28 March 2020

Rents package to protect businesses and tenants from eviction

| Ian Bushnell
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Andrew Barr

Chief Minister Andrew Barr says the economic pain of COVID-19 will be shared. Photo: File.

Landlords will be prevented from evicting commercial and residential tenants under new laws designed to help coronavirus-hit businesses and residential renters survive the crisis.

Chief Minister Andrew Barr said at a press conference this afternoon that the complex package the National Cabinet had been working on for most of the week would be announced next week after Treasurers finalise the measures over the weekend and the National Cabinet meets.

He envisaged that an omnibus bill covering a range of measures would be introduced into the Legislative Assembly during its sole sitting day next Thursday.

The package will in effect put the normal operation of the rents payment system for affected tenants on ice until the COVID-19 crisis has passed and the economy can return to normal.

“Everybody is going to wear the pain here: governments, landlords, tenants and the banks. There is no way of fixing this, which is a very complex set of private contractual arrangements, without every sector wearing some pain,” he said.

Mr Barr said the approach, as outlined by the Prime Minister, was trying to put business in hibernation so that it didn’t emerge after the coronavirus period with significant debts that would make it impossible for them to start up again.

“Those principles will be applied similarly for housholds,” he said.

Already some of the bigger commercial tenants have decided to go on a rent strike with their shops and chains shut down, but Mr Barr said the next phase of economic support would reassure smaller retailers and residential tenants that they will not lose their businesses and homes.

While the details are still being worked out, Mr Barr said the broad principle was that the waiving of government taxes and charges for landlords should flow through to tenants as rent relief.

Mr Barr said the package would aim to emulate Tasmania’s approach to preventing evictions, and that would be the direction of the legislation to go before the Assembly.

”We don’t want to see anyone evicted but we recognise that in the case of residential landlords they are predominately your mum and dad investors, not big institutional investors in the way that commercial landlords tend to be,” he said.

The Commonwealth would play a role through the company and income tax systems, while the banks had already come on board to provide mortgage relief.

“We are very conscious of the need to provide certainty and consistency to the community, the business sector, to those who rent houses or commercial properties, to landlords, and this is a national effort that will be applied consistently across the nation wherever possible,” he said.

For ACT commercial property owners whose tenants have had to close their doors and are chafing at their forthcoming rates bills despite the recently announced rebate in the stimulus package, Mr Barr offered some hope.

“The other thing we can do is just not send out bills, that’s another thing we can consider in the context of what we’re doing next week,” he said.

Mr Barr said NSW and WA were leading the work to produce a model approach that could be adopted by each state and territory, and introduced in a nationally consistent way.

“By taking an extra day or two working with the Commonwealth and other jurisdictions we can get this package right the first time and not have to keep on coming back and making adjustments,” he said.

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Pretty simple really. If Barr lowers the Land Tax of the landlords then get that passed onto the lessee.
Eg the rental land tax alone for a normal house in Canberra would be $5000. Take that cost away and pass the saving directly to the tenant. I’m not talking Land Rates here. Land Tax is a separate cost to rental properties in ACT which a lot of people don’t seem to realise

The key difference with investment in shares and investment in property is that federal and state/territory Governments have slowly backed out of social housing and made housing a third of Australians the responsibility of negatively geared landlords.

If the government backs out of tax support for housing investment, the government will have to provide housing for renters themselves. This is good in theory, but very complex in reality.

Unfortunately due to their long term housing policies the governments have to support both tenants and landlords.

There are alternatives to these two options and they are used to good effect in other countries. The problem in Australia is that property investment has come to be seen as a growth asset, and “mum and dad” investors have approached it as such. The perverse consequences of this do not need to be rehearsed here. The point is, property investment can be treated as a conservative asset, one dominated by large property investment groups who only expect 1-2% per annum, and manage their properties accordingly. For these groups, long-term tenants are the name of the game. Ten year leases, with tenants able to do a lot to their properties in this time, i.e., to experience the property as their home, and to be sure the rent won’t be jacked up, and they won’t be turfed out when the owner sees an opportunity to make a big return by flipping it. Who knows, we may see a model like this introduced in Australia in the next few years. As property prices drop 20%+ (as predicted by AMP), and as rental demand drops (as larger share houses become the norm, and people move back in with family due to tight economic conditions), a lot of stock will enter the market. Whole buildings, now under construction, may be available for purchase and management by large property investors offering long-term tenancies, if this is guided by policy.

