The government’s total lack of a housing policy and its inaction on affordability (housing in Sydney is now more unaffordable than in London and New York) might be coming home to roost electorally.
Jane Nethercote writes at Crikey:
Buying a property is out of many people’s reach in the current market. But renting, often touted as the fall back option, is no picnic either.
While Crikey understands that the federal government has been undertaking serious high-level discussions of late about this problem, at the coal face, low- and mid-income renters have been feeling the pinch for some time now.
40 people turning up to inspect a rental property is routine in cities like Canberra, Perth, Brisbane, Sydney and Melbourne where competition is high. And anecdotal evidence suggests that parties often negotiate with an agent behind the scenes, hoping to secure the advantage by either bidding above the advertised price or offering three-six months’ rent in advance — or both.
Bodies like the Real Estate Institute of Victoria say they’re against all this to-ing and fro-ing. “[We] don’t not condone rental auctions or price range advertising for rental properties,” a REIV spokesman told Crikey. “REIV believes that professional agents should be able to determine the appropriate rent that the landlord is seeking, advertise at that rate and lease the property to the most appropriate tenant who meets the criteria.”
Yes, but the temptation for an agent to negotiate a higher-than-advertised price is high, being an opportunity to get the best monetary result for a client while also scoring a higher price from which to draw a percentage commission. Yes, the sweeteners are often initiated by desperate tenants — but neither are they discouraged by some agents.
Meanwhile, getting a straight answer as to a prospective tenant’s rights is no mean feat. The states’ respective Residential Tenancies Acts kick in at the point of an agreement between the parties, so the messy pre-agreement stage is largely ungoverned, except where issues of fair trading arise. That said, accepting more than one month’s rent in advance as a hook is a practice that’s either banned or limited in all states and territories.
This morning, the NSW Office of Fair Trading told us that it hasn’t received any complaints about this matter. And while the issue is on state consumer and fair trading groups’ radars, they don’t seem to be investigating it seriously. And yet, the practice of rental bidding above the advertised price raises fair trading issues like “bait advertising” and “false and misleading conduct”, says David Imber, policy adviser at the Tenants Union of Victoria.
At the heart of this issue is housing affordability, he says. Low income earners have always struggled to enter the rental market, but now it’s middle income earners (often from two salary households) who are struggling to get a foothold. So low-income earners are more vulnerable than ever. That’s why the government should address the lack of affordable housing pronto.
Are you a renter, agent or landlord with a story to tell? Email boss@crikey.com.au.
I’ve got to say, whilst rents are certainly high, the 20% figure being bandied about by the media and papers seems like absolute bullshit to me.
Those figures are coming straight out of the real estate peak body in any given state – finding an organisation with a more vested interest in promoting news about high rents would be difficult if not impossible.
The NSW Tenancy Union has this to say about the matter:
I see no reason to disagree with that assessment. I’ve lived in, hmmmm, twelve houses in the last nine years, in four different capital cities, in reasonable variety of income brackets – finding a good place in a popular suburb is always hard, but my experience certainly hasn’t been that it’s any more difficult in the last three years.
Conversely, if you want to live in the back-of-beyond, finding a good place is a snap, even if you’re not the most attractive rental proposition (again, in my experience).
If this does become an election, predict the usual habit of the feds blaming states and vice versa.
In many ways this issue is being stirred up by the development lobby to put pressure on the states to:
(1) Release more land and
(2) Deregulate planning guidelines
But we can’t dismiss this as just a capitalist set up.
Rental properties are contracting and rentals are becoming more expensive. And there are dodgy landlords out there trying to encourage bidding wars.
The disgraceful lack of investment in social housing over the past 20/30 years by ALL levels of government is a big problem and needs to be addressed. But will it? No – too many people have an interest in increased housing prices for any government to do anything about it at all.
I don’t know what the solution to high housing costs might be. I think that some things are just inherently expensive.
I cannot stand the constant buck passing between states and the federal governments.
This in my mind really is just the catch up of rents after the real estate “boom”. Rents went up a fair bit in 2003/4 when it was happening. As the prices have remained with only a small correction, it seems that the percentage return on rentals eventually had to follow.
I’m still dubious as to what caused the boom. I have my theories, all of which are unsubstantiated due to lack of accessibility to useful data. I don’t think a lack of supply is the only thing that is keeping prices very high as the federal government would like us to believe. As has been well documented in the past, markets are more than a one sided issue.
My other wonder is how much property costs impact on inflation. I don’t know what weight the ABS gives to housing. I would have thought it would be substantial as housing is usually considered essential. If so, with high inflation on food and housing, things look grim for the economic stability Howard promised us in 2004.
