight weeks in New South Wales. Other states and territories are similar.
Many renters’ finances are already precarious. About one-third of private renters are low-income households in housing stress (in the bottom 40% of household incomes paying more than 30% of income in rent). And 30% don’t have $500 saved for an emergency.
Now workers are facing sudden income and job losses. We see widespread evidence of an economic downturn across many sectors, including tourism, hospitality and the arts. Casual workers are at particular risk of reduced income if required to self-isolate for long periods or care for unwell family members.
An eviction is a breach in the first line of defence that housing provides against COVID-19. In fact, the risk of arrears and eviction might drive an infected person to keep working and transmitting the virus.
An evicted household might pile in with family or friends, disrupting social isolation and contributing to unsanitary overcrowding. It’s a challenge people already living in share housing will have to manage. Across Australia, 81,000 dwellings are already overcrowded, 51,000 of these “severely overcrowded”.
People who have been evicted might move through temporary accommodation, and through real estate offices, social services and doctors’ rooms making urgent applications. Or they may be shut out of assistance, and sleeping rough. With limited space and facilities to wash hands and personal effects, the risk of transmission will grow.
These risks justify a government-imposed moratorium on evictions for the duration of the crisis. This could be done through legislation, or through an emergency executive direction to authorised officers to stop evictions. Other countries have already taken such steps.
In the United States, many states and cities have suspended eviction proceedings against tenants. Federal housing finance agencies have implemented a 60-day moratorium to protect some families from mortgage default.
A moratorium on evictions is an obvious triage measure. That’s why in Australia a community coalition has come together to advocate for no evictions during this crisis. You can show your support by signing the petition.
The federal opposition is urging the government and financial institutions to consider similar measures.
By itself, an eviction moratorium doesn’t affect the legal liability to pay rent or mortgage instalments. Without anything more, those liabilities would continue.
The federal government’s increased social security payments and business grants will go some way to replacing the income households are losing. But even as the government tips money into households, money is drained away by rents and mortgage payments.
About A$40 billion is due to flow out of Australia’s 2.5 million private renter households and into 1.3 million landlord households. Landlord households have, on average, much higher incomes and wealth than other households.
Billions more are due to flow, as principal and interest payments, from 3.4 million owner-occupier mortgagees to the banks. Australia’s big four banks last week announced borrowers could “pause” their payments as a pandemic hardship measure. But mortgagees should be aware interest not paid is capitalised into the debt, so they will have more to pay off after the “pause” ends.
Both to prevent the accumulation of arrears, and to make the government’s income-replacement measures more effective, governments should consider implementing reductions or waivers of rent and interest liabilities for as long as the crisis lasts.
The double crisis of the COVID-19 pandemic needs a dual response that aims to keep households in their homes and to keep income in households.
Sophia Maalsen, ARC DECRA Fellow and Lecturer in Urbanism, School of Architecture, Design and Planning, University of Sydney; Chris Martin, Senior Research Fellow, City Futures Research Centre, UNSW; Dallas Rogers, Program Director, Master of Urbanism, School of Architecture, Design and Planning, University of Sydney, and Emma Power, Senior Research Fellow, Geography and Urban Studies, Western Sydney University
Low-income tenants in Australia are increasingly likely to be trapped in rental stress for years. New evidence from the Productivity Commission shows almost half of such “rent-burdened” private tenants are likely to remain stuck in this situation for at least half a decade.
Rental stress is where a low-income tenant faces housing costs that leave them without enough income for food, clothing and other essentials. The scale of the problem – commonly defined as when rent eats up more than 30% of income – is usually presented as a “point in time” or snapshot statistic.
As the Productivity Commission report reveals, the snapshot number in this situation has increased from 48% of low-income renters in 1995 to 54% in 2018. That’s around 1.5 million people pushed into poverty by high housing costs.
For some, of course, this will be only a temporary problem. On this basis, it is sometimes argued that concerns over Australia’s high rate of rental stress are overstated.
However, the Productivity Commission report, Vulnerable Private Renters: Evidence and Options, highlights longitudinal survey evidence showing that a low-income tenant’s experience of rental stress is increasingly likely to be long-term – not a passing problem. As the commission notes:
[…] a growing number of households find themselves stuck in rental stress.
This conclusion stems from a comparison of two different tenant cohorts experiencing rental stress as revealed by survey data for 2001 and 2013. Less than a third (31%) of the 2001 cohort remained in stress five years later. But almost half (46%) of the 2013 cohort were.
So, it’s not just that more low-income earners are paying unaffordable rents at a particular point in time. This is increasingly a situation that affected private tenants cannot escape.