Count yourselves lucky property investors: Last I checked, banks will not be giving stock investors any kind of freeze, even though the value of their investments have also plunged.

Shares don’t cost money to maintain. Most people don’t even borrow for them. You can sell them instantly if you want to. Shareholders have no liability beyond losing the value of their shares. Not the same at all.

All investments have their risks, it’s only that lots of property investors don’t get this, they have this weird sense of entitlement, as repeatedly displayed in the discussions here. They think they should be bailed out by the banks and the government, for what reason? Why can’t I get bailed out because the value of my shares have gone down? I’m relying on those for my retirement. I worked hard. Blah blah blah. Property investors here whine like children because the government is limiting evictions. Don’t they understand that the alternative is still not getting rental income? They whine that the banks are still charging interest, not understanding that the Australian banking sector is hocked up to the eyeballs in debt and could collapse. Every investment has its risks. If you own property you’re already ahead. And you’re getting some slack from the banks. Count yourself very lucky. There’s no slack being cut for people who invested their money in other assets.

If the ACT follows Tasmania law that has just been passed, there will be no evictions for any reason at all.

So the banks are sharing the pain…how so? Interest is still being charged to rental home owner. They are also required to continue paying rates to local government, insurance to insurance companies… and the most responsible solution in this crisis is to encourage tenants to stop paying rent!! I am not against charity and sharing the pain but let’s be fair and start top down…goverment then banks then landlord’s then tenants. A mortgage deferral with interest charged is not sharing the pain…

The whole system is broken. Greedy capitalists (Multi-nationals/ big business – and politicians) take advantage of those less fortunate than themselves…however history shows that a broken capitalist system is always better then the socialist framework that the world is being bulldozed towards… both systems do have one thing in common though… those at the top still feel no pain!

Whilst I don’t think the banks will be doing it as tough has many, it is rather naive to suggest they won’t be impacted.

HiddenDragon9:32 pm 28 Mar 20

“Everybody is going to wear the pain here: governments, landlords, tenants and the banks.”

Time will tell whether governments wear any political “pain” from this.

As to “pain” of a more direct and immediate kind, will the ACT government be following the example of the Commonwealth and freezing incomes for MLAs and others covered by remuneration tribunal determinations (which should also happen to higher income subordinates)?

With essential government outlays rising, and revenues falling (GST revenue will be hard hit by the close-downs), ACT public sector salaries and benefits will increasingly be funded by debt which all ACT taxpayers will have to service – that will be real pain, particularly for those who don’t have safe incomes to rely on.

This doesn’t make sense, a couple on Newstart with one child currently gets $1800 per month and they have just announced an extra $550 per fortnight, this brings it up to $3800 per month for one couple with one child. Is that right or wong? Why is the burden being put on landlords to pay for their rent with promise of a few tax deductions. So if you own two properties and working full time, you will be putting every dollar plus more into repayments with no return while the tenant lives don’t free? What if the landlord can’t afford to pay both loans because of a 50% drop in wages? Sell up and go on Newstart allowance also?

Shouldn’t this burden be passed onto landlord insurance? Isn’t this why we have been paying insurance for the past 20 years?

Landlord insurance covers rent default for a limited number of weeks and/or maximum dollar amount.

Usually the bond is deducted from the payout, even if the bond is required for other purposes.

Landlord insurance requires the landlord to take all reasonable steps to enforce payment and/or evict tenant as soon as possible in order for a claim to be possible.

A landlord that volunteers an extension of time etc will void their right to make a claim.

The policies were not written with the thought that a law would be passed removing the ability to evict or enforce payment altogether and we will have to see whether the insurance companies feel they have a legal way to weasel out of payment.

In any case the insurer will not pay out until the tenant is actually out of the property so it won’t help the landlord pay their bills in the meantime.