So my answer to the question “who do you trust to keep the economy strong?” hasn’t changed over the last 3 years.
I also agree that the time for action on these problems was possibly 2-3 years ago. But nothing was done back then as the large increase in market prices was only seen as a good thing.
A further issue worth looking at is how many landlords are squeezing their tenants because they want to and they can, and how many are squeezing their tenants because of pressure from their banks to make their assets perform.
Having just successfully found a new place over the last few weeks in Sydney, there is no doubt that the rental market is tight. Almost every property we looked at had at least 10 different groups looking at them. However I agree with patrickg as usual the real estate bodies with publish utter crap they call research to push their own agenda and the journalists will regurgitate it uncritically.
The effect of such articles though wasfairly immediate. I was told by agents while enquiring from properties that the owners had now increased the asking price since they advertised(10% in one case) in response to the recent newspaper articles citing a 20% increase and was told that it was only that much because they weren’t greedy!
On ABC news the other night in the finance report bit, real estate agent earnings from fees was reported to have increased by 14% (I think I’ve got the number correct). Someone is doing OK out of increasing housing costs.
Chris Anderson – it isn’t in the best interests of the development lobby to increase supply – that would force prices down! The developers haev a vested interest in maintaining the slow release of land.
State and local governemnt are responsible for the limited supply of new land and hence the upward pressure on prices.
No I reckon it really is going up in serious increments in inner city Brisbane. I mean our rent for our West End flat has just gone up 7% from 145 to 155 and we have been warned to expect it will go up another $10 later in the year. okay, 7% is not 20% but it’s still twice inflation.
across the way in a new apartment in south brisbane, $600 for a 3 bedroom flat is quite common.
over in tennyson, a good mate who is a psychiatric reg is charging $600 for the back half of his big studio apartment.
as has been explained to me (by a drinker at the pub, mind you), the number of visiting construction engineers and other infrastructure professionals that Beattie’s $66 billion in new infrastructure is bringing to Brisbane. Big mining and construction companies are flying hard-to-recruit staff to Brisbane for 3- and 6-month contracts and putting them up in serviced apartments or straight-up rental properties. It makes it very hard for a struggling artist or student.
Perth readers – apparently Perth is even worse? And just how expensive are the beers in Perth pubs these days?
“The government’s total lack of a housing policy and its inaction on affordability …”
So, um, if the government DID have a housing policy, what could that policy be?
Legislated rent control certainly isn’t the answer; government construction of units can’t be more than a marginal solution (and faces the real danger of creating slums); freeing up land on the outskirts of the major cities would exacerbate ‘urban sprawl’ which Mark would oppose (presumably?).
I suppose the Government could declare a “Snowy Dam” type national project to fill in Sydney Harbour!
The only levers government has to reduce property prices is to increase the supply of land or reduce population pressure on cities like Sydney by cutting immigration.
There is no other magic wand that the government ‘oughta’ invoke to reduce house prices in an free market.
Of course agents will attempt to rent properties at their maximum return. That’s socially sensible because it means the property goes to its highest-valued use.
Poor people don’t want subsidised housing – they want more income and maybe they should get it. But leave the housing market alone.
What about removing the 50% reduction in capital gains tax? It’s arguable that increased investment in housing since the CGT reduction was introduced is partly responsible for increased housing prices. Restoring full CGT should reduce housing demand by investors, which should reduce housing prices.
Whether this helps renters is another issue, however.
Hmmm,
So far as I understand immigration patterns, Harry, cutting down would only really effect change in Sydney, wouldn’t? So far as the other capitals go I believe inter-state immigration (esp in QLD and WA) far outweigh the amount of immigrant uptake.
I think it’s drawing a pretty long bow to claim that immigration has been responsible for the rise in house pricing in the last seven years. And if it hasn’t been responsible for the rise, why would cutting it lower prices?
hc, surely reducing restrictions on what you can build and where would also have this effect? This would also allow the increase of housing stock if you could put up high rise anywhere you liked?
I’m not suggesting this is a good idea by the way, just a possible way of reducing the housing cost.
Housing requires land, raw materials and local labour. None of these can be bought from China. Is why housing cost rises outstrip retail inflation. All are in limited and finite supply.
Have the actual number of dwellings decreased in the last three years? They haven’t. There may be more people looking for rentals but I doubt the increase is enough to produce this latest beat up. Hint. It’s the beginning of the Uni year, and people are looking for rental accommodation around the inner city. Further hint. Big price rises for houses in said areas, mean people need to charge higher rents. Further hint. Real estate businesses love to talk up their industry and the profits to be made. Further hint. Asset booms always have a fallout. Like having to realise returns on assets bought at inflated prices.