Beyond the obvious welfare impacts, recent work argues that excessive rent burdens may also damage human capital and, as a result, reduce economic productivity.
The commission’s findings seem to suggest the ongoing restructuring of Australia’s labour market and housing system is eroding socioeconomic and/or housing mobility. The report notes the significant fall in the numbers who manage to move from renting to owning – from 13.6% of renters in the period 2001-04 to 10.0% from 2013-16.
Perhaps slightly more surprising is the commission’s explanation for the rising rate of (point in time) rental stress for all low-income tenants. According to the report, this results not from increasing unaffordability for the private renter cohort specifically, but from the growing dominance of private rental housing as the tenure in which low-income households live.
This, of course, results from the post-1990s failure of Australian governments to expand the supply of social housing to match population growth. By 2018, well over two-thirds (71%) of low-income tenants were renting in the (relatively expensive) private market – rather than from a (rent-limiting) social landlord. Back in 1996, barely half (52%) of them were renting privately.
The report presents some useful discussion of possible policy directions.
For example, while dismissing rent control as liable to advantage existing tenants at the expense of potential tenants, the report is implicitly critical of residential tenancy laws in most states and territories.
The report advances the broad case that tenancy law reforms, “if well designed”, can enhance tenant welfare “without substantially increasing the cost of renting”. Longer notice periods are particularly favoured because these will “provid[e] vulnerable families more time to find new accommodation and prepare for the move”.
Slightly more controversially, the commission strongly hints at support for outlawing no grounds evictions. The landlord power to end a tenancy without any need to justify the move persists across most states and territories. Discussing this power the report states:
It increases the bargaining power of landlords […] and decreases that of tenants. Landlords’ incentives to carry out obligations, such as repairs and maintenance, decrease when no grounds evictions are available, since this provides them with an avenue to terminate leases in the event of a dispute.
However, having highlighted a private rental affordability problem that is both growing in scale and becoming demonstrably more entrenched, the report is timid on solutions beyond modestly improving tenancy conditions.
It argues in general terms for an increase in Commonwealth Rent Assistance but – beyond tentatively floating a 10% rise in maximum payments – advances no specific proposal.
Expanding the social housing stock as part of the broad-ranging housing strategy Australia badly needs is scorned as “an expensive option”. This is a reference to the narrowly scoped analysis in the commission’s 2017 Human Services report. It favoured market solutions to provide low-income housing – on efficiency grounds.
The “expensive option” assertion is out of line with the more broadly framed analysis of the Productivity Commission’s predecessor, the Industry Commission. The latter concluded:
Public housing and headleasing [when social housing providers sublease private rental properties] are assessed to be more cost-effective than cash payments and housing allowances.
While the Industry Commission report admittedly dates from 1993, the subsequent failure of overwhelmingly private provision for low-income renters surely presents compelling reasons to revisit the investment case for social housing.
Australian houses use significantly more electricity to stay warm or cool than estimated during the design stage.
To design a new house in Australia, the building needs to meet the national construction code. One way to do this is by using software to simulate the building’s thermal efficiency, to see if it meets the minimum requirements of the national house energy scheme. The scheme divides Australia geographically into 69 different climate zones and requires new houses to be thermally appropriate for their environment.
Unfortunately, this software does not properly take into account our warming weather. Our recent report found the climate assumptions used by the government drastically underestimate the length and heat of summers in the near future.
In fact, buildings that perform best for heat waves predicted by 2030 are actually banned by the government’s building code. We urgently need to update our building codes to cope with our changing climate.
We took Richmond in New South Wales as an example to understand the effect a changing climate might have on building performance. By taking predictions from CSIRO’s medium greenhouse gas emissions scenario, we analysed Richmond’s likely weather for every week of 2030.
The future outlook, shown below, is strikingly different from the weather files used to determine whether houses meet the minimum thermal performance requirement of the National Construction Code. In 2030, Richmond will experience a warm period almost four times longer than predicted by the official weather file.
Based on the future climate scenario, the design strategy for buildings in Richmond should focus on well shaded and insulated buildings to avoid any heat gain in the warm period, but should also harness sunlight to warm up the indoors in the cool period.
The warm period will last from December to March, when keeping the house cool is the priority. Passive solar heating, such as northern windows and well-insulated walls, floor and ceilings, are important during the May to September cool months, while direct ventilation is largely all that’s needed during the mostly comfortable April and October to November.
To test how houses will perform in a hotter future, we modelled a house in Richmond using AccuRate software. We found a design and construction solution that performed well (achieving 7.6 stars out of 10) for the 2030 scenario failed to meet a heating threshold that is legally required in NSW. In effect, the house that makes the most sense for the immediate future, could not be built.
