The Private Rental Sector in Australia: Living with Uncertainty

By Alan Morris, Kath Hulse and Hal Pawson

This book explores the decline and growth of the private rental sector in Australia delving into the changing dynamics of landlord investment and tenant profile over the course of the twentieth century and into the present period. It explains why over one in four Australian households are now private renters and investigates the contemporary legal and regulatory frameworks governing the sector. The reform discourses in Australia and comparator countries, and debates around key concerns such as Australia’s advantageous tax treatment of investors in rental property and the power imbalance between tenants and landlords are highlighted. The book draws on rich data: 600 surveys and close to 100 in-depth interviews with tenants in high, medium and low rent areas in Sydney and Melbourne and regional New South Wales. The book provides in-depth insights into this large and expanding component of Australia’s housing market and shows how being a private renter shapes the everyday lives and wellbeing of people and households who rent their housing including short and long-term renters, those on low and higher incomes and older as well as younger people.  

• Language: English
• Publisher: Springer
• Release date: May 15, 2021
• ISBN: 9789813366725

Alan Morris

Alan Morris is a family man, with two daughters and a son. Alan has been wanting to write a book ever since the birth of his first daughter but did not know how to go about it. Left until now, with three children and their individual personalities to give him inspiration to write fun, warm, and imaginative stories. With his wife right next to him for support, hopefully we will see many of his stories published.

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© Springer Nature Singapore Pte Ltd. 2021

A. Morris et al.The Private Rental Sector in Australiahttps://doi.org/10.1007/978-981-33-6672-5_1

1. Back to the Future? The Decline and Rise of Private Renting in Australia

Alan Morris¹  , Kath Hulse² and Hal Pawson³

(1)

University of Technology Sydney, Sydney, NSW, Australia

(2)

Swinburne University of Technology, Melbourne, VIC, Australia

(3)

University of New South Wales, Sydney, NSW, Australia

Alan Morris

Email: [e-mail]

Abstract

The chapter charts three main periods in the history of private renting since the end of WW1. In the first period (1919–1945), private renting was widespread in the working-class inner suburbs of Sydney and Melbourne but became deeply unpopular due to evictions and poor quality, badly maintained properties. In the second period (1946-mid-1980s), post-war reconstruction efforts supported mass home ownership and a fledgling public housing sector, and ignored the problems of private renting. Private renting declined in this new home ownership society until its mid-1960s nadir, attracting attention again only in the 1970s with the rediscovery of high levels of poverty among private renters. In the third period (mid-1980s to the present), private renting increased again due partly to tax and policy settings that stimulated investment in rental housing allied with greater demand from households unable to exit the PRS into home ownership (or public housing) as occurred in prior decades. The chapter concludes with a profile of private renting today outlining considerable diversity in the ages and household incomes of renters; long term as well as short/medium term renters; and considerable intra-city variation in rents with the lowest rents in outer suburbs.

Introduction

In the first Australian Census taken in April 1911, just under half (48%) of all households living in private dwellings were renters and just over half (52%) were recorded as home owners (Commonwealth Statistician, 1917). Fast forward to today and more than a quarter of Australian households (27%) now rent privately (ABS, 2019). While this sounds like a sector in long-term decline in what is often called a home ownership society, the story of private renting in Australia is much more complex as we introduce in this chapter and chart throughout this book. The book examines the history of private renting in Australia, its financing and ownership structure and the ways in which government policies have shaped the sector. Importantly, it includes the voices of private renters themselves which are often missing from accounts of the sector. The book presents the diversity of private renting experiences in high, medium and low rent areas of Sydney and Melbourne and highlights the perspectives of older and longer term tenants.

Existing texts on Australia’s housing and urban history have said little about private renting. In this chapter, we start to fill this gap. It identifies three broad periods for private renting in modern Australia. In the first, from the end of World War 1 (WW1) to the end of World War 2 (WW2), private renting remained widespread despite concern about poor quality dwellings lacking basic amenities including adequate sanitation, which contributed to the sector’s deepening unpopularity. In the second period, following WW2 and up to the early 1980s, there was a steep decline then plateauing of private renting against the backdrop of growing home ownership and public rental housing construction. In this phase, private renting fell largely under the radar of policy and media debates. In the third era, since the mid-1980s, the sector has been growing once again both numerically and proportionately—especially since the millennium. The chapter concludes with a brief profile of the contemporary private rental sector (PRS) in Australia, highlighting some aspects that differ from similar countries.

