Mortgage deferral, rent relief and bankruptcy: what you need to know if you have coronavirus money problems



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Gregory Mowle, University of Canberra

The coronavirus pandemic has wreaked havoc on the Australian economy, and the financial effects for many are deeply personal.

Sadly, there’s no shortage of terrible advice online when it comes to personal finance. And as September 30 looms – the date by which JobKeeper, the increased JobSeeker and many negotiated rent and mortgage deferrals end – it’s important to be fully informed before you make potentially life-changing financial decisions.

As a former financial counsellor and former consumer credit educator for the Australian Securities and Investments Commission (ASIC), here’s what I think you need to know if you’re considering mortgage deferral, rent relief or bankruptcy.




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Mortgage deferral

Residential mortgages are covered by federal legislation, under which lenders can assist when borrowers can’t afford their usual repayments due to changed circumstances — such as losing hours or employment.

For example, you can ask your lender put on hold payments from June to September. It’s up to you and the creditor to establish clearly what happens to those payments. Are they pushed to the end of the contract, thereby extending the life of your loan? Or will you repay extra when you can afford repayments again?

Make sure you understand how much more it will cost you in additional interest if you extend the life of your loan by deferring these payments to the end of the contract. Depending on the details of your loan, you could be adding thousands of dollars to the amount you need to repay.

Most mortgage lenders don’t really want to repossess your house. It’s costly, time-consuming and stressful. But before asking for mortgage relief, you need to have a plan for the post-deferral period.

What happens if you still can’t make your usual repayments? Any licensed financial professional should be able to help negotiate a deferral on your mortgage or other consumer debts such as credit cards, but you should first consider seeing a free financial counsellor who is independent of any lenders. They can be contacted on 1800 007 007 or through the National Debt Helpline

Before asking for debt relief, you need to have a plan for the post-deferral period.
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Rent relief

If you can’t pay your rent due to changed circumstances, you can ask your landlord to reduce or defer your rent. They can, of course, say no.

Unlike mortgage deferral, the implementation and process is inconsistent across states and territories. It can be difficult to navigate.

There are reports of some landlords asking for comprehensive financial statements to support claims, or for their tenants to access the early release of up to A$10,000 in superannuation to pay the rent.

Ausralia’s corporate watchdog, the Australian Securities and Investments Commission (ASIC), has warned real estate agents that advising tenants to take money from their superannuation may constitute giving unlicensed financial advice and/or be against people’s best interests, attracting possible fines and jail time.

If you’re talking with your landlord about rent relief, be clear on whether you’re talking about rent payments being reduced, deferred or permanently waived, and whether these payments would need to be made up by a certain date. Renters can seek help from free financial counsellors or a tenants’ union.

State and territory governments have established various schemes to help renters work out agreements with their landlord (see this Western Australian scheme as an example).




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Bankruptcy

Bankruptcy should be a last resort. Many creditors have shown they’re willing to provide short-term delays (for about 90 days, for example) if people need more time to pay a debt.

Consumer credit contracts are written on the basis that life has its ups and downs and if a debtor genuinely can’t pay, the creditor can help by reducing payments, stopping interest charges, deferring payments and/or restructuring loans.

In almost all consumer bankruptcies, there is no return to creditors so they generally don’t want debtors to go bankrupt. It’s in their interest to help debtors through a difficult period so they can return to making payments.

Call the National Debt Hotline before you make any big decisions around bankruptcy.
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Of great concern to consumer advocates is that searching “bankruptcy” or “help with debts” on the internet will often generate results for companies with a vested interest in placing you in what’s called a “debt agreement”. These should be approached with caution. It basically means you pay for a company to help you declare bankruptcy – but this is unnecessary.

A debt agreement is an act of bankruptcy that directs fees to those companies and quite often places consumers in unmanageable and unsustainable long-term repayment plans.

Instead, try to find free financial counsellors, some of whom work for charities. They are professional, unbiased and expert at informing people of their options when in debt. They can be found via the government’s MoneySmart site.

