Build-to-rent surge will change apartment living for Australians, but for better or worse?

Posted on March 14, 2021 by particularkev

Australia’s emerging build-to-rent sector is growing — “booming” by some accounts with a 70% jump in value in the past year. Under this model, institutional investors develop purpose-built rental apartments to retain and operate under single ownership. In Australia, it will change how apartments are designed and developed, how we are housed and how our tenancies are managed.

With 40 projects under way, an estimated 15,000 units worth more than A$10 billion are in the pipeline. Site availability has made Melbourne popular, with over 50% of the national market. Investors are active in Sydney, Perth and Queensland too.

Sought-after neighbourhoods are earmarked for large developments. Many have 300 or more units, most at market-rate rents.

Build-to-rent is new to our shores, but hardly uncharted territory abroad. In the UK, the sector expanded exponentially from 2013 with government support. It now accounts for one in five new homes built in England and one in four in London.

In the US, the built-to-rent sector is relatively mature. It makes up almost two-thirds of the rental stock in many of the largest cities. Heavyweight corporate landlords operate as many as 400,000 units each.

In Australia, we need more data and more informed public debate to guide tax, design, planning and tenancy reforms to secure the best possible urban and social outcomes from the build-to-rent expansion.

The build-to-rent promise

Build-to-rent presents an enticing vision. For households, it promises several things:

flexible long-term tenancies
client-centric onsite management
hotel-style amenities and services
allowances for pets and personalisation, such as painting and decorating.

couple painting an apartment — One of the appeals of built-to-rent apartments is they offer tenants more options to personalise their homes.
Shutterstock

For cities, the model promises high-amenity, well-located, purpose-built rental apartments that cater to diverse and changing housing needs.

Proponents hail build-to-rent as a win-win. It’s seen as a salve for various housing woes, including concerns about housing supply, affordability, the private rental sector (including insecure tenancies and inexpert property and tenancy management) and apartment quality.

Since the COVID-19 downturn, the model has been hailed as an economic lifeline too: good for the construction sector, good for jobs.

Rise of a new asset class

For build-to-rent investors, the rental revenue returns appear relatively modest. Under current market conditions, however, secure margins and “lower (but) for longer” investment prospects appeal.

Advocates continue to push for tax reforms. They point to a growing “weight of capital” awaiting more enticing returns. But many international build-to-rent behemoths, superannuation/pension funds, private equity firms and real estate investment trusts are entering our private rental sector regardless.

Institutional investors’ entry into our rental sector contributes to a broader paradigm shift in urban housing systems dubbed the financialisation of (rental) housing.

States have endorsed build-to-rent, improving its viability with land tax concessions, exemption from foreign investor surcharges, privileged planning pathways and pilot projects (e.g. in Queensland). The federal government’s position has been more ambiguous.

Crucially, the rise of build-to-rent sets in motion two important structural shifts

institutionalising the private rental sector
diversifying residential development models.

Historically, small-portfolio “mum and dad” landlords have owned and managed our rental stock. They are motivated by many of the same benefits (such as tax concessions and capital gains) and exposed to the same risks as owner-occupiers.

So we’ve had a high degree of integration between the private rental and owner-occupier sectors: few dwellings were purpose-built for renting and most homes were readily interchangeable between sectors.

Build to rent disrupts this integration. It replaces the fragmented ownership of apartment buildings under strata title laws with a single institutional owner.

Build to rent also diverges from familiar speculative build-to-sell development geared towards short-term profits. Its longer-term investment horizons give developers a new incentive to minimise a building’s running costs and to create apartments that appeal to and retain tenants.

So will it deliver?

Will build to rent provide high-quality, high-amenity, professionally managed rental homes? And at what scale, for how long, and at what costs to whom?

In the longer term, will this model disrupt the socio-political twinning of home ownership and home?

Could build to rent be a catalyst for more progressive tenancy reforms, leading towards tenure neutrality/equality where ownership isn’t seen as automatically superior to renting?

