Queensland Rent Reforms May Cost Tenants $5,000 Per Year

Executive Summary

Earlier this month, the Queensland state government released details of proposed legislation changes for Queensland rental laws. The changes will mean that, even though they aren’t the owner of the asset, tenants will have the dominant hand in respect to what they may do to a property and how long they live there for.

If the legislation is implemented, the probable reaction from some existing and wannabe future landlords of Queensland-based properties will result in reduced rental stock and some of the lowest vacancy rates in the Sunshine State’s history.

Propertyology’s analysis concludes that it is quite feasible that rents in several Queensland locations could increase by $100 per week or more over the next two years. We demonstrate why herein.

Landlords will be outraged as a result of a state government legislating away their fundamental asset ownership rights. Those who elect to become the owner of a rental property do so because they are motivated to one day acquire financial independence, rather than being a burden on the government purse via a taxpayer-funded aged pension. In so doing, property investors are exposed to financial risks and responsibilities.

It’s a fundamental right, an unquestionable expectation, that the property owner – as with any asset that anyone owns – determines the who, what and how about that asset.

While tenants might currently be thinking this new legislation is a dream come true, the probability is that they will be faced with extreme household budget pressure sooner rather than later.

The poorly considered legislation is likely to drive a huge wedge between tenants and landlords and has potential to create an unsavoury bitterness, as opposed to bringing tenant and landlord closer together.

And the already floundering Queensland economy will miss yet another opportunity and fall even further behind the rest of Australia.

Proposed Rental Reforms

The most concerning change is removal of the property owner’s right to not refuse the renewal of a lease upon its expiry.

It appears that the spirit of the proposed legislation change is that, once a tenant moves in, unless there’s a serious breach through rental arrears or significant property damage, the tenant can remain in the property as long as they want.

REIQ CEO, Antonia Mercorella said “the REIQ strongly opposes the proposed reforms which are a slap in the face to every day ‘mum and dad’ property owners who provide the majority of housing to Queensland’s renters. If enacted, the law change would erode fundamental landlord rights and deter property investment across the state.”

“The most controversial and damaging reform is the proposed abolishment of a landlord’s right to not renew a tenancy agreement at the end of its agreed term. In practice, this will allow a tenant to remain in a tenancy indefinitely and for as long as they want unless the landlord can establish a reason prescribed by law,” said Ms Mercorella.

Other proposed reforms include:

• the loss of a landlord’s right to refuse pets;
• the introduction of a tenant right to make modifications to a rental property without the landlord’s consent; and
• the introduction of minimum housing standards requiring the rental property and its inclusions to meet prescribed standards and to be in a certain state of repair.

Minister for Housing and Public Works, Mick de Brenni, acknowledged that he believed the reforms would likely increase weekly rent from an average of $360 per week to $378 (or 5 per cent).

100 per cent of Propertyology’s clients are landlords. As a well-respected company who has proudly helped hundreds of everyday Australians to invest in real estate in locations all over the country, we have always held the view that landlords and tenants need each other.

There’s no denying that a small percentage of (both) landlords and tenants behave unacceptably from time to time. In a majority of residential rental relationships though, both parties have respect and empathy for each other and, with assistance from a professional property manager, most matters are seamlessly resolved.

Heavy-handed legislation for anything in life rarely achieves sustainable outcomes. Indeed, it usually results in reduced participation. The legislation proposed by the Queensland state government is horrid!

Propertyology has felt for quite some time that the industry can make improvements in respect to tenants who want pets. There will be all round benefits to each party if the industry helped to educate landlords about the importance of pets to some tenants and the benefits to both parties if tenancy applications with pets are approved.

Conversely, the potential damage that a pet can cause to a property is an understandable concern for any property owner. It’s Propertyology’s view that asset owners should always have the final say, but we think there’s scope for improvement and would be happy to participate in any formal stakeholder consultation process.

Queensland Rental Property Sector

98 per cent of residential dwellings are funded by the private sector – governments fund less than 2 per cent.

One in three residential properties across Queensland are occupied by tenants. Almost all of those properties are owned by everyday Aussie mum-and-dad property investors.

Investing is a voluntary decision, a financial sacrifice, which one makes with a view to one day becoming financially independent, thereby reducing the national drain on taxpayer-funded aged pensions. Investor’s whose chosen asset class is residential property, are also adding much needed rental stock, something which governments clearly can’t afford to fund.

For most, a property is their most valuable asset.

91 per cent of Queensland landlords own one or two investment properties.

