Debunked: Tenancy reforms not a deal breaker for landlords, report shows

The Australian Housing and Urban Research Institute (AHURI) highlighted that several tenancy law reforms in the past two decades rolled out by state governments, particularly in NSW and Victoria, have triggered concerns about disinvestment among landlords and investors being deterred from entering the rental market. 

To put the disinvestment claim to the test, researchers examined the factors that influence landlords’ rental investment decisions by analysing rental bond data after the rollout of rental reforms in the two states, as well as a survey of property investors. 

Upon crunching the numbers, AHURI published a report that reached a conclusion that tenancy laws had “very little impact” on landlords’ decisions around investing in private rental housing. 

According to the report, there was “no evidence” of tenancy reforms in NSW in 2010 affecting the supply of rental properties in the state. 

The same number of rentals were added to the state’s private rental sector after the changes as the previous trend, and fewer than expected assets were removed from the market, the report showed. 

While slightly fewer rentals were added to Victoria’s rental sector after the state put up its tenancy law for review in 2015, the report highlighted that the shake-up had “no effect” on the number of properties exiting. 

When it comes to selling, the report showed that landlords divested their investment properties for capital gains rather than dissatisfaction with tenancy law reforms. 

Half of the 970 surveyed investors said they sold their investment properties because it was a good time to realise capital gains.

Meanwhile, 47 per cent said they wanted money for another investment, and 36 per cent said the rental income was insufficient. 

Notably, only 14 per cent said dissatisfaction with tenancy laws was very important in their decision to sell.

The study’s lead author, Dr Chris Martin, senior research fellow in the City Futures Research Centre at UNSW, said the research debunks the often-made claim by the property lobby that changes to tenancy laws serve a disincentive for landlords to enter or exit the rental property market. 

“Overall, we found that Australian residential tenancies law reform has accommodated, even facilitated, the long-term growth of the private rental sector, rather than causing disinvestment,” he stated. 

“The sector is dominated by small-holding landlords who frequently transfer properties into and out of private rental according to their individual circumstances and  wider housing market conditions. The reality is the Australian private rental sector is built for both investing and disinvesting, and that’s what landlords do.”

To highlight the dynamism of the rental sector market, they also showed the trend on holding rental properties in the two biggest capital cities. 

In the NSW capital, the report showed 32 per cent of properties that first entered the private rental sector in 2000 were no longer in the private rental sector five years later, and 44 per cent were no longer there after a decade. 

Meanwhile, almost half (49.3 per cent) of properties were no longer in the Victorian capital’s rental sector five years later, while 58 per cent were no longer there after 10 years.

For properties that first entered the private rental sector in 2015, data showed that 54.7 per cent in Sydney and 51.4 per cent in Melbourne exited after five years. 

The expert pointed out that the sheer turnover of rental properties in the major capitals highlighted that current tenancy laws work in landlords’ favour rather than tenants.

“As properties churn through the rental sector, renters get churned out of their housing,” said Dr Martin. “This is a basic problem for people trying to make a home in rental housing.”

He also commented that the country’s renting laws “really accommodate the dynamic nature of rental property investment”, which entails landlords frequently buying in and selling out or using it for something else.

“Landlords can access the sector easily because there are no licensing or training requirements. And they can exit easily because tenancies can be readily terminated,” he remarked.

The report noted that macro-prudential regulations, such as tax policy and financial regulation, had more impact than reforms in shaping the market, as these interventions can encourage some forms of investment and discourage others. 

Dr Martin said residential tenancy law reform had lacked national coordination, and significant divergences have opened up between jurisdictions. 

On that note, he called for the coordination between the Australian, state and territory governments to establish a new national tenancy law reform agenda and continuing processes for collaboration on best practice and problem areas.

“Some high-priority actions should include making tenancies more legally secure, clarifying landlords’ obligations regarding defective premises, and investigating contemporary rent regulation regimes to moderate increases in market rents,” Dr Martin recommended.