Paper: Tenancy law and the disinvestment myth

Some commentary contends that one of the objectives of tenancy law and law reform should be to encourage investment in rental housing. This contention is not supported by the evidence.

Over its recent history, tenancy legislation has not driven investors away from rental housing. The evidence strongly indicates that tenancy law is not sufficiently important in landlords’ investment decisions to actually encourage investment or, for that matter, cause net disinvestment.

Economic factors dominate decisions to invest in rental housing, almost to the exclusion of tenancy law.

In 1993, the ABS surveyed investors in rental housing about the factors they had considered when they invested. Of the nine factors nominated, ‘tenants’ rights’ was the least considered: just 6.4 per cent of landlords said that they considered tenants’ rights.¹

More recently, Seelig, Burke & Morris have found that tenancy law was the most important factor for less than two per cent of landlords, and only about seven per cent considered tenancy law at all.²

Economic factors also dominate decisions to disinvest.

In 1991, two years after the commencement the Residential Tenancies Act 1987 (NSW), the NSW Department of Housing surveyed NSW landlords as to whether certain issues, including ‘residential tenancy laws’, were a ‘problem’ for them. Leading questions notwithstanding, only 10 per cent of small landlords (that is, owners of one rental property) nominated ‘residential tenancy laws’ as a major problem.

Altogether, small landlords comprised more than 80 per cent of all landlords at the time. Of the small proportion of landlords with larger holdings, less than 30 per cent considered residential tenancy laws to be a major problem.³

Also in 1991, research by Brian Elton & Associates indicated that the then-recent law reform in New South Wales and elsewhere may have been a disincentive to investment, but that the impact might be more ‘psychological’ than ‘substantial’.⁴

Following up on that research, Paris, Randolph & Weeks conducted further consultations and found that the ‘psychological impact’ of residential tenancies law reform was short-lived, and that there was no evidence of net disinvestment.⁵

Paris, Randolph & Weeks also concluded that there was no evidence that recent law reform had affected the ‘fundamental economics’ of investment in private rental housing, observing that the majority of landlords were motivated by equity growth and that is this was not affected by residential tenancies law reform.⁶

Further research by Mowbray found that landlords who said they intended to disinvest within the next 12 months rarely actually did so: only 16 per cent sold within the period, and 30 per cent did not sell over the next five years.⁷

1. Castles (1994) Investors in Rental Dwellings, Australia, July 1993, ABS, Canberra: 12.
2. Seelig (2007) Residential Tenancy Law and Rental Investment: a review of claims about rental law reform and disinvestment, paper prepared for the Tenants’ Union of Queensland, Brisbane: 2; Seelig, Burke & Morris (2005) Motivations of Investors in the Private Rental Market: positioning paper, AHURI, Melbourne.
3. DoH (1991) Rental for Investment: a study of landlords in New South Wales, DoH, Sydney: 23.
4. Brian Elton & Associates (1991) The Supply Side of the Private Rental Market, National Housing Strategy, Canberra, cited at Kennedy, See & Sutherland (1995) Minimum Legislative Standards for Residential Tenancies in Australia, Department of Housing and Regional Development, Canberra: 109.
5. Paris, Randolph & Weeks (1992) Impacts on the Investment Market following Changes to Landlord and Tenant and Associated Legislation, National Housing Strategy, Canberra.
6. Cited at Kennedy, See & Sutherland, 1995: 109; Seelig, 2007: 2.
7. Mowbray (1996), ‘The Nature of Contemporary Landlordism in New South Wales: Implications for Tenants’ Rights’, unpublished PhD thesis, Faculty of Architecture, University of Sydney: 63, 250, 259.