11 November 2022

Rental market needs to adapt to cope with new rules and needs

| Ian Bushnell
Join the conversation
51
For Lease sign

It’s a tough life for renters in the ACT, but things could be looking up. Photo: Michelle Kroll.

Renting in Canberra is heading for a change, and not just because of welcome changes to tenancy laws that give tenants more rights and require landlords to upgrade their properties.

This week’s announcement of a new regulation requiring homes to be insulated as part of minimum energy efficiency standards will improve the lot of renters facing crippling energy bills during Canberra’s freezing winters and baking summers.

It will also mean warmer and cooler homes and enhance not just the comfort of occupants but also their general health.

When you are paying among the highest rents in the country, a home that doesn’t cost the earth to heat and cool is what you should expect.

Tenant advocates will continue pushing for more efficiencies, including moving from gas appliances to electric systems.

Landlords facing extra costs are not happy and there are rumblings that they will simply sell up and vacate the market altogether or hike rents.

READ ALSO Canberra median house price under a million, but the fall is slowing

But they are already the beneficiaries of massive tax advantages in this country, and the phase-in period allows them time to install insulation if they have to.

They will also be able to access interest-free loans through the ACT’s Sustainable Household Scheme to pay for it and claim it as a tax deduction.

Some may decide that this latest impost is the last straw and that being a landlord is too difficult a business to be in.

But the situation is one that they have contributed to themselves as beneficiaries of an overheated housing market fuelled by negative gearing and capital gains tax concessions, investor lending practices, government home buyer grants and migration policy.

The inability for the housing industry to keep up supply has also fed into prices and rents.

The Borough BTR Stage 2, Denman Prospect.

Changing face of the market: An artist’s impression of Stage 2 of The Borough build-to-rent project at Denman Prospect. Photo: AMC Architecture.

Add more tenants, some having given up on the whole idea of buying a home, and you have a rental market failing to meet the housing needs of many Australians and a political problem for governments.

Governments have had to deal with growing pressures from tenants groups sick of insecure and inadequate rentals governed by tenancy laws heavily weighted in favour of landlords.

As well as rebalancing the scales and moving to force landlords to increase the energy efficiency of their properties, they are revisiting social and public housing, increasingly needed for the low-paid.

They are also investigating and encouraging Build-to-Rent projects, common overseas but new to Australia.

These BTR projects provide large numbers of dedicated, secure rental properties, often with facilities and amenities, and have a single entity managing a property instead of individual landlords.

Industry is looking increasingly at this kind of option to meet the market demand from those locked out of home ownership but also growing numbers who don’t want its expense or responsibilities.

This week Canberra Airport’s Capital Estates Developments lodged a development application for Stage 2 of its 700-apartment BTR project in Denman Prospect, The Borough, targeting the ACT’s essential workers.

Capital Estates will manage and maintain the landscaped and serviced precinct, achieving efficiencies and allowing it to offer affordable rents.

READ ALSO Home Truths: ACT businesses take another hit as rental squeeze sends job seekers running

This follows the ACT Government’s BTR prospectus to industry seeking proposals and the release of a block in Turner specifically for BTR.

Chief Minister Andrew Barr says the government hopes BTR can add 5000 rental homes to the ACT’s housing stock, reducing the pressures in the market.

BTR is usually perceived as large apartment blocks but it could also redefine the boarding house in smaller developments.

The rental market is evolving and it may be that with increased tenant demands, the business model for so-called mum and dad investors, some of whom may be overleveraged and underresourced, may no longer be viable.

A shake-out may well be on the way. Some might reduce their portfolios to a more manageable size or leave the market altogether in favour of those who can operate successfully in the new environment.

One thing is certain, the market cannot stay the same if we are going to keep a roof over everyone’s heads.

Join the conversation

51
All Comments
  • All Comments
  • Website Comments
Latest

The parliamentary library reported that the three Canberra electorates were all amongst the worst decile for net loss for investment properties.

Property investment advisors often recommend against property investment in Canberra due to high government property taxes, high property related fees, over regulation on landlords, high charges for repairs and property management. The good rate of capital growth in Canberra doesn’t always make up for the high costs.

