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The new enemy of renters: Mums and dads

Eryk Bagshaw
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Where there are housing investors, there must be renters. Few seem to care about their fate but, for once, a little help may be coming renters' way.

Such is the dynamic of Australia's housing market that at the same time as the federal government is defending those who negatively gear one, two or three properties, it's also all of sudden taking a very keen interest in those who are putting up big fortnightly payments for the privilege of sleeping in them.

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Housing affordability - the options explained

Buying a house is increasingly out of reach for young Australians - Eryk Bagshaw explains the options being considered.

That is because the army of renters is growing.  A record 31 per cent of Australian households now rent from private landlords, up from 18 per cent 23 years ago. Thirty-six per cent of households are mortgaged and 31 per cent owned outright.

All told, more than 1.5 million homes are rented throughout Australia, according to the Bureau of Statistics, a figure that will climb based on current trends, especially if younger generations listen to Deloitte Access Economics' Chris Richardson.

"The one bit of advice I give to young Australians is right now is 'don't buy'," he told the National Press Club last week.

So it is politically convenient for the government to look after both the tenant and the landlord.

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Fortunately, it is also good policy to add tenants to the list of beneficiaries.

Which is why we shouldn't have been surprised when Treasurer Scott Morrison stood up at the Australian Housing and Urban Research Institute last month and without explicitly backing it, discussed a rental scheme that to-date is about the only sure bet in the May budget.

It's about time.

For centuries renters weren't recognised under English common law.

Today's landlords were "freeholders," who tolerated the presence of serfs who worked for them and were paid in lodgings and food.

As recently as the 19th century (and the 20th century in some Australian houses of parliament) only landowners were able to vote.

Fast forward to 2017, when soaring house prices have meant the number of renters is growing and the number of owners is shrinking, in any major Australian east coast city the cost of renting teeters perilously close to the edge of week-to-week disposable income. On Friday, Domain figures showed Sydney's median house rent had the biggest annual surge in five years, increasing $25 a week to $550.  

Eight out of 10 renters surveyed by consumer group Choice recently said they have little to no long-term security. One in every four said they have requested repairs and never even received a reply. Many are scared to complain out of fear of being "blacklisted".

So after a millennia of second-class status, you can imagine my surprise when Morrison decided he was going to do something about it.

"If they can't be in sustainable, reliable accommodation, all of the other jobs get harder, the problems of joblessness, the problems of other ailments that they have to deal with," he said.

"I am as much concerned about someone who is on a low income struggling with their rent as I am with someone who I know wants to get on the home-ownership market themselves. They are both important challenges for Australians."

Morrison is especially concerned about Australians such as teachers and nurses who we need to live in the cities they serve but who are having trouble keeping up.

An Affordable Housing Finance Corporation based on Britain's "bond aggregator model" would raise up to $200 million per project at much lower government interest rates from the bond market for low-risk lending to the providers of community housing, the full cost of which we are likely to see in the budget.

The government is hoping for hundreds of new community houses at the lower end of the market, particularly in Melbourne and Sydney.

For its part, Labor backed the bond aggregator model on Friday because it has no real rental policy of its own.

It is accusing Morrison of crying "crocodile tears" after he abolished Labor's own poorly structured National Rental Affordability Scheme which ended up putting money into low cost rentals for international students and actually reduced the supply of affordable housing by 16,000 dwellings.

"They could have changed it, improved it, if that was their wish but they abolished it," Shadow Treasurer Chris Bowen said.  

By focusing on lending to build, rather than subsidising rents as the Labor scheme did, the proposed corporation shows promise. But governments of either stripe also need to do more, because they know, as the renting class grows, so will its political influence.

Historically, the logic in catering to homeowners and ignoring renters was that renters were always destined to evolve into owners, so a government could count on an aspirational vote.

In the midst of a generation-dividing housing affordability crisis, that is now far from sure.

In this, a government looking for votes could look to private solutions for public problems, and not towards the supposed heroes of the government's housing crisis: mum and dad investors who have long dominated the rental property market and delivered poor outcomes for tenants.

Providers of community housing, corporations, and even super funds could make better landlords. They are less anxious about each individual house, better able to provide centralised maintenance.

Britain's housing white paper recommended inducements and changes to planning rules to encourage the building of more institutionally-rented long-term housing, with the explicit intention of providing competition to mum and dad landlords and driving down prices.

The London School of Economics found the build-to-rent model would minimise risks for developers and investors, while actually boosting supply.

The British Property Federation expects 240,000 such properties to be built by 2030.

Oddly, one hurdle to this sort of solution comes from the Coalition itself.

As pressure builds on what are seen as overly generous tax arrangements for landlords, a proposal has been floated to limit the dollar value or number of properties that each investor can negatively gear.

It would protect mums and dads, 90 per cent of whom own less than two properties, but it won't encourage the economies of scale required for-rent-to-buy schemes and it certainly won't help renters. 

Eryk Bagshaw is economics reporter, Ross Gittins is on leave. 

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