Rents can and should be reduced or suspended for the coronavirus pandemic

Posted by Chris Martin on April 8th, 2020 · Affordability, Economy, Government, Housing, Law, Tenancy, Uncategorized

By Chris Martin, City Futures Research Centre. This article is republished from The Conversation under a Creative Commons license. Read the original article.

The National Cabinet announced a moratorium on evictions just over a week ago in response to the COVID-19 pandemic. As government ministers and commentators have tried to make clear, it’s intended only to stop evictions – not rent payments. But the sudden losses of jobs and incomes mean many households cannot continue to pay pre-crisis rents.

Tenants are seeking rent reductions or waivers from their landlords, with disturbingly mixed results. It is time for governments to step in and resolve the issue, by legally mandating rent reductions across the board.

Recent analysis of renter and landlord household finances clearly shows the latter group are much better placed to take a financial hit from this pandemic.

Up to now the prime minister has encouraged tenants and landlords to make individual arrangements. In the absence of any government guidance, agents’ and tenants’ representatives agree on this much: the situation is a mess.

Some landlords and agents are responding sympathetically. Others are hesitant, apparently wary voluntary reductions may void their insurance. Some are insisting on full payment, or even increasing rents. And some were advising tenants to draw on their superannuation to pay rent – until ASIC warned them off.

Why should government step in?

Yesterday the National Cabinet addressed commercial tenancies, but again left aside residential tenancies. It is within the power of state and territory governments to sort this mess out. They could legislate to reduce rents to some fraction of current rents or to zero – a complete suspension of rent liabilities for the declared duration of the pandemic.

With federal government co-operation, mortgage interest could receive the same treatment: mandatorily reduced or suspended for the pandemic, with principal repayments deferred.

This is the appropriate response to the peculiar nature of this crisis. The key point here is that government is deliberately suppressing economic activity to prevent transmission of the virus. With household incomes much reduced – and governments trying to top them up with new payments – it makes sense also to reduce household outflows.

A look at renter and landlord finances

The biggest household expenses to reduce are rent and interest. Here’s a quick sketch of incomes and outflows in the Australian private rental sector, using the latest available figures from the ABS, the ATO, the Productivity Commission and detailed analysis of previous rounds of data last year by Kath Hulse, Margaret Reynolds and me.

About 2.5 million Australian households rent privately. Just over half are in the bottom 40% of households by income. About one-third are low-income households paying more than 30% of their income in rent – and that’s before the COVID-19 income losses.

Private renters pay about A$43 billion a year in rent to another, smaller group of households: Australia’s 1.3 million landlord households.

A little more than half of that rental income, A$22 billion, flows right out again to banks, as interest payments on investment loans. For 60% of landlords the interest outflow, plus other property-related expenses, is greater than their rental income: they are negatively geared. For them, rental income is not about putting food on the table; it is part-funding their investment or speculation in property.

This negatively geared group receives high incomes from work and other sources. Leaving aside their net rental losses, they have an average annual taxable income of about A$94,000, versus A$54,000 for non-landlords. Landlords’ other incomes may have taken a COVID-19 hit, but the most common occupations for this group – general managers, registered nurses and accountants – have probably fared better than the casual and gig workers.

Landlords who derive a net positive rental income mostly receive other income too. Their average annual taxable income is A$66,000 before net rent is added.

A relative few landlords, 16%, are post-retirement age. They may well rely on rental income for consumption, but, on average, they are rich, with almost A$3 million in net wealth.

A final point about landlords: they are more likely to have a partner than non-landlords. Presumably, then, they have access to shared resources when times are tough. The average disposable household income for landlords is A$135,000 a year, versus A$82,000 for non-landlords.

So, were tenants’ rental outflows reduced, landlord households are relatively well-positioned to bear a reduction in their rental incomes.

How to ease the burden on landlords

Landlords would, of course, also want to reduce their own outflows. They have probably already done so, because the pandemic has closed so many discretionary spending opportunities.

Another outflow – the A$3 billion a year they spend on real estate agents – would also be reduced, because agent fees are mostly calculated as a proportion of rent. This would cause pain for agents, but many of their activities – inspecting properties, handling eviction proceedings, conducting marketing campaigns – are not needed in a pandemic. JobKeeper payments could support their businesses.

The biggest pain would be the interest outflow. But let’s reduce or suspend interest too, for both owner-occupiers and landlords. This would reduce income for banks, which would have a problem when their own liabilities to whole funders come due.

And at that point a really useful negotiation could take place between banks and the Australian government. They could “sit down, talk to each other and work this out” – as the PM has suggested to millions of individuals – to keep finance operating, in return for reformed service and a public equity stake.

In ordinary times, rents and interest have a controversial role in the economy. They extract value from productive actors in the economy for the benefit of owners of property and financial assets, and are the object of speculation. But, as the political economist David Harvey observes, they also have a co-ordinating role that drives competition and future production.

But these are not ordinary times. For the moment, at least, we don’t need rent to co-ordinate what the economy must do. We need to produce the essentials and whatever else can be safely done at home, with the rest of production in hibernation. And we need to ensure households retain enough income for the essentials, with reductions in income equitably shared.

Chris Martin, Senior Research Fellow, City Futures Research Centre, UNSW

Why housing evictions must be suspended to defend us against coronavirus

Posted by Chris Martin on March 23rd, 2020 · Economy, Government, Guest appearance, Housing, Law, Money, Pandemic, Wellbeing

By Sophia Maalsen, University of Sydney; Chris Martin, UNSW; Dallas Rogers, University of Sydney, and Emma Power, Western Sydney University. This article is republished from The Conversation under a Creative Commons license. Read the original article.

The COVID-19 pandemic is a double crisis affecting public health and the economy. And both aspects are playing out in our housing system – in our homes.

