Renting for life? Housing shift requires rethink of renters' rights

Australia is the world capital for property speculation. Australians play property like Monopoly: buying, selling, demolishing, rebuilding, extending, renovating, always with the promise of appreciation on resale. The contribution to GDP of real estate transactions alone is the highest in the world, and three times higher than that in the US.

Around one in seven Australian taxpayers owns one or more investment properties, aided by generous tax concessions. Australia has one of the highest levels of household debt in the OECD due to borrowings for property purchases.

This amounts to what is effectively an infinite demand for property in Australia, exacerbated by a growing global investor market. The resulting competition at sale is the main reason for Australia's rapidly declining housing affordability. While some (but by no means all) of this activity is creating new dwellings for rent, the rents are increasing too.

Renters last

Renters are the losers in the property game. Not only do they struggle with high rents but tenant protection in Australia is among the weakest in the developed world. This is not coincidental: Australia's 1.8 million and counting property investors support and are supported by tenancy legislation heavily weighted in favour of landlords. This produces a fundamental lack of security in rental housing.

Australia stands in stark contrast to North American and European countries, which have a range of much stronger tenant protections including rent control and security. As these are nuanced and vary from state to state in all these countries, as well as in Australia, broad comparisons are difficult to make. But a few key points can draw the picture.

In Victoria, rents can be increased every six months with no limit on the amount (though a tenant can appeal to the Victorian Civil and Administrative Tribunal if the amount exceeds similar properties in the same area). In Germany, which is around average for tenant protection in Europe, rent increases are capped at 20% every three years. Landlords who overcharge can be fined.

In Victoria, 60 days is the standard amount of notice required for a tenant to vacate. In Germany the notice requirements vary according to how long the tenant has lived there: three months is the minimum for someone who has lived in the property for less than five years. Six months notice is required for a tenancy between five and eight years; nine months for longer than eight years. Elderly long term tenants are protected: a landlord has to make a very strong case for their eviction, and is required to pay compensation and/or assist with their relocation.

In Victoria, tenants can be evicted so a property can be sold with vacant possession, which may or may not bring a bit more on the sale price. Fixed-term leases offer some protection but tenants can be induced to vacate before sale. If the place is bought by another investor the property returns to the rental market some months after the original tenants had to find a new home. In Germany this is illegal: tenanted properties are sold with their tenant in place.

This strong legislation is possible partly because of the role of large landholding institutions in Germany that treat their housing assets as long-term secure investments that provide a steady return. The resulting long leases mean tenants can consider their rented property their home and fit it out accordingly. The tenancy protections supporting this arrangement act as a disincentive to speculators, which in turn reduces demand for investment properties and therefore competition at sale.

When people prefer to rent

The historical and cultural contexts in Australia and Europe are profoundly different of course, but it is useful to reflect on the institutional and legal practices that enable renting one's home to be the norm.

In contrast to Australia, where land and housing are treated as commodities, the combination of large landholders and strong tenant protections in Europe creates a self-reinforcing cycle that maintains house prices and rents at relatively stable and affordable levels. The resulting security means Europe doesn't have anything like the stigma against renters that can be found in Australia.

Australia is changing, however. The prohibitive cost of housing for purchase, desire to delay or avoid the burden of housing debt, and simultaneous growth of a footloose, casualised workforce – whether by circumstance or choice – is creating generations of people who prefer to rent.

As cultural attitudes change, the institutions should follow. The potential role of Australian superannuation funds in investing in housing has been avoided for too long: for decades trillions of dollars of workers' hard-earned have been distributed over a range of investments without alleviating Australia's crisis of housing affordability.

The super funds are finally reconsidering this position, and so too should Australia's legal practices adapt. Legislative changes should be made to facilitate significant super fund investment in secure and affordable rental housing, followed by strengthened tenancy protections.

If these changes were coupled with reduction of the tax incentives to small property investors, the market would shift dramatically. But this would require Australian voters to curb their enthusiasm for the property game. What are the chances of that?

This article was updated after publication to reflect the fact that fixed term lease holders cannot be legally evicted in Victoria.

Kate Shaw, Future Fellow, University of Melbourne

This article is republished from The Conversation under a Creative Commons license. Read the original article.