If you can’t pay your debts, there are many options available. The key is contacting the right person or organisation – and knowing whatever comes up first in a Google search is not necessarily the best or most impartial place to get help in a financial crisis.The Conversation

Gregory Mowle, Lecturer in Finance, University of Canberra

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Australia had rent control in wartime. War on coronavirus demands the same response


Liam Davies, RMIT University

The COVID-19 pandemic is likened to a “war on two fronts” by senior government figures, including Prime Minister Scott Morrison and Treasurer Josh Frydenberg. On one front is the pandemic, which threatens to put unprecedented strain on the health system; on the other front, the lockdown is devastating the economy and employment.

These impacts have prompted debate about protection of renters. During the second world war Australia implemented rent control, protecting tenancies for decades afterwards. In this coronavirus “war”, governments should take inspiration from the past and again implement rent control.




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Rents can and should be reduced or suspended for the coronavirus pandemic


We have already seen governments adopt other “wartime” measures. Commonwealth and state governments have joined forces in a national cabinet, likened to the wartime cabinet Australia had during the second world war.

Images of thousands of Australians queuing for welfare evoke memories of hardship not seen since the Great Depression and then the war. The scale of stimulus is unlike anything seen in Australia before, eclipsing the Global Financial Crisis stimulus package.

Renters already have it tough

Renters are a sizeable and vulnerable cohort. Almost one in three Australians live in rental properties. In Australia, renting has increased from a low of 25% of households in 1986 to 31% in 2016.

Not only are more Australians in rentals, but they are renting for longer. However, as tenancy is less secure than ownership, housing insecurity is a growing problem.

Renters are typically financially worse off than home owners. Based on my analysis of 2016 Census data, the unemployment rate among renters was 10.9% compared to 5.2% for owners.

Renters also generally have lower incomes. My census analysis has found almost half of renters earned less than A$649 a week, compared with only 31% of owners with a mortgage. (Comparisons of renters with outright owners can be misleading, as outright owners have much lower housing costs.)

Lower incomes mean a higher proportion of income is spent on housing. Households with a mortgage spend an average of 15.9% of household income on housing compared to 20.2% for private renters. Further, 43% of low-income renters experience housing affordability stress (defined as a household in the bottom 40% for income spending over 30% of income on housing).

These renters are highly vulnerable to the impacts of the pandemic.




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COVID-19 is making it way tougher

The economic crisis gripping Australia will affect an estimated 6 million jobs. But almost 1 million casuals are ineligible for the federal government’s $A130 billion wage subsidy paid to businesses to retain workers.

Disproportionate numbers of renters work in these casual jobs. Their already high rates of financial stress are likely to increase as they lose the income they rely on to pay the rent.




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As business revenues plunge, there are also calls for commercial landlords to provide rent holidays. At least one major retailer has refused to pay rent. To save businesses, the national cabinet last week announced a mandatory code of conduct for commercial tenancies, reducing rents proportionate to reduced turnover.

Home owners are able to seek relief from banks, who are offering to freeze housing mortgages. Banks are still capitalising interest, meaning owners face extended loan periods or increased payments following the freeze.

To date, the national cabinet has only agreed on an eviction moratorium for residential tenancies. It’s welcome but could simply shift payment or eviction into the future for households unable to pay rent – the moratorium does not waive the requirement to pay rent. Some landlords are rushing to evict before state and territory governments follow early mover Tasmania in putting the moratorium into effect.

A warlike crisis calls for a wartime responses

During the Great Depression, calls for greater protection for renters resulted in policies like rent control at state level. Australia’s entry into the second world war ushered in a national approach.

The Menzies government introduced rent control in 1939. Curtin’s wartime cabinet strengthened rent control in 1941, fixing rents at 1940 levels. Independent tribunals administered rent variations.




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Rent control left a lasting legacy. States took responsibility for rent control in 1948, implementing their own schemes.

In Victoria, rent control sat alongside public housing, offering two strong forms of protection to renters from 1938 to the mid-1950s, when both were wound back, in favour of home ownership. Despite this, rent control remained in force in Victoria, protecting thousands of tenancies until the 1980s.

The situation today is remarkably similar to that of the 1940s. In recent years growing numbers of Australians have found themselves in precarious rentals. While home ownership soared from the 1950s, in recent decades ownership rates have fallen as housing unaffordability has risen.




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In 2016 rental rates in Victoria reached highs not seen since the late 1950s, when virtually all rents were controlled. Low-income households have been spending unsustainable amounts on rent even before the pandemic hit.

