When the economy slams shut, the market exposes those who don’t have to work for a living. Whilst the media focuses on those thrown into 4.30am Centrelink queues, at the other extreme are those who benefit come rain, hail or shine.
Such privilege is reserved for property owners. Their market power has been on show in negotiations between landlords and tenants. Keeping a roof over our head when the economy is closed for business brings focus to this age old master and servant relationship.
State government rent-relief policies have been limited in scope, perhaps due to the absence of federal funding. Most packages have given land tax relief which will predominantly affect landlords in wealthier areas and tenants who can afford to live there. Victoria is the only major state to offer direct relief to renters, but this is targeted to just 5% of all rental properties.
Many landlords have claimed there is no free ride for their tenants – they must pay their rent. Under current social norms, this is an accepted position. There are no free lunches in society, least of all now.
But this can be questioned when wealth creation for landholders is analysed.
Typically, the land component of an investment property assumes some 70% of the property value, and thus the mortgage. For older homes, the land component can reach beyond 80% of the loan. (On analysis, my previous home had a land value of 94%).
Over time, houses age, requiring repairs. These are expenditures many landlords often loathe to make. Fortunately, a few do, but the community in general carries on developing new cafes, libraries and train stations. These are all services delivered by public investment or by our own effort. Importantly, this public effort drives the vast majority of gains in private land values. The rising value of land generates capital gains, over time allowing investor rental incomes to increase.
So, if tenants are told they shouldn’t expect a free ride, there’s a sense of irony when landlord windfalls are analysed.
Australia’s fetish for property investment has rendered the necessary rebalancing of economic power between landlords and tenants a difficult political matter. The market is currently doing that work for government. As the crisis drags on, some renters will be forced to move back home or in with friends. The surge in former AirBnB rentals hitting the long-term rental market will improve renters’ options. As vacancies rise and rents decline, renters will enjoy a stronger bargaining position.
Those who slip through the cracks won’t be so lucky. The health emergency has revealed even more starkly the inhumanity of homelessness. Images of rough sleepers corralled into car-park-like sleeping spaces painted on US pavements are not easily forgotten
Homelessness, always a moral issue, is now also a public health issue.
With the sanctity of public health superseding even economic issues, could this be the time we recognise the waste of 60,000 vacant homes in Melbourne? Would it not be reasonable to expect some landholders to volunteer their empty homes to the homeless? Additional properties could be offered to health professionals concerned about infecting their families, their flatmates.
As we consider the development of ethical property use, governments are loosening their purse strings like never before. Policy makers must recognise that public subsidies ultimately flow up to those who own that scarcest of finite resources – land in prime locations. Put simply, job keeper payments have been sculpted to support mortgage commitments.
Policy watchers will understand that any short-term pain for landlords is expected to be offset by a generous series of long term subsidies. Perhaps, a beefed-up first home owners grant, 40-year mortgages, a nation-building infrastructure project (making nearby properties more valuable) and/ or a federal shared equity scheme? These are all likely handouts to support the powerful property sector whilst affordability remains unaddressed.
On that topic, the housing supply pipeline we hear so much about must be monitored. As the economy hibernates, master-planned communities will mothball supply releases so as to keep a floor under current prices. Just how far supply manipulations are allowed to impede the market is a question for your next digital hangout.
What role can banks play? Much of the pressure could be reduced on society if banks were to halt investor mortgage payments for several months, just like they have done for the commercial sector. Banks would endure short-term pain from the mortgage holiday, but their social licence would be re-invigorated.
The crisis has re-written conservative economic textbooks, most notably in the UK where the government is creating money off-balance sheet, via Treasury. Such a mechanism ensures future generations are not further burdened by debt. This MMT-like practice could be used to assist rental payments during this Great Pause.
A wall of money is being thrown at workers, banks and small business to offset economic calamity. Our risk-laden real estate market is the primary driver of so many billions in public support. We must ensure this does not come at the cost of an even greater power imbalance between those who work and those who own.