Three out of four owners of investment properties are professionally managed. While it is the landlord that pays the fees and therefore ultimately whom property managers represent, this is an important service for both landlords and tenants.

Why Queensland Rents Are About To Skyrocket

As full-time analysts of property markets nationally and a firm which represents everyday Aussie property investors, Propertyology has conducted a study into the likely impact that the proposed rental reforms might have on Queensland rents.

Propertyology anticipates that there will be a strong emotional reaction from Queensland landlords.

One must consider that, to purchase an investment property, there’s been a lot of hard work, financial discipline, and financial sacrifice. There should be no surprises about landlords getting more than a tad upset at the thought of being told what they can and can’t do with something they’ve worked so hard to buy.

With 755,818 rental properties spread across Australia’s most decentralised state, that’s a significant portion of the voting public who will be enormously upset by these major changes.

Relevant to the forecast reaction from landlords is that Queensland property markets have significantly underperformed for more than a decade – a reflection of the state’s disappointing economic performance!

With many existing owners of Queensland investment properties already disappointed by the poor financial performance of their asset, this new legislation will be the final straw for some owners. Propertyology fully expects that a portion of existing landlords will remove themselves from the hassle and stress – they will sell!

For every investor that sells, that’s one less property supplying the rental pool.

Even if just 5 per cent of existing landlords sell, that’s 38,000 dwellings removed from Queensland’s rental pool. 38,000 rental homes provide shelter for 100,000 people. And what’s to say that, over the next couple of years, 10 or 20 per cent of landlords don’t get the ‘Brad Pitts’ with this horrid legislation and sell up?

Houston, there is more than a little problem here!

A legacy of Queensland’s decade-long weak economy has been low volumes of new dwellings introduced to the market and significantly fewer transactions from mum-and-dad property investors. Accordingly, there has already been a prolonged period of below-average volumes of extra properties added to the pool of Queensland’s rental stock.

On the other hand, demand for Queensland’s rental stock has been accelerating over the last few years.

In addition to the state always attracting sizeable overseas migration each year, housing affordability pressures in Sydney and Melbourne have been driving an increasing number of existing Australian residents to alternative locations, including interstate to Queensland.

Interstate migration to Queensland has already increased from 6,417 (net) in the 2015 financial year to 24,698 during the 2019 financial year. Propertyology expects this acceleration to continue – but those dependent upon rental accommodation would be wise to budget for rents to cost up to $5,000 more per year (I’ll explain why shortly)!

So, given the already prolonged period of reduced new rental supply into Queensland and the rising rental demand, most Queensland locations have already shown signs of rental pressure over the last 12 months. Propertyology has been tracking this for some time.

The chart below shows Queensland’s capital city produced a rise in residential vacancy rates from 2013 through to late-2016. The primary cause of this was the significant new dwelling supply that was added to Brisbane, especially apartment stock.

But, from late-2016 through to now, Brisbane vacancy rates have reduced from more than 4 per cent to just above 2 per cent. And, for the first time in several years, the pressure within the Brisbane rental market has seen rents increase, albeit marginally (so far).

The key point to note here is that Brisbane vacancy rates have already tightened considerably from where they were, that demand is already rising, and new supply is low. Even before this horrid Queensland state government legislation, pressure on rents is already building!

The fun and games are just starting, folks. Other than the Gold Coast, Brisbane has the most relaxed rental conditions in the state at moment. The Sunshine Coast, Hervey Bay and Rockhampton all have vacancy rates that are already below 2 per cent.

“Hey, Mick [de Brenni], Queensland rents are already rising. Your legislation will be as helpful to tenants as the lead weight in your sinking ship!”

The real pressure in Queensland’s rental market right now is everything north of Hervey Bay. Again, Propertyology has been tracking this for quite some time. De Brenni’s diabolical legislation simply provided us with a justifiable reason to unpack it for everyone else.

Over the 2-years ending November 2019, average rents for 3-bedroom houses have already risen by $1400 per year in Cairns ($395pw to $422pw), an annual increase of $728 in Bundaberg ($290pw to $304pw), a whopping $3000 per year in Australia’s 18^th largest city, Mackay ($321pw to $378pw), and $830 per year in Townsville ($309 to $325).

Now that you have a taste of today’s Queensland rental markets (right now), how much do you really think that this poor piece of property legislation will ‘help’ tenants?

To anticipate what really could happen to Queensland rents if the state government’s legislation is implemented, one needs to look no further than the current Hobart rental market – a market that Propertyology is extremely familiar with.

The Queensland state government’s proposed new rental legislation, combined with the existing tight rental conditions, resembles the same cocktail of Hobart’s recent rental history. The cause is different, but the outcome may well be very similar.