More and more of us are being directed to stay home, to work from home, or to socially isolate at home. Our homes are the “first line of defence against the COVID-19 outbreak”, as the UN’s Special Rapporteur on Housing puts it. But, depending on how our housing system responds, it could make the double crisis worse.

More and more workers are losing shifts, or losing jobs altogether, as well as the incomes they use to pay for their homes – whether it’s the rent or the mortgage. On Friday, the prime minister announced that states would work on model rules to provide relief to tenants in “hardship conditions”. On Sunday, the federal government moved to replace some of the income households have lost, temporarily doubling some social security payments and making cash grants to businesses.

The risk of people becoming homeless during the pandemic is still high. Some more specific actions are needed to shore up our first line of defence. Governments must implement a moratorium on evictions as long as the crisis lasts. Similar changes have already been made overseas.

Evictions can happen quickly

A sudden loss of wages puts renters at risk of arrears and owner-occupiers at risk of mortgage default. This may result in legal proceedings to terminate the tenancy or give possession to the bank or other lender, and ultimately eviction. Tenants are vulnerable to termination and eviction for a host of other reasons, too.

Renters are at particular risk because rent arrears termination proceedings are quick. You can go from a missed payment to termination orders in about eight weeks in New South Wales. Other states and territories are similar.

Many renters’ finances are already precarious. About one-third of private renters are low-income households in housing stress (in the bottom 40% of household incomes paying more than 30% of income in rent). And 30% don’t have $500 saved for an emergency.

Homeowners with a mortgage are also at risk of default due to loss of income. About 20% of mortgagees are already in mortgage stress. This rate has grown over the last year despite rate cuts.

Now workers are facing sudden income and job losses. We see widespread evidence of an economic downturn across many sectors, including tourism, hospitality and the arts. Casual workers are at particular risk of reduced income if required to self-isolate for long periods or care for unwell family members.

A breach of our defences

An eviction is a breach in the first line of defence that housing provides against COVID-19. In fact, the risk of arrears and eviction might drive an infected person to keep working and transmitting the virus.

An evicted household might pile in with family or friends, disrupting social isolation and contributing to unsanitary overcrowding. It’s a challenge people already living in share housing will have to manage. Across Australia, 81,000 dwellings are already overcrowded, 51,000 of these “severely overcrowded”.

People who have been evicted might move through temporary accommodation, and through real estate offices, social services and doctors’ rooms making urgent applications. Or they may be shut out of assistance, and sleeping rough. With limited space and facilities to wash hands and personal effects, the risk of transmission will grow.

How would a moratorium work?

These risks justify a government-imposed moratorium on evictions for the duration of the crisis. This could be done through legislation, or through an emergency executive direction to authorised officers to stop evictions. Other countries have already taken such steps.

In the United States, many states and cities have suspended eviction proceedings against tenants. Federal housing finance agencies have implemented a 60-day moratorium to protect some families from mortgage default.

Ireland has also suspended evictions and temporarily frozen rent increases. In the United Kingdom, renters in the private or social sector are to be protected from eviction.

A moratorium on evictions is an obvious triage measure. That’s why in Australia a community coalition has come together to advocate for no evictions during this crisis. You can show your support by signing the petition.

The federal opposition is urging the government and financial institutions to consider similar measures.

What about the mounting debts?

By itself, an eviction moratorium doesn’t affect the legal liability to pay rent or mortgage instalments. Without anything more, those liabilities would continue.

The federal government’s increased social security payments and business grants will go some way to replacing the income households are losing. But even as the government tips money into households, money is drained away by rents and mortgage payments.

About A$40 billion is due to flow out of Australia’s 2.5 million private renter households and into 1.3 million landlord households. Landlord households have, on average, much higher incomes and wealth than other households.

Billions more are due to flow, as principal and interest payments, from 3.4 million owner-occupier mortgagees to the banks. Australia’s big four banks last week announced borrowers could “pause” their payments as a pandemic hardship measure. But mortgagees should be aware interest not paid is capitalised into the debt, so they will have more to pay off after the “pause” ends.

Both to prevent the accumulation of arrears, and to make the government’s income-replacement measures more effective, governments should consider implementing reductions or waivers of rent and interest liabilities for as long as the crisis lasts.

The double crisis of the COVID-19 pandemic needs a dual response that aims to keep households in their homes and to keep income in households.

Reassembling the City: urban renewal and collective property sales

Posted by Chris Martin on March 9th, 2020 · Cities, Construction, Housing, Housing supply, International, Strata, Sydney, urban renewal

By Alistair Sisson, City Futures Research Centre.

Cities are constantly being built, unbuilt and rebuilt, at an increasingly rapid rate. City-dwellers all over the world will be very familiar with the experience of seeing a row of houses or old apartment block transformed to something much taller, wider, and bulkier. But the process of assembling the land that lays beneath these developments is much less familiar.

This process is the subject of a new three-year research project, jointly undertaken by researchers at City Futures Research Centre UNSW and Macquarie University. The Australian Research Council funded project ‘Reassembling the City: understanding urban renewal through resident-led collective property sales’ examines the phenomenon and process of neighbouring residents acting together to sell their properties in areas of urban renewal, in Sydney and Vancouver in particular.

Urban policy in recent years has encouraged densification of existing built up areas. ‘Compact city’ planning strategies have encouraged ‘activation’ around key strategic centres and urban renewal corridors, in the context of high population growth and demand for new housing supply. At the same time, the financialisation of housing has supercharged housing markets globally. The higher density development driven by these trends requires larger land parcels, which can be difficult to find in established urban areas. Governments and large developers were behind the first wave of site assembly, but recently a more bottom-up process appears to be gaining popularity. Owners of both detached properties and units in ageing apartment buildings are now finding that working with their neighbours to sell as a collective is much more profitable than selling their property alone.