This “war on two fronts” will push many to the brink. A moratorium on evictions will delay the pain, but not avoid it. The national cabinet should take inspiration from Australia’s wartime cabinet and regulate rents nation-wide.

The lowering of commercial rents under the new code of conduct will prevent many business bankruptcies. Setting residential rents at affordable levels would also protect millions of vulnerable Australians. Such a policy would be consistent with Finance Minister Mathias Cormann’s concept of “spread[ing] the pain as fairly and equitably as possible” by sharing the losses with landlords.

Regulating rents would leave a lasting positive impact on Australia. We would come out of this crisis with a fairer rental system than we started with. And hundreds of thousands, if not millions, would be spared the stress of facing the threat of eviction.The Conversation

Liam Davies, PhD Candidate, Centre for Urban Research, RMIT University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Rents can and should be reduced or suspended for the coronavirus pandemic



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Chris Martin, UNSW

The National Cabinet announced a moratorium on evictions just over a week ago in response to the COVID-19 pandemic. As government ministers and commentators have tried to make clear, it’s intended only to stop evictions – not rent payments. But the sudden losses of jobs and incomes mean many households cannot continue to pay pre-crisis rents.

Tenants are seeking rent reductions or waivers from their landlords, with disturbingly mixed results. It is time for governments to step in and resolve the issue, by legally mandating rent reductions across the board.




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Recent analysis of renter and landlord household finances clearly shows the latter group are much better placed to take a financial hit from this pandemic.

Up to now the prime minister has encouraged tenants and landlords to make individual arrangements. In the absence of any government guidance, agents’ and tenants’ representatives agree on this much: the situation is a mess.

Some landlords and agents are responding sympathetically. Others are hesitant, apparently wary voluntary reductions may void their insurance. Some are insisting on full payment, or even increasing rents. And some were advising tenants to draw on their superannuation to pay rent – until ASIC warned them off.

Why should government step in?

Yesterday the National Cabinet addressed commercial tenancies, but again left aside residential tenancies. It is within the power of state and territory governments to sort this mess out. They could legislate to reduce rents to some fraction of current rents or to zero – a complete suspension of rent liabilities for the declared duration of the pandemic.

With federal government co-operation, mortgage interest could receive the same treatment: mandatorily reduced or suspended for the pandemic, with principal repayments deferred.

This is the appropriate response to the peculiar nature of this crisis. The key point here is that government is deliberately suppressing economic activity to prevent transmission of the virus. With household incomes much reduced – and governments trying to top them up with new payments – it makes sense also to reduce household outflows.

A look at renter and landlord finances

The biggest household expenses to reduce are rent and interest. Here’s a quick sketch of incomes and outflows in the Australian private rental sector, using the latest available figures from the ABS, the ATO, the Productivity Commission and detailed analysis of previous rounds of data last year by Kath Hulse, Margaret Reynolds and me.

About 2.5 million Australian households rent privately. Just over half are in the bottom 40% of households by income. About one-third are low-income households paying more than 30% of their income in rent – and that’s before the COVID-19 income losses.




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Private renters pay about A$43 billion a year in rent to another, smaller group of households: Australia’s 1.3 million landlord households.

A little more than half of that rental income, A$22 billion, flows right out again to banks, as interest payments on investment loans. For 60% of landlords the interest outflow, plus other property-related expenses, is greater than their rental income: they are negatively geared. For them, rental income is not about putting food on the table; it is part-funding their investment or speculation in property.

This negatively geared group receives high incomes from work and other sources. Leaving aside their net rental losses, they have an average annual taxable income of about A$94,000, versus A$54,000 for non-landlords. Landlords’ other incomes may have taken a COVID-19 hit, but the most common occupations for this group – general managers, registered nurses and accountants – have probably fared better than the casual and gig workers.




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Landlords who derive a net positive rental income mostly receive other income too. Their average annual taxable income is A$66,000 before net rent is added.

A relative few landlords, 16%, are post-retirement age. They may well rely on rental income for consumption, but, on average, they are rich, with almost A$3 million in net wealth.

A final point about landlords: they are more likely to have a partner than non-landlords. Presumably, then, they have access to shared resources when times are tough. The average disposable household income for landlords is A$135,000 a year, versus A$82,000 for non-landlords.

So, were tenants’ rental outflows reduced, landlord households are relatively well-positioned to bear a reduction in their rental incomes.