These questions matter. One in three Australian households now rent their housing. Some argue we’re headed for a “post-ownership” society in which most people rent their homes.

Private rental was once a route to ownership. Now it’s a destination. Ownership has been delayed, become unattainable or been “traded off” for flexibility and being able to live in desirable locations.

Tenants are also more diverse. There are more lower-income and higher-income earners and more families than ever before.

Renters endure short leases on often poorly maintained properties owned by a cottage industry of “mum and dad” landlords. Social housing options are few and far between in a sector that has been marginalised and residualised. More renters, uncapped rents, weak tenant protections and stagnating wages make for a toxic mix of housing stress and financial risk.

Reasons to proceed with caution

We don’t have robust evidence to answer these questions, but limited evidence suggests caution is well advised.

In Australia, build-to-rent properties look set to attract rents of about 10-15% more than comparable non-BTR housing, just as they have in London. Without government subsidies, market-rate BTR will not provide more affordable housing.

Overseas, these rental premiums, alongside planning leniency (which reduced the affordable housing required of these developments), have been blamed for poor outcomes, such as residents being priced out of neighbourhoods they could once afford.

In Ireland, permissive planning concessions enable build-to-rent developers to circumvent design standards. This has raised concerns that build-to-rent may deliver smaller, less diverse and lower-amenity housing (less storage, for example) than standard build-to-sell development.

In New South Wales, BTR developments cannot be subdivided for 15 years (without clawback of land tax concessions). This ensures buildings remain in use as rental stock for that period. But what will happen after that?

Megan Nethercote, ARC DECRA Fellow at the Centre for Urban Research, RMIT University

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

What did COVID do to rental markets? Rents fell as owners switched from Airbnb

Posted on December 3, 2020 by particularkev

Caitlin Buckle, University of Sydney; Nicole Gurran, University of Sydney; Patrick Harris, UNSW; Peter Phibbs, University of Sydney; Rashi Shrivastava, University of Sydney, and Tess Lea, University of Sydney

COVID-related travel restrictions and the sudden drop in tourism provided an ideal natural experiment to examine the impact of shifts in the supply of short-term rental accommodation. Our research, released today, found even modest reductions in Airbnb listings, as owners switched to longer-term rentals, increased supply of these properties. The result was lower local rents.

The COVID-19 pandemic caused various upheavals, with obvious impacts on health and employment, as well as a big drop in international migration. The impacts of these changes on rental markets are extremely difficult to track, particularly the impacts on people on the margins of the rental housing system. We investigated these impacts by analysing online listings on common online platforms for share/low-rent housing and short-stay accommodation.

Listings data show images, prices and descriptions of rental housing. These data provide an insight into this largely hidden sector of the housing market.

Of particular concern are people who:

are living in substandard and/or unsafe rental housing while being required to stay home
have precarious tenures that put them at risk of eviction or displacement
are living in overcrowded housing with shared facilities that increase risks of disease transmission.

What happened to these rentals?

Online platforms have transformed the ways in which people search for and advertise housing, so offer unique insights into the market.

We looked at listings of share housing and lower-cost rentals on Flatmates.com.au, Gumtree.com.au and Realestate.com.au between April and May 2020. We also looked at short-stay rentals on Airbnb.

Our primary focus was on Sydney, where Australia’s rental affordability pressures are most extreme.

We found demand for, and supply of, risky rental accommodation in Sydney continued during the pandemic.

In snapshots taken during lockdown restrictions in Sydney in April and May 2020, there were:

402 advertisements for rooms or granny flats on Gumtree.com.au in May
4,731 share accommodation listings on Flatmates.com.au in April
2,923 people seeking accommodation via Flatmates.com.au in April.

Screenshot from Flatmates website — Demand for and supply of shared accommodation on online platforms like Flatmates continued during the pandemic.
Flatmates

Which renters are most at risk?

