On 20th September, the Victorian state government released a raft of measures designed (in their view) to ease the pressure on the rental sector, among other things.
Typical of these sorts of announcements it is loaded with emotive language but missing key details, such as when these changes will be implemented.
In my view, all this has done is yet again remove the attractiveness of owning rental property.
While I’m in partial agreement with a couple of the measures, there are 2 which concern me greatly as my belief is that all they will do is drive more landlords from the market thereby increasing the shortage of rental stock.
So let’s unpack these and look at the potential effects of them.
Firstly, there’s the move to restrict an owner from increasing the rent at all when the tenant is vacated at the end of the first fixed term. What this in effect means is that should a landlord serve a notice to vacate on a tenant at the end of the first fixed term, they are then forced to offer the property at the same rental for the next tenancy.
There is no sunset on this requirement either from what we can see so far – so if we as landlords then serve another notice to vacate on the subsequent tenant, we’re forced (again) to offer the property at the first rental, regardless of any upward move in prices.
One of the key aspects of the desire to own an investment is that when you put up the money and take the risk, you get the opportunity to take advantage of movements in markets – doesn’t matter whether we’re talking about the share market, the housing market or another form of investment – this restriction in increasing rent takes away the ability to shift that income upward due to changes in market rents from a landlord, and while it might be good news for a renter, this is a nonsensical idea for the provider of the housing, especially if you’re a retiree who depends on this income.
The defence for this idea is that it prevents owners from “churning” tenants at the end of a lease – whoever wrote this clearly hasn’t read the legislation or sat in a VCAT hearing as the legislation is being very carefully interpreted on this point, so this might play well to their voters but in reality it’s a nonsense.
Reason 1 in this package to deter investment in Victorian housing …
The second piece in these “reforms” is the extending of notice periods for rent increases and notices to vacate from 60 days to 90 days; now, I’ve got little objection to the change for rent increase notices, but the announcement today was unclear for a start on which notices to vacate they’re discussing.
By pushing out the timeline further, I can see a couple of issues arising. The first one is the ability to plan an efficient sale of a property properly; the majority of sales of residential properties in the state are on a 60-day settlement, if it’s a tenanted property, normally this extends slightly to allow or notices to be served on tenants.
This settlement period is dictated by the purchaser is usually determined by the settlement of their own sale, and if they can’t get these dates to align, this will generally remove the property from consideration as a purchase, which puts the landlord (as vendor) in a position of having a smaller pool of purchasers attracted to the property and can lead to a reduction in the pricing to ensure a sale – no one I know sees losing money as an attractive proposition.
Two key elements of investment in housing as an individual is the accumulation of wealth and rental income, these are based on the ability to control its use and disposal, and ensure as reasonably as possible that it performs at least as well as the market conditions, both the two changes above argue directly against this, and give further reason for investors not to enter the market in my view – or at least not in Victoria.
Simple commonsense tells us that you can’t encourage someone to do something like invest in housing by restricting their rights to hold and deal with it the way they believe best for them, and while these two changes might help renters they do nothing to encourage investors to enter the housing market, or at least stay in it.
All I see coming is a further shift in sentiment away from long term rental property by investors, so yet again, the government will be exacerbating the very problem they’re trying to fix – I think they’ve borrowed scripts from Utopia, and The Hollowmen and thought they’d be good policy outside of the comedy circuit.