Kent Fitch made some good points about Canberra’s gross rental yield being quite low in various media today.

These examples and the data suggests that mum and dad landlords in Canberra aren’t doing quite as well as the average person thinks they are. Government property revenues, Property developers, real estate agents and builders seem to be the ones that have done well.

The ACT Government with the support of rental lobbyists has implemented a lot of new policies and controls that they said will reduce rents over the last decade, every change seems to deliver unintended consequences.

Everyone from government, to developers, to lobbyists seem to be blaming someone else for our high rents.

“Rental market needs to adapt to cope with new rules and needs”. The Minister can’t even advise the compliance level of its own public housing stock and defended it by saying that it’s program of renewal (selling old stock and building new properties), would help to reduce it’s own non-compliance.

Maybe getting it’s own house in order before pushing reforms onto private landlords would be seen as being more credible?

It has been reported that there are about 11,000 public housing properties in the ACT. I’m not sure how easy it would be to report the compliance level of such a large number of public properties. There are many different compliance rules. There are many different sizes and types of properties. Not to mention how properties are maintained by tenants. Tenants come and go. The govt is buying and selling properties all the time. They have outsourced cleaning and maintenance services for these properties. Maybe you have am answer kenbehrens!

There are all sorts of things impacting upon our local housing market – skills shortages, negative gearing, government grants, stagnant wages, etc. Three things that haven’t got a mention so far are:

1) An incredibly poor planning scheme under a tired and incompetent government that has allowed developers free rein. If they were competent, there’d have been no loophole allowing developers to build high-rise apartments in Gungahlin, nor would the Snowtown developments at the airport have arisen.

2) A broader economic model that depends upon mass immigration to make up for a training and education model that doesn’t work, and a lack of productivity among the workforce. Mass immigration leads to massive increases in housing demand.

3) I suspect for many Mum and Dad investors have got into the market because they don’t really understand how other investments work. Property is tangible, and it worked for decades without them having to think too much about it. As the market (finally) approaches something resembling a professional industry, they are discovering that putting money into property and expecting regular golden eggs without much effort isn’t going to cut it any more.

William Newby6:38 am 12 Nov 22

In any business model ALL costs associated with providing a service are ultimately worn by the client (in this example, tenants).
If the ACT GOV came out tomorrow and demanded all rentals are to supply ‘free’ WIFI (for example) you would immediately see rents increase to cover this.

HiddenDragon9:46 pm 11 Nov 22

“Build to Rent” is another symptom of, and a step on the road towards, an Australia with a large and growing underclass in which the profits from property ownership are increasingly captured by corporate interests while individual households are increasingly denied access to those benefits and thus become ever more reliant on a welfare system which will eventually buckle and collapse under the weight of those demands.

In short, it is a quick fix cop-out for governments which can’t (or don’t want to) see beyond the 24 hour news cycle and the electoral cycle.

William Newby9:44 pm 11 Nov 22

All these increased costs, land taxes, and increased demands just drive up rents.
Only a moron would think that landlords will just cop this amd not increase their rents to maintain rental yields.
It is no coincidence that the ACThas the highest taxes, rates and fees matched with the highest rental rates.

We have a government putting the community and tenants first so that property investment and rental laws are not so one sided. As stated above, these new laws are a rebalancing of the scales. We have a Labor government doing its job, making changes to benefit the whole community not just a few. Australia has some of the most generous property investment incentives in the world. For too long now property investment has been unfairly weighted towards investors and landlords. They have been incentivised by a housing boom which has been kicked along by negative gearing laws, tax concessions and government grants, to name a few. These reforms go part way in correcting rental laws which have seen many landlords exploiting tenants including students, migrants and the marginalised. Taxation and rental reforms have been occurring in the ACT over the last number of years. Not everyone is happy though! These new regulations requiring landlords to upgrade their properties and install insulation will still enable them to access interest-free loans of up to $15,000 and claim it as a tax deduction should they wish to. If they find it too much, sell up!

devils_advocate12:05 am 13 Nov 22

Or they can just put the rent up to recover the costs.

