Is it still worth it?

This week the NSW premier announced rental reform, banning ‘no grounds’ evictions, to be introduced into legislation.

What exactly does that mean for landlords and tenants?

Before diving into the implications of the ban, it's essential to understand what no-grounds evictions are. Previously, landlords in NSW could terminate a tenancy without providing a specific reason, given they provided the required notice period. This meant that even if tenants were abiding by all the terms of their lease, they could still be asked to vacate, creating an environment of insecurity and uncertainty.

Acceptable grounds for eviction now include:

1. Breach of Tenancy Agreement: If a tenant violates the terms of the lease, such as by failing to pay rent or causing damage to the property.

2. Sale of Property: If the landlord intends to sell the property and the contract requires vacant possession.

3. Personal Use by Landlord: If the landlord or a close family member intends to move into the property.

4. Significant Renovations: If the property requires substantial renovations that cannot be carried out while the tenant is in residence.

This list is not exhaustive, but it highlights the shift towards requiring landlords to provide a justifiable reason for ending a tenancy.

The primary benefit of this reform is increased security for renters. Knowing that they cannot be evicted without cause, tenants can plan their lives with greater certainty. This stability is particularly crucial for vulnerable populations, including low-income families, elderly individuals, and people with disabilities, who may find relocating especially challenging.

While the reform has been welcomed by tenant advocacy groups, it has also raised concerns among landlords. Some worry that the new rules could make it more difficult to manage their properties or address problematic tenants and that this could cause existing landlords to exit the market, and dissuade new investors from purchasing property, leading to reduced rental supply and increased rents.

But does tenancy reform actually deter investor activity?

The government has sought to balance these concerns by ensuring that landlords still have the ability to evict tenants under legitimate circumstances, such as non-payment of rent or property damage. Of more significance however, is that dynamics in the rental market still seem overwhelmingly driven by broader economic and demographic factors of supply and demand, rather than adjustments to tenancy laws. The supply of rental property seems largely influenced by access to finance and capital growth return. For example, there was a drop off in investor finance following changes to lending rules by the banking regulator, a rise in interest rates, and the uncertainty of the global pandemic. The announced changes to ‘no grounds’ evictions seem to have had little impact on investor finance.

The recent value increases in residential property and the hold in the cash rate since November last year are more likely to be contributing to an ongoing increase in investor demand. Furthermore, in July last year, the South Australian government announced its ban on ‘no grounds’ evictions, along with other rent reforms that took effect from the start of this month. Since these reforms were announced, new investment property finance has only trended higher, and is up around 37% as of May 2024.

Ending ‘no grounds’ evictions will support greater security of tenure for tenants. While this will come at the cost of flexibility, and potential rental income gains for landlords, reducing the power imbalance for tenants is unlikely to have a substantial impact on investor activity or rent values. Prices in the rental market will continue to be dominated by demand factors such as population growth, household size and income, while the supply of investment property will be largely influenced by market conditions, such as capital growth prospects, availability of credit and interest rates.