Source: The Real Estate Conversation (John Gilmovich)
For residential property investors and landlords who want to maintain the value of their assets, keeping things in good order as far as the condition of their property is concerned is usually a priority.
There is current discussion from tenancy stakeholders of minimum standards legislation by which governments can prevent the minority of landlords who don’t or won’t maintain their properties in reasonable repair from endangering and exploiting tenants. Such laws are a state matter and legislation currently vary in Australia from state to state.
South Australia and Tasmania have already introduced legislation covering minimum standards, while a review of the Residential Tenancies Act is underway in Victoria, which could result in them following suit into NSW. Further north, Queensland, is about to introduce a minimum standards regime. Under changes passed in Parliament in late 2017, private landlords will need to ensure their properties meet specified minimum standards before they’re made available on the rental market. Looking at overseas markets, our friends across in New Zealand have already adapted this proposed regime.
Standards will be determined following a consultation process and are expected to cover a gamut of areas, including sanitation, ventilation, privacy, security and protection against rising damp and other causes of mildew. Minimum standards can also include the requirement to provide the basic amenities most home owners and renters take for granted, such as a cooking area, a bathroom and hot and cold running water.
Discussion is ongoing over who will be responsible for ensuring properties are compliant and what sort of oversight is required, with many stakeholders supporting the use of an independent third party to conduct inspections and ensure repairs are carried out prior and during a tenancy. This could mean ultimately that a full property inspection report being done not only by a property manager, who traditionally has not held the correct building license, but an actual company or individual who is trading under a license allowing detailed recommendations for a rental property to comply.
Sorely needed standards
The Tenants Union of NSW have presented reports and surveys around repairs and maintenance issues that have the potential to undermine the health, safety and well being of tenants, but state that fear of eviction can deter many individuals from pursuing legitimate repair requests from their agents/landlords.
Having clear expectations for landlords, agents, regulators and tenants will help people understand their rights and responsibilities. For property investors who maintain their properties well, minimum standards have no practical impact, but it can be a different story for those whose properties are unsafe, unsanitary, or which lack basic amenities in working order. Landlords who own sub-standard properties should consider whether they want to improve the property or make alternative investment decisions.
Benefits for both sides but there is a catch 22
While the benefits for tenants are obvious, there’s also an upside for landlords in a regulatory regime that ensures dodgy and dangerous properties aren’t able to be put up for rent on the open market.
“Removing ‘slum’ landlords or slumlords as they are called or regulating the type of housing they provide will have benefits for the industry and the reputation of investors and property owners. As well as improving the health and well being of renters, minimum standards may save landlords money in some instances by ensuring they undertake repairs in a timely fashion, rather than waiting until small problems become large ones and avoid the inevitable compensation claims lodged by tenants via the state’s tribunal. However, upgrading a property to a better standard will mean potential outlay of capital by the investor who will need to recoup costs.
Owning an investment property is a business and returns must be viable enough to keep the property inside the rental market. Recouping cost may mean rental rises will have to occur. After all, if a property is made to a better standard it should return more in rent. Affordable housing is getting scarcer and scarcer in the inner suburbs and if this proposal becomes reality it may mean a slow decline in the availability of affordable rentals.