An Increasingly Unpopular Form of Housing: Private Renting 1919–1945

While private renting remained highly important in Australia after WW1, it developed a particularly bad reputation in the interwar period (1919–1939). Of particular concern was the poor quality and deteriorating condition of housing built specifically for rental in the 19th and early 20th century (Paris, 1993). A distinct stock of rental properties had been constructed in large cities such as Sydney and Melbourne, largely separated from areas of owner occupied housing. Many of these rented houses were concentrated in the then working class inner-city areas (Neutze, 1977).

These rented houses (often called cottages at the time) continued to provide housing for working class people in close proximity to the mainly small-scale industries that dominated the inner suburbs of Australia’s largest cities after WW11. However, they were often poorly built and lacked even the most basic amenities including hot water and sanitation. In the interwar period, as they aged, many of these properties fell into disrepair exacerbated by a lack of maintenance as many landlords effectively disinvested from these assets (Harris, 1988). At the same time, better off residents of these inner-city areas began to move to new suburbs beyond the inner city which were developed in the interwar period (McCalman, 1993) leaving behind poorer residents with limited rent-paying capacity.

Besides these rented cottages, boarding houses were an important part of the PRS during this period. Many people lacked the means to live independently and boarded with another family or in a more formal boarding house,¹ rather than renting a whole dwelling. Boarding houses were occupied by a broad cross section of the population and accommodated 5–10% of Melbourne and Sydney residents.

Usually run by women, [boarding houses] provided safe and respectable shelter, daily meals, as well as laundry and other house-keeping services to a wide variety of age and social groups, and were an acceptable, even desirable form of accommodation for those without the opportunity or desire to maintain a house or flat on their own. (O’Hanlon, 2002, p. 240)

Genteel boarding houses of this type for middle and upper-class residents were different from lodging houses which provided nightly accommodation for poor and/or working class Australians of the time (O’Hanlon, 2002). As with rental properties more generally, these were often geographically concentrated. In Melbourne, for example, boarding houses were in middle class areas to the south and east areas of the city while lodging houses were to the north and west in working class areas.

The interwar period also saw the slow development of rental apartments (then universally called flats), rather than houses, as land prices rose in inner urban areas, notably in Sydney. Although generally unpopular with tenants, these were appealing to landlords as they provided a greater financial return than houses (Thompson, 1986, p. 30). The number of newly built rental flats in Sydney grew from 1164 in 1933 to 1858 in 1947 (Thompson, 1986, p. 17) at a time when there was little new housing construction due to the Great Depression of the 1930s followed by WW2.

During and after the Great Depression, high levels of unemployment and poverty meant that the working class remained largely dependent on private rental housing, much of it by then in poor shape. Landlords developed a very bad image in this period. Not only were many of their rental properties poorly maintained and relatively expensive, but their dubious practices included frequent evictions (Hayward, 1996). It was an era in which landlord incomes were determined by rents and capital gains were small (Paris, 1984). Landlords also had a remarkably privileged legal position vis a vis tenants. For example, they had no repairing obligations and tenants enjoyed no legal protection from unheralded demands for higher rent or summary eviction (Bradbrook, 1975).

There is limited information on the profile of private landlords during this period, but some insight is provided through the work of the Housing Investigation and Slum Abolition Board in Melbourne in 1936–37. The Board’s 1937 Report controversially listed the owners of 300 houses in inner Melbourne judged unfit for human habitation. The list included the names of Members of Parliament, municipal councillors, estate agents and their relatives, leading business firms … and well-known citizens (Harris, 1988, p. 30).

A variety of individuals and organisations became concerned at perceived slum conditions affecting inner-city rental housing in the 1930s, a phenomenon exacerbated by the out-flow of middle-class people moving to buy detached houses in new suburbs surrounding the inner ring (McCalman, 1993), the localities we would today define as middle suburbs. Campaigners protesting about PRS conditions were a mixed bunch. They included labour movement figures and social reformers often with one eye on the potential threat posed by the nascent, yet growing, Australian Communist movement (Hayward, 1996, p. 7).