Such a process raises several questions. It brings the tensions between housing as an asset and housing as a home into sharp relief. It blurs the boundaries between notions of individual and collective interests vis-à-vis property rights. It challenges conventional understandings of top-down versus bottom-up processes of urban development and the role and nature of the growth coalitions reshaping contemporary cities. We know little about the extent to which collective sales are proactive or reactive – driven by the entrepreneurialism of owners versus pressures or obligations. The different types of collective sales, and their geographies, has received scant attention to date.

The Reassembling the City project will pursue these questions through an international comparative analysis. Sydney and Vancouver are the primary study cities, complemented by secondary study cities of Hong Kong, Fukuoka, and Auckland. The project investigators include A/Prof Simon Pinnegar, A/Prof Hazel Easthope, and Dr Laura Crommelin from City Futures Research Centre, and A/Prof Kristian Ruming from Macquarie University. Research assistance is provided by Zahra Nasreen (Macquarie) and Dr Alistair Sisson (CFRC).

The project team will map collective sales that have taken place in Sydney and Vancouver over the past five years, and examine a number of case study sites in each city in greater detail. The team will be seeking to interview a range of stakeholders involved in servicing and enabling the collective sales process, as well as the residents involved and the relevant planning authorities. Feedback from neighbouring residents will also be invited.

For further information about the project, please contact Dr Laura Crommelin.

Why western Sydney is a magnet for investors

Posted by Chris Martin on February 19th, 2020 · Demographics, Finance, Housing, Private rental, Sydney, Tenancy

Western Sydney is popular with investors but most of these investors do not live there. Photo: Brendan Esposito

By Hal Pawson and Chris Martin, City Futures Research Centre. Originally published at Domain.

With the latest ABS statistics indicating a fourth straight quarter of rental investor housing finance growth, it appears that Australia’s private landlords are rediscovering a taste for house buying.

While relatively modest compared with the investor surge of a few years ago, this is a trend which will likely help push the Sydney and Melbourne housing markets towards new highs during 2020.

Because of their house price implications, the ups and downs of housing finance always attract attention in the Australian media. However, the bigger and longer-term story of Australia’s investor landlord phenomenon and its housing market impact is rarely told.

Our newly published research shows how landlord investors in Australia’s recent rental housing boom have preferred certain types of locations and certain forms of housing. These preferences matter, because they contribute to local housing market and neighbourhood change that is remaking the social geographies of our major cities.

Socio-economically disadvantaged areas of metropolitan Australia – typically middle and outer suburbs with below-average property values – have a special attraction for investors, most of whom live elsewhere.

In an age of increasingly savvy landlords empowered by online searching and informed by a burgeoning property investment advice industry, the traditional pattern of amateur landlords favouring property purchase in familiar local neighbourhoods may be breaking down.

Who buys rental properties in western Sydney?

Our research looked closely at nine disadvantaged western Sydney suburbs recording unusually large numbers of rental property acquisitions over the boom period of 2011-15. In our sample of 244 recent investors, only one in seven lived locally, while almost one in five lived at least 40 kilometres away.

Most of the purchasers were experienced landlords. Nearly two-thirds involved landlords who already owned rental property, with one in six homes acquired by owners already owning at least five investment properties.

Denham Court. — *Only one in seven investors who buy in western Sydney actually live there. Most live outside of the area. Photo: Janie Barrett*

We also saw evidence of portfolio-building among the first-time investors too: more than one-third of them had bought a second property in the time between their first investment and our research survey.

Most of the investors we surveyed owned their own homes, but a remarkably large minority did not. One in 10 in our survey lived in rental housing themselves; another one in seven were living with parents or others. Strikingly, among first-time investors, more than a third rented their own home, lived with parents or shared with others.

The reasons they buy in western Sydney

Unsurprisingly, the most important factor attracting investors to buy in western Sydney was the perceived potential for capital gain – more than 80 per cent in our survey nominated this as highly or extremely important in influencing their property and area choices:

“I’m always looking at properties, looking at areas of growth, looking for why places would grow in value, how to improve the value so if I renovate this property here what [sale price] can I expect to achieve … ” [Financial planner, owner-occupier 29 kilometres away, fourth investment property]

First-time investors, however, were more likely to nominate “affordability”: more than two-thirds of this group choose to buy in western Sydney substantially on the basis that this is simply the cheapest part of the city:

“My preference would have been closer to [home suburb] Parramatta [but] … too expensive” [Personal assistant, owner-occupier 26 kilometres away, first investment property]

We also saw evidence of a secondary dwelling or “granny flat factor” drawing investors to the large suburban blocks of western Sydney.

Private open space can make a granny flat more desirable as a rental. — *Western Sydney investors frequently look out for properties they can add a granny flat to, increasing their rental yield.*

Strikingly, a quarter of the homes acquired for rent in the study areas between 2011-15 included a secondary dwelling. Since the proportion of all houses in these areas with granny flats will be far lower than this, it suggests a purposeful strategy to seek out such properties.

Moreover, many landlords quickly added such buildings to newly acquired dwellings. The scope for site intensification of this kind was clearly important for many:

“We wanted something that allowed for the granny flat build, and also a land size that met current council regulations for dual occupancy to allow for future development [to add resale value probably involving sale with Development Approval]” [Teacher aged 45-54, owner-occupier, interstate resident, ninth investment property]

“The block was big enough [to add a secondary dwelling] – another reason we bought it” [Professional asset manager, aged 55-64, owner-occupier, eight kilometres away, 10th investment property]

The addition of secondary dwellings by investors meant that within five years, the proportion of acquired houses with granny flats had risen from 26 per cent to 39 per cent, expanding total dwellings by approximately 10 per cent.

This strategy is especially popular among experienced investors – practiced landlords who are willing to take on more debt to increase rental yields.

