Rental reform could be great news for homeowners! Let's learn how

Abstract house art.

Australia has reached a critical point in the housing affordability crisis. Not only have we recently experienced the largest property boom on record, but rising interest rates and a lack of meaningful government intervention have stacked the odds against first home buyers.

For many, this means the Australian Dream is no longer attainable. Instead of housing the most people, the property market has become entirely about home loans and real estate. 

However, other parts of the globe have drastically rethought their housing markets to great success. Their secret? Don’t look at property ownership for the sake of profit. Instead, create an equitable and healthy rental market, which benefits tenants, landlords, and owner-occupiers alike.

Germany and Scandinavia in particular have created property markets where owning a home is no longer necessary for financial security. Those who buy a home do so for lifestyle reasons, rather than out of necessity. Stronger renter protections could therefore be a key but overlooked part of solving the affordable housing equation. 

So what could Australia learn from Northern Europe about rent reform? Let’s dive in.

Germany’s housing solution: Make renting more attractive

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Photo by Vu Anh on Unsplash.

Renting in Germany has become such a popular option thanks to a raft of protections and incentives geared towards renters, not landlords. Approximately half of all households in Germany rent. In big cities like Berlin, the proportion is much higher. The only other developed country with lower home-ownership rates is Switzerland.

Having so many renters drives down housing demand so much that German dwelling values are, in the words of Sightline Institute founder Alan Durning, “uncannily, freakishly stable.” German property prices even largely weathered global financial crises, including the reunification of Germany in 1990 and the 2008 housing crash. 

Such stable prices can only be a boon for ordinary homeowners. Buying property no longer becomes an unattainable idea dependent on market moods – instead, it’s a viable living strategy for everyday people earning a salary.

Current Australian house prices make home-ownership unattainable for many, since costly rent payments hinder how easily Aussies can save for a deposit, especially in big capitals like Sydney or Melbourne. By keeping rents affordable, the pressure on both house prices and paychecks lessens considerably. There’s no longer a tension between paying rent or saving for a housing deposit, because no matter which direction you go, you will have a secure and sustainable living situation. 

RELATED: Renters hit with price jumps in 2021, property owners benefit

Germany’s renter-friendly environment is created through a few key policies:

  • Tax neutrality between owning or renting a home. Houses are treated more as durable consumption goods rather than investments or securities, meaning there’s no real monetary advantage to owning property instead of renting. 
  • A raft of tax advantages to small-scale property investors. So long as the property isn’t vacant, mum-and-pop landlords can enjoy lucrative rental tax deductions against their mortgage interest and many operating expenses. In fact, Vancouver already does something similar by levying significant tax hikes against vacant rental properties. 
  • By right homebuilding construction. ‘By right’ in this case means local authorities must grant permits to construction proposals that tick all the regulatory boxes, rather than arbitrarily dismiss ones as they do in Australia. This not only helps the supply-side of home-ownership, but also encourages construction to keep pace with the population. This combined with the benefits of becoming a landlord means there’s ample incentive to keep the rental market well stocked. 
  • Generous and open-ended leases. Leases in Germany can last for decades if desired, or remain open-ended at the renter’s discretion rather than the landlord’s. Evictions are restricted to a few very specific circumstances. By comparison, Australia is one of the few developed countries with ‘no grounds’ evictions, meaning tenants could lose their home at the drop of a hat. By giving rental dwellings such long-term security, it encourages tenants to get settled, maintain the premises, decorate it as they wish, and consider the dwelling their home (which is also great for landlords). This in turn improves people’s standards of living and financial security much the way home-ownership can in Australia, without the burden of a mortgage or saving for a deposit.

There’s also a surprising political side effect to having a higher proportion of the population be renters. In nations like Australia, people often vote to secure their property interests, which prevents the government from bringing forward meaningful housing reform, since real housing reform would reduce house prices and rental income (a big no-no for property owners).

Instead, Germany has become a nation of ‘rent-voters’, making renters a dominant electoral force. This keeps legislative emphasis on protecting renters too, not just landlords. Housing thus no longer becomes about accruing wealth but providing everyone with a place to live.

RELATED: 4 ways to save money on your rent

Nordic housing solution: Co-operative housing revolution

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Nordic countries have adopted this exact humanitarian mindset when it comes to affordable housing. In Finland, thanks to their “Housing First” policy, access to decent housing is viewed as a fundamental human right instead of privilege reserved for the worthy. As a result, Finland boasts one of the world’s lowest rates of homelessness (1 in 1,000 compared to Australia’s 5 in 1,000). 

Part of Scandinavia’s success – aside from incredible public housing – has been making affordable rental housing available through cooperatives. Housing cooperatives (“coops”) are residential complexes whereby owners don’t own their units outright, but each resident is a shareholder in a legal entity.

Similar shared property ownership schemes exist in Australia, such as strata title, but where strata is geared exclusively toward investors, Nordic coops allocate power to whomever lives there – even renters. 

How does this work? Instead of operating for profit, Nordic cooperatives are there to serve the social and economic needs of communities. All coop residents regardless of home-owner status pool common resources and become actively involved in decision-making, management, and building maintenance. Any accrued rental revenue is then reinvested in new housing projects or upgrades, ensuring a standard of quality and access.

Nordic governments have passed supportive legislation to make sure these coops stay valuable to the community. Lower-interest loans for coops, like those in Denmark, help coops reduce construction costs and offer lower rents. Because of these policies, 20% of the Danish population lives in housing cooperatives, called Almene Boliger. 

In Norway, especially in Oslo where 40% of people live in a coop, this model has been crucial for securing decent housing for immigrants and the elderly, who are often most vulnerable to homelessness. Local legislation allows for the Norwegian government to buy or use 10% of all cooperative units to house such people with no other alternatives.

Comparatively, Australian cooperatives make up less than 1% of our housing sector. One can’t help but feel we aren’t using the concept to its full potential – especially now nearly one in five Aussie households are experiencing extreme rental stress.

How can Australia use the rental market to create affordable housing?

Hands reach for coloured bubbles. Collage, blue background.

Australian states and territories have proposed interventions in the rental market before, like Victoria’s rental housing scheme, but these are usually limited in area, aim, or impact. For a real change in how we rent, Australia will need to think ‘big picture’ and take some hints from our neighbours to the north. 

By balancing the owner/renter equation, we could not only relax some of the fierce competition at auction, but cool off the red-hot housing prices in Australian capitals. Owning property would no longer become a trophy, but a way of life more in the spirit of the Australian Dream. This could only make the market a smarter, more cost-effective place for everyone.

Curious about housing finance? Keep a finger on the pulse of Australian property through our home loan news hub.

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