Senin, 13 April 2009

Proverbial multiple-bird killing spree

While the Easter holiday caused things to become a little quiet here at the Brown Couch, there has been plenty of news recently about renting. This post will be the single stone in my attempt at a proverbial multiple-bird killing spree.

First, a rarely-sighted headline, courtesy of the Herald:

Good news for renters in sought-after suburbs

Good news indeed – the Herald's economics writer and Brown Couch regular Jessica Irvine goes on to report:

THE tide has turned on Sydney's upper rental market, as properties lie vacant and landlords are forced to slice asking prices by as much as 20 per cent.

The figures are not exactly new – they come from the Rent and Sales Report released last month – and they are used rather selectively – the Housing Minister, David Borger, used the same report to claim that rents had increased by 20 per cent in western Sydney.

But what is interesting is the narrative; that there is now a story to be told about straightened demand (wage restraint, job losses, general caution) and even increased supply (as owners of unoccupied properties start to think they really should try to get a bit of revenue out of their 'investments') leading to expectations of lower rents.

Of course, nothing's affordable if you're out of work, and the Sunday Telegraph reports that Fujitsu Consulting estimates that if the unemployment rate rises to 7.5 per cent, up to 183 000 renting households (68 000 of them in New South Wales) will fall into arrears and face eviction. And if unemployment reaches nine per cent, those numbers increase to 216 000 and 79 000 households, across Australia and in New South Wales respectively.

The report seems to suggest that this is as much a tragedy for the landlords as it is for the tenants:

With many of Australia's 1.9 million landlords needing the rent to cover mortgage payments, few give the tenants much extra time to pay arrears and tenants can find themselves on the streets within weeks.

Indeed, landlord may be left with 'little choice but to evict the occupants' of their investment.

Well, maybe there are some other choices available. Maybe landlords can try reducing rents for tenants who become unemployed.

That's not such an outlandish suggestion. After all, if landlords do evict 216 000 households, to whom are they going to rent all these vacant properties? If they will rent only to employed persons, these persons will be faced with a considerably increased supply of available properties, and can expect to drive a harder bargain – hence lower rents. Or the property might be rented to another unemployed person, who can afford only a lower rent.

And finally, another report from Irvine in the Herald, this time about suggestions that house prices at the lower end of the market are being kept up not just by the First Home Owners Grant and Boost, but also by the Federal Government's National Rental Affordability Scheme (NRAS). The scheme pays developers a subsidy of $8 000 per annum for new rental properties that are let at submarket rents for 10 years. Reports Irvine:

Analysts warn that the scheme, intended to increase the supply of cheap rental accommodation, is contributing to a boom in house prices under $500,000, making home purchase more expensive.

I follow that argument, but there's a couple more things to keep in mind. The NRAS is a finite scheme: there's 50 000 subsidy 'packages' available, and a competitive application process to get them (contrast the FHOG and Boost, of which any number can be given away, just as long as you suspend your critical faculties and get in quick before 1 July!). The NRAS is also for new supply only (again, contrast the FHOG and Boost). Both these things should be counted against any inflationary potential.

But more importantly, NRAS delivers some much-need low-cost rental accommodation, and keeps it low cost for at least 10 years. The FHOG and Boost will end in tears; NRAS will make a much more positive contribution to the housing system.