Care to lay bets on which direction the rents are going?

Landlords putting up rents claiming they are recovering costs and claiming tax deductions from taxpayers! What greed!

devils_advocate12:10 am 16 Nov 22

Lol

You assume that:
a) the income of these landlords is high enough to get a meaningful tax deduction on any losses
b) they have other income to deduct the losses against
c) their income is high enough to sustain those losses and effectively subsidise renters
d) there are no other opportunities to invest their capital for higher return and lower risk

Lmao

“Greed”

Greed would be expecting someone to subsidise your lifestyle for no financial return!

@JackD, the ATO states that a landlord cannot claim as a tax deduction any improvements to a rental property. Only repairs can be claimed. Landlords cannot claim things like brand new insulation, new kitchens or new fences etc. (they can only claim repairs to fix/maintain current things). If you are forcing a landlord to install $15,000 worth of improvements to a property, of course the rent will increase.

Incidental Tourist3:28 pm 11 Nov 22

I wander – who “…can operate successfully in the new environment..”? Where is that “Built to Rent” success story after so many promises? Show us one happy tenant in BTR who is paying below market rent. BTR is both fantasy and a fallacy. Why? Because BTR is not working for less than 10% rental yield anywhere in the world. Mum and dad investors operate on half of this rental yield. So if you want sure way to rent increases – think of BTR.

devils_advocate1:42 pm 11 Nov 22

Pippin: what about stamp duty?
Aragorn: you’ve already had it.
Pippin: we’ve had one, yes. But what about second stamp duty?
Merry: I don’t think he knows about second stamp duty, pip.
Pippin: what about rates? Land tax? Increased AUV? Lease variation charge?

Gordon Williamson12:56 pm 11 Nov 22

It is said that the reason rents are rising is because of an inbalance between supply and demand. That sounds logical so why has it occurred?

Leaving aside arguments about government policies that some say penalise landlord/investors in the ACT compared to elsewhere; one reason might be that there has been a significant decline over time in the quantity of public housing whilst simulataneously the population has been rising.

As at 30 June 2018 there were 11,903 public housing properties. As at 30 June 2022 there were 10,723. (source Housing ACT in annual reports). A decline of 1,180 or close enough to 10%.

Seems to me something clearly government policy to reduce social housing rather than attempt to keep up with growing demand.

It’s a well established fact that Canberra has the lowest vacancy rates in the country because the ACT government has choked off rental supply by slapping egregious taxes on landlords. Could this be why rental demand is so high because people are turned off from home ownership in the first place?

devils_advocate1:25 pm 11 Nov 22

No doubt the taxes factor into the decision however there are a range of other reforms that have increased the riskiness of the investment, including:
-ending “no cause” evictions during a periodic tenancy (6 months notice not enough apparently)
-giving tenants a de facto right to have whichever and however many pets they want at the premises
-mandating energy efficiency requirements for rentals which will eventually make retrofitting existing homes uneconomical

As with any investment, investors will either seek an appropriately increased return for their risk (which in a supply constrained market is easily done through higher rents) or direct their capital elsewhere.

devils_advocate11:50 am 11 Nov 22

There are lots of good reasons why houses are now a much higher multiple of people’s wages. Some include:
-banking sector deregulation
-tax distortions both in terms of negative gearing and CGT concessions
-various first home buyer schemes
-restrictive planning and land release policies by state and territory governments

Actually nah… screw it.

It’s all the landlords’ fault!!!!!!

Ah, the good ole fallacy that it’s the landlord’s fault that certain people cannot buy a house. Fact: Banks won’t give a mortgage to people who are bad risk.

I agree banks won’t give people who are bad risk a mortgage.

Which means when investors drive up the price of housing, prospective home owners need to borrow increasingly leveraged amount, placing more of them in that category.

Glad we’ve cleared up that investors and landlords are most certainly (at least partly) responsible for more and more people not being able to afford their own home.

Which is borne out by the declining rates of home ownership in recent decades as more and more people are priced out.

It’s smart to recognise that all landlords are not the same. Some are not negatively geared and some are not there for capital gain. Individual investors are not the problem, nor are investors in general. Look at how this all started.

