This article is from the Australian Property Journal archive
CONTRARY to belief, most European countries have higher rates of home ownership than Australia and house prices are steady due to the large private rental market. Australia could significantly increase rental housing stock by attracting institutional investors, however more government action is needed to boost the fledgling build-to-rent sector.
Those are the findings of the Australian Housing and Urban Research Institute’s The changing institutions of private rental housing: an international review, which compared the private rental sector in 10 different countries.
It highlighted that differences in rental market, population growth and financial lending attitudes have created divergent market conditions in Australia and Germany, despite similar capital gains and negative gearing policies.
Individuals are found to be the most common type of landlord in the 10 countries, but a “significant increase” in large corporate landlords reflects the rise of the build-to-rent sector as institutional investors look for potential opportunities in residential markets in need of solutions to affordability issues.
Germany’s relatively steady house prices are owed to a large private rental sector, rent regulations, low population growth and conservative lending from public financial institutions, in comparison to Australia’s more volatile market and opposing conditions.
“We found that individuals are the predominant type of landlord in nine countries: only in Sweden are housing companies more common,” Dr Chris Martin from the University of New South Wales said, who led research on the report alongside the Swinburne University of Technology.
“Australia’s PRS stands out in international comparisons for being less differentiated from the wider housing system in terms of its built form, household types and incomes. This suggests a high degree of integration between the Australian PRS and owner-occupier sectors, which is significant for policymaking.
“Most countries also have some large corporate landlords (LCLs). The origins of LCLs are diverse, but their recent activity has been facilitated by government activities,” he added.
Martin said institutional landlords – LCLs – are now a standing item on the Australian housing policy agenda.
According to the report, In the United States, large real estate companies have been in operation for decades, particularly in the ‘multifamily’ or apartment sector. The largest 10 multifamily landlords currently own 691,000 units (about 2% of all multifamily units) and the largest 50 own almost two million units (5.5%) (NMHC 2017). These LCLs have been joined by new entrants that rapidly acquired large holdings of single-family properties in the wake of the GFC (‘REO to Rental’).
Germany also has a few very large landlords. The nine largest publicly listed housing corporations own a total of 890,000 units (3.8% of all rental dwellings). One of them, Vonovia, is now the largest private sector landlord in the world (333,000 dwellings). This sector grew from the privatisation of municipal housing and industry-related housing around 2000.
In the United Kingdom, 10% of the PRS (by dwellings) are owned by landlords who own 100 properties or more. These landlords comprise both individual persons and corporations. For some years the UK Government has sought to encourage the growth of institutional landlords, particularly as a ‘Build to Rent’ sector capable of developing newly constructed rental housing.
Meanwhile in Australia the build-to-rent sector entered the national discussion throughout last year as a potential cure for ownership and rental unaffordability facing many segments of the country’s markets. The latest Rental Affordability Index from the National Shelter, Community Sector Banking and SGS Economics & Planning found that renting is deemed “untenable” for a single person on benefits in Sydney, who would require 150% of their income to rent, and at least 100% in each capital aside from Adelaide Hobart.
Single pensioners would need 97% of the household income put towards new leases in Sydney, and 68% in Melbourne.
In contrast to encouraging policy frameworks put in place by other governments, Treasurer Scott Morrison introduced restrictions on favourable tax treatments for offshore groups investing in residential property, unless it is for affordable housing managed by a registered Community Housing Provider, blocking a potentially massive supply of capital for a fledgling sector that CBRE had tipped might attract as much as $300 billion of institutional investment over the next 20 years.
Grocon this week acquired the 256-266 City Road site in Southbank, on the edge of Melbourne’s CBD, for $35 million with plans to construct a 61-storey build-to-rent project.
It would follow Salta Properties’ 260-unit project, part of its $330 million mixed-use hotel development in Docklands, and the Commonwealth Games athletes’ village on the Gold Coast as one of the first major build-to-rent projects in Australia.
In the meantime, Australian investors continue to look overseas for opportunities in the sector. Lendlease and the Canada Pension Plan Investment Board have just announced an A$2.6 billion build-to-rent venture in the UK.
“Policy makers and stakeholders in the PRS should start specifying what sorts of LCLs are really wanted, and how desired housing outcomes will be delivered. Recent affordable housing policy initiatives have sought to develop community housing providers into a sector of large-scale, mission-oriented landlords.
“Care should be taken to ensure that these initiatives are not colonised by for-profit LCLs at the expense of affordable housing providers and outcomes,” Martin said.
The report noted that LCLs are “not building much rental housing”.
“Rather, they are mostly acquiring existing properties and actively manage their portfolios through renovations, modifications and sales…LCLs are often controversial and there is evidence of conflictual relations with tenants, particularly in Germany and the United States.”
The report looked at regulations of the private rental sector across the world, including rent increase controls, as seen in Germany, Spain, Sweden and Belgium, as well as security of tenure laws and landlord registers.
Martin said the view of tenancy regulation as “red tape” is out of step with the recent experience of most countries in the study.
“On the contrary, Ireland and Scotland are examples of successively stronger regulation being implemented as the private rental sector has grown.
“The international experience provides useful insight for Australian policymakers as the country experiences a growing share of renters in the housing market,” Martin said.
“State government could legislate to improve security of tenure, for example by removing ‘no-grounds’ terminations, without unduly burdening landlords.”
“Australia’s PRS stands out in international comparisons for being less differentiated from the wider housing system in terms of its built form, household types and incomes. This suggests a high degree of integration between the Australian PRS and owner-occupier sectors, which is significant for policymaking,” Martin said.
Most of the European countries in the report have a higher rate of home ownership than Australia, debunking the common view the European markets are dominated by renters. Private rental is the second-largest tenure after owner occupation in nine of the 10 countries – including Australia – and the segment is growing in seven.
Australian Property Journal