Government reports of the period² highlighted the plight of working class slum dwelling renters in large cities. The solution was seen increasingly as providing an alternative to private landlords. This view prevailed, and State Housing Commissions were established in three states (New South Wales, Victoria and South Australia) by the end of WW2 and in the remaining three states soon afterwards. These were to provide public housing as an alternative to the PRS post WW2.

The federal government also began to take an active role in planning for post-war reconstruction (Berry, 1999). In this process, private renting was presented as a welfare problem and as contributing to urban disorder. The emotive word ‘slums’ was used increasingly to refer not only to housing conditions, but also to the supposed immorality and criminality of residents. Birch (2002) highlights how in Melbourne this characterisation was used to present an argument for inner-city slum housing demolition and relocation of poor families to better housing in other areas. The Report of the Commonwealth Committee on Social Security 1942 provides a striking illustration of official perspectives on these issues:

Slums are at once recognized as the prime cause of disease, crime and economic wastage and a lowering of personal and civic standards. We can never hope to eradicate tuberculosis while permitting sub-standard houses without proper ventilation and sunlight, and invaded by dampness to remain, or prevent child delinquency while narrow slum streets provide the only playground for children already housed in overcrowded, insanitary and unhygienic conditions. (cited in Jones, 1972, p. 8)

In 1943, the federal government took the unprecedented step of establishing a Commonwealth Housing Commission (CHC) to make plans for post-war reconstruction. The Commission saw the housing problem as part of a broader urban policy challenge rather than as a welfare issue. In its Final Report, it scathingly indicted the failure of the private market to provide adequate and affordable rental housing for workers (Commonwealth Housing Commission, 1944, p. 17, clause 99). It also argued that housing should not be used to generate excessive profits for landlords:

The Commission considers that the housing of the people of the Commonwealth adequately, soundly, hygienically, and effectively, each according to his social and economic life is a national need, and, accordingly, should cease to be a field of investment yielding high profits. (Commonwealth Housing Commission, 1944, p. 18, clause 98)

To address an acute housing shortage, including both pent-up demand and substandard rental property in need of replacement post WW2, the CHC recommended that the federal government negotiate with the states to establish a significant public rental house-building program³ and provide assistance to people to buy their own homes. It did not include any strategies to improve private rental housing; the PRS was seen as the problem to be addressed and not as part of the solution to the extreme housing shortage in the early post-war period. As a result, the PRS remained virtually unregulated until the late 1970s as we shall see in the next section.

Private Renting from WW2 to the Early 1980s: A Declining and Forgotten Sector

The Decline of Private Renting and the Rise of Home Ownership and Public Housing

The quarter century after WW2 (1945–1970) saw a steady decline in private renting as more households became home owners or rented from the newly established State Housing Commissions, although public housing never exceeded 6% of all housing across Australia (see Fig. 1.1). The long boom enjoyed during this period featured high economic growth and low unemployment which, along with direct government support (Pawson et al., 2020), enabled a rapid increase in home ownership in the decades to 1970 (Berry, 1999). In consequence, the home ownership rate increased from 53% in 1947 to a high of 71% in 1966 (Kryger, 2009).

The 1945 Commonwealth-State Housing Agreement (CSHA) also provided federal funding for the first time for a public housing program with housing built and managed by the states; between 1945 and 1971 one in ten homes were constructed with CSHA funds (Neutze, 1977, p. 167). Many were built for sale, or after being initially rented out were subsequently sold to residents at concessional rates in the 1950s, 1960s and 1970s.⁴ Promotion of home ownership was a signature policy during the 18 years of federal governments (1949–1966) led by Robert Menzies. In a famous speech broadcast on radio in 1942 on The Forgotten People, Menzies then in Opposition, had outlined the importance of saving to purchase a home equating home with family, aspiration and achievement:

My home is where my wife and children are. The instinct to be with them is the great instinct of civilised man; the instinct to give them a chance in life - to make them not leaners but lifters - is a noble instinct. (Menzies, 1942)

As a result of these widespread sales programs, public rental housing in Australia never exceeded an estimated 6%⁵ of all private occupied dwellings at any one time unlike many of European countries where public rental housing became a key part of post WW2 reconstruction. Failure to reform the PRS in this period meant that home ownership and public rental housing offered better conditions and considerably more security and control for households than private renting (Fig. 1.1).

