The forgotten victims: Older landlords worried as rental income disappears

Renters across Australia were granted much-needed relief this week when Prime Minister Scott Morrison announced that there would be a six-month freeze on commercial and residential tenancy evictions as the coronavirus continues to wreak havoc on the economy.

But what does that mean for the other side of the spectrum? How will landlords be affected and will there be government support available to them? There is some confusion about what ‘rent relief’ actually means, particularly for self-funded retirees who rely on rental income.

It’s certainly an issue that has many Starts at 60 readers concerned. One viewer on our recent Westpac webinar asked about how they should broach the issue with their own tenant.

“We own a commercial property in Brisbane and rely on the rental to cover part of our living expenses,” the viewer asked. “The tenant contacted us in relation to rental relief, which we initially refused, as they are a business possibly eligible for government assistance, whereas as far as I can see, self-funded retirees aren’t eligible for anything. Is it our responsibility at this time to assist the tenant, or are we doing the right thing by taking care of ourselves?”

Another viewer asked: “I understand that we must allow tenants to remain in the property even if they can’t pay the rent, but what about after that? Will tenants be required to back-pay rent? And what is there to help investors who rely on their property for retirement income?”

There are currently no answers to these questions because although almost a week has passed since Prime Minister Scott Morrison announced measures to alleviate worries for businesses and individuals struggling to pay rent after losing revenue or jobs in the wake of Covid-19, no further information has been forthcoming on how such rent relief may function.

In a televised address to the nation, Morrison encouraged landlords and tenants to agree to temporary arrangements that would see the tenant be able to keep their business or home. These arrangements could include the reduction or waiver of rents and the ability for tenants to terminate leases or seek mediation between themselves and their landlord on the grounds of financial distress, he said.

The federal, state and territory governments, along with local government and banks, have agreed to “consider mechanisms to provide assistance” on “cost-sharing or deferral of losses between landlords and tenants“, according to a further statement released on March 30 by the federal government.

But how costs, or losses, may be shared between tenants and landlords is not yet clear and it currently appears that landlords will be required to shoulder the heavier burden.

Louis Christopher, one of Australia’s best-known property analysts and the founder of SQM Research, noted that few landlords were likely to be comfortable with the prospect of a non-paying tenant.

“I would only say to those landlords who are borrowing or have a mortgage, that they will, as the banks have actually stated, they should be able to get some mortgage repayment relief at the same time,” he told Starts at 60. “So hopefully there will be a squaring out there to some extent for landlords. It’s a difficult time for all parties concerned.”

Christopher says that there was, so far, insufficient information about what the rental relief will actually mean for both parties.

“What does relief actually mean?” he said. “Does it mean a rent-free period, does it mean basically rent deferral? It’s critical I think both landlords and tenants need to know the same question. What are we actually talking about here? They’re two very different things. From my take on it, I think what they’re talking about is a rent referral, not a rent-free period – don’t pay us now, pay us in six months’ time. That would make more logical sense. Otherwise, it would be grossly unfair for landlords.”

Peter Koulizos, a property expert at the University of South Australia agreed that while the government was trying to support struggling tenants, it currently appeared to be overlooking the impact on landlords, many of whom needed to pay mortgages on their investment properties or relied on rental income as self-funded retirees.

“Simply asking landlords and tenants to negotiate individual arrangements to withstand the crisis is not enough,” he said. “One solution is to initiate immediate rental assistance for tenants so that landlords do not experience flow-on impacts to their own mortgages or income. This assistance could be a percentage of the rent that tenants are currently paying, up to a certain limit, and varying according to the city in which they reside. But the point is to address [the] problem in its entirety and keep it fair.”

While banks have responded to the issue by offering mortgage payment deferrals, that move does not address the full extent of the issue, which is that mortgages will continue to accrue interest and the loan outstanding will still require repayment in full, while there is currently no undertaking that rent should be back-paid.

Dr Reza Bradrania, also from the University of South Australia, said self-funded retirees who didn’t have access to the same support that people who are on the Age Pension receive, were likely to feel the brunt of changes to the rental market.

“These people rely on rental income to fund their retirement, but with no rent coming in, they’re in a very precarious position,” he said. “The government should be looking to help out self-funded retirees whose income falls below that of the old Age Pension, and then consider an appropriate portion of the old Age Pension to top up their income until the situation improves.”

Starts at 60 has requested federal government comment on this issue.