Investors in rental properties are here to stay when rental laws change, but there’s more to the story. Image: The Property Tribune; Henry Thai.
  • Investors found to not sell up due to legislative changes
  • Changes in rental law does weigh on whether investors buy
  • The matter has been a hot topic throughout the pandemic

New research from The Australian Housing and Urban Research Institute (AHURI) has found that improving tenancy laws has not stopped rental investment.

This research comes months after outrage gripped Australians as the rental crisis deepened and conversations around changes to renting kicked-off.

Western Australia proposed changes to renting

In July this year, The Property Tribune reported on possible changes to renting laws in WA. The proposed changes followed a six-month consultation period in 2020.

A survey at the time conducted by Synergies Economic Consulting found that over three out of five investors (61%) would sell their rental if the then-suggested changes to tenancy laws were made.

Industry also hit out at the proposed reforms, stating that while the reforms were well-intentioned, they would see both tenants and landlords worse off at the end of the day.

Rent control in Australia

Part of the equation includes how much a landlord can charge a tenant, which in crude and simple terms is what rent control is.

Like many of these divisive issues, there are always polar opposites.

In 1977, prominent economist, Assar Lindbeck asserted, “Next to bombing, rent control seems in many cases to be the most efficient technique so far known for destroying cities.”

The Property Tribune has earlier explored the impacts of rent control and the dangers, a case study of Berlin’s rent control, and whether it should be on our minds at all in Australia.

One of the issues considered was how price caps could create severe shortages in the rental sector due to the surges in demand, and the discouraging of supply. This concern about rental stock shortages seemed more or less confirmed in a case study of rent control in Berlin.

On the flip side, one expert observed that rental housing is often treated as a wealth-creation tool, rather than a basic necessity. Another issue noticed was that while rents are skyrocketing, the quality or output of housing is not.

Tenant landlord stand-off continues, and politics takes hold

As tenancy laws began to relax around issues like pet ownership, one piece of research found that people are still hiding pets from landlords, worried they’ll be thrown out of their home.

The subject of rentals, negative gearing, capital gains tax, and more, are very much the low-hanging fruit of politics, or a political football – take your pick.

The Property Tribune contributor Mike Mortlock looked into the issue of politics and Australian housing, as well as the cause behind the deepening rental crisis.

Changing tenancy laws does not stop investors

Back to the research by AHURI: it was found tenancy law reforms had minimal impact on landlords’ decisions around investing in private rental housing.

The study considered the impacts of tenancy law reform in New South Wales and Victoria. AHURI’s study, conducted by researchers from UNSW Sydney, Swinburne University of Technology, and the University of South Australia, analysed rental bond records to test two law reform interventions: Residential Tenancies Act 2010 (NSW), and the 2015 Victorian Fairer Safer Housing review.

“The analysis found no evidence that the New South Wales reform affected the number of properties entering the private rental sector, while fewer properties than expected exited the sector.”

Regulation of residential tenancies and impacts on investment, AHURI

AHURI’s research found that for Victoria, slightly fewer properties entered the sector after the review commenced, however, there was no effect on the number of properties exiting the private rental sector.

Investors leave the rental market

Part of the research involved a survey of property investors, and AHURI said it found consistent results.

Only 14 per cent of investors who sold up and left the rental market said it was due to tenancy laws.

“50 per cent said they had sold because it was a good time to realise capital gains; 47 per cent said they wanted money for another investment; and 36 per cent said the rental income was insufficient.”

Regulation of residential tenancies and impacts on investment, AHURI

The research also found that: “Most investors said tenancy law was an important consideration when they invested, but when it came to selling it was rarely a major factor.”

Senior Research Fellow in the City Futures Research Centre at UNSW Sydney, Dr Chris Martin, said: “Overall, we found that Australian residential tenancies law reform has accommodated, even facilitated, the long-term growth of the private rental sector, rather than causing disinvestment.”

“The sector is dominated by small-holding landlords who frequently transfer properties into and out of private rental according to their individual circumstances and the wider housing market conditions. The reality is the Australian private rental sector is built for both investing and disinvesting, and that’s what landlords do.”

When do investors sell a rental?

The answer is within five years of first being in the private rental market, according to AHURI’s research.

Some 32 per cent of Sydney’s properties that first entered the private rental sector in 2000 were no longer in the private rental sector five years later, and 44 per cent were no longer there after 10 years.

The story in Melbourne is much of the same, and a bit more: almost half (49.3 per cent) of the properties that hit the rental sector were no longer there after five years, with 58 per cent off the rental market after 10 years.

These figures are much more dire for properties from 2015: AHURI’s research found 54.7 per cent of Sydney properties exited after five years, and Melbourne 51.4 per cent.

“As properties churn through the rental sector, renters get churned out of their housing. This is a basic problem for people trying to make a home in rental housing,” said Dr Martin.

“Around Australia, states’ and territories’ renting laws accommodate the dynamic nature of private rental investment. Landlords can access the sector easily because there are no licensing or training requirements. And they can exit easily because tenancies can be readily terminated.”

“There are, however, many differences between jurisdictions in the details of their laws. There’s been virtually no national co-ordination of law reform processes, so divergences are opening up and some problem areas have gone unaddressed.

“Based on the findings of our report, we argue it is time for jurisdictions across Australia to pursue a new national agenda for residential tenancies law reform.

“Some high-priority actions should include making tenancies more legally secure, clarifying landlords’ obligations regarding defective premises, and investigating contemporary rent regulation regimes to moderate increases in market rents.”

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