Housing affordability and tenancy laws
Since its creation in 1927, the Melbourne seat of Northcote has been retained by the Labor Party. But after 90 years of incumbency, reputed party polling suggests that may be at an end – a casualty of the Greens’ increasing success in Melbourne’s progressive inner city. The recent death of Northcote’s member – the Victorian Minister for Women and the Prevention of Family Violence Fiona Richardson – has obliged a byelection be held on November 18, and the state government’s loss of the seat would further narrow an already parlous majority.
“Internal polling” is often cited in news reports sight unseen, and it’s true that these are often strategic exaggerations, leaked by parties to scare off complacency. But government insiders have admitted to me a “close, very tough” contest with the Greens, and the increased expenditure on the seat – reportedly half-a-million dollars – speaks to the seriousness of the Greens challenge. In last year’s federal election, Labor only narrowly retained the roughly corresponding seat of Batman – an electorate in which they had traditionally enjoyed a wide margin.
There is a national significance to this byelection, and that is what it means for housing affordability. In a state where 25 per cent of the population rents, in the seat of Northcote that number rises to 40 per cent. Labor focus groups revealed what was probably already obvious – that a major concern for its 48,000 voters was housing. Both the Greens and the ALP – the Liberal Party is not running a candidate – have given the issue pre-eminence in their campaigns. So it was no surprise that the Victorian premier, Daniel Andrews, chose the seat to announce proposals to significantly revise the Residential Tenancies Act – a move that may inspire similar revisions around the country.
Standing beside Northcote’s Labor candidate, the premier promised 14 “profound” reforms that would, he said, “make renting fair, look after the one-in-four Victorians that rent, and make sure that everybody’s got a secure, fit-for-purpose home, whether they own it or not. It’s about dignity, it’s about respect. It’s about using the power of the government … to deliver reform and change to put people first.”
The final part of that comment contains an implied criticism of the Greens – that despite their intentions, they would never form government and so never have the power to legislate reform. That implication relies, of course, on the government not experiencing successful Greens encroachment and a hung parliament at next year’s election – and the prospect of power sharing.
Electoral machinations aside, Andrews enumerated the reforms: a cap on bonds; the creation of a “blacklist” of landlords and agents found to be in breach of tenancy law; obligations for landlords to provide just cause for the termination of leases; an increase in transparency between tenant and agent; measures to make it easier for tenants to have pets or make minor alterations to the property; the abolition of rent bidding; the faster return of bonds; the encouragement of long-term leases; and the establishment of a commissioner for residential tenancies.
The Northcote byelection has become a small locus for the national discussion of housing affordability – and the associated redress of tenancy rights. Much has been made of the fact that both leading candidates for the seat – the Greens’ Lidia Thorpe and the ALP’s Clare Burns – are renters. At Daniel Andrews’ press conference, Burns spoke of her own rental plight and that of specific voters.
While the rental reforms were unveiled during a political campaign, they have been a long time coming. In 2015, the Andrews government announced a long, public process examining the Residential Tenancies Act. Earlier this year, that process yielded a long options paper. Next year, a final report will be released. Also in 2015, a federal senate committee established to examine housing affordability released its final report, which recommended states look at their residential tenancy laws. “This one has been coming for a quite a while, and lots of people have been working on crafting it,” a Labor MP told me. “It’s part of a new bargain we need to strike, given structural changes in the economy, workplace, housing market. It’s very important … Home ownership rates are at a record low. We’re in a new world at the moment.”
Since the passage of the Victorian Residential Tenancies Act in 1997, the Australian housing market has changed dramatically. Home ownership has declined; renting has increased. Housing prices have, of course, accelerated – in Sydney and Melbourne, they have recently and dramatically outpaced wage increases. A government source tells me that there is now a “large cohort” of people who will rent their whole lives. The question is whether this new reality is fairly reflected in legislation, which balances the rights and responsibilities of both landlords and tenants.
“The last 20 years, we have seen an increasing proportion of people renting,” John Daley tells me. Daley is the chief executive of the Grattan Institute, and has written extensively on housing affordability. “We have also seen an increasing number of investors who are negatively geared – it’s much more attractive because of capital gains laws. This is structurally significant – the consequence is that you have investors turning over property more often than those who aren’t [negatively geared].” This results in greater instability for tenants.
But Daley argues that the issue of long-term leases – a common phenomenon in Europe, almost unheard of here – is the result of Australia’s unusual structure of land taxes. It’s an issue that state tenancy laws can’t address. “The overwhelming majority of owner/investors of homes – 80 per cent – are owned by people who own three or fewer properties. In Europe, they’re more often owned by ‘professional’ investors – those with large portfolios. This is because of our progressive land taxation. It’s highly unusual internationally that you pay more tax if you own more land. So as a large investor I might be giving away about a quarter of my return [compared with] those smaller investors with fewer properties who are paying much less tax, which is why we have individuals paying up to 33 per cent more for properties than larger investors – and this creates high turnover. It’s why we don’t have long-term leases, but it’s an issue that is rarely discussed.”
In other words, in writing laws that discourage the concentration of landholdings and favour “smaller” everyday investors, we have also created a system inclined to high turnover and one reluctant to offer long-term leases. Daley says that land tax is “diabolically politically difficult” to change, and government insiders tell me there’s no appetite for altering them.
But Daley believes that the other proposed changes are necessary. “The fact that now leases can demand tenants to leave after 120 days without giving any due cause – this can be used vindictively. Then there’s the issue of minor changes to the property, or pets. These are things that the tenant would value much more than the landlord. Pets and hooks in the wall? The tenant would be required to pay a pet bond, and clean up after them. And these are things that can be very meaningful to the tenant. The cost to the owner is very small. But tenants don’t get them because of the bargaining power of the landlord. This is an inefficient economic outcome. So overall, changes to tenancy regimes are something we welcome. We live in a world now where home ownership is much more determined by income. There is much lower ownership for the young than there was 20 years ago. There’s greater insecurity. And the changes to pet ownership and modifications can mean the difference between a dwelling and a home.”
Meanwhile, the Real Estate Institute of Victoria says that the proposed changes would cause rents to “go up, people will leave the market, there’ll be less supply and that’s only going to push people out of the rental market and make it more difficult for those who are seeking to rent premises cheaply”.
“Housing is more than a right,” the Labor candidate for Northcote, Clare Burns, tells me. “It’s a cornerstone of a healthy democracy. Renters need predictability and stability. When 40 per cent of Northcote voters are renters, we need to look at the system – for too long, it’s been a second-rate system. I’m relieved we have a government willing to go into bat for renters.”
In a response to questions from The Saturday Paper, Greens candidate Lidia Thorpe said: “The Greens have led the way in the fight for renters’ rights. In fact, the whole package Labor has announced is Greens policy. We encourage the Labor government to adopt more of our policies; they’re good for our community. It is significant that this announcement was made in Northcote ahead of the byelection: it shows the power of voting Green.”
The Andrews government plans to introduce its reforms to the Victorian parliament next year.
This article was first published in the print edition of The Saturday Paper on Oct 14, 2017 as "Lease of life". Subscribe here.