Getting the Balance Right

It’s hard to believe how much the world has changed with the impact of Covid19. First there was the insanity in the supermarket aisles, then the enormous lines out the front of Centrelink offices, and now the eerily empty public spaces.

While the overall shape of our daily lives may be markedly different, many things haven’t changed. Our basic needs – food, shelter, human connection – remain the same. As do the commercial realities of the industries designed to fulfil those needs.

This is where we begin to see the issue that governments the world over are currently struggling to deal with. As an increasing number of industries go into hibernation, more and more people will find themselves less and less able to afford even the most basic of their requirements. This, in turn, leads to even more businesses struggling to stay afloat, which impacts the financial stability of even more employees… and on and on the downward spiral goes.

Maintaining the tension

The residential rental market is a great example of the challenges of the supplier-consumer balancing act. Even when times are good, there is a natural tension that exists between landlord and tenant – landlords want to maximise their returns, while tenants want the best possible value for the rental dollar. These competing priorities can cause friction and less than ideal behaviours.

For landlords, their desire to get the maximum return on their investment may lead to setting their rent well above prevailing market rates. It can also mean that they undertake minimal maintenance, avoid repair costs, and are quick to take action if rent falls into arrears.

For renters, the lack of a sense of ownership can mean they have less care for the property and no regard for the importance of paying on time (i.e. they do not see the link between them paying their rent and the landlord paying their costs, usually including a mortgage). Alternatively, knowing they do not need to pay for repairs can lead to constant service requests and an unwillingness to do even the most minor maintenance tasks themselves.

While these are extreme examples, they are not uncommon. They also become significantly more common when outside factors – like a downturn in the local economy and increasing unemployment – add extra stress to the situation.

This can be even further exacerbated by the disruption of adjacent industries, like tourism and hospitality. As we’re seeing at the moment, when desperate owners of short term rental properties (like those listed on Airbnb and Stayz) attempt to find longer term tenants, they begin to crowd certain rental markets. This not only creates more competition for existing local landlords, but also makes it harder for tenants to sort the wheat from the chaff and find a property that truly suits their needs and lifestyle.

The short-term solution

With so much of the country now shut down, and many people receiving a fraction of their ‘normal’ income, the need to protect tenants and prop up the rental market is clear. The Federal Government has shown they understand this, announcing a 6 month moratorium on evictions and raising the potential for a rent assistance package. The banking sector also seems to be playing their part, allowing mortgagors experiencing financial stress to defer their repayments for up to 6 months.

While these measures are absolutely a step in the right direction, we’re still fairly light on the detail, so it’s hard to know how much of an impact they will really have. Even the eviction ban, which currently seems to be the most fleshed out part of the plan, has only been explained at a high level, with individual state and territory governments left to work out how they will implement it.

There are also many questions about how these initiatives will play out in the longer term – like, what happens when 6 months is up? The impact on employment (and, by extension, renters’ incomes) will surely last longer than the restrictions on the rental market so it is quite likely that, without any further assistance being provided, many renters could still be in arrears at the end of the ban. Also, what about landlords whose primary source of income is their rental properties – what are they supposed to do in the interim?

The Federal Government has promised to continue considering how to stabilise the rental market. I imagine this will have to include some description of financial support, otherwise arrears will continue to mount, rental prices will take a battering, and the whole market will suffer. Failing to sufficiently reinvigorate the market will also drag out the recovery and could have a long lasting impact.

Thinking longer term

It will be interesting to see what ‘normal’ looks like for the rental market once we come out the other side of the current restrictions. While there have been many negatives to the shutdown, it has also forced most businesses to reassess their processes and think differently – and it would be sad to lose this thoughtfulness and innovation and revert back to ‘business as usual’.

This crisis has also driven increased collaboration and a greater understanding of what all sides (renters, landlords, property managers, advocates) bring to the industry. I truly hope that, as the market recovers, we not only keep sight of this, but continue working together to strengthen our relationships and streamline the way we do what we do.

I also hope we can find a new way of talking about the challenges the industry faces. In my experience, while stories about ‘shonky landlords’ and ‘nightmare tenants’ may be the most entertaining (and often, widest spread), the vast majority of people understand what their responsibilities are and that a healthy rental market needs a little give-and-take from both sides. Most also acknowledge that, in most circumstances, a stable, long-term lease is best for all parties involved – as seen in the European model of 3 plus year leases, which provides stability and certainty to all stakeholders.

Given the co-dependency of the tenant-landlord relationship (tenants need rental properties and rental property owners need tenants), our industry should be more amiable than adversarial. So, let’s change the conversation – instead of perpetuating negative stereotypes and focusing on natural market tensions, let’s champion stories of success and celebrate the best of what we do. Not only will this help normalise the behaviour we want to see, it’ll lay the groundwork for a positive and productive rental market – both now and into the future.