These thresholds for heating and cooling are based on assumptions that are out of step with current conditions, let alone the future. Between 2016 and 2018 Richmond’s annual average temperature was 17.8℃, whereas the NatHERS weather file assumes it to be 16.7℃. This difference is set to increase.
In a 2019 amendment, the National Construction Code adopted NSW’s approach to heating and cooling thresholds to other climate zones in other states. The heating threshold puts a restraint on designing buildings that are optimised to mitigate extreme heat events.
This highlights the limitation of out-of-date climate files, and the current regulation that acts as a barrier to developing energy efficient designs for a future warmer climate.
A 2013 CSIRO study found that houses with higher star ratings using more energy in summer.
One of the reasons is the trade-offs on the thermal performance of one building component against another in the Nationwide House Energy Rating Scheme (NatHERS) software. For example, a window without shading on the western façade is acceptable in a NatHERS simulation, whereas the same window would not be allowed if a glazing calculator developed by the National Construction Code were used to demonstrate the thermal performance of a house.
Other issues are trade workmanship, such whether a building is airtight. Airtightness in residential buildings is ignored in the national construction code. However, considerable energy savings can be achieved if a house can be made airtight.
Similarly, missing or displaced insulation in the ceiling, as shown above, can cause significant discomfort and additional heating and cooling costs. We all, from builders to homeowners, need to understand insulation must be carefully installed and cannot be moved later, or even well designed buildings will become inefficient.
Windows are the main option for ventilating most houses. However, if you live in a high-pollution or noisy area, or in a place with very little wind, open windows might not be desirable or practical. Consequently, households may not be getting enough fresh air to maintain a healthy indoor environment. A mechanical ventilation system, which uses little energy, is an ideal alternative.
The current weather files and heating thresholds used to develop minimum building standards are inadequate for our warming climate. Our report presents a framework for designing and building houses that consider climate change. We hope to see further research on other Australian population centres, so we can develop a comprehensive overview to help us build energy efficient and healthy houses for the future.
In the wake of slumping demand for apartment building, it’s little wonder the multi-unit housing industry has been eagerly eyeing a possible new residential product: “build-to-rent”.
In fact, the latest figures show that apartment-building construction starts were down 36% in 2018 from 2016. But how much will this little-known type of housing solve our housing problems?
Build-to-rent won’t be a silver bullet solution for Australia’s housing affordability stress, but it does have potential to tick the box on several important public policy objectives. These include widened housing diversity, enhanced build standards, and a better-managed, more secure form of private rental housing.
But for this to happen, Australia’s tax settings need adjustment.
This refers to apartment blocks built specifically to be rented, usually at market rates, and held in single ownership as long-term income-generating assets.
The enduring owner might be, for instance, an insurance company, an Australian super fund, a foreign sovereign wealth fund, a private equity firm, or the building’s developer.
Although new in Australia, build-to-rent is quite common in many other countries. Under its North American name, “multi-family housing”, the format has generated more than 6.3 million new apartments since 1992 in the US alone. And in the UK, a build-to-rent sector has led to 68,000 units built or under construction since 2012.
A scattering of build-to-rent schemes are already underway or completed, mainly in inner Sydney and Melbourne. And they may prove to be the forerunners of a new Australian residential property sector – but that is far from guaranteed.
In Australia, our private rental market is almost entirely owned by small-scale mum-and-dad investors, so this kind of housing would be a largely new departure from typical Australian real estate.
The build-to-rent development model, involving a long-term owner commissioning an entire building, creates an incentive for higher, more enduring quality than the standard “build-to-sell” apartment development approach.
Importantly, build-to-rent is a long-run investment that caters for rental demand, which tends to grow steadily.
This means the model is largely immune to the fickle changes in housing demand resulting from typically short time horizons and primarily speculative instincts of individual buyers traditionally dominant in our market.
So at its full potential, this new housing product could introduce a valuable counter-cyclical component into the notoriously volatile residential construction industry, helping to offset damaging booms and busts. In other words, build-to-rent can create stability in the Australian property market.
Optimistically, some have claimed build-to-rent could also provide an “affordable housing” fix for many earners who are doing it tough in our existing private rental market.
But this could be possible only with the aid of major government funding or planning concessions.
Ideally, housing at rents affordable to low or moderate income earners would be included in predominantly market-rate build-to-rent schemes. Indeed, one major construction industry player recently advocated this as a standard expectation.
So how should affordable housing be provided in this case?
To find out, our analysis compares the cost of developing affordable housing by a for-profit company with development under a not-for-profit community housing provider.