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Fig. 1.1

% of occupied private dwellings by tenure type, Australia, 1945–1971 (Source Adapted from Neutze 1977: Table 6.9, p. 153 from Census collections in 1947, 1954, 1961, 1966, and 1971. Note Private renters were classified as renter other to distinguish them from public housing renters. Other tenure type is not illustrated. Tenure not stated not included in calculation of percentages)

Other factors contributing to private rental decline in the decades after WW2 included the continuation of wartime rent controls which limited returns to private landlords, and the higher interest rates charged for mortgages taken out by landlords/non-occupiers (Neutze, 1978).

The federal government had introduced wartime rent controls (the National Security [Fair Rents] Regulations in 1939) which were rolled out across most states. These controls persisted after WW2, with tenancies protected and rents often pegged at least initially at 1939 levels, making rental properties an uneconomic proposition for landlords, many of whom sold their property to the sitting tenant (Kendig, 1979). Rent controls were phased out progressively in the 1950s and 1960s (Mowbray, 1996).

Landlord incentives and returns were also depressed by penalty interest rates on mortgages for rental housing acquisition. In stark contrast, home owners benefited from regulated interest rates (Berry, 1999), which continued until the federal government-led deregulation of housing finance in the mid-1980s (Hulse et al., 2012), discussed later in this chapter.

Boarding houses, too, continued their long decline in the decades after WW2 (CURA, 1979; O’Hanlon, 2002; Dalton et al., 2015). The introduction of strata titling⁶ in the 1960s which started in New South Wales (NSW) in 1961, enabled a boom in rental apartment construction in large cities. In conjunction with rising incomes, this expanded opportunities for single people to rent self-contained accommodation rather than needing to rely on shared facilities in a boarding house (Dalton et al., 2015). Boarding houses became progressively associated with low-income and marginalised residents, a trend which was intensified by the de-institutionalisation of large psychiatric and disability institutions from the 1970s (Greenhalgh et al., 2004).

Gentrification and Slum Clearance

A further explanation for PRS decline from the late 1950s was inner-city gentrification. As the post-war era wore on, many such suburbs began to regain or acquire status as desirable localities. Middle class households bought rental properties in inner-city working class areas and renovated them for their own occupation, thus displacing tenants. Indeed, both here and in other countries such as the UK, conversion from private rental to resident home-ownership was viewed as a key indicator of post-war gentrification. An additional Australian factor was the arrival of southern European migrants accustomed to buying rather than renting, and their attraction to inner urban areas replete with upgradeable housing (Logan, 1985).

State Government Housing Commissions also contributed by declaring a substantial proportion of inner-city private rental housing as sub-standard and earmarking selected areas for demolition and redevelopment as part of slum clearance programs (from the 1960s to the mid-1970s). Such tracts were intended to be replaced with public housing, including the high rise tower blocks which still dominate the skyline of Melbourne today. While the level of amenity offered to renters in these estates was typically far better than the houses demolished, there was concern that clearance and relocation broke up some established working class communities (see for example, Birch, 2002). As the 1970s progressed, community resistance increased and this type of redevelopment by State Housing Commissions was stopped by union and community campaigns, notably in Sydney and Melbourne (Tibbits, 1988; Burgmann & Burgmann, 2017).

More intensive activity in inner cities, including the apartment boom of the late 1960s and early 1970s, led to higher land prices in these areas which, in turn, led to owners considering other, higher value uses. This affected not only cottage-style properties but also boarding houses with owners selling or repurposing them as backpacker hostels, single family residences, luxury apartments and tourist accommodation which yielded a higher return (Greenhalgh et al., 2004).

