In tandem with the NSW Premier’s focus on the affordability of housing an equally important conversation has begun around residential tenancies.
It’s one that must be had if we continue on the current trajectory that will inevitably see the number of tenants overtake homeowners, many of whom will be lifetime renters.
That some view this situation as a national tragedy says much for our collective attitude towards renters but more pointedly has exposed the precarious nature of residential tenancies.
RBA head of economics Luci Ellis put the issue into perspective last week when she commented: "If we are concerned about inequality of housing outcomes, perhaps we should focus less on the type of tenure, and more on security of tenure."
The NSW government has undertaken a review of residential tenancy laws which is due to be tabled this year. A draft report released last June was widely criticised for its failure to tackle the most irksome for tenants – the no fault termination.
But even if this issue were to be resolved in a manner that is fair for both landlords and tenants, it is not a magic fix for tenant security. Renting a home in Australia is very different from the experience in America or Europe where institutional landlords play a significant part in providing long-term rental accommodation.
To better understand this model think of how a commercial tenancy works, with a long-term lease, specified annual rental increases and “make good” provisions on termination. The tenancy endures even if the landlord sells the property.
The essential difference is that the primary focus of the landlord is often yield ahead of capital gain with a real interest in making sure the property is tenanted, maintained and managed as well as generating regular income.
The ‘mum and dad’ investor model has generally worked well for both landlord and tenant but as we face the prospect of the ultimate end goal of home ownership disappearing for many in our major demand centres, we have to consider alternatives that make long term or even lifetime renting both possible and secure.
In many situations, long-term lock-in leases often do not serve either tenant or landlord well; both value the flexibility to opt out of a lease for valid reasons or when circumstances change.
However there are many different profiles of property investor, at least equal to the diversity of tenants. Many are in it for the long-term, looking for a steady income from their investment and any capital gain is a bonus. Similarly, there are many investors who would be willing to commit to long-term leases and pre-determined rent increases in return for certainty of tenure.
Perhaps it’s time to take a more creative approach to tenancy agreements, accepting that one size fits all doesn’t work for everybody.
Defence Housing Australia has a model that suits many investors looking for secure return, guaranteed tenancy and make-good after a specified term while providing our Defence Forces with good quality and accessible housing stock. There are elements of a DHA type structure that would be attractive to some residential landlords if applied to the broader community.
Unless Government wants to do a lot more of the heavy lifting, consistent and commercially attractive taxation treatment remains essential to maintaining a healthy supply of homes available for private rental but there may be a case for tailoring it to encourage landlords to commit to long-term secure leases.
There have been hints in the media of an appetite for institutional investors and superannuation funds to become involved in the residential rental sector. This model has been adopted widely in the UK and on the face of it has potential to work here in Australia.
We have to hope that the issue isn’t brushed aside, given an airing for a few short weeks and then deposited in the too hard basket.
It’s a fundamental human right and a pillar of a civilised society that people have a home where they can find comfort and security, whether their signature is on the title deed or the lease.