On the other hand, there is little declared support for “flipping” as an investment strategy: less than one in 10 of our respondents said they intended to sell their recently acquired property in the next five years.

On the contrary, just over half intended to hold the property for at least another 10 years. Just over half, too, intended to buy further properties in the short-to-medium term.

What does this all mean?

First, it seems likely that lower value urban housing markets such as western Sydney will increasingly feature rental (not owner-occupied) homes held by remotely located landlords with multiple agent-managed properties.

Since private rental is the prime source of housing for low-income households, this is likely to compound the 30-year trend of pushing the working and non-working poor towards the metropolitan margins.

Second, to the extent that the “cottage industry” status of landlords justified weak legal protections for tenants, a “business savvy” profile of recent investors justifies a stronger approach.

Suburban roof tops - Generic Sydney suburbs aerial view — *Sydney’s western suburbs are likely to become more tenant-heavy in the years to come. Photo: iStock*

Investors’ typical lack of a personal connection to the properties means current provisions that readily allow tenancies to be terminated could be tightened, with greater security for tenants.

Third, if properties are remaining in the rental sector longer, or permanently, without a spell in occupation by an owner who makes repairs and improvements for their own comfort, there is an argument that minimum property standards should be more clearly prescribed and actively regulated.

In other parts of Sydney, it is clear that investors have been recently dominating off-the-plan purchases too, generating twin growth poles in the city’s private rental market: high density units primarily in inner city urban renewal locations and low density houses in lower value middle and outer suburbs.

But with high-rise apartment starts now in steep decline, it is likely to be western Sydney that forms the main epicentre of sector growth over the next five to 10 years.

Australia’s housing system needs a big shake-up: here’s how we can crack this

Posted by Chris Martin on February 17th, 2020 · Affordability, Economy, Finance, Government, Guest appearance, Housing, Housing supply, Tenancy

By Hal Pawson, UNSW; Judith Yates, University of Sydney, and Vivienne Milligan, UNSW. This article is republished from The Conversation under a Creative Commons license. Read the original article.

Despite two years of housing market cooling in Sydney and Melbourne, Australia stayed near the top of the global unaffordability league in 2019. And with prices rebounding in our two largest cities, that status is likely to be reinforced in 2020. Australia’s 30-year housing affordability decline has been among the worst in the developed world.

This problem is fundamentally structural – not cyclical – in nature. Yes, periodic turbulence affects prices and rents. And yes, market conditions vary greatly from place to place. Australia-wide, though, there is an underlying dynamic that – over the medium to long term – is driving housing affordability and rental stress in one general direction only: for the worse.

Certain key factors in Australian housing woes are, of course, far from unique. As we argue in our new book, neoliberal policy dominance and the financialisation of housing have damaged housing system performance in many other countries as well. Similarly, cheap debt has supercharged house prices globally, not just here. And ours is not the only comparable nation where coping with rapid population growth is part of the policy challenge.

But, as we show in our book, over the past 30 years across 18 OECD countries, our market has had the third-biggest fall in house price affordability – and the largest of any major OECD nation.

In Australia, the focus of concern is often on the challenges aspiring first-home buyers face. Although important, this shouldn’t distract policymakers from the bigger policy problem: affordability stress affecting lower-income renters.

Being pushed into poverty by high rents is a serious issue. It affects well over a million Australians. That’s many more than the marginal first-home-buyer cohort.

Source: Private renters are doing it tough in outer suburbs of Sydney and Melbourne/The Conversation

Systemic problems have very broad impacts

Financial regulators and policymakers are starting to realise housing system under-performance doesn’t just damage the welfare of key population groups. It also raises concerns about economic productivity and systemic financial risk.

Even from a narrow “cost to government” perspective, the Australian government should treat current housing system trends as a serious budgetary concern because of impacts on future public spending.

For example, declining home ownership among younger and middle age groups will filter through to older age groups over time. Increasing numbers of older, lower-income, private renters will generate political pressure to boost Rent Assistance and the Age Pension. And pensioner numbers will be inflated if rising numbers of home owners who reach retirement age with mortgages draw on superannuation savings to pay off their debt.

The number of private renters has grown as the proportions of owner occupiers and public housing tenants have fallen.
Vulnerable Private Renters: Evidence and Options, Productivity Commission, CC BY

Why do we need system-wide change?

As we argue in our book, housing policy needs to be much more broadly conceived. It’s about much more than “housing programs”. Indeed, housing outcomes in Australia over the past 25 years have been driven far more by policy on tax, finance and regulation – activities rarely controlled by any department with housing in its title – than by explicit spending on housing or subsidies.

Because housing is a system, any serious attempt to improve housing outcomes must recognise the need for system-wide analysis and transformation.

Micro-measures have been the preferred approach of most Australian governments over the past 25 years. But these often generate minimal net benefit or are even counterproductive.

A national housing strategy is long overdue. And only the Commonwealth can lead this. The Commonwealth and its agencies – not the states – control key instruments driving housing outcomes, especially tax and social security settings, as well as financial regulation.

As national governments recognised in the early 1990s and from 2007-10 – and indeed exemplified by the Turnbull government’s 2018 National Housing Finance and Investment Corporation – the constitutional designation of state and territory responsibility for housing and planning is no bar to this.

What are the priorities for a national strategy?

A key goal must be to discourage speculation in land and housing. This would include a phased restructure of tax settings that incentivise unproductive housing over investment. For example, most housing economists agree investor landlord tax concessions should be wound back and a broad-based land tax should gradually replace stamp duty on housing sales.

The strategy must also aim to increase diversity in the housing market. Expanding the scale of government and non-profit housing provider activity can boost the capacity to better house disadvantaged groups. It will also reduce vulnerability to damaging market volatility arising from the overwhelming reliance on for-profit developers building for individual buyers.