You won’t be able to sell up as who is going to buy a house that comes with a freeloading tenant in place. You couldn’t sell it for some small amount because it wouldn’t cover the amount owed to the bank so the bank wouldn’t allow it. The only option is to stop paying the mortgage and let the bank take it and then they also won’t be able to sell it for much unless the bank is actually allowed to evict the freeloader at that point. You won’t be able to claim a tax deduction for any of these losses because something has to be income producing to be able to claim deductions against it. I think there will be a lot of landlords that decide it is actually in their interests to deliberately default and just let the bank take it especially if property prices are falling. People won’t just continually keep throwing good money after bad.

Look, investment has risks. People thought property investment didn’t have risks and it does. The big issue is that housing is an essential service, and when there is a crisis, it won’t be treated like other investment instruments. I guess that’s what everyone on this forum is now realising. This is going to be a very deep recession so people will lose a lot of money. The key thing is that the economy does not collapse completely and that the worst suffering (e.g., mass homelessness) is avoided. You can either lose some money from your rental property or pay big new taxes to police social unrest, or massive new taxes for the rest of your life if we bail everybody out. That’s really the choice here.

They will still probably be able to pay their rent. So not sure what you are complaining about.

With respect Troy, as I know it doesn’t help now…. I learned very early on, having been through quite a few recessions – including in the days of high teens interest rate… That cash is king and that highly leveraged positions always come undone eventually (unless you are just lucky with timing)….. Negative gearing is a folly, that has been gradually forming a structural problem in our economy for decades now…. So yes, you may have to suck it up at some stage, sell some assets so your cash position is stronger and base investments on positive return or contribution to the economy…. Life goes on and you rebuild…. Good luck….

Jase, you’re absolutely right. Here is the deal: if you still have a job and have an investment property, count yourself very very lucky. No bailouts for you because you are in a comparatively strong position. If you’ve lost your job and have an investment property, you will probably have to sell. Hopefully you have enough equity to carry you through for 12-18 months – hopefully (and it is all hope) we will have some economic improvement within that horizon.

I also bet Barr won’t give free rent to public housing tenants

Public housing rent is directly related to income.

It is based on market rent minus a basic rent which is calculated on household income. The lowest rent possible is a peppercorn $5.

So yet another post with a cheap political pot shot at Andrew Barr from someone who has no idea how the current system even works.

Petty much?

He should
Why not? What if a public tenant stops paying?

dcollins, on what strange basis do you think a property would sell for more with a tenant in place that wasn’t required to pay rent nor could be evicted?

If you are willing to make such an offer for any of the landlords here, I am sure you will have many takers.

Not all financially strapped renters will be paying zero. Many will negotiate a 50% reduction and landlords will accept this because it is preferable to an empty property. Others will sell because rents will be coming down as young people move back in with parents, and share houses have 6-8 people instead of 3-4, and as international student numbers decline. As properties change hands, and house prices fall, a 50% rent reduction (on current rents) will be fine for new buyers. Recall that house prices after the GFC dropped 40-80%, and this crisis will be much deeper than the GFC. Strap yourself in for the ride.

Whilst I agree with most of what you are saying, I don’t recall a 40-80% drop in house prices during the GFC, well in Australia anyway. US maybe but not here. Or are you using the US as an example of what might happen here?

That’s exactly what I’m doing. Australia didn’t even go into recession during the GFC. But in the United States, and many other countries, property prices collapsed. The effect of COVID will be far more severe than the GFC, everywhere. If Australia hits 15% unemployment, which is a conservative estimate for 2020, we should expect very substantial drops in property values. Unemployment in the US is projected to range from 20-30% in 2020. These are depression-era figures, although governments will be more effective now than they were in the 1930s.

Dr Shane Oliver, Chief Economist of AMP’s Capital division, has predicted a 20% drop in Melbourne and Sydney house prices due tighter credit lending conditions, falling capital growth expectations made worse by fears of a change in tax arrangements and an increase in unemployment. Dr Oliver predicted that unemployment is set to rise to 7.5 per cent which would prompt a 5 per cent decline in property prices. This is not the worst case scenario though. “A sharp rise in unemployment to say 10 per cent or beyond risks resulting in a spike in debt servicing problems, forced sales and sharply falling prices,” he said.
“This could then feed back to weaken the broader economy as falling home prices lead to less spending and a further rise in unemployment and more defaults and so on. This scenario could see prices fall 20 per cent or so.”

