Last week the NSW State Government tabled in Parliament the report of its five-year review of the Residential Tenancies Act 2010.

Its strongest point is a series of recommendations relating to domestic violence, including for provisions for victims to immediately terminate a tenancy because of domestic violence, and avoid being held liable for property damage caused by violent occupants. Its weakest point, however, is a big one: the review badly misses an opportunity to do something about the insecurity of rental housing.

The most useful thing it could do – that is, recommend getting rid of ‘no-grounds’ termination notices by landlords – the report dismisses; instead, it holds out the unhelpful prospect of ‘long fixed term leases’ as the hope of improved security.

It is a false hope. Long fixed term leases are an idea that might receive a bit of enthusiasm in a dinner party conversation but, when anyone really thinks about it, they don’t suit the interests of landlords or tenants – at least, not as their interests are currently shaped by the structures of our rental housing system.

Let’s quickly get clear on what fixed terms, long or short, actually do under our current tenancy laws. Fixed terms are a hangover from the common law, which insisted that leases had to be for a term (and if there was no term, there was no lease), which led to lots of fun case law about what was a term (eg is ‘until the end of the peanut crop‘ a term?). Under the modern residential tenancies legislation, tenancy agreements aren’t required to have a fixed term but, where they do, the landlord cannot give a termination notice on the ground of sale of the premises (they can still sell, but the purchaser takes the property with the tenancy intact), and neither the landlord nor the tenant can give a termination notice without grounds during the fixed term. Generally, a fixed term also prevents the landlord from increasing the rent, but that’s only if the agreement does not specifically provide for an increase.

In practice, most tenancy agreements start with a relatively short fixed term of six or 12 months. There is nothing in the law to prevent landlords or tenants from asking for something longer, but there are reasons why neither party does. The review actually does a good job of summarising them:

Landlords and agents may prefer the greater flexibility under periodic leases for rent increases and for regaining vacant possession of the property for reasons of sale, personal use or for re-letting to a preferred tenant. Tax settings in Australia and the tendency to purchase of property to make a capital gain rather than to collect rental income also contribute to landlords’ reluctance to enter long term leases.

Tenants may not request long fixed term leases, as they may want to keep their housing options open, or may fear being ‘stuck’ with an undesirable landlord…. Indeed the Tenants’ Union has argued that it would caution tenants against entering into a long fixed term tenancy, in case the landlord proves to be difficult or sells to another landlord who is an unknown quantity.

These are the structures (and policy settings underpinning them) that make renting insecure: the speculative holding of rental housing (facilitated by negative gearing) for sale (capital gains taxed at half the rate applying to rental income) to other speculators (again, facilitated by negative gearing and the capital gains tax discount) or owner-occupiers (exempt from capital gains tax, income tax on imputed rent, and land tax) – which means having to be able to readily remove a tenant; this speculative holding being undertaken by small-holding landlords (preferenced by the land tax rate structure) who don’t trade on their reputations as housing managers – which means tenants may need to remove themselves if things turn ugly.

Long fixed terms are an attempt at a legal fix for insecurity that does not fit with the structures of our rental housing system. However, the review tries to press its preferred fix by recommending changes to the Residential Tenancies Act to make long fixed terms ‘more attractive’ – by allowing agreements for a long fixed term to dispense with most of the standard conditions of tenancy agreements, such as the landlord’s obligation to do repairs. Most of these conditions are landlord obligations, so the attraction would be decidedly one-way. The Act already makes such an allowance in relation to agreements for a fixed term of 20 years (the result of a previous round of enthusiasm for long fixed terms); the review recommends extending it to fixed terms of five years. Most landlords might still find this length of fixed term too long for their speculative purposes, but a few might be able to work with it. Whether it would really work for the tenant is doubtful.

Say, for example, that after the usual 12-month fixed term tenancy agreement, the landlord offers the now-settled-in tenant a five-year fixed term, with no obligation to do repairs. There might be a little discount on the rent too – but the rent can still go up each year. And while the tenant might feel settled in their tenancy, this can be used against them too – the ‘fixed term/no repairs’ deal might be presented on a ‘take it or leave’ basis. In trying to make something that is currently useless more ‘attractive’, the review may be creating something that is quite unfair.

Real improvements to tenants’ security must come from tenancy law reforms that work with the present structures of the rental housing system, and from structural reforms that deliver a different type of landlord with a different outlook for their investment.

Getting rid of ‘no grounds’ terminations by landlords would work with the present structures. Landlords could still sell when it suited them – but they could not use a ‘no grounds’ notice for the host of bad reasons for termination – discrimination, retaliation, undue pressure (like the ‘take it or leave’ deal, above) – to which these notices currently give cover. Bad landlords would be at a disadvantage, reasonable landlords hardly affected, and all tenants would have greater peace of mind.

And the different type of landlord we need is one that likes nothing more than receiving a steady trickle of rents (as opposed to flipping properties for capital gains) from a portfolio of multiple properties (so a problem in one tenancy doesn’t derail the enterprise), whose scale of operations means they have a reputation to protect through decent customer service to tenants. And to get this, we need tax settings that don’t reward speculation, that don’t discourage scale, and that make the most valuable thing in the rental housing system a happy, long-term tenant.