To repair the hollowing-out of housing policy-making capability within governments, the plan should include institutional reform and capacity-building. Both levels of government should have a dedicated cabinet-level housing minister to champion the housing cause across departments. We also need an enduring national agency like the US Department of Housing and Urban Development or the former UK Housing Corporation.

Start small and build up to far-reaching action

Our insistence on system-wide analysis and reform might seem utopian, especially given the current state of Australian politics. There are parallels here to the challenges of climate change: many might ask how much worse things have to get before active policy action becomes irresistible as a bipartisan commitment.

In the absence of immediate system-wide action on housing, we can also point to initial reforms that Australian governments could easily adopt with minimal direct budgetary impact.

State and territory governments could, for example, follow many comparable countries in adopting planning system rules that set minimum levels of affordable housing that must be built within market housing developments.

In the realm of tenants’ rights, other states could follow Victoria in rebalancing residential tenancy laws away from their typically in-built landlord advantage. “No grounds evictions” should be outlawed.

The Commonwealth could restore the pre-1996 rules of its longstanding National Housing Agreement with the states and territories which largely ringfenced federal funding to supply and improve social housing. All governments could commit to delivering a substantial proportion of affordable housing within residential developments on ex-government land. Many industry stakeholders advocate a 30% target.

We see scope for a phased approach: first-step measures could be implemented while building the political consensus needed for more far-reaching actions. To improve affordability and moderate the rising inequities within and between generations, Australia’s housing system must be fundamentally reformed. There is no responsible “business as usual” option.

Housing Policy in Australia: A case for system reform by Hal Pawson, Vivienne Milligan and Judith Yates was published by Palgrave Macmillan this month.

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‘I wouldn’t want to buy even if I had the money.’ The rise of renters by choice

Posted by Chris Martin on February 10th, 2020 · Affordability, Guest appearance, Housing, Tenancy

By Alan Morris, University of Technology Sydney; Hal Pawson, UNSW, and Kath Hulse, Swinburne University of Technology. This article is republished from The Conversation under a Creative Commons license. Read the original article.

The private rental sector has expanded at more than twice the rate of the increase in Australian households in the last two decades. This increasingly diverse form of tenure now houses about one in four of us.

Australia’s lightly regulated private rental sector means the insecurity of tenants is a key factor in why most Australians aspire to own their home. However, despite this insecurity, our research suggests an increase in people choosing to rent for a long time – ten years or more – accounts for a small part of the growth in private renters.

Much of this growth is attributable to middle- and high-income tenants. Especially in Melbourne and Sydney, high housing prices mean saving for a deposit takes much longer than in the 1990s. In the meantime these households are renting for a long time.

‘Who stays put, loses’

In our survey of 600 private renters in different areas of Sydney and Melbourne, we asked: “Many people are renting privately for longer periods (10+ years). Do you think this is a positive trend?”

About a third responded in mainly positive terms. Their main reasons were:

renting is more affordable than owning
there are fewer worries and liabilities
renting is more flexible than owning.

Some questioned the norm of home ownership in Australia.

For a more in-depth understanding, we interviewed 60 long-term private renters in low, medium and high-rent areas in Melbourne and Sydney. Almost all who chose to rent mentioned flexibility as a key advantage.

“Choosers” highly valued the freedom to move or travel at will. Zygmunt Bauman’s concept of liquid modernity highlights the increasing desire for transience. As he explains:

Transience has replaced durability at the top of the value table. What is valued today (by choice as much as by unchosen necessity) is the ability to be on the move, to travel light and at short notice. Power is measured by the speed with which responsibilities can be escaped. Who accelerates, wins; who stays put, loses.

Renters in their own words

Patricia*, who lives in a high-rent part of Melbourne, has always rented.

Well since I came to Australia in 1977, I rented. I didn’t want to buy. Got close [to buying] a couple of times, but changed my mind.

I just travel anywhere and everywhere. I thought […] if you’ve got a house you’re stuck there, and I thought, no. I work hard for my money, so that money that I work hard for is for me, not to have a [permanent] roof over my head. […] Renting has been good for me because I can still do what I want.

Myra lives in a studio apartment in a high-rent area in Sydney and has no desire to own a home. She is single, in her mid- to late 30s, and earns well. The possibility of being asked to vacate did not bother her.

Maybe I’ve been lucky, but every situation has always sorted itself out. You know a lot of people would have freaked out if they had to move out […] It didn’t concern me in the slightest, yeah. I mean not at all. There’s always somewhere to stay. So it suits my lifestyle. I wouldn’t want to buy [a property], even if I had the money.

Leanne inherited a third of a house. Rather than using the proceeds to buy a property, she decided to move to Melbourne’s inner city (a high-rent area) and continue renting.

So I thought rather than put money into a house […] I would invest it and I could travel and go to concerts and live the life I wanted to lead, so that’s basically what I did and I’m still renting.

Pam was renting in a low-rent area in outer Sydney. She felt her situation required the flexibility of renting:

The relationship was rocky and you can’t predict the future, but I knew it wasn’t going to end up in marriage and kids and all that kind of crap […] We were both working, both earning good money and we could have afforded to buy a house between us […] But for me it was like, no. I don’t know where this [her relationship] is going, so no way, I’m not going to put myself in that predicament [having a joint mortgage] and then have to go through court to go, “This is mine, this is yours”, all that crap. But so it was my choice to rent and to stick to it […] I’m not going to rely on anybody else for anything, no way.

Her renter status allowed Pam to make a rapid, clean break.

I just got up one day and walked cos I knew he was going to ask me to marry him the next day, so I said: “I’m just going to go to the shops to get a packet of cigarettes.” I left everything behind. I went for a walk, never went home.