Of additional concern are older people in risky rentals who are more at risk of severe COVID-19 symptoms. More than 6,400 renters over the age of 60 lived in share (“group”) households in Sydney at the time of the 2016 census. It was estimated over 4,600 were homeless.

People working in public-facing roles such as healthcare workers, and in food and accommodation services are also at risk of virus transmission. Many of them live in unsuitable rental housing due to the low-paid and transient nature of their work.

According to the 2016 census, over 8,400 healthcare and social assistance workers were living in rented group households in Sydney. Over 1,800 were estimated to be homeless. One Flatmates.com listing clearly expressed the difficulties healthcare workers’ face when seeking a share rental during the pandemic:

For those who think I might have COVID just because I’m a nurse, I can assure you that I don’t have COVID!!! 😛 (Flatmates “person” listing, April 2020)

The difficulties lower-income renters face in Australia’s major cities reflect a chronic undersupply of social and affordable housing. Pre-pandemic studies suggested the rise of short-term accommodation platforms such as Airbnb added to these pressures by draining properties from the permanent rental supply.

What happened to short-term rental housing?

We looked at Airbnb listings in Sydney and Hobart between March and April 2020. Using Inside Airbnb data, we found the number of whole homes listed on Airbnb for more than 60 days a year decreased by 22% in Hobart and 14% in Sydney in that time.

Airbnb home page for Sydney — There were significant falls in home listings on Airbnb in Sydney and Hobart after the pandemic hit.
Airbnb

Vacancy rates, rental bonds data and Flatmates.com.au listings suggest these decreases occurred because Airbnb owners converted their properties into permanent rentals.

This translated to better outcomes for local renters. Even modest reductions in Airbnb listings were associated with increased permanent rental supply and lower local rents.

Median rents decreased in the June quarter in nine selected Sydney local government areas (LGAs) and Hobart’s four main LGAs. Rents fell by 2-9% in both cities.

Hobart was a particularly interesting case study because of its large penetration of Airbnb. The Airbnb market in Hobart City LGA is about 11% of the total private rental market. It experienced a much smaller drop in rental demand than Sydney because of its smaller number of temporary overseas migrants.

The drop in rents was directly proportional to the size of the Airbnb market in each LGA. Hobart City with an Airbnb density of 11% had a decrease in median rents of 9%. Glenorchy with an Airbnb density of 1% had only a 2% decrease in median rents.

How to improve life for renters on the margins

Our study contributes to a growing body of evidence on ways to improve the housing circumstances of lower-income renters and people at risk of homelessness.

Government action, such as increased JobSeeker and JobKeeper payments during the pandemic, has helped people to continue to pay rent and avoid resorting to precarious rental situations. However, even with these increases low-income renters can struggle to pay rent in unaffordable markets.

Obviously, increasing the supply of social and affordable housing would reduce dependence on the precarious and marginal rental market.

Similarly, a permanent increase in income-support payments such as JobSeeker and/or Commonwealth Rent Assistance would enable more households to get adequate housing without extreme financial stress.

Higher regulation of the private rental sector would increase security for tenants and improve accommodation standards. We could look to New Zealand’s “healthy homes” framework for inspiration.

Finally, to preserve permanent housing supply in high-demand markets, states should impose controls on short-term Airbnb-style rentals.

These steps are critical to provide safe and secure accommodation for those on the margins of housing markets as part of Australia’s post-pandemic recovery.

Caitlin Buckle, Research Associate in Housing Studies, University of Sydney; Nicole Gurran, Professor of Urban and Regional Planning, University of Sydney; Patrick Harris, Senior Research Fellow, (Acting) Deputy Director, CHETRE, UNSW; Peter Phibbs, Director, Henry Halloran Trust, University of Sydney; Rashi Shrivastava, Research Assistant, University of Sydney, and Tess Lea, Associate Professor, Gender and Cultural Studies, University of Sydney

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

Cutting JobSeeker payments will cause crippling rental stress in our cities

Posted on October 6, 2020 by particularkev

Simone Casey, RMIT University and Liss Ralston, Swinburne University of Technology

As soon as the COVID-19 pandemic caused businesses to shut down, state governments acted to avoid evictions by introducing moratoriums, and the federal government introduced the Coronavirus Supplement of A$550 on top of the fortnightly JobSeeker payment. These measures were intended to enable 1.6 million Australians to ride out the pandemic-related business shutdowns.