In November 2012, while Tasmania was in recession, Hobart’s average asking rent for a 3-bedroom house was $302 per week. The vacancy rate back then was 2.1 per cent, much the same as Brisbane’s is right now.

By November 2016, the prolonged period of low transaction volumes from mum-and-dad investors combined with rising rental demand (sound familiar?) had caught up and vacancy rates had significantly tightened to 0.7 per cent. Rents had grown by $59 to $361 per week.

Extra rental supply does not appear overnight, Mr de Brenni. But what it needs is an environment which encourages mum-and-dad investors to participate so that new rental supply keeps pace with demand.

When rental supply remains low, vacancy rates contract. Hobart vacancy rates have been below 1 per cent for 3-years (an all-time national record).

In addition to the 50 per cent (and counting) capital growth rate already produced by standard houses in middle-ring Hobart over the last 5-years (officially Australia’s strongest market), the average rent on a 3-bedroom house has (so far) increased by $89 per week over the last 3-years.

That’s what the official figures say any way. My own Hobart property has seen market rent increase from $340 per week to (right now) $500 per week, or an annual increase of $8320.

Given current Queensland vacancy rates, the already low rental supply conditions, and the incumbent state government’s new legislation proposal, it shouldn’t be hard at all for one to draw a parallel with what has already unfolded in Hobart.

Cairns, Townsville, and Mackay already possess conditions for household rents to rise significantly in the short term. An extra $100 per week over the next two years is not out of the question if this legislation is implemented.

Tenants in Rockhampton, Bundaberg, and Hervey Bay should also expect significant rent rises. Given the existing low vacancy rates and leading indicators, rent increases of up to $50 per week progressively over the next two years is a distinct possibility.

Brisbane, Sunshine Coast, and Toowoomba can also expect further tightening of vacancy rates and rent rises. If this horrid legislation gets implemented, they too can expect rent rises over the next coupe of years equating to thousands of dollars per annum.

Impact To All Queenslanders

While we have already covered the disadvantages to (both) tenants and landlords from this legislation, make no mistake, every other Queensland resident will be indirectly disadvantaged.

You see, today’s property investors are borderless. They are increasingly conscious that, in every year, it is very short odds that the Australian location offering the best investment potential is their home city. Today’s property investor has access to more market research, more data and progressive businesses that offer services to help them invest all over Australia [here’s how Propertyology can help you invest in locations all over Australia].

Regardless of where they live, today’s borderless property investor has eight (8) capital cities and a plethora of great regional locations to choose from.

Thousands and thousands of interstate residents who have recently been eyeing off the potential among a variety of Queensland locations will now be thinking twice. This is particularly the case for existing property owners with recent equity accumulation in locations like Sydney, Melbourne, and Hobart.

When one state imposes conditions that create a more difficult environment for investors to operate in, it’s any easy decision for investors to eliminate that state from their selection criteria. The proposed Queensland legislation removes fundamental controls from property asset owners; controls which become a big barrier for entry.

The legislation change is a battle that budding property investors can easily avoid – and who can blame them?

So, Queensland tenants will miss out on the extra rental supply and the broader Queensland public will miss out on hundreds of millions of dollars in stamp duty and land tax revenue. Where do you think funding for new infrastructure comes from?

The legislative deterrent for doing business in Queensland real estate also means lost employment opportunities for property-related professions such as conveyancers, building and pest inspectors, and property managers. And it’s not like Queensland is leading the pack for job creation is it?

Queensland’s construction sector, one of the state’s largest employers, will feel the brunt of this legislation as well. To get a lot of projects out of the ground, developers rely a lot on investors for pre-sale commitments. As I’ve already said, when one environment isn’t particularly kind for wannabe property buyers, they seek out alternative environments!

The Queensland environment for first home buyers is also less than supportive. While the cost of housing is significantly cheaper than big profile southern counterparts, a lot fewer Queenslander first home buyers have entered the property market.

The primary reason for this is that, unlike New South Wales, Tasmania and Victoria, the Queensland state government don’t provide grants to first home buyers unless they purchase a [bubonic plague] brand new dwelling, thereby limiting buyer choices to a mere 2 per cent of options.

This state government just don’t get it!

To be frank, I don’t have a lot of time for most politicians. I’m a swing voter who values things like common sense, efficiency, supporting those who have a red-hot crack for improving themselves, and a healthy economy.

Hmm. Queensland’s economy, according to official numbers… You can form your own opinion from these official numbers!

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