17 October 2021

Would a rent waiver discourage dodgy tenancy terminations and ease traumatic moves?

| Ian Bushnell
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Keys

You may have the keys, but having to hand them back can be a costly business. Photo: File.

Submissions on the ACT Government’s consultation paper on tenancy laws closed last Friday, and lobby group Better Renting has come up with an idea that will make landlords wince but is worth consideration.

Better Renting proposes that if landlords want to terminate a tenancy without a due cause, then they should contribute to the costs this imposes on the tenant, such as removal and storage charges, end-of-lease cleaning, utilities disconnection and connections, double rent while in transition and the use of annual leave while moving.

It suggests a four-week rent waiver to help tenants, who through no fault of their own, find themselves in one of life’s most stressful experiences – moving house – and facing a whole range of costs while the cause of their distress gets off scot-free unless they can’t find new tenants, hardly likely in Canberra’s market.

I can hear the squeals now from landlords and the real estate industry, but after spending a lot of time in Canberra’s rental market, I can testify to what Better Renting is on about.

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Renting – and for whatever reasons not everyone can buy their own home and more are going to be in that boat – in Canberra is precarious, expensive and traumatic.

Even when able to pay a reasonably high rent, finding and securing a family home can be a Herculean quest.

One year, if it weren’t for a friend who shared their home with two of our children and us for a couple of weeks, or others who put up our teenage son and another who offered a house-sitting option, we would have all been living out of the car while we stored our furniture and found new accommodation, all while still trying to hold down a job.

After settling into a new home, seemingly secure for a few years, the landlord announced that we had to go to make way for a relative, only to discover from the neighbours that the relative didn’t stay long and there were now new tenants in residence.

So for what was only a short-term convenience, a family of five was again tossed back into the rental jungle.

Then there was the time six months into a 12-month lease, the owners decided to sell the property and wanted any-time access for inspections.

That ended up in ACAT in our favour, but the die was cast. Fortunately, the agent was able to find us another property nearby.

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We have been in the one property now for many years and we are grateful for the stability that has brought, but I shudder at the memory of a succession of forced moves that drained our family of finances and energy, pushed us further into debt and put relationships at risk.

The stress this can place on families, in particular, can be immense, with children often having to change schools and a constant dislocation from community.

Better Renting argues that a landlord contribution would not just ease the financial burden, but discourage and deter flippant or unnecessary terminations.

“This wouldn’t prevent legitimate terminations – it wouldn’t even prevent illegitimate terminations where a lessor is willing to miss out on some rental income. But it would make lessors hesitate, and it would reduce the economic hit taken by people who are forced to move,” it says.

It would also provide more stability for families.

Of course, the property industry would howl that it would deter investors and mean even fewer properties on the market and higher rents.

But the main reason for owning rental properties is not about income but tax minimisation, thanks to Australia’s extraordinarily generous negative gearing laws and capital gains.

No one can say property hasn’t been a sure bet over the years, thanks to those favourable tax settings.

And rents are a function of supply and demand and what the market will bear.

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It is acknowledged being a landlord is not charity; it is a business in which a tenant is usually paying off an appreciating asset for the owner, and that’s something some landlords need to remember when they complain about the costs of running that business.

A possible rent waiver would be just one of those costs, and unlike maintenance, one that could be avoided.

Realistically, it’s an idea that might be a bridge too far for government, but it does highlight that in a world where for many homeownership is increasingly beyond them, Australia’s landlord-favoured rental landscape will need to change if social stability is something worth having.

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Better Renting is correct on one point only. The decision to invest in a rental property is a business decision. Investments have to deliver a return against their value and risk otherwise they need to be liquidated in favour of better assets. Investors are being driven out of Canberra by escalating costs and increasing obligations with little reciprocity. It s no longer viable and I don’t blame them for abandoning the ACT. Despite increasing rents and low interest rates, returns to many investors are significantly reduced – somebody has the tenants money and it’s not the land lord. And the deeper this situation is driven the more investors leave and the higher rents go. The solution is not to bleed a corps, but this is exactly what Better Renting’s proposal does.

But there is a darker cloud on the horizon. Those who have taken the tenant’s money from the landlord are talking with major investors and developers about “build to rent” blocks. Its a corporatisation of the rental market that will involve businesses and funds with a lot more power than private investors and a bigger voice than the advocacy groups. They are answerable to boards and share holders or major investors and I can’t see them tolerating the escalating costs and diminishing returns created by the present Government. As a tenant, try negotiating with them.