This welcome but temporary support is being withdrawn. The JobSeeker supplement was reduced to A$250 a fortnight from September 26. It will end in January 2021.

Our modelling for Victoria shows the tapering down and withdrawal of the JobSeeker supplement will cause crippling rental stress for unemployed and underemployed private renters. In Melbourne, we have found the unemployed will face the same problem of rental stress as those on the former Newstart allowance experienced before the pandemic. (Rental stress is defined as a low-income household spending more than 30% of its income on housing costs.)

Before COVID, private rentals in nearly all capital cities were already unaffordable for unemployed and low-income renters even in typical share households. What makes the scenario worse than before COVID are the sheer numbers affected. Many of these people may have had incomes prior to the shock that enabled them to maintain higher rents.

To illustrate the extent of the rental stress crisis we modelled rental affordability for the typical low-income household types in Victoria. The first chart shows the effects of the withdrawal of the supplement on rent affordability for two and three sharers and lone-parent families. The second chart later in this article shows the effects across a range of household types.

Impacts of Coronavirus Supplement withdrawal on three household types. (Median rents calculated from Real Estate Institute of Australia June 2020 data. Income calculated to include Commonwealth Rent Assistance (CRA) and lone-parent income includes Parenting Payment Single with Family Tax Benefit.)

The modelling shows the interim rate (A$250) of the Coronavirus Supplement will help for a limited number of household types, particularly in the outer part of Melbourne and regional towns like Ballarat. However, it will not help many households in the inner region of Melbourne where rentals will remain unaffordable. This pattern is worrying because that’s where many of the jobs will become available once economic recovery is under way.

Households with more than one adult receiving the supplement will be better off than lone-parent households. That is because all the adults in those households receive the supplement, and lone-parent households generally need to rent properties with more than one bedroom.

Impacts of Coronavirus Supplement withdrawal on major rental household types. (Median rents calculated from Real Estate Institute of Australia June 2020 data. Income calculated to include Commonwealth Rent Assistance (CRA) and lone-parent income includes Parenting Payment Single with Family Tax Benefit.)

The scenario here plays out across Australia, but is particularly bad for Victorians because the extended lockdown has deferred recovery.

COVID impacts have hit low-income households hardest

Is is important to note that the COVID economic shock has hit low-income households particularly hard. Those in precarious work, young adults and women have had the biggest hits to their incomes and jobs.

Map of JobSeeker increases indicating pandemic impacts on employment across Melbourne.

In Melbourne increases in unemployment are concentrated in inner-city suburbs like Brunswick and St Kilda. This reflects the loss of jobs for young people in hospitality and retail.

Job losses have also occurred in working-class areas such as Brimbank, Melton and Hume. These losses reflect the impact of shutdowns in the processing, manufacturing and transport sectors.

It is predicted it will take some time for earnings to return to pre-COVID levels. This means renters who have not been able to get jobs will once again be in dire rental stress in most capital cities when the Coronavirus Supplement cuts out in January 2021.

What about household savings?

The Finder Consumer Sentiment Tracker shows household savings have temporarily increased. But it is difficult to assess how much reserve people on JobSeeker payment have been able to lay down, relative to the loss of normal earnings. Any optimism on this count needs to be tempered by the observation that the Coronavirus Supplement did not start until late April and early May — five to six weeks after the job losses started.

Our modelling shows that even during the temporary tapering down of the supplement until January 2021, there will be a rental crisis in cities like Melbourne. These findings can be extrapolated to other capital cities and the scenario will be worse in Sydney.

