The rental bond change that may cut landlords’ risk and entice them back into investment

Mny young Australians are struggling to buy their first home. Picture: Jason McCawley

Australia desperately needs federal and state politicians prepared to make the decisions required to overcome both the rental crisis and to satisfy the desire of a vast number of young Australians who want to buy a dwelling.

It can be done.

Bad government decisions were the main cause of the housing problems, so politicians can create solutions which will also underwrite our economy, although token interest rates will not return.

Last week, Bernard Salt highlighted that census data showed the nation’s largest age bracket – 32 to 33 – contains 800,000 Australians who this year are passing through the prime home-buying stage of their life cycle. It looks like half have bought either a dwelling to live in or to rent.

Those numbers, plus later migration, should concentrate the minds of the major parties, but sadly so far no party has set out coherent properly thought out strategies to tackle both rental and home buying demand.

Let’s start with the rental crisis, which was forecast many years ago by the Australian Landlords Association when state politicians began going too far in setting rules favouring renters.

One in 10 Australian adults are landlords who typically own a single investment property, and these landlords provide more than 80 per cent of Australia’s rental properties. Teachers and nurses are the largest group of landlords and are often among the 32-33 age group who discover they can’t afford to buy a residential house, so rent their residence and then own an investment property where interest is affordable because it is tax-deductible.

The rental disaster was created when the ALP and the Greens, particularly in Victoria and Queensland, discovered that renters were an important block of their voters.

For example, the Australian Landlords Association calculates that renters who are employed by the private sector and aged over 30 mostly support the ALP. But where renters are employed by government or who are not employed and aged under 30 they support the Greens.

Accordingly, the ALP and the Greens began competing for this exploding renter market with a frenzy of legislation increasing rights for tenants to the point where many nurses, teachers and other investors found the powers of their tenants too great so they sold and reduced the supply of rental property.

To overcome the total crisis first requires an increase in the supply of dwellings. State and local governments must change the approval rules and make available the required skills.

On the East Coast, the massive anti-residential bureaucracies in NSW are still in charge.

Victoria is changing on the zoning front but plans to deprive the housing market of skills by erecting its infamous $250bn “train to nowhere” project to satisfy the demands of the Construction, Forestry and Maritime Employees Union, which funds the ALP.

Brisbane has excellent zoning rules but is short of skills, which will be relieved if the latest Olympic cutbacks are pursued.

Clearly Australia needs to train more building skills and if governments don’t take most of those skills for infrastructure and also relieve the zoning rules, then ordinary Australians should be able to buy a first residential dwelling or become a landlord.

Australia’s largest age bracket – 32 to 33 – contains 800,000 Australians who this year are passing through the prime home-buying stage of their life cycle. Picture: William West/AFP

On the rental front, the Australian Landlords Association President Andrew Kent recommends three key solutions:

•Allow for different types of rental agreements for different segments of the property market, rather than a one size fits all approach in each state.

•Give property owners reasonable control over their property.

•Reduce the risk for landlords by replacing rental bonds with a national rental insurance scheme with insurance fees based on the history of claims associated with the tenant.

And, of course, renters must be assured that there will be no significant change to negative gearing.

On the homeownership front, making it easier to fund a first home must be accompanied by an increase in dwelling supply, or any help measures will be swamped by higher prices.

States such as Victoria that have crippling stamp duties on home purchases need to change the taxes.

The best asset for retirement is owning a dwelling, so superannuation rules need to be made flexible so that people can at least temporarily access current and future superannuation to buy a residence. Those struggling to buy a dwelling are increasingly seeing superannuation as a vicious generational tax and unless the rules are changed to restore superannuation as a retirement asset for 30-year-olds needing a dwelling their anger will destroy it. Current industry and retail superannuation funds trustees own their homes and simply do not understand what is happening to the current generation when they reach their 30s.

Some degree of tax deductibility of home interest would also assist.

But innovative people are coming up with solutions. For example, the chief executive of architects Place Studio, James Alexander-Hatziplis, and Pacific Community Housing have developed a “lease to own” model called Ownlea with the aim of helping younger Australians get into their first home sooner.

The aim is to enable occupants to build equity gradually by leasing with the optional ability to later purchase.

If the nation does not take action when 800,000-plus Australians are in the house buying bracket then the opportunity will be lost, and we will be a nation of renters with nation-changing, long-term social implications.

States such as Victoria have crippling stamp duties on home purchases, which need to change. Picture: Rob Leeson