Further hint. After the fun comes the tears and gnashing of teeth for the people who missed out on the initial fun of painless capital gain aka money for jam, that the recent real estate boom provided. I hear the sound of chickens flapping home to roost.
Relaxed and comfortable everyone?
Steve E:
“Having just successfully found a new place over the last few weeks in Sydney, there is no doubt that the rental market is tight. Almost every property we looked at had at least 10 different groups looking at them.”
I’ve found a place, in the nick o’ time, in Northcote (Melbourne’s inner-ish north), but it didn’t look too good for a bit there. All the places we looked at had a constant stream of people looking, for the duration of the home-open time. Like, never less than 30, and 2 places had more than 100 – spilling out onto the street.
We only got a place by bidding against other tenants (ended up paying 20% more than advertised) and offering the first 3 months’ rent up front.
Household sizes have plummetted. Many more people are living alone. There is thus a proportionately larger demand for properties.
This household-style preference is imposing strains on the existing stock of rental housing.
It is interesting that the same thing did not happen when the baby boomers began to form households. Yet this should have constituted the biggest challenge for the provision of housing since Federation.
I imagine that this was alleviated by the formation of a wide variety of household types, from conventional marriage to communal arrangements which were hardly distinguishable from squats.
Jethro, Making capital gains subject to higher taxes should (if anything) worsen things since it will reduce the supply of housing and particularly the supply of housing for the rental market.
Patrick g, About half our population growth rate comes from immigration so reducing it would have an effect on house demands and house prices. Why do you think the Housing Industry Association is so pro-immigration.
Steve E, you are right, Eliminating restrictions on where and how you build would have some effect on costs and increase housing supply. But I think the big factor are the state government restrictions on land releases.
Restrictions on setting on the boundaries of cities rather than facing up the need to control congestion by taxing car use appropriately contributes to the problem.
One of the biggest factors in Australia’s high housing prices is the ridiculously high levels of urbanisation in the country.
Getting rid of subsidised water would have the dual effect of moving people out of the bigger cities and into regional towns, and therefore reducing the immense demand for city housing. It’s got to happen sometime or another.
Guess what? Property price booms don’t go on forever. Green-lighting new developments, restricting immigration or (ugh) committing public funds to social housing will only have minimal effects. Despite what A Current Affair tells you, there is no dramatic shortage of housing stock, simply a lack of stock at the prices people want to pay. One of those big queues you saw on TV was for a two-bedroom unit in New Farm for under $200/wk. I’d be lining up too.
House prices, like everything else, are cyclical. Another couple of interest rate rises will do the trick. Once enough of the mugs who have borrowed to the limit of their capacity on interest-only loans become distressed, you’ll see prices drop quickly enough. You can’t lose money on bricks and mortar, eh? Oh, yes you can.
If anything at all, wouldn’t this tend to make matters worse for renters?
It would discourage further investment (building) of housing, and even more tightening of available rental properties in the future. There are always going to be those who can’t afford to buy, or who simply don’t want to buy (many of those moving for work for example will want to rent at least for a while).
Seems a bit counter-intuitive to me Yobbo. How would that work?
But Harry, aren’t something like 70% – 80% of those immigrants coming straight to, and settling in Sydney?
How would this affect prices in other states?
I only charge my gardener a pittance to rent the cottage by my front gate. My chauffeur lives in the garage.
And who was the biggest subsidiser of water in Australia? The winner is Charlie Court. And where was it subsidised? In WA rural towns. Driving in the south-east wheatbelt you see all those pipes along the road delivering city water at subsidised prices. Brilliant. Out went the rainwater tanks, in came the long-distance pipes.
Now that water, once it has been used once, together with rainwater, goes into the water table. Together with the fact that trees have been removed from the countryside to make way for wheat fields, many rural towns in WA (like Katanning for example) are literally crumbling under foot from the salt brought up by dissolved salt cristals in the soil as the water table moves to within a few cm of the surface. The place is rooted.
But get rid of subsidised water in WA and not only will Perth shut down, so will most of rural WA.
Still, no great loss, really. Place is full of whingers anyway. And the beer is shit.
Patrickg, high immigration to Sydney affects prices in other states by driving investors to other cities seeking cheaper properties and big capital gains. That was a big driver of Melbourne’s boom, and it’s happening in regional centres too.
You and trickledown are correct in your cynical interpretation of alleged rent hikes – that the real estate industry is doing some marketing. They’re doing ti because tax changes to super are threatening to attract investment away from real estate, so the industry is trying to impress investors with alleged super high returns from rental property investment.