Cutting the JobSeeker supplement is risky policy because the labour market has not “snapped back”. People who depend on unemployment payments will now face the same problem of rental stress as those on NewStart experienced before the pandemic. But this stress will be more widespread than before. This underscores the need to develop policy that counters the risk of rental stress.

Simone Casey, Research Associate, Future Social Service Institute, RMIT University and Liss Ralston, Adjunct associate, Swinburne University of Technology

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

Public housing ‘renewal’ likely to drive shift to private renters, not owners, in Sydney

Posted on July 12, 2020 by particularkev

Dallas Rogers, University of Sydney and Michael Darcy, Western Sydney University

A target of 70% private and 30% public dwellings is an accepted standard for public housing renewal projects in several Australian states. This level of private ownership is said to be necessary to counter stigma and the supposed demotivating impacts of concentrated disadvantage. When we looked at the impact of applying this model to the planned Waterloo redevelopment in inner Sydney, the demographic projections were revealing.

Our analysis shows the project would reduce the suburb’s proportion of social housing dwellings from 30% to about 17%. About 30% of households in the suburb would be owner-occupiers. Private renters might rise to more than 50% of households.

Why set social mix targets?

Social mix is often proposed as an antidote to a range of presumed problems associated with public housing estates. With the need for a social housing stimulus package receiving attention, and the Victorian government announcing a A$500 million program, it’s timely to revisit the mix of tenancies in estate redevelopments.

State housing authorities favour a mix of public and private residential tenures when they redevelop large public housing estates. Authorities can then sell the majority of new dwellings to private owners and investors.

As Kate Shaw, Janet McCalman and Deborah Warr have explained in The Conversation, the strategy doesn’t always work as promised. Drawing on extensive empirical research into mixed-tenure renewal neighbourhoods, the evidence shows simple mathematical “one size fits all” targets do not work. Decisions on the residential mix need to be sensitive to local settings and needs.

Nonetheless, an orthodoxy has emerged among some housing authorities that social housing tenants should make up 30% of households while 70% should be sold to owner-occupiers and investors.

The case of Waterloo

In Waterloo, limitations of the fixed-ratio approach relate to the likely composition of the post-renewal resident population.

The Waterloo estate site now contains about 1,900 public housing units. The renewal plan proposes retaining this number in the context of a three-fold increase in dwellings with a 70:30 private-public tenure mix. This will result in a total of about 6,500 dwellings.

At the suburb or neighbourhood level, Waterloo had 6,151 dwellings in 2016. As the table below shows, almost exactly 30% of these were let to social housing tenants.

The table also shows the large variation in tenure mix across five Sydney suburbs and the Greater Sydney area. Some 44% of all dwelling stock in Waterloo was already rented privately. That’s almost 50% more than the Sydney-wide average of just under 30%.

Importantly, 63% of private dwellings in Waterloo are privately rented – double the Greater Sydney proportion.

Located close to three universities and the CBD, Waterloo is dominated by investor-owned rental housing. Future occupation is likely to follow this pattern.

More like 17% social housing

State housing authorities measure tenure mix within public housing estates. But the Australian Housing and Urban Research Institute recommends measuring tenure mix at the neighbourhood scale.

Adding 4,500 new private households, while maintaining current social housing numbers, will reduce the proportion of social housing in the suburb of Waterloo to about 17%.

Projecting the current rate of renters in private dwellings onto the proposed 70:30 renewal mix might be expected to result in 63% of new private dwellings being privately rented.

The suburb would then comprise 52% private renters. Less than one-third of residents would be owner-occupiers.

The chart below shows how applying the 70:30 target to redeveloping the public housing estate could actually reduce tenure diversity for Waterloo.

Many private renters struggle too

The need for more social and affordable housing in well-serviced, inner-urban areas is well recognised. Getting the residential tenure mix right through renewal is key.