How to ease the burden on landlords

Landlords would, of course, also want to reduce their own outflows. They have probably already done so, because the pandemic has closed so many discretionary spending opportunities.

Another outflow – the A$3 billion a year they spend on real estate agents – would also be reduced, because agent fees are mostly calculated as a proportion of rent. This would cause pain for agents, but many of their activities – inspecting properties, handling eviction proceedings, conducting marketing campaigns – are not needed in a pandemic. JobKeeper payments could support their businesses.




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The biggest pain would be the interest outflow. But let’s reduce or suspend interest too, for both owner-occupiers and landlords. This would reduce income for banks, which would have a problem when their own liabilities to whole funders come due.

And at that point a really useful negotiation could take place between banks and the Australian government. They could “sit down, talk to each other and work this out” – as the PM has suggested to millions of individuals – to keep finance operating, in return for reformed service and a public equity stake.

In ordinary times, rents and interest have a controversial role in the economy. They extract value from productive actors in the economy for the benefit of owners of property and financial assets, and are the object of speculation. But, as the political economist David Harvey observes, they also have a co-ordinating role that drives competition and future production.

But these are not ordinary times. For the moment, at least, we don’t need rent to co-ordinate what the economy must do. We need to produce the essentials and whatever else can be safely done at home, with the rest of production in hibernation. And we need to ensure households retain enough income for the essentials, with reductions in income equitably shared.The Conversation

Chris Martin, Senior Research Fellow, City Futures Research Centre, UNSW

This article is republished from The Conversation under a Creative Commons license. Read the original article.

What if I can’t pay my rent? These are the options for rent relief in Australia


Mark Giancaspro, University of Adelaide and David Brown, University of Adelaide

You’ve lost income because of the coronavirus crisis and finding it hard to pay the bills. What if you can’t pay your rent?

The short answer, if you live in Australia, is that rules changes give you more time – at least six months – before you face eviction.

But that’s all. Nothing else has changed. As Prime Minister Scott Morrison has said, the moratorium on evictions “doesn’t mean there’s a moratorium on rents”.




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Whatever rent you don’t pay you will still owe, with consequences eventually.

There’s unlikely to be any other national assistance for residential tenants along the lines the commercial tenancy market might get.

But there may be other assistance on offer according to your state and territory. In Queensland, for example, you may be eligible for a one-off rental payment.

So this is how your options stand.

Eviction moratorium

The National Cabinet – incorporating the federal cabinet and state and territory leaders – announced the eviction moratorium on March 29. Rental law is a state and territory matter, so legal enforcement depends on these governments enacting legislation.

Tasmania was the first to do so, pre-empting the National Cabinet decision with a four-month ban on evictions. It’s likely a good indication of what other states and territories will do.

The Tasmanian legislation prohibits commercial and residential landlords from serving notice to vacate for rent arrears for the duration of the “emergency period”, unless:

  • the lease is non-fixed term and property is being sold (with notice being served before April 3)
  • the Residential Tenancy Commissioner orders termination because of “severe hardship” to either party.

Severe hardship is an established part of tenancy law. It allows parties to apply for a fixed-term lease to be terminated without penalty. It is possible a landlord could argue financial hardship based on needing rent to cover their own debts, but commissioners (or tribunals in other jurisdictions) are likely to scrutinise such applications closely.

(Severe hardship is discussed further below, under “What if I want to break the lease?”).

What if I don’t pay my rent?

If you don’t pay your rent, your debt will keep accruing. Once the moratorium ends, you face eviction.

Your landlord will have the right to keep your bond to cover the rent. If you owe more, they can chase it up through debt collectors or file court proceedings. If this happens, your personal credit rating could take a hit, and costs may be added to any judgment against you.

So take the Prime Minister’s advice: negotiate with your landlord or agent.

Try to work out an arrangement both sides can live with. Remember, many private landlords rely on rent to pay the mortgage. Even with the major banks offering mortgage relief during coronavirus crisis, the interest on that debt will keep accruing.




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Can I get any rent assistance?

There are generally no special provisions for rent assistance during the coronavirus crisis.

So far only Queensland is offering any form of special rental assistance – a one-off payment of up to $2,000, paid directly to your lessor. To be eligible, you must have lost your job due to the pandemic and have applied to Centrelink for income support.

