Key Points
- A report from RMIT University has suggested the creation of a national rental regulation system.
- Proposed reforms would require certain standards to be met for investors to negatively gear a property.
- The report calls for minimum standards in energy efficiency in rentals as well as lease conditions.
A plan to use landlord tax incentives to benefit renters has been put forward by urban policy experts.
While some advocates have blamed tax policy on investment properties for contributing to challenges faced by renters, a new report from RMIT University recommends using it to force investors to improve conditions for them.
Tax breaks for property investors
The Greens have while Anglicare Australia has previously described the private rental market to SBS as “built on the idea of wealth generation” rather than on providing people with secure housing.
While the long-term purpose of having an investment property is generally to make a profit, negative gearing provides a tax benefit for investors at tax time.
The ability for investment property owners to negatively gear the rentals has been a topic of debate in Australia for a number of years. Source: Getty / William West
The policy allows an investment property owner to offset income generated from the property against any losses or costs involved in maintaining that investment.
This means if the cost of maintenance or servicing a mortgage exceeds the rental income an investor makes from a property, they can offset that loss against their taxable income — and thus pay less tax.
Another potential benefit is the capital gains tax discount. Investors who sell a property they’ve owned for 12 months or more may get a 50 per cent discount on the tax they pay on any profit they make, known as capital gains.
How would the scheme work?
Urban policy professor Jago Dodson, who co-authored the report, which looked at a national rental regulation system for Australia, said tax breaks could be used as a “carrot” for property investors to make things better for their tenants.
“There’s an opportunity to use negative gearing and capital gains tax to make things better for renters, without relying on negotiation with the states,” he said.
“It doesn’t require dramatic reform, just some tweaks to our tax laws.
“According to our proposal, investors would still get their tax benefits but only if they make positive changes for renters.”
Benefits for renters
While new builds in Australia must meet a seven-star energy rating, many existing rentals are not as highly rated.
The report recommended only investors whose properties met the seven-star rating be eligible to receive the tax reductions that come from negative gearing and reduced capital gains tax.
The authors predicted such a move would incentivise landlords to make improvements to their properties.
Minimum heating and cooling requirements would be in place in rentals where the landlord was able to access tax benefits under the suggested reforms. Source: Getty / ridvan_celik
Complying with the star rating would mean , cooling and insulation in rental properties.
Surveys looking at temperatures in Australian rental properties and
Longer leases for renters
The report also recommended minimum lease periods and limits on rent increases.
The proposed reforms call for tax breaks to only be possible for those investors whose properties meet national standards for fair rental contracts and construction quality.
In the 12 months to July, average rent in Australian capital cities increased 10.3 per cent to $640 a week and 8 per cent to $540 in regional areas.
Report co-author Dr Liam Davies said renters currently have little security of tenure and were often subject to one to two-year leases.
“What we’re proposing is to increase tenant security by mandating that they be given five-year leases,” he said.
“Those leases would be structured as optioned leases, which means that the tenant would actually have a lot more flexibility to be able to leave before that time was up.”
While states and territories have implemented a number of measures around rent increases and leases, there is no national consistency.
A national approach for renters
Minimum requirements for rental properties are currently set out by each state or territory.
“Renters will get a better deal out of this, regardless of which state they live in,” Davies said.
“By cutting out the states, the federal government can deliver these improvements quicker and easier.
“Being an opt-in scheme, it will free up money that can be reinvested into areas such as public housing.”
Under Australian constitutional convention, housing is the responsibility of the states and territories and taxation is overseen by the Commonwealth.
“What we’re proposing is that the Commonwealth could use its taxation powers to create minimum standards that exceed the minimum standards of the states but are still compliant with state legislation,” Davies told SBS News.
He said the Commonwealth could develop “model leases,” outlining the minimum conditions that a participant in a national rental regulation system would have to meet.
Davies said those with leases that complied with those conditions “would then get the tax credit to be able to claim negative gearing.”
Landlords
Davies said while it was difficult to predict how many investors would decide to comply with the standards in order to continue to negatively gear their properties, modelling showed if 50 per cent of dwellings went into the system, it would be “revenue neutral.”
If three-quarters of investors took it up: “it would cost more, but we think that cost would be worth it because it would offer increased security to tenants and increased certainty through rents, because rents would be set to 95 per cent of market rate and then held at that point over the lifetime of the lease.”
The Australian Landlords Association Housing’s position, dismissed by a number of advocacy groups, is that negative gearing keeps investors in the market, thus it keeps rental properties in the market and keeps the cost of rent down.
Striking a balance
The federal government is currently trying to push through its as part of its housing agenda and has rejected the idea of scrapping negative gearing. Its housing schemes in their current form
Renters could benefit from reforms put forward in the RMIT University report on a national rental regulation system. Source: Getty / Kentaroo Tryman
Davies said the proposed reforms would keep investors in the market while providing for renters.
“This is a form of mutual obligation, whereby landlords would have to provide a sense of security, a sense of home to their tenants in return for getting the concessions Commonwealth is delivering.
“We think that strikes a better balance than the current arrangement, whereby landlords are able to receive generous tax concessions but have no requirements to be fair to their tenants in return.”
Davies said such reforms could be implemented quickly but with a phased approach.
“It wouldn’t be realistic to get the Seven Star energy efficiency for all dwellings overnight but we feel the scheme could be introduced almost immediately,” he said.
“It would have to be a phased process of increasing the minimum requirements to participate in the scheme over a series of years.”
Housing Minister Clare O’Neil’s office and the Australian Landlords Association have been contacted for comment.