In the only full-length book on social mix in Australia, Kathy Arthurson notes social disadvantage occurs in both public and private rental housing. She writes:

The omission of private rental from the social mix literature is problematic, as in Australia and elsewhere most poor renters are in private rental and not in public housing.

A key element of the case for limiting social housing to 30% in redevelopment projects is the belief that any more would scare off potential private buyers and reduce developer returns.

However, an RMIT evaluation of the Victorian Public Housing Renewal Program showed the presence of social housing had little effect on sales of private apartments in renewed inner-city public housing estates.

Another evaluation of the Kensington renewal project in Carlton, Victoria, found strong investor sales but fewer owner-occupiers than anticipated.

Key takeaways

Recent research in Melbourne and Sydney suggests the supposed benefits of social mix are based on owner-occupiers, not more transient private renters.

It also shows social mix renewals that apply a simplistic 70:30 target within a narrowly defined boundary around an “estate” risk seriously undervaluing large public housing assets.

Dallas Rogers, Associate Dean, School of Architecture, Design and Planning, University of Sydney and Michael Darcy, Adjunct Professor, School of Social Sciences, Western Sydney University

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

As coronavirus widens the renter-owner divide, housing policies will have to change

Posted on April 22, 2020 by particularkev

Rachel Ong ViforJ, Curtin University

What began as a global health crisis in the form of COVID-19 is now also an economic crisis of historic proportions. Much of the housing policy focus during the pandemic has rightly centred on the plight of people who are insecurely housed or homeless. Another strand of commentary has focused on a likely fall in property values.

But what does the pandemic mean for housing market inequalities in Australia? And what are the policy implications?

The renter-owner gap will widen

Despite concerns about house prices plummeting, the spread of COVID-19 is exposing a widening gap in housing markets between those who own zero housing wealth (renters) and those with substantial housing wealth (owners).

Australians with little to no housing wealth were already experiencing at least three key types of vulnerabilities before the pandemic in the form of work insecurity, financial stress and ill-health.

The charts below show the comparisons between renters and home owners in these three categories of vulnerability, using data from the HILDA Survey. Owners are ranked in quintiles by housing equity, from the bottom 20% (Q1) to the top 20% (Q5).

Renters were much more likely to be unemployed or in casual jobs than people with high housing wealth.

Note: Sample includes all persons aged 25+ no longer living in their parents’ homes. Housing equity is defined as family home value minus mortgage debt. Population weights have been applied.
Author’s calculations from 2017 Household, Income and Labour Dynamics Survey data, Author provided

Both renters and owners with low housing equity were more likely to have difficulty paying their rent, mortgage and utility bills on time. They were less likely to be able to raise emergency funds when needed.

Note: Sample includes all persons aged 25+ who are no longer living in their parents’ homes. Housing equity is defined as family home value minus mortgage debt. Population weights have been applied.
Author’s calculations from 2017 Household, Income and Labour Dynamics Survey data, Author provided

Renters were also more likely to report poorer physical and mental health.

The spread of coronavirus has added to these existing vulnerabilities. Casual workers have been particularly vulnerable to job loss.

The social gradient in health is well-known. People on the bottom rungs of the socioeconomic ladder tend to be in poorer health. They are then more likely to develop serious health problems from the coronavirus.

Post-pandemic markets will add to inequalities

COVID-19 is making existing economic inequalities worse. And even in a post-pandemic world it can be expected to slow down wealth accumulation among renters.

Hysteresis is a term used to describe an economic event that persists into the future, after the factors that led to the event have disappeared. In labour markets, the long-term unemployed also suffer long-term damage to their job prospects as their skills deteriorate and they are regarded as less employable.

This hysteresis effect will likely spill over into housing markets. Any crisis-driven falls in house prices may be short-term as housing values remain relatively insulated by record low interest rates. People who are exposed to job loss, insecure work or ill-health during the crisis will face a greater struggle to regain their economic footing after the pandemic than those from more affluent backgrounds.