In other states the usual rules for rent assistance apply. You need to first qualify for Centrelink income support, such as the JobSeeker payment, Youth Allowance or the Parenting Payment. Centrelink provides up to A$139 a fortnight if you’re single, and A$164 for a couple with two children.

What about a rent reduction?

As mentioned, there’s no sign there’ll be direct subsidies for residential tenants, though there may be a national package to reduce commercial rents.




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The closest thing so far announced is the Australian Capital Territory’s encouragement to residential landlords to lower rents by at least 25% through direct tax relief equal to half the discount (up about $100 a week). The scheme is voluntary, so it remains to be seen how effective it will be.

What if I want to break the lease?

If you’re not on a fixed-term lease, but a monthly or weekly tenancy, you simply have to give the required notice to the landlord (usually 21 days).

If you’re on fixed-term lease, state and territory laws allow both tenants and owners to apply to break the lease without penalty if its continuation causes “severe hardship”.

But this option “should be seen as a last resort,” advises the Tasmanian government. “It is best to maintain a positive relationship between owners and tenants. The best way to do this is for owners and tenants to discuss their concerns.”

It is possible your lease may contain a force majeure clause providing for suspension or termination when unforeseeable events (for which neither party is responsible) occur. Unfortunately, such clauses are extremely rare in leases, and unlikely to cover pandemics.

Is there anything else to consider?

If you consistently miss rent payments you risk going on a “black list” – a privately owned tenancy database that real estate agents use to screen tenants. A track record of missing payments can mean a black mark on a future rental application.

So the bottom line: talk with your landlord.


Correction: this article has been amended to clarify that consistent non-payment of rent is required to be listed on a residential tenancy database. The article originally suggested any non-payment was a risk. For more advice contact the tenants advice service in your state or territory.The Conversation

Mark Giancaspro, Lecturer in Law, University of Adelaide and David Brown, Co-Director, Bankruptcy and Insolvency Scholarship Unit, University of Adelaide

This article is republished from The Conversation under a Creative Commons license. Read the original article.

As coronavirus hits holiday lettings, a shift to longer rentals could help many of us


Myfan Jordan, La Trobe University

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.




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Why landlords will look for security

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.




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What has happened to renters?

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.




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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.

Time for a rethink

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.




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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.




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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 Conversation

Myfan Jordan, Associate, Health Ageing Research Group (HARG), La Trobe University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Rushed coronavirus tenancy laws raise as many questions as they answer



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Dilan Thampapillai, Australian National University

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.

Rent postponed rather than forgiven

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.

And both are temporary. The NSW act has effect for six months and the Tasmanian bill for 120 days, although it can be extended by 90 days.

Neither law excuses tenants from their liability to pay rent. They merely prevent evictions during the emergency period.




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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.




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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.

The law discourages communication

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.




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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.The Conversation

Dilan Thampapillai, Senior Lecturer, ANU College of Law, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

The case for a rent holiday for businesses on the coronavirus economic frontline


Danielle Wood, Grattan Institute; Kate Griffiths, Grattan Institute, and Nathan Blane, Grattan Institute

As the public health response to supress the COVID-19 virus ramps up, so to does the economic fallout. Shutdowns and enforced spatial distancing are necessary to try to prevent hospital intensive care units becoming overwhelmed.

But businesses on the economic frontline – those shut or soon to be shut down by the public health restrictions – need immediate help to get through.

The necessary temporary hit to business incomes need not become a permanent hit to productive capacity. We should not risk a large swathe of shops, cafes, pubs, hotels, gyms, and hairdressers going to the wall.

Most of these frontline businesses have seen their income dry up overnight. Some have temporarily closed, others are finding creative ways to make some money in online retail or takeaway services, for example, but most will replace only a fraction of their pre-crisis income.

Rent is the biggest barrier to survival

Staff layoffs, or more hopefully stand downs, are the only option for most of these business. Even substantial wage subsidies won’t entice business owners to keep staff on when the business has shut its doors.

For businesses on the economic frontline, most of their variable costs such as wages and stock can be suspended during the shutdown. But their fixed costs – particularly rent – are substantial.

The average retailer pays almost A$12,000 in rent a month; the average gym, $10,000. Cafes and hairdressers are losing $3,000 to $4,000 each month in rent.