For the families with children who choose to rent long-term, the key reason is it allows them to live in highly desirable areas where they cannot afford to buy. Gabrielle and her partner earn well and live in a high-rent area in Sydney:

Sure it [home ownership] provides you with security and you don’t have that stress of […] having to move. I get that, but at the same time, you know for us, for example, if we wanted to buy we’d be paying four times what we pay at the moment in a mortgage […] It doesn’t really make financial sense to go and do that […] You’d have to live somewhere. So I choose to live in a nice area where my children are [at school].

They also did not want the burden of a large mortgage:

[…] I have no desire to put myself in a position where I have a $2 million mortgage and have to work for the rest of my short life to pay for it […]

Although probably only a small proportion of people choose to rent long-term, this option may be gaining ground. Young, well-paid professionals in particular see the flexibility of private renting as attractive.

Location also seems to be a critical factor. Most of the choosers rented in desirable inner suburbs of Sydney and Melbourne, which would otherwise be inaccessible. An estimated one-in-eight private renters are “rentvestors” who rent where they want to live and buy elsewhere to get a foothold in the housing market.

*All names used are pseudonyms.

Why adequate and affordable housing matters to productivity

Posted by Chris Martin on January 21st, 2020 · Cities, Economy, Government, Guest appearance, Housing, Productivity

By Wendy Hayhurst, CEO Community Housing Industry Association. Originally published on John Menadue’s Pearls and Irritations.

A growing body of research is demonstrating the adverse productivity impacts of inadequate or unaffordable housing in Australia (and elsewhere).

These include impacts on human capital through the mismatch between the availability of suitable housing and employment, and the distorting impact that high house prices and high rents can have on consumption, savings and investment. Governments at both Federal and State level continue to ignore these impacts to the disadvantage of our economy.

With this year’s bushfire calamity threatening to push Australia’s economy into recession, Treasurer Josh Frydenberg is facing renewed calls for immediate economic stimulus measures. But underlying this situation, as the Treasurer knows, the nation faces a more fundamental challenge in boosting economic productivity, crucial to longer-term wage growth and overall prosperity. As yet, however, officialdom has failed to grasp the reality that fixing our under-performing housing system needs to form part of Australia’s economic productivity solution.

The wider productivity problem is, of course, well recognised both by government and financial regulators. Indeed, in a recent speech the Treasurer noted that ‘Our productivity growth over the last decade has slowed and we cannot simply rely on high commodity prices to boost national income’. He went on to identify labour productivity growth rates as the main culprit – averaging only 1.1% in the last five years (and even lower recently). But although recognising that, in Frydenberg’s words, ‘a key enabler of higher productivity is publicly provided infrastructure’, government continues to adopt a one-eyed perspective on what constitutes ‘infrastructure’ for these purposes – failing to recognise that it is not only roads and ports that should be in the frame here, but also housing.

It was therefore heartening to learn, in 2018, that the NSW Productivity Commission set up at that time understood its focus as including ‘tackling some of the state’s most pressing challenges including the recent deterioration in housing affordability and cost-of-living pressures’. It was heartening because while affordable housing advocates have long argued that inadequate or over-expensive housing is a serious welfare concern, we are now accumulating evidence that housing system dysfunction is also imposing mounting economic costs on Australia.

A growing body of research demonstrates the links between housing and the economy. Concerned about worsening housing affordability in Sydney and its economic productivity impacts across the metropolitan area, a multi sector partnership has commissioned a series of studies on the issue over the past two years.

The first such study ‘Making Better Economic Cases for Housing Policies’ (March 2018) argued that housing’s weighty economic role is largely ignored in Australia, just as in most of our comparator countries. It identified that housing has two types of productivity impact.

The first affects human capital through the mismatch between housing and employment which limits access to jobs and constrains job mobility, thereby damaging labour force participation. This mismatch also imposes health costs which impact on economic performance, with low income renters increasingly concentrated in specific neighbourhoods thus compounding disadvantage.

The second feature is the impact of high house prices and rents on consumption, savings and investment. The housing boom has locked up capital in residential property that adds little to growth and productivity. It has also increased economic instability, as rising housing wealth has tended to lead to more consumption in economic upturns – so-called procyclical spending – amplifying metropolitan economic cycles. This will increase instability and reduce productivity. Beyond this, when rising housing costs capture a disproportionate share of disposable household income there is likely to be a significant hit to broader household consumption.

The second such study ‘Strengthening Economic Cases for Housing Policies’ (Feb 2019) modelled how housing outcomes impact economic growth and productivity, with a particular focus on Sydney. This revealed strong, positive productivity effects from investing in a notional portfolio of 100,000 rental housing units affordable to low income workers and located close to transport, services and jobs.

Over a 40-year timescale, by comparison with a ‘business as usual’ scenario where low-income workers occupy expensive housing distant from employment centres, the cost to government was easily out-weighed by broader productivity gains. Thus, an investment in housing capital subsidy of $7.27 billion NPV would over that period generate $17.57 billion NPV in human capital uplift. Returns of this order would be comparable to most standard infrastructure investments, including transport investments.

There remains much scope to deepen insights on housing system impacts on productivity. Not least the economic consequences of high housing cost burdens experienced by many renters, and newer owners. Further work to quantify these impacts is planned by a partnership of organisations across the housing sector.

So what of the NSW Productivity Commission and its October 2019 discussion paper ‘Kickstarting the Productivity Conversation’ releasedto inform the productivity reform agenda? While acknowledging that urban growth can undermine productivity (e.g. through ‘road congestion, more crowded public transport, more intense use of public land [and] increased pollution’), it was largely silent about housing unaffordability and its impact on productivity. Regrettably, the 2018 announcement suggesting that these issues could be central to the Commission’s agenda has so far proven unfulfilled.

