Private rental sector growing along with unscrupulous landlords

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AUSTRALIA’S distinctive private rental sector has grown by 36% over the past decade, and is fragmenting and into specialised markets at lower price-points that are subject to a lack of transparency, according to a new AHURI research report.

Undertaken by researchers from Swinburne University of Technology and UNSW Sydney, The future of the private rental sector shows that more than a quarter of all Australian households are a private renters – at around 2.1 million households – while the sector’s growth in the last 10 years was twice the rate of all household growth.

This study reviewed the PRS in ten countries: Australia, Belgium, Canada, Germany, Ireland, New Zealand, Spain, Sweden, the United Kingdom and the United States.

The report warned that while Australia’s PRS is fragmenting and diversifying with the development of niche markets and services, a growing “informal” sector is developing that is characterised by a lack of transparency and tenure protection.

“Our research found the Australian PRS is fragmenting into more specialised markets, particularly at the low-price end of the market,” researcher Sharon Parkinson from Swinburne University said.

“Together with the older forms of marginal housing such as residential parks and rooming houses, we’re seeing newer markets such as in the student housing sector, new generation boarding houses in NSW, developers retaining units for rent, an affordable rental sector provided by not-for-profit organisations, and a growing informal sector.”

Low-income and vulnerable households continue to face particular barriers accessing and maintaining housing, and evidence suggests rental property investment and provision is skewed toward moderate to highly-priced rentals, with limited and insufficient dwellings accessible at the lower end.

Informal housing arrangements, like room and short-stay rentals are growing, and were found to often be under policy-makers’ radar unless there are health and safety issues.

“The research finds that without oversight, some landlords and intermediaries are acting in unscrupulous ways to increase rental returns, such as by overcrowding dwellings and converting living areas into sleeping space.

“By international comparison, the research reveals Australia has relatively weak laws regarding security and rent regulation. Even countries where, like Australia, the majority of landlords are smallholding private individuals (i.e. ‘mum and dad investors’), the laws protecting tenants’ rights are much stronger. In Germany, where tenant rights are perhaps strongest, 65% of private rental housing is provided by individual landlords,” Parkinson said.

“Strong assurance of security and other conditions makes renting an attractive option, and it seems German landlords think that makes good business sense,” she added.

Moderate and high-income renters were found to be advantaged by the rapid uptake of digital technology in the sector, which includes large online property portals, rent bidding apps and social media that connects tenants directly with landlords.

AHURI called on a strategy for the PRS that includes finance, taxation, supply and demand-side subsidies, developing and investing in hybrid arrangements that would enable access to and sustainment of PRS housing for low-income and vulnerable households, and better data collection to allow more comprehensive consideration of implications for private renters of different ownership types.

The report found the the Australian PRS is unique compared to equivalent markets around the globe in number of ways, namely in its integration with the wider housing systems, the high housing-related debt, and the role of real estate agents.

Historically, Australia’s PRS sector and owner-occupied sectors have a largely common built form with properties transferring readily between the sectors, as opposed to those Germany and Canada, where the sectors are more differentiated.

“Australia’s integration of housing sectors heightens the prospect that, in the event of an economic shock like the GFC, investment in both sectors fall simultaneously with little established institutional capacity for countercyclical investment,” it said.

Australia has the highestlevel of housing-related household debt of the 10 countries studied for the report, both in the investment and owner occupied markets, which increases further the chance that the sectors would drop together.

Real estate agents are found to have an “unusually prominent” role in Australia’s PRS, managing 75% of PRS properties.

In most of 10 countries examined, private rental housing is the second biggest tenure after owner occupation, while only Germany has private rental as the largest tenure. Social housing is the third largest tenure in each country.

Australian Property Journal