Tenancy laws to not stop investments in private rental

Oksana Patron

29 November 2022

The tenancy law reforms in New South Wales and Victoria have had little impact on decisions to invest in, or stop investing in, private rental housing, according to the Australian Housing and Urban Research Institute (AHURI) research.

However, the Institute advocated for Australia to pursue a new national agenda for residential tenancies law reforms and a more co-ordinated effort at the national level as too many differences between jurisdictions would continue to leave a number of issues undressed.

The AHURI’s research called “Regulation of residential tenancies and impacts on investment”, which examined property investors, found that for the majority of investors tenancy laws was an important factor in their investment decision making process, it was rarely a major factor when it came to selling a property, with only 14% of surveyed investors having declared tenancy laws was ‘very important’ in their decision to sell a property.

At the same time, 50% of investors stated they had decided to sell their investment property due to realising capital gains, and for 47% and 36%, respectively, it was about money they needed for another investment or the insufficient rental income.

The study also revealed that the private rental sector in Sydney and Melbourne were dynamic, with a high churn rate of both rental properties and landlords, many of whom were ‘mum and dad’ investors.

Chris Martin, senior research fellow in the City Futures Research Centre at UNSW Sydney, said that Australian residential tenancies law reform accommodated the long-term growth of the private rental sector rather than causing disinvestment.

“The sector is dominated by small-holding landlords who frequently transfer properties into and out of private rental according to their individual circumstances and the 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,” he commented.

However, the high churn rate caused renters to ‘get churned out of their housing and created the basic problem for people trying to make a home in rental housing.

The research found that within five years of first being in the private rental market, many properties in Sydney and Melbourne were no longer in the rental market.

According to AHURI, the new national agenda for residential tenancies law reform should focus on making tenancies more legally secure, clarifying landlords’ obligations regarding defective premises, and investigating contemporary rent regulation regimes to moderate increases in market rents.

“Around Australia, states’ and territories’ renting laws accommodate the dynamic nature of private rental investment. 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,” Martin noted.

“There are, however, many differences between jurisdictions in the details of their laws. There’s been virtually no national co-ordination of law reform processes, so divergences are opening up and some problem areas have gone unaddressed.”

The research was undertaken for AHURI by researchers from UNSW Sydney, Swinburne University of Technology and University of South Australia and examined what factors shaped landlords’ rental investment decisions.