That said, there is still a huge problem with housing affordability. As a result, and in preparation for the election, there’s a dishonest campaign underway trying to shift the blame onto state governments.
Thanks Tony, I should have thought about that more, coming up from Melbourne only six months ago.
That said, I’m still a bit suss on it. From a rental perspective, it doesn’t add up for me. Immigrants are overwhelmingly renters, rather than buyers, so if anything Sydney’s influx should be encouraging investors despite the prices.
I still don’t see the confluence between rental demand and high prices in this particular scenario. I understand high prices driving people elsewhere, but I’m still doubtful as to whether immigration is responsible for it. Does that make sense? I don’t know very much about property.
Bloody hell, all of this is actually starting to make me proud that I’m still living with my mother…
Mark
Just as I had to with Kim’s bizarre sophomoric feminst rant against Oves and Jackie Kelly, I am going to have to ask why you have posted this thread? What is your policy position? What is wrong with present policies and how should/could they be improved?
Merely playing sword fights with linked quotes does not cut it.
Some beleive the problem is the “slow” releasage of land- a real estate institute furphy- but others are closer to the mark when they talk of failure to implement decentralisation, an idea aborted before it got a chance.
This disaster of shortsightedness was inevitably followed later by innefficient and even corrupt misuse of revenues as to infrastructures, including state bank fiascos; then the notorious PPPs; as market theology took over goverment thinking.
The reasons for decentralisation offered thirty years essentially refer to the problems faced these days: too much concentration of populations in too few areas, with urban sprawl and infrastructure failure, due to worsen thanks to the further neoliberal idiocy of unstrategic privatisation. With neoliberalism has come the ignoring of ecology and ecological sustainability in planning, including the lack of effort to wean people away from energy innefficient, costly modes like gas-guzzler cars and expensive freeways, away from energy-related and financial self-sufficiency.
It is true,a s some have hinted, that the old statist model threw up its share of failures, but in this day and age there should be enough scientific information available for governments to do better.
Except for one thing. The three tiers of government remain under the mysterious sway of “developers” and finance corporations as much now as ever they did.
John, the article reproduced is by Jane Nethercote not by me. It’s worth discussing, to see what others think and what policy options there are. Housing policy is not an area of expertise for me – but I see nothing wrong with posting an opinion and learning from others’. Blogs aren’t just about what the bloggers think – not by a long stretch.
As someone who never expects to own property I take a keen interest in all this but am a bit suss. It seems every single day lately the Sydney Morning Herald has a new story about teh rental crisis (SHUT UP!! Stop giving my landlord/lady ideas!!) illustrated with stories about 800 people turning up to inspections. In my experience, most things advertised in the paper on a Sat morn, and everything advertised in certain suburbs, got stacks of people but if you actually go to the real estate agent offices and look at whats advertised in the window, there are a heap more properties available. Has that changed in the three years I’ve been out of the market? My own quick research suggested not, if I had to move about I can’t see any problems getting somewhere else near by. I wanted inner west but I can’t afford more than a tiny studio in Newtown, so I settled on Marrickville. If I couldn’t afford here I would move one suburb out along the train line until I got somewhere I could afford — Are there really hordes of people trampling through every 2 bedder/210 a week joint in Campsie? Seriously??
Letter in the SMH this very morning complaining about being asked to pay $300 a week for a “slum” in Darlinghurst. Duh! Sorry, but Darlinghurst doesn’t reflect Sydney. What effect is this boom crisis having on the vast majority of the city outside the eastern/inner suburbs?
(Obviously renting costs have always been ann issue for low income earners, but that doesn’t seem to be the focus of these stories which always seem to profile the plight of professional young couples.)
Amanda, firstly you’ll see lots more listing on the internet that in the papers, which as far as I can tell have only about 10-20% of available rentals listed. I think the internet corresponds more closely to what is in real estate windows, although I think some get snapped up before they bother listing them anywhere.
That said, there is no doubt that when I got a new rental last week, there was much more demand for properties than then previous time 2.5 years ago. Then we would frequently be the only people looking at a property, and could offer up to 10% below the asking price and get the property we wanted.
That said we had no problems getting a place although the prices had gone up. We made two offers and got both of them. I wonder though how much this comes from the non-monetary side of things. ie having a good job, rental history and family gives the impression of regular payments versus students or a share house situation.
Thanks Steve. For “paper on a Sat morn” read Internet which I guess has replaced it as the mass simple option. Over the last few months I’ve been doing Domain searches for options in my area/price just to see what has happened with prices and availabiliy and see dozens of suitable places and many are listed for weeks at a time. That is as you say not all of the places available.