It was politicians and government policy that encouraged investors into the market by offering tax advantages, especially to high income earners. That then pushed up the cost of housing. They created a lucrative investment that has been pushed by the finance & real estate industries amongst others. Those who invested did so because it was offering good returns and little chance of losses, which is why people invest in any asset or industry.

@Chewy, it’s not investors driving up the prices. Many investors are not buying investment properties and are leaving the market – rental vacancies are the lowest they have ever been (0.3% in most places). When a rental property is sold that is one less rental property on the market and the rental vacancy goes down, which means rental prices go up. The price goes up when more people want to buy a house in a particular area. QLD prices have gone up a lot, and it’s definitely not because of investors (most investors have sold up and left the market and rental vacancies in QLD are extremely low). It’s because of high demand; many people moved to QLD from other States and sold their homes, and are looking to buy another house to live in. Just look at all the foreigners who are buying up homes here, and driving up demand and prices for housing. You need to expand your thinking, and see the bigger picture rather than always blaming a few small-time Australian investors. Australian citizens should definitely get housing cheaper than foreigners, and be able to buy a house in their own country; instead of blaming investors, you should be advocating for that to happen.

Jorie,
Whilst there are other factors impacting short term fluctuations in the market, the structural incentives given to investors have most definitely contributed to driving up prices over recent decades.

They lobbied for the government to increase incentives in their favour and then have exploited those incentives to drive up prices, all the while asking for even more incentives to be put in place.

And once again, if an investor sells up, it doesn’t affect the rental market significantly as it means someone else has purchased. The dwelling doesn’t disappear.

devils_advocate6:38 pm 11 Nov 22

“They lobbied for the government to increase incentives in their favour and then have exploited those incentives to drive up prices, all the while asking for even more incentives to be put in place.”

Lmao.

Explain to me how subsidising a product causes the price of that product to —increase—

*grabs popcorn*

Dis gon be gud

Surely no one is that obtuse?

Are you seriously asking how an induced demand driven by taxation concessions for one part of a market can result in an overall price increase?

For a relatively supply constrained product that is mainly purchased with debt which can be leveraged many times?

Particularly when that part of the market can offset taxes on non related income AND then receive a discount on the capital gains tax payable when the asset is sold?

Really?

No really? Bahahaha.

Economics 101 for dummies, first print landlord edition.

devils_advocate12:51 pm 12 Nov 22

So the incentive cause more investors to enter the market, increasing the supply of rental properties both in absolute terms and relative to owner-occupiers… and lowers the cost of supplying that service… and the increased SUPPLY of rental properties and lower COST BASE causes prices to…

Increase?

Really?

No really? Bahahaha.

Economics 101 for dummies is too advanced. Is there a course below 101 level for people that think this way?

I agree that economics 101 is too hard for you if you honestly believe what you just wrote.

There may be an increase in rental properties but that doesn’t commensurately come with an increase in dwellings because supply is still constrained and 90% of investment properties are existing dwellings.

So you now have incentivised investors who can both offset short term losses against other income and get a discount on the capital gains tax payable when they decide to sell and you think this cause prices to…

Decrease?

I’ve truly never seen someone argue this so obvious has been the effect on prices when these policies were put in place.

devils_advocate12:02 am 13 Nov 22

Hahahahahah

You yourself wrote:

“And once again, if an investor sells up, it doesn’t affect the rental market significantly as it means someone else has purchased. The dwelling doesn’t disappear.”

So if an investor sells to an owner-occupier, that doesn’t affect supply and demand because there is one less rental property and one less renter.

BUT if the government provides incentives for investors to buy properties, this somehow reduces supply and raises prices?

Lmfao.

Thanks for clarifying precisely how seriously your posts should be taken.

“BUT if the government provides incentives for investors to buy properties, this somehow reduces supply and raises prices?”

Can’t see anywhere that I’ve written it reduces supply, no wonder you’re struggling when your comprehension skills are so poor.

The entire argument is that supply of dwellings is significantly constrained. You’ve even agreed on this point repeatedly.