Private Renting and Poverty

The perception that the challenge of slum rental housing had been overcome turned policy and media attention from poor housing to poor people, prompted by the rediscovery of poverty in urban Australia in the early 1970s. A pioneering survey of Melbourne in the late 1960s had highlighted the continued existence of poverty in an age of growing affluence (Henderson et al., 1970). While the research focused on measuring the adequacy of incomes to meet basic living standards, it also acknowledged broader dimensions of poverty beyond income. Study leader, Professor Henderson, went on to chair the subsequent Federal Government Commission of Inquiry into Poverty (1972–1975) which raised the alarm about high rates of poverty among older people and large families and among private renters (Commission of Inquiry into Poverty, 1975a). It identified private renters as the group whose situation deteriorated most when comparing before and after housing costs. Private renters, moreover, accounted for 41% of all those living in (after-housing) poverty. The First Main Report of the Commission of Inquiry into Poverty (1975a) also recognised that private renters experienced problems beyond lack of affordability—including insecurity which we consider further in Chapter 7. The report cites a submission from the Glebe Residents Group in inner-Sydney on the effects of gentrification on insecurity:

This problem of insecurity of tenure of housing in Glebe is on the increase, as the area is increasing greatly in value, and is becoming increasingly popular as a residence for the affluent. Developers and individuals are taking advantage of this to make large profits. The problem is especially serious for the low income earner and the aged and invalid [sic]. (cited in Commission of Inquiry into Poverty, 1975a, p. 161)

The Commission did original research into the situation of low-income private renters in the inner Melbourne suburbs of Fitzroy and Collingwood. Identified problems included a lack of accommodation suitable for larger families, leading to overcrowding, a lack of social space, limited facilities such as laundry facilities, poor property condition including dampness and draughts, problems with plumbing, inadequate heating, and a lack of storage for clothes (Commission of Inquiry into Poverty, 1975c, pp. 89–92).

The Commission’s First Main Report recommended income supplements (and tax credits) for low-income households, who would then rent or buy, at market prices, from a diverse range of social housing providers or in the private market, with some federal funding of supply subsidies for non-profit housing (Commission of Inquiry into Poverty, 1975a, 176–77). Other measures to stimulate or subsidise the private rental market were considered unnecessary. These recommendations had a longer-term effect in reframing the housing problem as primarily one of affordability, as we discuss later in this chapter.

One important effect of the Commission’s work was to apply a blowtorch to regulation of the landlord-tenant relations. In an associated report, current legislation was described as a scandal demanding wide-ranging reform for tenant protection (Bradbrook, 1975, p. 2). The report argued that the legislation remained based on common law which had developed in the agricultural era of eighteenth century England and was later applied inappropriately to rental buildings in urban settings in the UK and Australia. This led to many injustices for tenants. Such concerns included the lack of a landlord repairing obligation, the absence of a requirement to provide the premises in a clean condition; the lack of control over excessive rents; the failure to apply traditional contractual principles such as mitigation of damages, frustration and repudiation; and inadequate safeguards in respect of assignment of leases to other tenant and sub-leases.

The Second Main Report of the Commission on Poverty and the Law in Australia, (Commission of Inquiry into Poverty (1975b) led by Professor Sackville responded in part to the research report, notably in its key recommendation that each Australian state and territory should introduce new codified legislation applicable to residential tenancies.⁷ This work triggered an extended period of specialised residential tenancies legislation beginning in South Australia (1978) and followed by Victoria (1980), NSW (1987), Western Australia (1987) and Queensland (1994). However, in implementation, the extent of contestation about residential tenancies legislation enactment and the role of interest groups became apparent.

Because of the novelty and far-reaching nature of many of the recommendations, many groups and individuals, particularly real estate agents, were deeply suspicious of the proposed reforms. For this reason the full range of reforms recommended by the Poverty Inquiry were never introduced into law in any jurisdiction. (Bradbrook, 1998, p. 405)

Bradbrook (1998), in reviewing this period, considered that some of the most important omissions from the legislation were around controlling excessive rents and rent increases and the continuation of termination without just cause. We examine the cumulative effect of successive periods of legislative reform when considering contemporary regulation of the PRS in Chapter 2.

While there was substantial research into