It’s been a wild ride for property investors over the past 6 years - from a cutoff of interest-only loans to threats of a negative gearing ban, to aggressive interest rate hikes, high property prices… and now, a spotlight on Australia’s rental laws.
Ultra-low vacancy rates, high rent prices, strong demand, and a rising population have put rental markets across the country into a pressure cooker environment, and some are suggesting tighter rental laws could be partly to blame.
That’s because these tighter rental laws only dissuade people from investing in property.
One of the most attractive advantages of being a property investor is control – you have full control over how you use and improve the asset.
Tighter rental laws (those that favour tenants) reduce the amount of control investors have over their property - like the ones Victoria rolled out in 2021 and that Brisbane brought into effect this year.
They also increase the cost to run a rental property thereby reducing investment returns.
For example, calls to bring in rent freezes and controls have been used in other countries without much success…. in fact, sometimes they even make the situation worse.
As soon as there is a rent freeze and the return on investment starts falling – in some cases into the negative – landlords will cut back on what they consider discretionary spending.
This can affect spending on maintenance because all other outlays are fixed.
Houses are then allowed to fall into disrepair, leading to landlords selling up or withdrawing properties from the long-term rental market.
While freezing rents would appear to be a simple method to increase rental housing affordability, the unintended consequences of any such move will have a long-term negative impact on the total availability of rental housing stock, reducing the quality of housing and increasing the black market in rental housing.
Whilst tighter rental laws have reduced investor demand (and therefore the number of rental properties available), I think it’s only been at the margin so far.
But any further regulation would most likely have a material impact on rental supply.
Tenants must be protected, but a healthy rental market is equally if not more important.
So what are Australia’s rental laws…?
- How often a landlord can increase rent depends on what type of tenancy agreement you have - fixed or periodic - and also what state you’re in. It can’t be done during a fixed tenancy unless an increase is already written into your tenancy agreement.
- Rent increases can only occur once in a 6 or 12-month period, depending on which state you’re in.
- Rental laws in almost all jurisdictions do not limit the amount by which rent can be increased, but landlords are generally required to explain how the rise was calculated.
- In most states and territories, a landlord must give between 7 and 14 days' notice if they want to enter a rental property. In Tasmania, only 24 hours is required.
- No grounds evictions are either banned or are due to be banned in most states.
- In Victoria and Queensland, a landlord cannot unreasonably refuse a tenant's request to keep a pet.
- In NSW, landlords can refuse to allow tenants to keep an animal without providing a reason and apply a blanket no-pet rule when listing rentals.
How do Australia’s rental laws stack up versus other countries overseas?
Our tighter rental laws are exacerbating an already strained rental market.
But are things really that bad?
Or have we got it easy compared to some of the other markets overseas?
SBS has compiled a list of 4 key countries, and their rental rules, for comparison.
Let’s take a look.
RENT LAWS IN SINGAPORE
Singapore's rental laws are weaker compared to other countries, especially Australia.
The duties of a landlord and tenant are primarily set out in the terms of the tenancy agreement.
Landlords are generally forbidden from renting properties for fewer than three consecutive months unless they have permission from Singapore's urban planning authority.
RENT LAWS IN SWEDEN
Sweden’s rental controls are tighter than Australia, with laws to keep rent prices under control.
Rental prices for most apartments are set through collective bargaining between the Swedish Tenants Union and landlords, both public and private.
The waitlist for rent-controlled apartments is long (around 9 years) and comes at a cost (approx. $43 per year) but once a tenant has secured one they can keep it for as long as they like.
For properties that aren't subject to this process, including houses, the rent cannot exceed the landlord's operating costs, such as utilities, and the cost of capital is considered to be about 4% of the market value of the home.
There is a short-term (1 or 2 years) subletting market for those who are not in rent-controlled housing - these properties are meant to be rented at a rate no higher than the figure noted on the main lease unless it is furnished.
RENT LAWS IN THE UK
Rent laws in the UK are similar to Australia and also differ depending on whether you’re in England, Wales, Scotland, or Northern Ireland.
Typically, landlords can only increase rent on fixed-term agreements if the tenant agrees, and can only increase rent for tenants on periodic agreements once per year - increases also must be in line with the local market.
Landlords have to give 24-28 hours' notice to access their property and have to follow an official process in order to evict a tenant.
When it comes to pets, tenants are generally able to have them on the property unless the tenancy agreements forbid it.
RENT LAWS IN THE US
Like Australia, rental laws in the US vary from state to state.
Some states have adopted part or all of the Uniform Residential Landlord and Tenant Act which states that a landlord is obligated to carry out repairs and provide at least 72 hours' notice if they want to inspect the property.
For evictions, landlords can only evict tenants if there has been a serious breach, and likewise, tenants can terminate their lease if the landlord hasn’t met their obligations.
Rent control exists in some parts of the US - in New York, for example, the NYC Rent Guideline Board decides each year how much the price of rent for rent-stabilised units can increase.
For the remainder of apartments on the private market, landlords can decide what a fair increase is when the lease agreement ends.
Rules about whether or not pets are allowed also differ by state.
A final note for investors
Rent rules in Australia might put some investors off investing in the market thanks to less control over their own investment property, but it's clear that our laws aren’t out of kilter with the rest of the world.
In fact, in some cases, Australia’s rental laws are looser, and give more control to landlords than in markets elsewhere.
And as Australia’s rules tighten still, now, more than ever, it’s important to have a professional property manager in your corner.
At Metropole Property Management we have experienced significant changes in legislation in both Victoria and QLD, and will be able to help out clients in NSW as there is little doubt in my mind the new commissioner will amend the residential tenancies legislation in that state.
At Metropole, we help you build your wealth by offering the best property management services available because we are a different breed of licensed estate agents.
We do not sell real estate, we lease and manage residential properties throughout Melbourne, Sydney, and Brisbane concentrating all our resources on ensuring that your specific management needs are fulfilled.
This means we will look after your property the way we look after our own, using our professional skills and the latest technology we find quality tenants, minimise vacancies and handle marketing, repairs, maintenance, accounting, and legal compliance efficiently and cost-effectively.
And not only does that give you peace of mind, it also helps to give a better return on your investments with minimum fuss.