This means the wealth-accumulating capacity of people with little to no housing equity is further compromised during and after the pandemic. In short, renters could fall further behind in their ability to buy a home. The gap between the haves and have-nots will grow.

3 principles for post-pandemic policy

An even more unequal housing future for Australia is undesirable. The post-crisis housing debate will need to be conducted with three key elements in mind: equity, solidarity and security.

Equity in access to housing opportunities must not slide off policymakers’ radar. It is not a debatable fact that governments have long provided generous concessions for property buyers. These measures include capital gains tax discounts, family home exemptions from land tax and income support means tests, and negative gearing for investors.

These preferential tax treatments have far exceeded government spending on renters. Notwithstanding the benefits commonly associated with home ownership, restoring some balance in the distribution of subsidies between owners and renters is essential to narrow the widening chasm between them.

Solidarity between generations will be more crucial than ever before to preserve Australia’s social and economic fabric. The surge in national debt created in response to the crisis will likely be a multi-generational burden.

Some might be tempted to return to pitting the young against the old in housing debates. Policy thinking that encourages solidarity, rather than stoking tensions between generations, will be increasingly important. For instance, abolishing stamp duty together with levying land tax on all land will remove a key financial barrier to home purchases for both young first-time buyers and older downsizers.

The formation of the national cabinet to oversee the response to COVID-19 also provides a post-pandemic forum to forge federal-state cooperation on the required reforms. Federal support will be needed to help cover state revenue shortfalls in a gradual transition to land tax. On the other hand, the release of housing equity by older downsizers should ease pressures on the federal retirement incomes system.

Finally, it is time to reprioritise housing security as a foundation for fostering good health and economic participation. Critical public health measures to avoid the spread of disease, such as social distancing and staying at home, are inherently shelter-related. These measures are rarely achievable for people who are homeless or in overcrowded housing.

Rachel Ong ViforJ, Professor of Economics, School of Economics, Finance and Property, Curtin University

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

4 ways to be a good landlord in a time of coronavirus

Posted on April 17, 2020 by particularkev

Emma Baker, University of Adelaide and Rebecca Bentley, University of Melbourne

The COVID-19 pandemic is creating major challenges for our residential rental system. The lockdown of businesses has meant an almost overnight loss of jobs or reduced hours for many Australian workers. Many tenants are struggling to pay their rent.

While the release of a government package to help residential renters has been mooted for weeks, the only concrete outcome so far has been a halt on evictions and some progress in individual states and territories. The rapid sequence of events has left renters – that’s about one in three Australian households – and landlords in uncharted territory; they must renegotiate their terms.

We asked stakeholders from across the rental market – landlords, tenants, advocacy groups, housing researchers – for ideas on what ethical landlords might do in these highly uncertain circumstances. We discuss some of these ideas later in this article.

Landlords are taking a hit too

But, first, it’s important to remember it isn’t just renters who are struggling. Some landlords are too. For many of Australia’s more than 1 million “mum and dad” landlords, COVID-19 has dealt a blow to their relatively safe bricks-and-mortar investment.

On the other hand, landlords may have access to mortgage holidays and low interest rates. Some are also calling for relief on rates and other costs associated with their investment properties so they can better support their tenants.

At the coalface, responses from landlords, letting agents and property managers have reportedly varied widely. The official position of the Real Estate Institute of Australia is that a “a moratorium on evictions during these challenging times is the correct thing to be doing”. However, there have been widespread reports of threatened evictions, suggestions renters draw on super or use savings to pay rent, or that rent reductions will only come in the form of deferred loans.

Pulling together in a crisis

Australians have rallied together in this crisis – checking up on older neighbors, for instance, or delivering groceries or home-baked bread to isolated friends and relatives. This is grassroots stuff, which has largely happened separately from, and in advance of, formal government responses. People see COVID-19 as a shared challenge, and there is a lot of goodwill.

