Government rental reforms fiddle while Melbourne tenants burn

With a growing share of Melbournians now in insecure rented accommodation:

The Victorian Government has released new residential tenancy laws to improve renters’ rights and increase their security of tenure. From The ABC:

The reforms announced by the Andrews Government, give tenants more rights, will allow them to stay on longer leases and make bonds smaller and fairer, in response to a detailed review of the state’s Residential Tenancies Act.

They also crack down on rental bidding, where tenants are forced to out-bid each other on rent, and limit rent increases to once a year, giving more long term security for renters.

Other provisions include creating a publicly available blacklist of landlords and estate agents who have been found in breach of rental laws, or have had action taken against them.

Owning a pet in a rental will also be made easier under the new rules…

For Victorians planning on signing a lease where the rent is $760 per week or less, landlords will not be able to ask for bonds worth more than one month’s rent.

The move which is expected to cover the “vast majority” of rental households, the Government said.

Tenants will also be able to apply for the release of bonds without written consent from landlords, who will have a fortnight to raise a dispute before the money is automatically repaid.

Landlords will only be able to increase rent once per year, and “no specified reason” notices to vacate will be outlawed.

It will also be made easier for tenants to make minor modifications to a rental property, such as installing hooks for picture frames.

The State Government will also appoint a Commissioner for Residential Tenancies, to advocate on behalf of tenants…

Premier Daniel Andrews said the reforms would make renting fairer.

“Everyone deserves the chance to have a safe, secure and affordable home — whether you own it or not,” he said.

Minister for Consumer Affairs Marlene Kairouz said the move would give renters a better deal…

The Real Estate Institute of Victoria has expressed concern that some of the changes may force the cost of rent up.

According to an AHURI investigation, the percentage of affordable dwellings available for low-to-moderate income purchasers worsened materially in Melbourne between the years of 1981 and 2006, as illustrated below (the darker areas are the ‘most’ affordable, while the white patches are the least):

The 2016 Census also revealed that 37% of Melbourne renters are in “stress” – defined as spending more than 30% of their income on rents.

The Victorian Government’s rental reforms are undoubtedly a step in the right direction.

A few years back, the Tenants Union lamented the fact that Australia’s rental security is amongst the poorest in the world, making many renters second class citizens.

This view was supported by RBA assistant governor, Luci Ellis, who noted the following in her February housing speech:

A range of different data sources confirm that although young people move more often than older people, the big difference is between renters and owners (Graph 8)…

Looking just at the group of households who can be tracked through the whole life of the HILDA survey, and who didn’t switch between owning and renting at any stage, you can also see that renters were also more likely to have moved many times in that 13-year period (Graph 9).

…we know that moving house can be disruptive and costly. So I question whether all those moves by renters were desired by those households. Many renters are happy with their current home, but are required to move because the lease expired or the landlord sold the property. 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.

Therefore, there are sound reasons to undertake reforms to improve the security of renters and to ensure access to stable and affordable housing.

Indeed, Australia could learn a great deal from Germany’s rental market. One of the great strengths of the German housing market is that it provides strong protections for tenants, as explained in detail by Catherine Cashmore (read here).

Because renting is the dominant housing choice in Germany (see below chart), the political system is highly sensitive to tenants’ rights and perceived threats to the status quo typically receive prominent media attention and political responses.

Also, because renters enjoy secure tenure (and housing supply is fairly responsive), Germans have little incentive to rush into owner occupation. As such, Germany doesn’t suffer from the ‘panic buying’ and speculation often present in bubble housing markets, like Australia’s.

That said, while Victoria’s rental reforms are undoubtedly and improvement on the status quo, they are unlikely to stop Melbourne from experiencing a rental crisis over the next few years.

As explained last week, the annual growth in median rents across Metropolitan Melbourne increased to 4.2% in the year to June, with a clear upwards trend evident:

Meanwhile, the proportion of new rental lettings ‘affordable’ to lower income households was just 6.6% in June – way down on the 12% recorded in 2012 and 2014:

The escalation of rents and the shrinkage of ‘affordable’ rentals comes as Melbourne’s rental vacancy rate has tightened to 2.2% from 3.2% in 2013, 2014 and 2015:

It also follows a collapse in the number of new rental lettings across the state:

The driver of the surge in Melbourne rents is clearly record immigration-fueled population growth, which has drove an insane 150,000 increase in Victoria’s population in the year to March (circa 130,000 in Melbourne):

And such strong population growth has clearly overwhelmed the record level of construction that has taken place across Melbourne:

Melbourne’s dwelling construction has already begun to roll over, as shown above, which means that vacancy rates will likely tighten further, driving further rental cost escalation and a further evaporation in affordable rental homes.

Viewed in this light, the Victorian Government’s rental reforms are merely meddling at the edges while immigration-fueled population growth overwhelms rental supply.

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