Trouble is with all this its all “in my experience” type anecdotes, and I don’t particularly trust the REI figures. I’m just having a hard time getting a grip on what this “crisis” actually amounts to for the average income earner. An extra few days looking, ten bucks a week and a suburb or two further away from the beach? The issue of affordable options for genuine low income earners is crucial but most of this stuff in the Herald looks like a distinctly middle class whinging because you can’t live in Woolloomooloo.
There are quite a few reasons why property is so expensive, and these should be eliminated. Not that it would be popular around here with fluff like “neoliberal idiocy of unstrategic privatisation” – fluff more or less defending command economies. Land release is not a REIA furphy – if anything, it would be a developer furphy. If land could be analogous to oil, REIA would be the Governments of OPEC nations and developers would be industrialists.
1. Up to one third of new property prices are tax. That is on top of your income taxes to which mortgage repayments are not deductible. Despite investors enjoying deductions, those who ultimately buy the houses cannot make these deductions.
2. There is a slow release of land, partly due to crown ownership, and also due to zoning rules. The productivity commission agrees.
3. Centralisation. Government spending costs more than what the Government actually spends, but this is spent on aggregating infrastrucutre in a very small area, to which then the Government bases a lot of departments and has crowded out private sector work. This flows into immigration issues.
4. Austrian Business Cycle theory: this is esoteric, but has recieved more attention in orthodox economic literature. Inflationary monetary policy creates excessive demand for consumer goods at the expense of capital goods, at unsustainable rates of return. When the malinvestments bottom out, we all have lower productivity and less producitve capital than we should have, and have as the Keynesians would call it, “hysterisis”. Frenkel and Mehrez (2000) observe that inflation increases information costs and shifts workers from trades into financial and property services. This represents a decrease in skilled assembly workers and an increase in the span of control of banks. The sobering reminder of the ABCT is when the bust comes, it doesn’t mean than prices necessarily fall.
5. Building restricitons and environmental restrictions: there is a lot of land release near urban centres which is denied for the sake of very marginal bushland. If this was bought by conservators this would be better as this factor payment would ultimately be spent on housing elsehwere. Otherwise developers could buy it. Restrictions on building heights reduces land productivity and reduces population density and increases land use.
6. There is still consderable scope for more foreign competition in banking. Foreigners cannot simply open up as they would a corner shop. Ditto for foreign property investors.
7. There is scope for property and covneyancing services to be deregulated or abolished as a legal requirement. This can add on up to 4% of the purchase price (usually up to 2.5% to agents, up to 1.5% to conveyancers or soliciotrs).
Are you suggesting that this would effect housing cost by lowering interest margins banks charge? Or by some other way?
“there is a lot of land release near urban centres which is denied for the sake of very marginal bushland.”
What’s “marginal bushland”?
Steve: Yes, but also in terms of increasing the supply of loanable funds both as bank capital and mortgage backed bonds.
WBB: Isolated bushland which does very little to support populations of native fauna. Remember I am not actually calling for it to be bulldozed.
While I appreciate you’re not going to concrete it over (yet), bushland has many benefits other than hosting large animals. Marginal housing developments are worth less in the long run.
Most of the whinging is from the inner suburbs, which suggests land release policies aren’t a big factor in Sydney’s current circumstances (that’s not to say they’re unimportant elsewhere – eg here in Canberra).
For Sydney I reckon long-term neglect of infrastructure, especially transport, is the big killer. It’s what has forced people out to the periphery. As for land taxes, while they should be more efficient and equitable (ie ongoing annual assessments rather than transaction costs like stamp duty, a broader base by taxing personal residences) they quickly get capitalised into land values – cutting them would just result in a further increase in the cost of land, with the benefit going to existing landholders rather than to new purchasers or to renters. Conversely, if you think land is too expensive you should be asking for large increases in land tax.
How so DD? Surely lack of tranport is worst in the periphery, and it stops people going out there? I would have thought that better transport would make the outer suburbs more expensive compared with the inner suburbs. I don’t deny its a problem but don’t see how it has the effect that you state.
One thing that hasn’t been mentioned here that is meant to be pressuring the housing market in Sydney and other places is that the number of people per household has been declining. We now require more houses for the same number of people.
Media Watch did an excellent expose of the orchestration behind this issue, including by the Real Estate Institute. It also revealed that one of the supposedly distressed renters featured in stories was actually a former real estate agent with political connections, and that she had been instructed to act like a renter.
http://www.abc.net.au/mediawatch/transcripts/s1857566.htm