I’d really like to see Better Renting getting on board with their counterparts representing rental property investors and work through a joint solution that both can agree rather than grinding old hatchets and voicing prejudices. Certainly gaining a better grasp over the financial and social reality of delivering a rental service in an ACT environment that has been less than happy for both tenants and land lords would be a starting point.

tuggeranongist9:33 pm 20 Oct 21

All things being equal, I would prefer to deal with a large institutional landlord than an individual one. I suspect many other renters feel the same way.

I wouldn’t be too sure – institutional landlords don’t seem to be very popular with tenants in the USA.

Corporatisation of the rental market could well be a fitting end for neoliberal capitalism, there will be much cheering when rich investors have their assets confiscated or are forced to sell at huge losses.

This article seems to misunderstand some basic investment concepts: “But the main reason for owning rental properties is not about income but tax minimisation, thanks to Australia’s extraordinarily generous negative gearing laws and capital gains.”

Landlords can exist where they like: if one jurisdiction has too onerous laws, or too high costs, they can go interstate. I was recently talking to two lenders about buying an investment property myself: both said that they had not written an investment housing loan in Canberra this year (one said in 12 months). When I asked why, they said Canberra was regarded as having too high rates, too high land tax and too onerous rental legislation. So Canberra investment buyers were now opting for NSW and Qld.

Perhaps tenant advocacy groups might be careful about what they wish for: more onerous legislation could further repel landlords from investing here and instead send send them elsewhere. That will lead to even higher rental prices. Indeed, perhaps the current increase in rents owes its cause to a drop in housing supply?

Why would investors leaving cause rents to rise or housing supply to drop?

Investors are more likely to buy existing dwellings, so if they are less incentivised to buy here, there would be lower demand and those houses would reduce in price and be available for owner occupiers to buy.

And as the ACT government controls new land releases, there should be minimal/no impact on supply.

Rents can’t just be increased outside of market forces, so the idea that in this situation they would arbitrarily increase makes no sense. The idea that the sky will fall in if investors aren’t given excessive tax breaks and incentives is just silly.

Agree, chewy. Perhaps it is not a warm concern for the availability of rental properties that drives some investors but a feared loss of capital value on later sale.
If Rob’s contention were correct that rental prices would rise, all other landlords would be cheering, perhaps even looking to invest more.

Agree Rob. Many property investors are leaving the ACT due to the exorbitantly high land costs and land taxes charged by the ACT government, and also the restrictive laws that do not allow landlords to charge fair market rent for the rental property. So what was once a rental property gets sold to new owners, not investors. So that is another rental property that is gone from the rental market, and rental supplies are dwindling.

tuggeranongist12:32 pm 19 Oct 21

“ So what was once a rental property gets sold to new owners, not investors.”

This … sounds like a good outcome?

So what was once a rental property gets sold to new owners, not investors. So that is another rental property that is gone from the rental market, and rental supplies are dwindling.

So some previous renters become owners and the net result to the rental market is zero.

I don’t see why you think this is a bad thing.

It’s a good outcome for new home owners. But not a good outcome for people who want a rental property as they are competing in an already limited rental market.

The net result to the rental market is minus 1. As there is no longer one rental property on the market.

…and most likely there is one renter less in the market, now happily ensconced in a house of their own, while if a previous house owner bought it, their house is now on the market for sale.

Jorie,
And the result to those looking for a rental property is also -1.

Net result, zero impact on the rental market.

The house hasn’t disappeared, a renter has now become an owner.

Are you sure that it is current renters buying properties? The research I have read shows that many people who rent will do so for life. It is unfortunate that many people who rent will never buy their own home (for many reasons due to lack of deposit, unable to get a loan, unstable work etc.).
Many parents are buying houses for their children (who are living at home and not in rentals), and people coming from other States or coming here from overseas buy houses.

tuggeranongist11:53 pm 19 Oct 21

It doesn’t matter if they’re currently renting. Absent unusual circumstances (living with your parents for life), a person unable to buy a house will end up renting.

Jorie,
No matter which way you want to spin it, people buying their own house to live in removes demand from the rental market as a whole.

Unless you’re claiming the people buying these houses were homeless before they bought their house, it’s one less person/family/group who would otherwise require rental accommodation.

The reason your “research” shows that many people rent for life is mainly due to housing affordability issues and their personal financial circumstances. It’s not usually because they like renting.

So if we reduce the incentives provided to investors, housing affordability will improve amd more people could afford to buy.

Another great reason to stop giving housing investors such generous treatment.

