Unpacking the challenges in the rental market during COVID-19

Income assistance packages, such as JobKeeper and JobSeeker payments, can help tenants pay their rent, either in full or as a proportion of what they would normally pay.

The JobKeeper payment is paid to eligible employers to enable them to pay their eligible staff wages, rather than having to end their employment. The intention is that after the pandemic employers can reengage staff quickly and business can start functioning straight away.

As part of the JobKeeper conditions, eligible employees are to be paid a minimum of $1500 per fortnight (even if they earn less than this per fortnight usually). From 20 March 2020 the previous Newstart Allowance was renamed the JobSeeker Payment. This payment is usually for people who are unemployed and are looking for employment. For a single person with no dependents the payment is $565.70 per fortnight, plus a $550 per fortnight Coronavirus Supplement (bringing payments to $1115.70 per fortnight—an increase from the $464 per fortnight for a single person, no children, previously with Newstart).

The Australian Government, together with most states and territories, have announced a suspension for evictions due to tenants being unable to pay their rent because they have lost employment or have reduced working hours because of the COVID-19 pandemic. Evictions due to other causes can still occur.

States and territories are responsible for legislating any moratorium. An outline of the legislative responses to-date in each jurisdiction is outlined later in this Brief.

A freeze on rent increases during the pandemic would help tenants to maintain their budgets during times where they may suffer falls in income. However, for tenants whose income has fallen significantly due to reduction in employment during the pandemic, rents may need to be reduced rather than just frozen.

Balancing the economic needs of tenants and landlords is fraught, as most landlords only own one property (71.2% of taxpayers claiming a rental property in 2017) and may rely on the rental income from that property to pay mortgage costs, rates, body corporate fees and insurance. If tenants don’t pay rent, then landlords can’t pay their costs.

Landlords may expect to be paid the deferred rent once the pandemic is declared over and tenants have resumed employment. This may result in tenants paying unaffordable rents in the future

Relief from land tax costs imposed by state and territory governments can help landlords reduce their expenses, which in turn can help them to reduce rents for tenants.

However, in states and territories where the threshold for paying land tax is high (either in dollar value of the property or in the number of dwellings an investor may own) investors may not receive a benefit (albeit that land tax is not a cost they currently have to pay). For example, in NSW only about 20 per cent of residential landlords are required to pay land tax.  If landlords are not eligible for a land tax reduction they can’t pass on rent reductions to tenants.

Direct payments to eligible tenants can help them to pay their rent if they are suffering a fall in income due to the pandemic. These payments could be provided through the existing Commonwealth Rent Assistant (CRA) mechanism, which is available to households who receive income support such as JobSeeker payments.

For landlords who are still paying a mortgage for their investment property, being able to defer mortgage payments means they may be able to offer rent reductions to tenants. While Australian banks have agreed to repayment deferrals, the interest payable on the loan will accumulate during deferral periods, meaning landlords will pay more in interest once the pandemic restrictions lift.

Rent control, whereby rents are limited or are unable to be increased during a time of crisis such as war, depression or a pandemic,  can help tenants to maintain affordable rents when their incomes drop long term (through no fault of their own).

Longer term, rent controls can reduce private investment in housing,  which can reduce the building of new housing or the refurbishment of existing rental properties.

Research published by the Brookings Institution (2018)  in the US found that when comparing areas with and without rent controls in San Francisco (in 1994), rent control areas led to a ‘15 percentage point reduction in the rental supply of small multi-family housing (which) likely led to rent increases in the long-run.’ The Institute found that ‘it appears rent control has actually contributed to the gentrification of San Francisco, the exact opposite of the policy’s intended goal’.

Rather than impose state/territory wide rulings for landlords and tenants, many of whom will have different earning potentials in both the short and long term, governments are encouraging landlords and tenants to talk and come to an agreement about any rental discounts. In order to facilitate such discussions, governments are offering to facilitate mediation programs.

In reality ‘mediation is a method of conflict management in which conflicting parties gather to seek solutions to their problems, accompanied by a mediator who facilitates discussion and the flow of information, aiding in the processes of reaching agreement.’

To be effective, both parties have to want to come to some form of negotiated agreement.

The success or failure of mediation rests in its ability to reduce any power differences between the parties involved in the negotiating. When successful, mediation means both parties to a dispute (in this case whether rents should be reduced and by how much) are prepared to accept a compromise solution that provides some benefits to both negotiating parties. An outcome that resulted in one party having all the benefits would most likely not continue for very long—at least not without penalties and the force of the law being applied, as is the case with laws created by the state.

New laws stop landlords issuing termination notices or applying eviction orders due to rental arrears, where tenants are financially disadvantaged by Covid-19, suffering a loss of income equal to or greater than 25 per cent due to the virus. These new measures apply for 60 days from 15 April 2020.  Landlords must negotiate a rent reduction with the tenant in good faith in the first instance, and can only apply for eviction after the interim 60-day stop if it is ‘fair and reasonable in the circumstances of the specific case’.

The Government has extended the notice periods for certain other lease termination reasons to 90 days.

At any time during the 60 day stop and the longer six months restrictions, landlords can still apply to take possession of a property if they are suffering undue hardship. The NSW Government is allocating around $440 million towards rent relief in the form of land tax waivers or rebates—with the expectation that this would be split approximately evenly between business and residential landlords. Residential landlords are eligible for a land tax waiver or rebate of up to 25 per cent if they pass on the saving to tenants in financial distress.

