In a recent report on the private rental sector, AHURI compared the landscape of 10 countries across Europe, North America and Australasia.
Their findings have revealed some major similarities between Germany and Australia’s capital gains and negative gearing policies, but stark differences in the actual property market.
The report’s lead author and UNSW City Futures Research Centre research fellow Dr Chris Martin explained that, while Australia is in the grip of an extended period of rising house prices, Germany has experienced a long period of stability where there has been no boom and no crash.
“When you look under the hood you find some things in Australia that are often singled out as driving high prices and speculative demand are also a factor in Germany, but while Australian house prices have continued to rise, Germany has remained relatively steady.”
He noted that the research identified there may be further factors at play in Germany’s stability, including a large private rental sector, low population growth, conservative lending by public financial institutions and rent regulations.
Dr Martin explained that Germany utilised a regulated rent system that factored-in market conditions but required any increases to be in line with a local reference.
“This acts as a drag on how much rents can increase and effectively anchors the rental market,” he said.
“We’re thinking this works in with negative gearing by cushioning any loss-making. In Australia landlords can push their leverage up further, but in Germany rent regulation means they can’t.”
This leverage is also used to enable greater purchasing power here, but in Germany the financial system is far more conservative.
“Interest-only loans are exotic in Germany,” Dr Martin said.
Meanwhile, the financial advice in Australia is often focused on having investors hold onto properties, using a rising property value as the deposit for another acquisition.
“You don’t have to sell to realise a gain and as a result we have a heavily indebted housing system.”
The research also dispels the belief that Europe is a land of renters, instead revealing that most of the European countries examined, including Spain, Belgium and Ireland, have higher rates of home ownership than Australia.
In fact, Germany was the only country where the number of renters outstripped owner/occupation. But in seven of the 10 countries examined, including Australia, private renting is a growing market.
Individuals are the most common type of landlord in these 10 countries, but there is a significant increase in large corporate landlords.
“We found that individuals are the predominant type of landlord in nine countries; only in Sweden are housing companies more common,” Dr Martin said.
“Most countries also have some large corporate landlords (LCLs). The origins of LCLs are diverse, but their recent activity has been facilitated by government activities.”
Researchers identified a number of approaches to regulating the private rental sector in use internationally, including rent price controls, security of tenure laws and landlord registers.
“The view of tenancy regulation as ‘red tape’ is out of step with the recent experience of most countries in this study,” Dr Martin said.
“On the contrary, Ireland and Scotland are examples of successively stronger regulation being implemented as the private rental sector has grown.”
The report, entitled ‘The changing institutions of private rental housing: an international review’, was undertaken by researchers from the University of New South Wales and Swinburne University of Technology.
It is designed to provide useful insight for Australian policymakers as the country experiences a growing share of renters in the housing market.
“State government could legislate to improve security of tenure; for example, by removing ‘no-grounds’ terminations, without unduly burdening landlords,” Dr Martin said.