John Greene, the house you will likely sell at a massive loss will not disappear. Someone else will buy it for a 50% reduction, which will allow them to make a return while charging much lower rents. Your tenant will get that reduction, since your property will sell for more with a tenant in place.

I appreciate that landlords are upset about the losses they will make. But the role of the government here is not to prop up investors. It is (1) to prevent a full economic collapse and (2) to prevent the worst forms of human suffering, with homelessness very high on any such list.

hahahahahah

I dunno what fantasy land you live in, but nobody is going to lower rent. It will increase to cover losses, and the places sold at low prices will be snapped up by foreign investors.

No, rents are going down because many people will move in with family, and share rentals between 6-8 people. Demand is about to drop through the floor.

Also, international students will not be coming to Australia in 2021. Figure that into your calculations for rental demand.

And also, not all renters will be paying zero. Many will negotiate a 50% reduction. As properties change hands, and house prices fall, a 50% rent reduction (on current rents) will be fine for the new buyer. I will be looking at opportunities in the next six months.

Also can you trust Barr/Rattenbury to ever roll this back in the future even if the other states do. He is going to continue with his rate hikes isn’t he, as if reducing stamp duty is still no 1 priority, he would never back down on a terrible policy and the greens aren’t ever going to give up on something so awesome as free rent for tenants.

Actually, reducing stamp duty is a high priority now. Many properties will change hands over the next 12-18 months as people sell up and downsize. Reduced stamp makes this process less painful.

If someone is downsizing they will be purchasing a cheaper property and thus have the funds left over to cover the stamp duty.

Someone who lost their job doesn’t have hundreds of extra dollars to pay increased rates.

They are downsizing because their property has lost value and are desperate to sell and get a smaller place. They would rather pay $20,000 stamp duty as per Canberra than $40,000 as per Melbourne or Sydney.

Indeed, the savings on stamp duty will allow them to pay rates.

We all need to realise this: We are all going to lose a lot of money:

1. Two million people have lost their jobs. A large proportion of these people will never be employed at the same level again. Unemployment in Australia could easily rise to 15% in the next 6 months. In the United States, it may hit 25-30%.

3. Best case scenario: in 12-18 months, we are not in a depression but the federal government has amassed around $1 trillion in debt in preventing this; we will all be paying this debt down and it will hurt. If you’re in the public service, expect a freeze on salary indexation for many many years. Keep your eyes on major tax breaks, including capital gains exemptions, negative gearing, and franking credits. In a budgetary crisis, these are unaffordable. Push for multinational corporations to pay tax – it’s either them or you.

4. Property owners will lose a lot of money. You must expect this and adapt. Unless government supports renters, the whole investment property model will collapse. Investors will be throwing their properties on the market. Investments in vital services are always subject to sovereign risk. Your bank never mentioned that, right? Unless government supports renters, the property market will tank as investors throw their properties on the market. You find it hard to imagine. Look at the United States following the GFC. 50-60% price drops were common. Our current scenario is much worse than the GFC.

5. We all need to appreciate the scale of this. Be very grateful if you have a job. Know that you will nonetheless lose a lot of wealth via property and shares. Your living standards will decline. You will face tough choices. Government cannot bail us all out but hopefully can prevent depression.

This is not going to work out well for renters at all. I can see a heap of leases not being renewed and rents all going through the roof to cover these costs down the track.

No point rents going up if people cannot afford it. High asking rent=no tenant=no income.

That’s right JC: Demand for rentals will be going down for three reasons:
1. People who have lost their jobs will move in with family
2. People who rent properties will now have more people in them
3. International student numbers will fall through the floor in 2021

Property investors will never “cover these costs” – they will make losses; they will renegotiate their loan terms; if their equity is negative they may be forced to sell.

Grimm,
You don’t understand how supply and demand works do you?

How are you going to increase costs for a product that will have significantly reduced demand in coming years and the demand that is there will have significantly reduced ability to pay.

Property investors are about to discover that what the spruikers have told them for decades about constant growth was a lie.