A new law, the COVID-19 Disease Emergency (Miscellaneous Provisions) Bill, (passed 27 March 2020) requires an immediate halt to eviction notices until 30 June 2020 unless the eviction is due to the tenant using the property for an unlawful purpose; a result of violence or damage caused by wilful behaviour; or there is a case for severe hardship. The Minister may extend the Covid-19 emergency laws for 90 days by issuing an order under the Act.

Tenants will be expected to repay their rent debts in the future, with owners able to recover any outstanding rent from the tenant’s bond or through civil proceedings.

The laws also limit property inspections, with owner or their agents only able to undertake inspections if: it is reasonably believed that the tenant is ill, injured or unable to give permission; denial of immediate access is likely to result in damage to all or part of the premises; there is a risk to the tenant or another person present on the premises; damage has occurred to the premises; it is reasonably believed that the premises have been abandoned; or with 24 hours’ notice to the tenant, to ensure that repairs have been appropriately carried out.

While tenants are to keep properties clean, during the emergency period,  tenants are not to be penalised if they cannot meet this requirement due to Covid-19.

The State Government will meet on April 23 to pass a $500 million package to assist landlords and tenants during Covid-19. The new laws will apply from 29 March 2020 and will be effect for six months to 26 September 2020.

The Government will provide $420m in land tax relief (up to 25% discount) for landlords who give rent relief to affected tenants. Any remaining land tax can be deferred until March 2021.

In addition, $80m will go to a rental assistance fund for struggling renters who have tried mediation with their landlord; have less than $5000 in savings; and are paying at least 30 per cent of their income in rent. A tenant would be able to apply to receive rent support of up to $2,000, with the grant paid directly to the landlord to help cover rent shortfall.

The State Government will also introduce a pause on rental increases and a temporary ban on evictions for six months, except where tenants damage the property; use it for criminal activity; serious violence occurs; or if tenants are able to pay rent but do not.

Landlords have the same responsibilities as previously, including carrying out repairs.

The Queensland Government has announced measures including:

• a freeze on evictions due to rent arrears for 6 months (from 29 March 2020) for tenants experiencing financial distress due to the impacts of Covid-19
• mandatory mediation between tenants and landlords to reach an agreed outcome on rent reductions
• tenants have a right to refuse entry for non-essential reasons (including routine inspections)
• ensuring debts don’t accrue for tenants and that they will not be placed on a tenancy database if they are experiencing hardship
• a three-month rebate of land tax for 2019–20, followed by a three-month deferral of land tax 2020–21 for property owners who agree to provide rent relief for tenants affected by the coronavirus economic downturn

Tenants are expected to continue paying their rent if they have not been significantly impacted by Covid-19.

The Covid-19 Emergency Response Act 2020 took effect from 30 March 2020 and will last for six months or until the Minister ‘is satisfied that there is no present intention to make a further such declaration’.

Examples under the emergency Act include:

• residential tenancies cannot be terminated due to failure to pay rent where the tenant is suffering financial hardship as a result of the Covid-19 pandemic
• the landlord must not increase the rent payable under a residential tenancy agreement
• property inspections may only occur by means of audiovisual or other electronic means that do not involve the landlord or an agent of the landlord physically entering the premises
• if tenants have to do something (or not do something) due to legal requirements because of the pandemic, they will not be in breach of their residential tenancy agreement
• the South Australian Civil and Administrative Tribunal may make any order it considers appropriate in the circumstances of the Covid-19 pandemic (including an order that specified costs associated with the termination of a residential tenancy agreement be reduced or waived).

The Tribunal must have regard to the circumstances of the Covid-19 pandemic, including the need to avoid homelessness, and may modify a residential tenancy agreement as to reduce the tenant's immediate financial obligations under the agreement if they are suffering financial hardship. In addition, the Tribunal must not make an order requiring interest to be paid on an amount payable by a tenant under a residential tenancy agreement.

The Residential Tenancies (Covid-19 Response) Bill 2020,  which is yet to be passed by the Western Australian Government, proposes:

• a moratorium on evictions for 6 months – except for tenancies where the tenant causes serious damage to the property; injury to landlord or another person; the landlord or tenant is experiencing undue hardship;; a tenant is experiencing family violence and the perpetrator needs to be evicted; or the tenant abandons the property.
• a prohibition on rent increases during the emergency period
• that any fixed term tenancy agreement due to expire during the emergency period will continue as a periodic agreement
• relieving lessors of the obligation to conduct ordinary repairs if the reason they cannot do so is Covid-19 related financial hardship or a lawful restriction on movement
• enabling a tenant to end a fixed term tenancy prior to its end date without incurring break lease fees (tenants will still be liable for damage and rent arrears).

The laws will apply equally to tenants in public and private housing, park homes as well as boarders and lodgers.

The ACT Government will provide a land tax and rates rebate to landlords of residential properties who reduce rents by at least 25 per cent for tenants impacted by Covid-19.

The rebate will be equal to 50 per cent of the rent reduction, capped at $1,300 per quarter (around $100 per week), for up to six months. This will provide rental relief to impacted tenants of up to $200 per week.