If the Commonwealth and NSW Governments are serious in their shared pledge to restore productivity growth, they cannot afford to ignore evidence of housing system dysfunction and impaired economic performance. A clearer appreciation of the links between housing and productivity would do three things:

· Articulate the urban economic productivity benefits that will inure from well-located housing made available at a price affordable to middle and low-income workers;

· Lead to a broader consideration of the action Government could take to alleviate housing unaffordability (acknowledging that the solutions are linked to household incomes and the feasibility of a market response); and

· Enable a conversation about the relative merits of investing in housing compared to other forms of infrastructure.

It is to be hoped that, in its forthcoming productivity Green Paper, the NSW Productivity Commission broadens its agenda to recognise the importance of housing in this sphere. Such recognition would, if taken to its logical conclusion, result in housing being accorded a far greater priority in government deliberations at both state/territory and federal levels.

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Tags: Affordable housing·Social housing

Household infrastructure spending: new dashboard launched

Posted by Chris Martin on December 19th, 2019 · Cities, Data

By Ori Gudes, City Futures Research Centre, and Kim Johnstone, Astrolabe Group.

What do Australian households spend on infrastructure – water and sewerage, energy, transport and telecommunications? And what do they think about infrastructure quality, accessibility and affordability?

A new dashboard launched by researchers at City Futures Research Centre and Astrolabe Group allows users to explore data about infrastructure costs and perceptions in Australian states and capital cities. Available via City Futures’ CityViz page, the Household Infrastructure Spending Dashboard uses the data analytics platforms ArcGIS Online, Map Story and Tableau to present in a new way the analysis reported by the research partners to the Australian Infrastructure Audit 2019.

As well as showing differences between states and cities in average costs and perceived quality, accessibility and affordability, the dashboard allows quick comparisons of different data sets. A number of tools were used together to show infrastructure data in ways that are much easier to access and understand for people who don’t use data on a day to day basis. The dashboard has also allowed us to look at data that couldn’t be included in the project’s original report, in particular differences between capital cities, and dynamically shows trend changes over time.

The dashboard provides information about the following topics:

Household Expenditure Survey (HES);
Household, Income and Labour Dynamics in Australia (HILDA);
Perceptions of the quality, accessibility and affordability of various infrastructure services; and
Household Weekly Expense on Water and Sewerage.

The dashboard was a collaborative project between university and private sector researchers, leveraging a diverse range of skills to deliver robust analysis, key insights and new approaches to data visualisation. Seeing information usually presented in long reports in this dynamic format can bring a lot of value to end-users. The collaboration allowed the university to bring its technical expertise to projects that have real life implications, a way of working that we hope to see more of in coming years.

UNSW team members: Dr Vivien Shi, Dr Ori Gudes, Prof Chris Pettit, Associate Prof Hoon Han, and Dr Simone Zarpelon Leao. ASTROLABE GROUP team members: Dr Kim Johnstone, Matthew Ting, and Vanessa Leung.

Australian cities pay the price for blocking council input to projects that shape them

Posted by Chris Martin on December 17th, 2019 · Government, Guest appearance, Productivity, Sydney

By Mike Harris, Lecturer in Landscape Architecture and Urban Design, Faculty of Built Environment, UNSW. This article is republished from The Conversation under a Creative Commons license. Read the original article.

National, state and city governments aspire to increase prosperity through globally competitive and more liveable cities. Through “world class” infrastructure, buildings and public spaces they aim to increase a city’s competitive advantage in attracting investment and talent. Research shows city governments, not states, nearly always deliver these projects overseas. The controversies in the Australian examples are largely the result of excluding local government.

Globally, mixed-use megaprojects have increasingly been seen as vehicles to make cities competitive as well as responding to local transport and housing issues. My research for a forthcoming book, Mixed-Use Megaprojects and the Competition for Capital, examines such projects on government land in Sydney, Melbourne, New York and Copenhagen.

What do Australian cities do differently?

The research examined projects in terms of governance, narrative, urban form, connectivity and public benefit. The findings underscore the argument that state governments lack the structural capacity or nimbleness to manage the subtle interplay of various place-based programs necessary to coordinate enablers of modern competitiveness.

Compared to developments overseas, the Australian examples have several things in common:

more property industry influence
less strategic coordination with other land assets and transport projects
less public benefit outcomes
less commitment to legislated planning frameworks
less engagement with local knowledge.

The Barangaroo development in Sydney is perhaps the archetype of these patterns.

Despite much controversy over Barangaroo, one thing can be agreed. The poor relationship between the city and state governments has contributed to a loss of trust in planning.

Excluding the city is not good policy

Firstly, this is a skills mistake. The city council has sophisticated capabilities and consistent place-based planning, design and approvals processes. These have been developed over decades.

The city also has established consultation processes and deep experience dealing with a range of stakeholders involved in inner-city development.

When the state intervenes to deliver a project and excludes the city, these processes and their advantages disappear.

Secondly, this is a political mistake. A sophisticated enemy is created that has working relationships with local stakeholders and constituents. With decades of planning work and expert knowledge disregarded, city governments are compelled to scrutinise the process and criticise the state from the sideline.

The City of Sydney appears to be winning the political, if not material, battle of Barangaroo. The lord mayor has outlasted seven state premiers in the project’s lifetime along with numerous measures intended to reduce lord mayoral efficacy.

But the battle is the problem and it’s sure to continue under current patterns of (non)rules. Consider the following examples.

The minister for planning is free to make major changes to the plan without reference to any process. This includes approving the hotel-in-the-harbour proposal even though it contravened state planning policy.

This ministerial power makes projects highly sensitive to political fluctuations. Longer-term planning objectives can be destabilised as a result.