In this environment, while landlords are rightly concerned to protect their investment and keep paying their mortgages, many also have a competing concern to help out their tenants.

The problem is, in such a dispersed system of ownership, there is no template for how they might help, and no library of what other landlords are doing, so each mum and dad investor is responding in different ways. Anecdotal evidence suggests some letting agents have been contacting landlords for direction on how to respond to requests for rent reductions and gauging attitudes to eviction.

An added complication is that many of the responses that aim to help out tenants may be counter to the best interests of letting agents, who receive a percentage of rental income.

4 ways landlords can help

Here are some ideas in response to our questions of rental stakeholders:

Talk directly with tenants if you can, or at least ask to be included in the conversation.
Everyone will have different pressures. Work out what position you are in. Find out what concessions your bank may be offering, what inflexible costs (such as council rates) you have, what landlord insurance covers you for, and how much of the pain you are prepared to share – and for how long. Ask your tenants to do the same. This will form a good, and hopefully fair, basis on which to compromise.
Use letting agents who reflect your values as a landlord. You may wish to have a chat to your agent and ask that they notify you if tenants are having trouble. Some landlords have gone further and requested that all communication between agent and renter is cleared by them first.
Share success stories. One of the motivations for this article was the lack of information for mum and dad investors who are trying to be good landlords. Options to offer tenants as part of negotiations might include rent reductions, or deferred rent, but there aren’t many examples of what other landlords have done out there.

It would be helpful if landlords shared the solutions they have developed, what worked and what didn’t. Even though every case will be different, having positive case studies available for other landlords to emulate will be valuable.

The full extent of COVID-19 and its effect on employment, housing and the economy just isn’t known. And neither is the full detail of what government assistance may be provided – or the implications for landlords, tenants and agents.

Impacts are affecting everyone

It’s worth remembering that we’re all in this together. Everyone in the rental system – tenants, landlords and agents – will feel the effects of the pandemic.

Many households have already been tipped into post-COVID unemployment, many landlords will also have lost their jobs, many agents are overwhelmed by trying to keep businesses afloat while quickly mediating temporary solutions. And many want to do the right thing – tenants and landlords alike.

Everyone is waiting to know the shape and impact of any government response. Although it is difficult to adequately plan long-term responses to hardship, individual landlords can do a lot in advance of government help, and in addition to it.

Emma Baker, Professor of Housing Research, School of Architecture and Built Environment, University of Adelaide and Rebecca Bentley, Professor of Social Epidemiology, Centre for Health Equity, Melbourne School of Population and Global Health, University of Melbourne

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

Posted on April 13, 2020 by particularkev

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.

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.

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.

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.

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.

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.

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

Posted on April 12, 2020 by particularkev

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.

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.

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.

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.

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.

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

Posted on April 6, 2020 by particularkev

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”.

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.

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.

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.

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.

Coronavirus Update: Australia

Posted on April 2, 2020 by particularkev

Sharing my thoughts with the world from a Particular Baptist perspective

The build-to-rent promise

Rise of a new asset class

So will it deliver?

Reasons to proceed with caution

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What happened to these rentals?

Which renters are most at risk?

What happened to short-term rental housing?

How to improve life for renters on the margins

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COVID impacts have hit low-income households hardest

What about household savings?

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Why set social mix targets?

The case of Waterloo

More like 17% social housing

Many private renters struggle too

Key takeaways

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The renter-owner gap will widen

Post-pandemic markets will add to inequalities

3 principles for post-pandemic policy

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Landlords are taking a hit too

Pulling together in a crisis

4 ways landlords can help

Impacts are affecting everyone

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Renters already have it tough

COVID-19 is making it way tougher

A warlike crisis calls for a wartime responses

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Why should government step in?

A look at renter and landlord finances

How to ease the burden on landlords

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Eviction moratorium

What if I don’t pay my rent?

Can I get any rent assistance?

What about a rent reduction?

What if I want to break the lease?

Is there anything else to consider?

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