So when you create an artificial demand, souped up by the twin tax concessions of negative gearing and CGT discount, property prices will increase far above where they would otherwise be which flows through to all sectors of the market because supply cannot rise to keep pace.

It has been borne out by decades of evidence since these concessions were put in place.

“Thanks for clarifying precisely how seriously your posts should be taken.”

Thanks, it’s been fun helping you and I agree I have outlined the evidence clearly. Although I do suspect that the pure self interest that allows property investors to ignore obvious data to the contrary of their arguments will no doubt see them complaining again soon enough.

devils_advocate1:27 pm 13 Nov 22

If landlords buying houses doesn’t impact on the supply of available houses, then government subsidies to increase demand for investment properties does precisely zero to harm the balance of supply and demand.

Hate to see someone foiled by their own argument lol

It doesn’t significantly affect the supply of new dwellings, which was my argument previously.

But i’m not sure how you’ve extrapolated that to equal it doesn’t affect supply and demand in the rental and property markets entirely.

There’s that poor comprehension again. LOL.

devils_advocate10:29 pm 13 Nov 22

Lol

“And once again, if an investor sells up, it doesn’t affect the rental market significantly as it means someone else has purchased. The dwelling doesn’t disappear.”

So if an investor sells, it doesn’t affect the market significantly. But if an investor buys a property, (thereby adding to the total number of available rental properties) suddenly it affects the rental market.

Lmao.

Absolutely fascinating the mental gymnastics people will go through to justify their hatred of people who are doing better than them financially.

So funny to see the self interested are so blind that they don’t even know what the word “significantly” means. Particularly when the claim above was a response to someone claiming that an investor selling drives up rents.

There’s that lack of comprehension again.

Although glad to see you agreeing that investors selling up does not put significant upwards pressure on rent.

LOL.

devils_advocate9:31 am 11 Nov 22

“But the situation is one that they have contributed to themselves as beneficiaries of an overheated housing market fuelled by negative gearing and capital gains tax concessions, investor lending practices, government home buyer grants and migration policy.”

Wait wait wait… landlords contributed to the situation by being beneficiaries? How does that work?

Landlords benefit from government policies that increase the price of houses? That just means the asset costs more to buy and the cost of servicing the capital is higher.

What kind of analysis is this?

The policies didn’t just magically appear they were lobbied and promoted by property investors who have then exploited the government’s repeated changes that have incentivised their investments.

They clearly contributed to the problem, continue to support these policies and vehemently oppose any changes as we saw at the 2019 election.

Landlords obviously benefit through increased prices because it means higher capital gains on their leveraged investments.

Who loses out?

Poorer people and renters who are driven ever further away from their own home ownership and forced to pay ever higher rents due to the overheated housing market driven by investors.

devils_advocate11:03 am 11 Nov 22

So it was the fault of omnipotent landlords and their irresistible lobbying and not that of the successive governments who introduced the policies that inflated the housing market.

Got it.

I suppose it was the fault of landlords that removing negative gearing didn’t get up at the last election, since renters are not allowed to vote?

Lmao

From what I understand it was actually landlords that conspired to shoot Kennedy. Clear Lee Harvey Oswald’s name!

No, no, you’ve got it all wrong.

The government just put those policies in place randomly for no reason whatsoever. And they continue with them just for the fun of it. There’s no political pressure involved from vested interests whatsoever and the politicians are not swayed by outside influence.

And the 10% of Australians who have interest in investment properties and the 70% of people who own property don’t even consider the impact of these policies on the value of their assets when they vote and clearly wouldn’t impact the outcome of elections if they did……

Landlords on the other hand are philanthropists, modern day Florence Nightingales if you will. They pour their hearts and souls into providing shelter for the poor and needy, only expecting a pittance of rent in return.

They should be lauded as kings amongst men. Surely a group awarding of Australian of the Year for all landlords is in order.

devils_advocate1:19 pm 11 Nov 22

Well you heard it here first folks. Representative democracy is over. We are in the hands of the landlord oligarchy, all you serfs give fealty to your lords!

Those poor downtrodden landlords just looking to eek out a living.