I disagree that every single house that is sold is sold to a renter. When my rental property sells that is one less rental property available, and the tenants will have to look for another rental property in an already limited rental market. I talked to the real estate agent about putting my rental house on the market. He said that it has been mainly ‘down sizers’ looking to buy (people who already own big homes who want a smaller house), home owners in other states who are looking to move here, retirees and overseas buyers. He never said current Canberra renters were buying up properties in Canberra. I’d like to see a renter buy the property, but I’m doubtful that will be the case. It would be good if the government could collect statistics on who is buying property.

Jorie,
None of what you said makes any difference to the overall rental demand.

If a downsizer buys your home, someone else has bought or is renting their old home, it doesn’t disappear.

If an overseas person buys it to live in, they then don’t need to rent.

The net change to the rental market of owner occupiers purchasing a house is zero. One less house on the rental market, one less potential renter in the market. Housing is an essential product, unless you’re dead or homeless, you need to live somewhere.

Assume there are 300 rental properties in Canberra. And 3000 people looking for a rental property in Canberra (these Canberra people are not looking to buy a property as they are students, unable to get a loan etc.). That means only 1 in 10 people looking for a rental in Canberra will actually obtain a rental property in Canberra to rent. Then 1 of the rental properties in Canberra is sold to a buyer from Victoria or Hong Kong (sold to a person who does not want to rent, and is looking to buy a property). That means there is now only 299 rental properties in Canberra. So 3000 people in Canberra are still looking to rent, but there is one less property available in Canberra to rent. Actually it is now 3004 people looking to rent (as the owner of the rental property had to sell the rental property and so now an additional 4 people in Canberra need rental accommodation). People move overseas or move interstate, people move around, some people do not want to buy a property or settle down, some choose to rent in one city and buy a property in another city. There are many reasons why people do not purchase property. With the average house price in Canberra now being nearly $1 million, it is unlikely to be renters in Canberra buying houses here. Assuming everyone who buys a property in Canberra is a renter in Canberra (or a potential renter) is a flawed assumption.

tuggeranongist1:24 pm 20 Oct 21

Your reasoning doesn’t work because it assumes that “people who want to buy a PPOR” and “people who want to rent a PPOR” are mutually exclusive categories. Of course, they are not. At the margin, a person who cannot buy a PPOR will almost certainly have to rent.

Jorie,
Why would I imagine such a thing when it isn’t close to reality? As I’ve said above, the vast majority of people aren’t renters by choice but rather necessity.

I also take exception to this point:
“With the average house price in Canberra now being nearly $1 million, it is unlikely to be renters in Canberra buying houses here.”

One of the main drivers of high house prices is investors driving up the price of housing. You’re attempting to use a problem caused by investors as a reason that investors are a good thing. Sorry, that type of circular logic doesn’t fly.

Less incentives for investors = lower house prices = more renters being able to afford to buy.

And in your example the person from Hong Kong or Victoria is also part of the wider Canberra rental market as they are looking to potentially buy and move here. They would be actively looking and bidding for housing here. If they weren’t buying, they’d be forced to rent.

So if we took your example (even though it’s incorrect), there is actually 300 homes available and 3001 people looking to live in them.

The person from Hong Kong of Victoria buys the house, there is now 299 houses and 3000 people looking for housing.

Net result on the rental market = zero.

Jorie1, it is entirely within your power to sell profitably to a willing tenant. Your comments imply that it’s out of your hands when in fact you are prioritising the maximisation of your financial position over everyone and everything else.

Greed: A selfish or excessive desire for more than is needed or deserved

I wonder – what moral standards and considerations do you take into account before making a business transaction?

I have a rental property and the tenants pay low rent ($500 per week for a house in good condition). Rents and land tax have gone up a lot in the last year, and so have building insurances, and other costs and fees. Market rent for the property is over $600 per week, yet the ACT government said I can only increase the rent to $506 per week. This is way below going fair market rate, and is not even covering my costs and expenses for the property. I do not negatively gear the property. I cannot afford to continue to subsidise the tenants. So I need to either be allowed to charge more rent, or I will have to sell the property. Which is one less property on the rental market and the tenants will have to move to another place (if they can find one). Plus the tenants will be paying more rent whatever property they move to. I am happy to keep the tenants if they pay market rent (or at least close to market rent like even $580 per week would be good). $506 per week is far too low to pay for the house. It is not landlords causing tenants to move, it is the terrible bad policies of the ACT government. In a fair and democratic society, owners should be allowed to charge market rent for their property.

If I was going to be a property investor I’d probably understand the law before a) buying the property; and b) posting my ignorance on a public forum.

The ACT government changed the law in 2019 (stopping landlords from charging market rent to existing tenants), so not sure what you are going on about. Before that time, landlords in the ACT could charge fair market rent for rental properties. You appear to be the ignorant one.