Thanks to that non-profit format, and the tax advantages that go along with it, community housing providers can, in fact, construct affordable rental housing at significantly lower cost than their for-profit counterparts. Less subsidy is therefore needed.
Nonetheless, government help in some form will be essential to enable an affordable housing element. The most painless way for this to happen, from the government perspective, is through allocating sections of federal or state-owned redevelopment sites to community housing providers at discounted rates.
Encouragingly, this strategy was recently advocated by newly designated federal housing minister Michael Sukkar.
Such designation of government-owned sites could, for instance, be factored into large-scale urban renewal projects like Sydney’s Central-to-Eveleigh and Rozelle Bays. When complete, it could fulfil the widely voiced demand that 30% of these developments should be affordable housing.
Our modelling shows that under current conditions, even market-rate build-to-rent projects are barely viable – at least in Sydney.
The inflated price of developable land in Australia’s urban housing markets is an important contributing constraint. But our research also identifies a range of government tax settings that disadvantage build-to-rent, compared with both mum-and-dad-investors and traditional build to sell developers.
Removing less favourable land tax and GST treatment could markedly improve build-to-rent feasibility.
From a housing policy perspective, there’s also a case for the federal government to reconsider its recent “withholding tax” decision that treats overseas-based institutional investment in rental property less favourably than investment in commercial property.
Since such global funds would likely lead the establishment of a new Australian build-to-rent asset class, revisiting the withholding tax changes could be a significant step in making build-to-rent a reality in Australia.
In any case, build-to-rent is no simple solution for Australia’s affordable housing shortage.
But even as a market-rate product, it could fulfil several important public policy objectives. How far it might do so in practice is something that governments rightly need to weigh up when considering industry-proposed tax and regulatory reforms.
People’s quality of life, their health and their comfort can suffer when living in poor-quality housing. It can also impose high ongoing costs of maintenance, repairs, heating and cooling. And these problems are more likely to affect low-income households, as our report for Shelter NSW shows. In it, we review the evidence on housing quality problems and consider ways to resolve these, especially for low-income households.
These negative impacts vary by income groups and tenure. From the recently completed Australian Housing Conditions Dataset we know, for example, that renters on very low incomes (the bottom fifth of households for gross income, about $20,000 a year) are most likely to have unmet repair needs. They also have a harder time staying comfortable during winter and summer, as the table below shows.
There are several underlying reasons for substandard housing.
Properties may enter the rental market after years in owner-occupation with no formal checks on their state of repair.
Another problem is some private renters do not assert – or feel unable to assert – their legal right to habitable premises in a reasonable state of repair and upkeep. This is often because of the insecurity of their leases and lack of affordable alternative housing.
Another issue is “split incentives” – landlords decline to upgrade properties because they would not receive any benefit themselves.
There are also problems in public housing. Disinvestment by governments has both reduced the supply of housing and caused a backlog of maintenance for much of the remaining stock of dwellings.
Housing quality is covered by myriad regulatory regimes. Lately, governments have been focused on questions of how best to regulate construction of new buildings. Less attention is given to the ongoing use of existing buildings.
Recent state and national reviews have highlighted problems in the certification of building design and construction, and in the public agencies that oversee the certifiers. Some state governments have begun to respond. The New South Wales government, for instance, is moving to consolidate the regulation of construction practitioners under a new building commissioner.
We spoke to a range of housing sector stakeholders and the theme from the recent reviews that most struck a chord was inadequate policy governance. There was no comprehensive overview or oversight of the issues of housing quality. As a result, some important issues escape policymakers’ attention.
Many stakeholders indicated that the current focus on problems in new buildings is an example of this. Although that’s plainly an issue in need of attention, other problems in existing buildings and more fundamental solutions are being overlooked – such as increasing social and affordable housing supply.
Empowering tenants and regulators
One way in which the quality of existing housing is regulated is through tenancy laws. This will become more important as rental housing becomes an increasingly common option, particularly for the long term.
Recently, some state governments have amended tenancy laws to specify “minimum standards” for rental housing. Our research participants supported these moves, but said security of tenure also had to be improved to protect renters when they assert their rights. The onus of legal enforcement could also be shifted from tenants to regulators.
Mandating improvements to overcome the split incentive problem
The split incentive problem for housing quality means some landlords are reluctant to pay for upgrades – such as insulation or other energy-efficient features – where tenants are the beneficiaries. As a result, renters, especially those on low incomes, are likely to be living in housing of lower standards or quality.
A potential solution is for governments to take the minimum standards approach and legislate energy efficiency and other improvements as mandatory. This is already commonplace overseas.