Forcing a landlord to give free rent whilst effectively preventing them from selling it (who is going to buy it with a non paying tenant in there you can’t get rid of) whilst also forcing them to continue to pay state government charges for an asset they can’t use for it’s intended purpose. Oh and you can’t even claim a tax deduction for your losses because it is no longer an income producing asset. Borders on the confiscation of private property without compensation, not really in the spirit of the constitution. What’s next just take money from peoples bank accounts – can we trust the government not to do that now? If this comes into place in the event that one of my tenants stops paying even if I am able to continue paying I will; stop payments of all rates, land tax, water bills, stop performing repairs that are primarily for the tenants benefit including hot water, heating etc. I will also stop making payg installments on any other income I receive as I am not going to pay taxes to dictators. Any cash will be somewhere the government can’t find it. Good luck selling my properties to get the money out of me who is going to buy them at all much less for enough to cover the mortgage now that you have made them such an awesome investment? Oh and expect there to be zero rental properties available for lease overnight you have suddently made it better to have the property empty.

haha how noble. You choose freedom over tyranny. No, hang on… you choose money over law.

Wow, what a leap in logic you make! Yep, they’re definitely going to start taking money out of your account directly because renters can’t be evicted. That makes perfect sense. Not.

There is definitely an argument for landlords to have a freeze on their mortgages while the renters are unable to pay rent but can’t be evicted. Perhaps push for that? Lots of banks have indicated they are willing to discuss that situation with mortgage-holders.

And good luck with your effort to stop paying tax on other payg income – I’m sure you’re on strong legal ground there…

I’m just glad I don’t live in one of your properties because you sound like one of the horror landlords I try my hardest not to be.

I know it’s a scary time, but try not to react out of fear or take things out on your tenants, who are probably in a worse situation than you are.

If Barr issues another rates notice in May I won’t be paying it. Rates have been increasing by 10% a year. Share the pain Barr, instead of spreading it.

You do realise it is not Mr Barr who cops the pain it is all of us.

This thing federal and local is going to be costing us a bucket load for many years to come. Time to wake up and smell the roses rather than make ridiculous political pot shots.

But the ACT Government is still increasing your rates by 10-11% every year.
If renters don’t pay rent then property owners don’t pay rates.
Rent strike. Rates strike.

To the nongs on Facebook saying what about the landlords, don’t want to state the bleeding obvious but if you kick out a non paying tenant you need to find another one. Dare I ask in the current environment how easy do you think that will be?

I would also suggest that the banks could be of some assistance if you have a loan to pay, plus of course you would have a lower income which would mean you would get more back through negative gearing. And the government has also suggested savings in government fees and charges.

So realistically like everyone else in the country has to do you probably have to ride it out and join team Australia and forget about your own self interest for 6-12 months.

Oh BTW I am not a renter I own (paying off) my own home, and have from time to time been a landlord. So no self interest either way.

JC, this is sensible. Some people posting here don’t fully appreciate what we are in for. Best case scenario is the worst recession for 80 years. Worst case scenario: we enter a full-blown depression with 30% unemployment. Either way, we’re all going to lose a lot of money and we’re all going to have to fundamentally recalibrate our financial plans.

Exactly. It ain’t gonna be pretty for anyone.

Do you think that someone that owns their home, paying a loan and working should also join team Australia or does this burden just fall on landlords?

Not quite sure your question, maybe you misunderstood my point.

And that point is that every single person will be effected in some way shape or form, including those that have a job and mortgage (which btw is my situation).

Far too many think they won’t be effected when the reality is we all will be for many years to come. Obviously some more than others.

Troyhype, you have to understand the bigger priorities here:

Priority #1 is saving Australia from an economic catastrophe (in which case property values could drop by 40-80%)
Priority #2 is reducing the worst forms of suffering, with homelessness being very high among them.

Far down the government’s priority list is propping up investors, whether of property, shares, gold, art, or whatever. Investors are not a protected species.

Ah but they are because they vote. Just look at the last federal election and the proposed changes to negative gearing and franking credits.

JC,
Yep some property investors are about to face the real world for the first time in a long while.

Who knew that investing in property might not always be the continual road to riches the spruikers have always claimed?

If I was an investor, I’d be less worried about not getting rent for 6 months and more worried about the potential 50%+ drop in property values that might occur in the major economic downturn that’s occurring.

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