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For most exposed businesses, rent sits at less than 20% of operating costs under normal conditions, but while they hibernate through coronavirus, that figure will reach somewhere between 80% and 95%.

Some schemes have already been announced to help these businesses. The Commonwealth’s is the largest, and will pay small and medium businesses 100% of salary and wages withheld for tax purposes up to $100,000. For businesses to qualify for the full amount, they will need to withhold the same amount, so will need to be paying staff.


2019 data.
Grattan Institute analysis of IBISWorld industry reports

State governments have announced partial relief of tax, rates and fees, and access to loans. This will help, but rent is the big unavoidable cost for most of the frontline businesses.

Exposed businesses will be losing thousands of dollars, or more, each month. Many will have some cash reserves, but for most a shutdown of three months or more will be very difficult to absorb.

A rent holiday, or at least a significant rent discount, would give these businesses a fighting chance at preventing a temporary shutdown becoming a permanent closure.

Market rates are close to zero

Most shopfronts can’t be put to other uses. That means the market price for retail, food, and accommodation services, and personal services shopfronts will be very close to zero during the shutdown.

Some landlords have done the right thing and given their tenants a rent holiday while these restrictions are in place.

This is smart: keeping their tenants in business will give these landlords the best chance of having a rented property when restrictions are lifted.

In normal circumstances, the market would work this through. But the danger here is it will happen too slowly. Some landlords refuse to accept renting out their premises for nothing.




Read more:
Why housing evictions must be suspended to defend us against coronavirus


In Melbourne, Chadstone retailers just wrote to Chadstone management asking for a rent holiday to “save our businesses”.

The response from management was no.

That mindset could send many thousands of shops, cafes, pubs, restaurants, hairdressers, gyms, cinemas, and tourism operators to the wall.

As of last week, more than 70% of businesses in these industries had already been hit by the COVID-19 crisis. That figure is expected to rise beyond 90% in the coming weeks.

“Closures” was the most common word used by business owners surveyed by the Bureau of Statistics about the future effect of COVID-19.


Source: ABS cat no. 5676.0.55.003 – Business Indicators, Business Impacts of COVID-19, March 2020

Preventing landlords from evicting commercial tenants, or requiring landlords to defer the rents, won’t help – businesses will still liquidate if they know they will be lumbered with many months of rent to pay back down the track.

While a short-term income hit for landlords isn’t insignificant, the damage to the economy will be much greater if a swathe of small and medium-sized businesses are lost.

Acting now will reduce the damage

The owners of some properties that need rental holidays still have to make monthly mortgage payments to banks. But the banks are offering loan holidays they might be able to take advantage of.

If there are gaps in the loan holiday arrangements, governments should work with the banks to ensure landlords are covered. Alternatively, governments themselves could offer partial compensation for lost rent.

Prosper Australia has suggested a uniform
subsidy that replaces 50% of lost commercial tenancy mortgage payments.




Read more:
We’re running out of time to use Endgame C to drive coronavirus infections down to zero


Right now, hundreds of thousands of businesses are crunching the numbers to see whether than can stay solvent. With rent on the expense side, those numbers won’t add up for long.

Every state and territory government ought to enact a rental holiday for the types of businesses on the frontline of this crisis. As the economic shockwave reverberates, state and territory ministers should have the power to add other vulnerable industries to that list.

The key is speed. For every day they wait, hundreds of businesses will fold.The Conversation

Danielle Wood, Program Director, Budget Policy and Institutional Reform, Grattan Institute; Kate Griffiths, Fellow, Grattan Institute, and Nathan Blane, Analyst, Grattan Institute

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Build to rent could shake up real estate but won’t take off without major tax changes


Hal Pawson, UNSW

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?




Read more:
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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.

What is ‘build-to-rent’?

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.




Read more:
What Australia can learn from overseas about the future of rental housing


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.

Potential benefits

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.




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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.

How build-to-rent can incorporate affordable housing

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.




Read more:
‘Build to rent’ could be the missing piece of the affordable housing puzzle


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.

Levelling the playing field

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.




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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.The Conversation

Hal Pawson, Associate Director – City Futures – Urban Policy and Strategy, City Futures Research Centre, Housing Policy and Practice, UNSW

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Renters Beware: how the pension and super could leave you behind



File 20181102 83632 ws4yw1.jpg?ixlib=rb 1.1
Super and the pension treat most retirees well, but not renters.
Shutterstock

Rafal Chomik, UNSW

How we fund retirement in an ageing century ought to worry all of us.