The residential property market worth $10 trillion dollars conveys no political power whatsoever, surely a benevolent charity should take on the cause of the landlord to help them out from their dire straits.

devils_advocate3:38 pm 11 Nov 22

Lol why would they need a charity when they apparently have controlled both labour and coalition policy for the past 3 decades?

Lmao

BRB signing up for landlord illuminati

Not saying this isn’t true and I’m always in support of people getting better access to reasonably priced housing in Canberra.

But it’s worth noting Canberra’s 3 electorates are all in the worst decile for residential property ‘net rent loss’ in the country. Canberra is a weird place for residential investment compared to other cities across the country.

The great news for Canberra landlords: High rent return, average or better capital gain.

BUT the bad news for Canberra residential property investors is high costs, restrictions, charges and taxes.

A good deal of property investment experts warn against choosing Canberra to invest in because of our high regulation and high costs to being a landlord.

IMO, landlords can do well in Canberra but they need to be savvy.

This is only relevant if the landlord sells. For some landlords, the rent they earn is their only income as they don’t have superannuation and are too old or unwell to work. The increasing value of the asset prevents them from getting a pension but the costs of maintaining the asset diminish the returns and thus their income. The landlord often earns much less than the tenant, especially in Canberra with well-paid public servants.

Agree @psycho. I have one rental property in the ACT (that was not purchased an as investment property but was my family home), it is very small, but the ongoing costs are exorbitantly high in the ACT. The tenant is a high income earner and earns 3 times my earnings (plus the tenant also has investment properties in other parts of Australia) – many tenants are also landlords, and some are very well off. However, the usual suspects on here refuse to acknowledge reality, and instead they pretend all tenants are exploited and hard done by – very untrue!

See Psycho is on the right track.

Investors are so poor and downtrodden that they often earn less income than their tenants.

All whilst holding assets that have had capital increases of hundreds of thousands of dollars in recent years.

But obviously they are so persecuted and powerless that they couldn’t possibly be expected to sell and realise that gain. They need the government to step in and provide them with further incentives.

They are often too old and unable to work. We truly need a Royal Commission in to this outrageous government treatment of the heart of gold, landlord class.

I rented out a house for seven years. Most of my tenants would have earned more money than I did. My wage was likely lower then the average wage. How did I manage to buy an investment property. Got lucky, bought at the right time, lived very frugally and had been saving for decades. I had made sacrifices for years, that many wingers are unlikely to make, such as sharing your own house with other people; initially strangers, to help pay the bills. Also growing a lot of my own food. Other things too.

Gordon Williamson7:02 pm 11 Nov 22

Seriously? Perhaps we should drop the character generalisations in these types of discussions.

I think the point to be made is that investors have a choice as to which asset class and in which place they should invest their capital. Property, shares, bank accounts, exotic cars etc are all options.

If a particular asset class is less attractive than others, then a rational investor will invest in a better returning asset class. Similarly, if a particular location is less attractive than another, then a rational investor will invest in the more attractive location.

If there are insufficient investors in rental properties in a particular area there will be less rental properties available and logically shortage will arise and prices will rise.

The ACT rental return on investment – i.e. how much rent you get for $$$ invested – is relatively low. On top of that, the taxes and charges imposed in the ACT on rental properties are far higher than in many other places. And the ACT is progressively enacting rental reforms which relatively make renting more attractive for tenants and less attractive for the investor landlords.

So, I confess, I am an evil landlord investor. I have chosen to buy a property to make it available for someone else to rent and live in – just not in the ACT.

devils_advocate8:44 pm 11 Nov 22

An evil landlord investor? Can’t believe you’d admit to such a thing.

Tell us, my lord, how was it that you personally convinced successive federal labor and coalition governments over the past 3 decades to offer -against their will – so many incentives, tax breaks and so forth to appease the landlord Illuminati?

With such vast influence, perhaps you could fix the income tax rates?

Daily Digest

Want the best Canberra news delivered daily? Every day we package the most popular Riotact stories and send them straight to your inbox. Sign-up now for trusted local news that will never be behind a paywall.

By submitting your email address you are agreeing to Region Group's terms and conditions and privacy policy.