If you want to increase the rent for existing tenants over and above the CPI threshold there is a mechanism to do that. There always has been. But I’m sure you know that.

tuggeranongist12:27 pm 19 Oct 21

The law doesn’t prevent you from charging a higher rate if your tenants agree, it just prevents you from jacking it up unreasonably without their agreement. If higher rent would be as mutually beneficial as you say, no doubt they’ll agree. If not, sounds like you made a poor investment decision.

$500 per week is not low – it is enough to build a modest detached family home every 10 years. It is a reflection of Australia’s apparent penchant for wealth transfer and financial scams over equitable wealth creation, the obscene result of a completely artificial market caused by government imposed land scarcity, and greedy rent seekers who would rather be subsidized by poor policies to financial exploit other Australians rather than participate in raising in the living standards of all Australians.

Rent seeking is an economic concept that occurs when an entity (landlord) seeks to gain wealth without any reciprocal contribution of productivity.

Hi Assiduous, I do agree that $500 per week is a lot of money – but the majority of that money goes to the ACT government in rates, land tax, insurance, repairs, and other fees and charges. It would be rare to find any decent house for under $500 per week in a capital city, particularly in Canberra. I certainly do not get $500 per week and calling landlords greedy rent seekers is not a fair comment. The government is the biggest benefactor and takes most of the money. Perhaps if the ACT government did not charge so much in rates and land tax, then rent amounts would not be so high. If you do a comparison (look at NSW or QLD) land taxes are much lower (investors do not even pay any land tax at all in most states) and rents are lower.

Sorry Jorie1, i can agree with you that the ACT government has a lot to answer for, but in that case so do the voters who put them there for 15 years. You’ll need to work much harder to convince me that my comment is unfair. I’ve been given 8 weeks notice so a landlord can make a slightly higher sale price by selling vacant on the advice of a real estate agent. Landlords in Australia’s market fit the definition of economic rent seekers very well. You have denied a family the opportunity to own their own home, and in the process bid up prices – which Canberra household was been bumped into homelessness or a social housing waiting list as a result? In my experience the different between the upkeep of a owner occupied home and a rental is stark. Landlords run down properties, owner occupiers improve and cherish them. The more expensive land is, the more social housing will be required, and the more it will cost to build, and thus the higher government taxes and rates will have to go.

“It is the liberalisation of finance and the treatment of housing as an investment product that got us into the housing affordability mess – Mark Limb (QUT) & Cameron Murray (USYD)” – as a participating investor, you are morally culpable for this.

Former RBA head Ian Macfarlane is on the record saying that those who profit from rising house prices “are making themselves richer at the expense of their children.” i.e. engaging in intergenerational theft.

Andrew Barr publicly stated recently that he has never met a property owner who wants lower property prices.

1. If you buy a property purely for tax advantages, I suggest you get a new accountant.
2. Landlords already are required to give several months notice if they renovate, allow a relative to move in or sell.
3. The idea that landlords are wealthy is a myth. Mostly they are ordinary people just trying to provide for their future.
4. Landlords in ACT have had to endure increasing land tax over many, many years. That is why some have sold up and choose not to have a rental or have moved their money out of ACT.
5. Landlords have to endure increasing repairs and maintenance from tenants who do not look after the property.
6. If a tenant falls behind in the rent. the landlord still has to pay the mortgage, while waiting for weeks or even months for it to be heard by ACAT.
7. It is well known that ACAT is on the side of the tenant.
8. Landlords already have longer notification periods than a tenant does and the tenants do not have to provide a reason why they are leaving.

Now they want to make it even harder for landlords. Yes, more landlords will sell up, demand for properties will rise, rents will rise, the government will fail to provide adequate public housing and the situation will only get worse.

You do have to laugh at the apparent landlords in this thread who think their investments in mostly existing housing somehow means there is increased housing supply.

Apparently that existing dwelling would magically disappear and no one else would buy it if they aren’t given massive tax breaks and favourable government policies.

Agree Realist. Landlords in the ACT are not treated fairly. I guess the proof is in the lack of rental properties available. If it was so great to be a landlord here there would be an oversupply of rentals in the ACT. I would not recommend being a landlord in the ACT unless you are very well off, and can afford to pay the very high rates and land taxes, and can afford to subsidise the tenants.

In what world should a tenant have to provide a reason to leave? If they break during a fixed term contract they have requirements to be met, outside of that, then they should be allowed to leave at their discretion, and without having to give any reason at all (assuming of course they are up to date with paying rent etc). They are your tenants, not serfs or slaves.

“The idea that landlords are wealthy is a myth. “

Well they are doing much better than many. While some may rent their primary place of residence, in most cases they own at least two properties. That’s a whole lotta more wealth relative to those people that own none and are renting.