But one group of us should be much more worried than the rest.

In a new set of research briefs published by the Centre of Excellence of Population Ageing Research, we report that most people do well out of our retirement income system and that the living standard of retirees has improved over the past decade.

In international comparisons, our system ranks highly, for good reason.

Most retirees do well

About 60% of older Australians can afford a lifestyle better than that deemed to be “modest” by widely used standards.

Households headed by baby boomers reaching retirement age between 2006 and 2016 did so with incomes 45% higher than those who retired a decade earlier.

Typical boomer households aged in their late 60s earn almost as much as they did when they were still working – only 20% less, that is, with about 80% of their working income maintained.

And their needs are lower. Lower spending in retirement is common because older households need to pay less for transport, less for working clothes, and have more time to cook.

Many continue to save while in retirement.




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And they tend to spend less over time, rather than more over time as benchmarks publicised by the superannuation industry assume.

When we included the value of living rent-free for the 80% or more of retirees who own their own home (about A$10,000 per year on average), we found older Australians live in no more poverty than working age Australians.

But not renters

The living standards of those who rent in retirement are very different. Only about 15% of older renters can afford a lifestyle better than “modest”.

Single renters are particularly badly off.

Among all older people only about 10% fall below the poverty line set at half the median income.

Among older Australians who rent, 40% fall below.

Among older Australians who rent alone, it’s more than 60%.


https://datawrapper.dwcdn.net/Oyddt/1/


If that relative poverty measure seems too abstract, an absolute dollar figure might help.

Alarming research aired on the ABC in September found that, on average, aged care homes were spending $6.08 per day on food per resident.



Our research finds that among pensioners who rent alone, one quarter spend even less than that per day.

And it’s getting worse

The pension has always favoured home owners.

On the one hand it is insufficient for renters and on the other it doesn’t cut pension payments to the owners of very valuable homes, because the value of any home – no matter how big – is excluded from the pension means test.




Read more:
Let’s talk about the family home … and its exemption from the pension means test


Rental assistance, introduced to complement the pension in the 1980s, was meant to alleviate this, and to some extent it does.

But it climbs only in line with the consumer price index every six months, which usually fails to keep pace with rents.




Read more:
Life as an older renter, and what it tells us about the urgent need for tenancy reform


Sydney rents have doubled over the past two decades. The consumer price index has climbed 68%.

As a result, rental assistance is less effective in reducing financial stress than it was when it was introduced, and is set to become even less effective if rents continue to climb more quickly than the price index.

And more of us look set to rent

Households headed by Australians aged 35 to 44 are now 10 percentage points less likely to own their own home than were households headed by people of the same age a generation earlier.

They might be merely postponing buying homes until they are older as more of what would have been their income is sequestered into super and they enter the workforce and retire later.




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If so, they might end up owning and paying off homes by retirement at the same rate as boomer households did before them.

If not, more and more of them could end up in poverty in retirement.The Conversation

Rafal Chomik, Senior Research Fellow, ARC Centre of Excellence in Population Ageing Research (CEPAR), UNSW

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Life as an older renter, and what it tells us about the urgent need for tenancy reform



File 20180925 149973 ln0972.jpg?ixlib=rb 1.1
Uncapped rent increases and ‘no grounds’ evictions leave older women particularly at risk of substandard housing conditions or even homelessness.
Shutterstock

Emma Power, Western Sydney University

The New South Wales government has introduced a bill to reform the Residential Tenancies Act. This act sets out the rights and responsibilities of landlords and tenants in private rental accommodation in NSW.

The bill’s proposed limit on rent increases to one in every 12 months is essential, as are the proposed minimum standards for rental accommodation. However, my ongoing research with single older women renting in Sydney points to an urgent need for a cap on the value of rent increases and for an end to “no grounds” eviction. Victoria adopted these measures earlier this month.

Reform is essential. Growing numbers of Australians rent their housing and increasing proportions are expected to rent long-term. This makes it essential that private rental housing meets the need that every person has for a secure and affordable home.




Read more:
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It’s getting harder for older renters

It is getting harder for older renters to find adequate, appropriate and secure housing. Older women – the focus of my work – are at particular risk. This is due to longer life expectancy, lower incomes across the life course, and less access to benefits like superannuation. Women also experience a greater loss of income and housing standard than men do after relationship breakdown, and are at greater risk of domestic violence.