The unsolicited proposal process has been another trust-breaker. Traditionally, government established the need for infrastructure within a metropolitan plan. It would call for tenders from the private sector, then evaluated those tenders in a competitive process. Now private sector participants are encouraged to approach government with development “ideas”.

A prime example involves the Crown Casino complex at Barangaroo. This proposal required major changes to the approved plan. It more than doubled the allowable floor space of the previous hotel-in-the-harbour proposal it had been encouraged to replace to restore trust in planning.

What might city involvement look like?

The Copenhagen City & Port Development Corporation is an arm’s length delivery authority, owned 95% by Copenhagen municipality and 5% by the state. It is responsible for delivering a number of mixed-use megaprojects.

As with all city areas, Copenhagen municipality develops the “Lokalplan” for precincts under standard processes and approves individual buildings and public spaces. North Harbour has been delivered as adopted in 2009.

In New York, a private developer has delivered the Hudson Yards project above state railyards under the city’s standard planning process (ULURP). The state’s involvement is limited to the air rights lease.

This did not protect the Hudson Yards project from criticism. Nevertheless, it went through the lengthy standard consultative process and has been delivered according to the rezoning since 2005.

As an aside, the city governments of both European and US cases have adopted mandatory affordable housing laws. They are now delivering 25% in their megaprojects.

As an indulgence, let’s say we were in Copenhagen or New York. The casino complex, hotel-in-the-harbour, or doubling of the site’s floorspace would require revisiting the city’s Lokalplan or ULURP. This process would include public review and approvals by multiple city government agencies. In Sydney, one person, the state minister, decides on major changes to the plan.

This research shows the approaches needed to improve city competitiveness and fairness tend to be done better by city governments than by state governments. Yet in Australia the state has absolute control of these complex, city-based projects. Whether as part of a new metropolitan sphere of governance or not, it is time to empower local city governments in the transformation of our cities.

Your Airbnb guest could be a tenant. Until the law is cleared up, hosts are in limbo

Posted by Chris Martin on December 16th, 2019 · Guest appearance, Housing, Law, Marginal rental, Sharing, Tenancy

Image credit: Daniel Krason/Shutterstock

By Bill Swannie (Victoria University) and Chris Martin (City Futures Research Centre). This article is republished from The Conversation under a Creative Commons license. Read the original article.

With summer holidays around the corner, many Victorians may be thinking about offering their homes through a home-share platform, such as Airbnb, while they get away themselves. Airbnb’s terms of service describe home-share arrangements as a “licence”. Legally, a licence can be terminated at any time and a guest who does not leave is a trespasser.

However, in 2016 the Victorian Supreme Court decided home-share arrangements may constitute a lease. This decision indicates residential tenancy law may apply to all home-share arrangements where the host is away from the premises.

This would impose significant legal obligations on hosts, who would be regarded as landlords. Guests, if considered tenants, would have all the associated legal protections.

For example, if a guest refuses to leave the premises, the host/landlord would have to follow the eviction process required by tenancy law. This has happened in California. Australian courts will eventually have to decide this issue.

How did the court arrive at its decision?

The court’s decision involved a tenant who offered the premises to guests on Airbnb. The court decided the tenant had breached the terms of the lease by subletting the premises. The tenant was evicted, as tenants cannot sublet without the landlord’s consent under tenancy law.

The court focused on the relationship between the tenant and the guest and determined that the host had given “exclusive possession” of the premises to guests. In Victorian tenancy law, exclusive possession is required to create a lease.

The court said it did not matter that each guest’s stay was only a few days, or that the Airbnb terms described the arrangement as a “licence” rather than a lease.

Although the court’s decision applied to tenants in this case, logically the decision applies to all whole-of-premises home-share arrangements, including where the host owns the premises. This is because the legal test for creating a lease is the same as that for creating a sublease.

The decision is controversial because home sharing on Airbnb is similar to boarding arrangements (where the host provides accommodation and services such as cleaning), hotel rooms and serviced apartments. These arrangements are usually regarded as a licence, not a lease. This is because the host has access to the property during the guest’s stay (for example, to do cleaning), so exclusive possession is not given to the guest.

In fact, Airbnb arrangements are unlike typical tenancy agreements. They specify check-in and check-out times, furniture, linen and towels are usually provided, and “house rules” (for example, on noise levels and smoking) may restrict the guest’s use of the premises.

In addition, Victorian residential tenancy laws do not apply to premises ordinarily used for holidays. Potentially, this could exclude premises used for home sharing.

The situation may be different in other Australian states and territories, which, unlike Victoria, exclude from residential tenancies legislation agreements for the purpose of a holiday. However, not all home sharing is done for holiday purposes. For example, it’s also used for travel for business.

Legal uncertainty remains

The court’s decision means tenants who provide rented premises on Airbnb without the landlord’s consent may breach their own tenancy agreement and be evicted. However, the court stated that the particular circumstances of each case must be examined.

For example, hosts who provide only part of the premises (such as a bedroom and shared used of a kitchen) but who continue to reside in the premises will not be subletting. This is because they have not provided exclusive use of the premises.

However, if the host is away from the premises, then residential tenancy law may regulate home-share arrangements. This would give guests (now considered a tenant) stronger legal protections, including protection from eviction. The decision shows a court can ignore the description of the arrangement in an agreement if it determines exclusive possession has been provided.

Airbnb provides support to hosts and guests in the case of a dispute over a stay. It also provides compensation to hosts (akin to insurance) if guests damage the property or cause the host financial loss. However, if a host is found to have obligations under residential tenancy law, these obligations belong to the host/landlord, not to Airbnb.

The contentious aspect of the Supreme Court’s decision is its treatment of short-term hotel-like accommodation as a lease. However, it strongly suggests that residential tenancy law may regulate whole-of-premises home-share arrangements. That’s likely to come as a shock to Airbnb hosts – owners and renters alike.

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