How Australia's private rental sector compares with the world

Although Australia and Germany both exempt owner-occupied housing from capital gains and provide for negative gearing in the private rental sector, in Australia it underlies speculative inflation, while in Germany house prices are relatively steady due to a large private rental sector, low population growth, conservative lending by public financial institutions and rent regulations, AHURI research has revealed.

The study also reveals that it is not the case that ‘everyone in Europe rents’. Most of the European countries investigated have higher rates of home ownership than Australia, and in 9 of the 10 countries (including Australia) more households own (or are buying) their home than are renting

This research, undertaken by researchers from the University of New South Wales and Swinburne University of Technology, compares the policy settings and institutions of the private rental sector (PRS) in 10 different countries, including Australia, Germany, Ireland, the UK and the USA.

The study also reveals that it is not the case that ‘everyone in Europe rents’. Most of the European countries investigated have higher rates of home ownership than Australia, and in 9 of the 10 countries (including Australia) more households own (or are buying) their home than are renting: only in Germany is the PRS larger. Nevertheless, in 7 of the 10 countries, the PRS share is growing, mostly at the expense of owner occupation, and nowhere is it contracting.

‘We found that smallholding private individuals are the predominant type of landlord in nine countries: only in Sweden are housing companies more common’, says Dr Chris Martin from the University of New South Wales. ‘Most countries also have some large corporate landlords (LCLs). The origins of LCLs are diverse, but their recent activity has been facilitated by government activities.’

The research also finds that individual landlords and LCLs operate without undue difficulty in countries with greater PRS regulation than in Australia.

During the GFC some banks and financial institutions were nationalised or placed under state administration. In order to avoid ‘fire sales’ (and the collapse in value of other previously unaffected assets), governments sold the assets of nationalised or administered financial institutions, including foreclosed properties and properties pledged as security for loans. These assets were bought by large corporations significantly increasing their position in the PRS, both directly as landlords (as in the United States) and indirectly as owners of loans with PRS properties pledged.

‘The LCLs are not building much rental housing. Rather, they mostly acquire existing properties and manage their portfolios through renovations, modifications and sales’, says Dr Martin. ‘In the United States in particular, the LCLs have been active in devising new financial instruments. LCLs are often controversial and there is evidence of conflicts with tenants, particularly in Germany and the United States.’

The research also finds that individual landlords and LCLs operate without undue difficulty in countries with greater PRS regulation than in Australia. Increasing tenants’ security by allowing landlords to terminate on prescribed grounds only, market-related regulated rent increases and registration of PRS landlords are regulations that could improve housing outcomes for tenants in Australia.