One of our workshop participants observed that “energy poverty” was another way of framing the policy issue that had proved compelling in overseas jurisdictions. While this framing had not had the same impact in Australia, this may be changing.
Improving transparency of housing standards
Social housing providers have a role in leading by example. Increased investment in social housing could contribute to improved quality across the housing system.
To this end, social housing landlords – particularly state and territory public housing authorities – need to be more accountable to tenants and the general public. Transparent reporting on property conditions, maintenance and tenant satisfaction, led by the social housing sector, can and should be rolled out as standard practice across the sector.
Collectively, these options can deliver more equitable housing outcomes, not only to low-income households but to all. The challenge lies in having the political and industry will to act on them.
Edgar Liu, Senior Research Fellow at City Futures Research Centre, UNSW; Chris Martin, Research Fellow, City Futures Research Centre, UNSW, and Hazel Easthope, Associate Professor, City Futures Research Centre, UNSW
Institutional investors would receive long-term subsidies to build new dwellings – on condition they rented them out below market rates – under an affordable housing program Bill Shorten is announcing on the first day of Labor’s national conference in Adelaide.
A Labor government would offer 15-year subsidies – $8,500 a year – for investors building new homes provided they charged rent at 20% under the market rate.
The program would cost A$102 million over the forward estimates to 2021-22 and A$6.6 billion over the decade to 2028-29. The costing was done by the Parliamentary Budget Office.
In his Sunday announcement, Shorten says that the ALP’s ten-year plan to build 250,000 houses and units would be Australia’s “biggest ever investment in affordable housing”. The plan includes 20,000 dwellings in the first term of a Labor government.
“This is a cost-of-living plan, a jobs plan and a housing plan. It will give working families a fair go to put a roof over their head now – and save for their own home in the future.”
He says these dwellings would be available to renters on “low and moderate incomes”. A family paying the average national rent of $462 a week could save $92 a week.
Labor would work with community housing providers, the residential construction sector and institutional investors.
“Labor’s plan will provide investors with certainty to build – knowing that they will have long-term government support and guarantees beyond the decade.”
Shorten says access to housing is one of the biggest challenges to dealing with intergenerational inequality, as an increasing “wealth gap” locks people out of the housing market.
“Increasing the supply of affordable housing is critical to addressing pressures on disposable income and, in turn, addressing inequality.
“Labor’s plan will deliver affordable, environmentally sustainable housing that helps to reduce energy consumption and cost-of-living pressures on Australian families.”
Shorten says the existing rental scheme – the National Rental Affordability Scheme – has attracted private investment of about A$12.9 billion, delivering 37,000 dwellings in a decade.
“Despite this success, the Liberals have abandoned affordable housing and axed the subsidies that encourage affordable housing. There is a severe shortage of affordable rental housing in Australia and many families are struggling to find and keep a roof over their heads. The number of Australians experiencing rental and mortgage stress is at record levels.”
The Australian Housing and Urban Research Institute estimates a shortfall of more than 525,000 affordable rental properties, Shorten says.
Overseas students, temporary foreign workers and other non-residents would not be eligible to rent under the Labor scheme.
Shorten says the plan would support the ALP’s reforms to negative gearing, “which direct concessions to newly built premises and encourage housing construction”.
Labor hopes that the three-day conference will end the year on a high note for the opposition, after its strong two-party performance in polling during 2018. Maximum effort has been made to ensure that internal policy differences are managed to avoid damaging public divisions.
Shorten told a press conference on Saturday that he hoped to see “energetic, enthusiastic debate” at the conference.
He said “perhaps the most valuable proposition that Labor presents the Australian people at the federal election within the next five months – it’s a united team, it’s energetic and it’s a team with vision”.
Shorten defended his undertaking that Newstart would be reviewed ahead of an ALP government considering an increase.
“I think Newstart is too low. I don’t think anyone who says that it needs to increase is wrong.
“But what we’ll need to do from government is review the level and understand the implications of increasing Newstart, along with the impact on all of our other taxes and payment systems.
“We have to look at what we can afford as a nation. But we’re not reviewing Newstart to decrease it.”
On the sensitive issue of asylum-seeker policy, Shorten told his press conference a Labor government would put whatever resources were needed into stopping boats.
It would also support regional and offshore processing. It would take refugees into Australia – “properly, not via people smugglers”.
“We want to be a good international citizen – we also recognise, however, that we’ve got to make sure that whatever policy we adopt we can afford, and that it meets our combined goals of not keeping people in indefinite detention on Manus and Nauru but also keeping our borders strong, so we never again see the people-smuggling trade start up.”