HERE we go again: another slug on landlords in addition to ever-increasing land taxes, stamp duty, development fees, planning rules, environmental-efficiency ratings, tree-protection orders, verge-protection plans and the list goes on, I can hear the property owners wail.
The wail this week it was the Greens plan to force landlords to pay for housing upgrades to meet energy-efficiency ratings and to provide deadlocks on all doors to improve tenants’ security.
Small wonder, they say, rents are so high. If government were serious about housing affordability for buyers and renters it would remove all these taxes, charges and red tape and let the market sort it out.
The landlords, real estate agents and property investors have a point, up to a point. But so do the planners and environmentalists.
Over the past 20 years or so, the property sector has squealed at every change to the building code that has mandated more energy-efficient dwellings. Every time, they have pleaded that the new rules would make dwellings less affordable. Every time, they have pleaded that the market should dictate change.
If people really wanted environmentally efficient houses they would demand them and pay a premium for them, the property sector argued, but those buyers never did. The property sector said people did not care about environmental efficiency.
The property sector is right on that score. When people are buying, size, price and newness are the critical factors. The environment does not rate – at least not when people are buying. Of course, later on when the western summer sun beats upon the eaveless walls and uninsulated roof, or the winter mist sucks the heat out of the place because it has no thermal mass, people worry about the environment. And they worry more about the energy bills.
Because people have only the short-term view or are stupid, government occasionally has to do something about the market failure.
But make no mistake, if government did nothing, the extra few hundred dollars saved by not insulating or double glazing would not have been passed on to buyers – it would have remained safely in the developer’s pocket.
In the past two decades, government has demanded that new buildings be more energy efficient, to the benefit of those who live in new housing stock.
But what about those who live in old stock? Well, owners who have lived in the same house for decades and intend to go on living there can make their own minds up about whether they should upgrade with insulation, solar water and the like.
But renters do not have enough long-term security of tenure to make it worth their while. And landlords are not going to do it. Why should they spend money on insulation and solar water if they are not saving on the electricity bill?
It is a market failure. The price signal (higher energy prices) is going to the wrong person – the renter who is not in a position to do anything about it.
So if the environmental efficiency of the old housing stock is to be improved, a little government coercion will be necessary.
Will it result in higher rents? I don’t think so. Greens MLA Shane Rattenbury has got it right here: landlords charge what the market will bear, and this has little relationship to the landlords’ costs. This is because the costs are so disparate. One landlord might have owned for 20 years and paid off the mortgage. Another might have borrowed the total purchase price a short time ago; copped a stamp-duty hiding and been belted over the head with an interest-rate rise. But both charge what the market will bear.
In manufacturing or service delivery, on the other hand, input costs are similar across suppliers, so they regularly and uniformly pass on cost increases.
There will be, however, a bit of passing on the cost by landlords, but not to tenants. The Greens’ new requirements for rented dwellings will become tax deductions for landlords as depreciating capital. The average landlord is likely to be on a 40 per cent marginal tax rate, so in effect the Federal Government will ultimately pick up 40 per cent of the cost.
But the property sector has good reason to be wary of the Greens’ proposal. The track record is not good. In 1999, the Greens twisted Labor’s arm to introduce the wasteful, achieve-nothing EER system – the first jurisdiction to do so in Australia.
Everyone advertising a dwelling for sale in the ACT has to shell out $200 or so to have and energy efficiency rating done by a registered rater. But there is no compulsion to actually do anything with the report – no requirement to improve the energy efficiency of the dwelling. After a few months you may as well throw the EER report away because the EER has to be “current” next time the house is sold.
It is an awful waste of paper and petrol – bad for the environment — but a whole industry has grown up around it. The new proposals at least require some work which will help the environment and do some social good.
How about this. If the new proposal gets up we should scrap the useless EER scheme. After all, people buying and selling dwellings are usually equals. These days, people are environmentally aware enough to look for insulation, double glazing and north orientation themselves.
The new scheme will provide enough work to lessen blow to the present useless EER industry.
The property sector also has a point in arguing that landlords and developers are easy targets. Surely, if it so imperative that old housing stock be environmentally improved, why should the proposals be limited to renters? Why not make it compulsory for everyone selling a dwelling to bring it up to at least a three-star rating?
Because that would cost a lot of votes is the real answer, however sound the policy might be.
As it is, new dwellings have to have a five-star rating and older dwellings escape. Why do we waste money on a useless EER system for older dwellings that requires no action? If we are going to force sellers to get a toothless EER in any event, why not go one step further and force them to act on it and bring their dwelling up to three-stars before they can sell it?
If it is good enough for landlords, it should be good enough for everyone else.
CRISPIN HULL
This article was first published on 9 April 2011.