Their stories point to the role of flaws in the Residential Tenancies Act in compounding housing insecurity.

Rising rents add to hardship

Rising rents were a problem for nearly all women I spoke with. They depleted women’s budgets, leaving little money to buy food or pay for utilities. Many relied on local charities for food and help to pay energy bills.

One woman described how she would add protein to her meal by buying a single chicken breast, slicing it thinly and freezing each piece separately to be defrosted over the next week or so. Another relied on vegetables the local greengrocer bundled and discounted before throwing out.

In winter, when heating bills mounted, she relied on a local church with a weekly food pantry. This food, donated by local supermarkets and community members, was frequently past its “best before” date. As a low-paid community worker living in an area with a significant number of disadvantaged families, she collected food alongside her clients.

Two women coped by moving into their cars. They subsisted on tins of food that they could hide in the car. At night they kept themselves safe by parking in familiar locations.




Read more:
More and more older Australians will be homeless unless we act now


Living with substandard conditions

Rent rises also made it difficult to find appropriate housing. Affordable housing was often substandard. Many had difficulties getting landlords to agree to repairs.

One woman described how her rented unit began leaking. The leak was severe and lasted for nearly two years. In this time she lived with increasing mould and lost access to nearly 40% of her home. She sought repairs from the landlord, but only cautiously, because she was afraid of eviction.

When the leak was eventually fixed her rent went up 20%. That left her with only A$30 a week after rent, essential bills and transport. She couldn’t afford food and relied on local charities until she found cheaper housing in a distant, transport-poor suburb.

Another described a similar leak:

When it rained the water would come straight down into the doorway. And that was the only way you could get into the house […] it was in the house and even in the bedroom.

Despite this the owner increased the rent. The real estate agent notified her of the increase by letter, but distanced herself from repair requests when confronted in person stating: “Well, we can’t do anything [to fix the property] until the owner says we can.”

The agent helped the landlord to make more money from their investment, while illegally blocking this woman’s entitlements to secure and usable property. The impact on her capacity to take care of herself was significant. Living with the leak risked her health. However, challenging the landlord – pushing them to repair the leak – risked eviction.




Read more:
Rental insecurity: why fixed long-term leases aren’t the answer


Rethink the value of rental housing

These stories show the need to rethink how we value and regulate private rental housing. It is time that we recognise the fundamental role that housing plays in our ability to meet basic needs – for shelter, warmth, food and above all a sense of security and home.

When housing is too expensive, unsafe or inadequate, our capacity to meet our care needs deteriorates and our health suffers. For women in my research their capacity to age in place – and even to remain housed – was challenged.

This is not good for tenants or landlords. Although popular wisdom suggests tenants and landlords have different interests, they in fact have very similar concerns: both benefit from secure tenancies and rental properties that are well maintained and cared for.

The proposed amendments to the act are a good starting point.

Restrictions on the number of rent increases in a year are essential. However, the women in my research struggle not just because of the number of rent increases they face. They find themselves in precarious situations because of the size of the increases, which in some cases left them unable to afford necessities like food.

Minimum housing standards are also essential. The women in my research cannot begin to maintain their health or age well at home if their home leaks or does not meet other basic standards.




Read more:
Dickensian approach to residential tenants lingers in Australian law


But perhaps more pressing is the need to end no grounds evictions. For women in my research, repair requests carried the risk of eviction. This left many afraid to ask for repairs. They lived in unhealthy and unsafe housing rather than risk eviction in a market with few affordable options.

Landlords in many areas can readily replace tenants. And an evicted older woman can easily end up living in her car.

Ending no grounds evictions will have no impact on landlords who do the right thing. They will still be able to terminate a lease on reasonable grounds such as renovating or moving into the property. It would, however, help put an end to retaliatory evictions, which in turn would support efforts to maintain minimum housing standards.


This article is based on research findings presented in a talk by the author at an event, Fair for Everybody: Reforming Renting in NSW, hosted at Parliament House on Wednesday.The Conversation

Emma Power, Senior Research Fellow, Geography and Urban Studies, Western Sydney University

This article is republished from The Conversation under a Creative Commons license. Read the original article.