JS9,
Yes it truly is a strange world where some people truly believe that owning multiple properties doesn’t strongly correlate with significantly above average wealth.

I don’t think some of these people have ever actually looked at what most people’s financial position is, nor the spread of wealth across the population.

It’s perfectly fine to be wealthy, but you should at least be smart enough to acknowledge it.

Agree JS9, but in what world should a landlord have to keep on a tenant indefinitely? The current laws allow tenants to leave if they want to, but forces landlords to keep on tenants forever unless the tenant chooses to leave (the only reasons landlords can have the property back is in very limited circumstances e.g. to sell it or renovate). Landlords should be able to do whatever they want with their own legal property without having to give reasons. Once the lease ends, the landlord should be free to change tenants if they want. They are landlords, not your parents.

tuggeranongist1:19 pm 19 Oct 21

“ The current laws allow tenants to leave if they want to, but forces landlords to keep on tenants forever unless the tenant chooses to leave (the only reasons landlords can have the property back is in very limited circumstances e.g. to sell it or renovate).”

This is obviously not true. From this and your other comments on this article, seems like you’ve made a really large investment without understanding the relevant laws.

Yes I did know, and my property manager said it’s a difficult mechanism involving going to the tribunal and showing evidence etc. And it will ruin the good relationship I have with the tenants (of course they are happy tenants as they pay way below market rent and have been there for years as I keep the place in excellent condition). If being a landlord in Canberra was fair and reasonable, then there would be a decent supply of rental properties in Canberra. Most landlords in Canberra are happy when tenants move out as then they can finally advertise and get decent and fair market rent amounts for their properties. The fact rental properties in Canberra are so hard to get (and newly advertised properties rent amounts are so high) is clear evidence that the current tenancy laws are terrible for landlords.

The law is very strict for landlords. Tenants can pretty much leave whenever they want, but landlords are stuck with tenants indefinitely, unless certain strict criteria is met. Landlords have to sign statutory declarations and other things to get their own property back. It is unfairly weighted in the tenant’s favour. The law should be more balanced and reflect the interests of both parties. From your comments, it seems like you really do not understand the system at all.

tuggeranongist3:42 pm 19 Oct 21

You are mistaken on both of these points.

Section 64B(1)(b) of the Residential Tenancies Act makes clear that rent can be increased above the cap if the tenant agrees in writing.

Clause 94 of the standard residential tenancy terms makes clear that, outside of a fixed term, a landlord can terminate a tenancy without cause so long as they give the required notice.

That your property manager does not understand the relevant rules is completely consistent with my experience as a renter.

“Why would anyone want to be a landlord?”

A: To accumulate wealth.
or
B: For that frisson of pleasure one obtains from using one’s surplus capital to offer a roof over the heads of those less deserving than oneself.

You choose.

If your reason is unsatisfied then invest in something else, which is how capitalism is supposed to work, rather than complaining about loss of privilege.

I’m beginning to see a pattern here. ACT Government and Better Renting say they’ll make things better and cheaper for renters by introducing…. no cause evictions, rent rise restrictions, land tax hikes, minimum energy efficiencies, affordable rent schemes, etc etc.

Each time they tweak the policies Canberra rents continue to rise to Australian record levels.

When will the ACT Government and Better Renting finally understand the ‘externalities’ of the ACT housing market around property taxes, low land release, selling off public housing land to developers, federal CGT levers etc etc.

They continue to live in an academic world that doesn’t understand the demographic, economic, administrative and geographical convolutions of the ACT market. Scandinavian rental policies can’t be simply plonked into the ACT and expected to work seamlessly.

tuggeranongist5:35 pm 18 Oct 21

Landlords are very welcome to sell up if they don’t like it. Would be great to have more stock available for first home buyers!

Are you trying to imply the ACT government has no control over the rate of land release and social housing stock by characterising them as externalities?

“one of life’s most stressful experiences – moving house”, seriously, most people have experienced much worse.
Life isn’t easy, landlords aren’t your friend, and people should focus on how to buy their own place instead of focussing on how to squeeze more from landlords.

tuggeranongist5:34 pm 18 Oct 21

“Landlords aren’t your friends”.

Quite right – remind me why I should care about their whining?

People should care about getting their own place.

But for many, sadly getting their own place may be nothing but a pipe dream. Especially in a market like Canberra, where those earning below or average wages are always really going to struggle to get into the market.

All well and good for someone to just say ‘get your own place’.

Yes, it can be a struggle to go from renting to buying, a really large hurdle for many, and still better than renting in the long run.

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