Will rent reforms push rents higher?

This conversation is not about evictions. Landlords must have a legislated reason if they pursue an eviction. REIWA has no argument with that.

We are talking about the ability to end, or not renew, a lease – following the proper processes set out by legislation – without having to provide a reason.

This is always a highly emotive debate. When it comes to any reform, we need to put emotion aside and consider the potential costs of change.

Recent history shows us well-intended actions by governments can have long-lasting negative outcomes.

One example of this is the Covid rental moratorium. It may have been helpful to tenants at the time it was in place, but it impacted investor sentiment and contributed to a mass exodus of investors when it ended.

This reduction in supply, along with strong population growth, led to WA’s severe rental crisis.

The Covid building incentives are another example. Their aim was to support a struggling industry through the uncertainty of the pandemic. Instead, they caused a huge surge in demand that the building industry was unable to cope with. The cost to build skyrocketed, completion timeframes blew out, and a large number of builders went out of business. This has had a long-term impact on the building industry and its customers.

The impacts of the building incentives flowed through to the established homes market, with people looking to buy instead of building, or having to rent for an extended timeframe while their home was being built.

This increase in demand contributed to the strong increase in property and rent prices we’ve seen over the past few years.

Housing markets are driven by supply and demand. When supply is low and demand is high, prices rise.

I’ve previously discussed the potential impact to rental supply, and rent prices, of changes to no grounds terminations. Tenancy advocates are confident investors won’t leave the market, so let’s look it another way.

Reforms could lead to more breach notices

If removing no-grounds terminations resulted in higher rents due to increased risk and reduced flexibility for housing providers, what level of additional weekly rent would you be willing to pay for that reform?

In the lead up to the previous reforms to the Residential Tenancies Act, REIWA commissioned Synergies Economic Consulting to survey property investors.

More than 10,000 responses were received, which were filtered to minimise sources of error and bias. The resulting 7,000 responses represented a cross-section of the low, mid and high-tier markets.

When it came to no grounds terminations, respondents were primarily concerned about the reduction in their ability to make decisions over their asset.

The removal of no grounds terminations would reduce their options for dealing with the small proportion of renters that breach their agreement or behave in ways that render the relationship between the renter and owner unworkable.

The survey found, under existing arrangements, owners typically opt to not renew tenancies at the end of a fixed-term lease as opposed to issuing a breach notice during the term or applying for a court order.

This practice is less costly to both parties and results in a more favourable outcome for the renter as there is no blemish on their rental history, making it easier for them to secure rental accommodation in future.

The removal of no grounds terminations would lead to a significant increase in the number of breach notices issued, as this would become the only means of removing problematic renters.

The cost of anticipating and dealing with these breaches would be material.

Furthermore, there would be a shift towards more intensive screening of renters by property managers and owners, and this would add costs to the letting process and make it harder for people with poor, or no, references to find a rental property.

Synergies’ modelling indicated the reform would see median weekly rents increase by $10 at that time.

The rental climate was different then. In the current environment, with ongoing strong demand, lagging supply, rising interest rates, and broader cost pressures, that increase is likely to be much higher.

Is that a price tenancy advocates are willing to pay?