Make your submission to the rental review

Key points and background information:

Headline messages

• Renters are missing out on the bill savings and improved comfort and health benefits of efficient homes, which is unfair.
• More efficient rental homes will also reduce demand for dirty power and help us achieve the 2020 emissions reduction target just announced by the Victorian government.
• The only way to fix the problem of inefficient rental homes is to set minimum standards – otherwise there’s little incentive for landlords to invest in basic improvements that would make a big difference for tenants.
• It’s great that the Victorian government is showing leadership by fixing this problem which has been in the ‘too hard’ basket for too long.

Background info and stats

• Victoria’s pre-2005 housing stock is inefficient by world standards, averaging less than 2 stars in terms of efficiency performance.^[1] But rental housing stock is generally even worse.^[2]

• Rental properties make up around one quarter of Victoria’s housing stock (about 500,000 households). The housing sector contributes about nearly 20 percent of Victoria’s greenhouse emissions, so improving the efficiency of rental homes could make a big contribution to cutting emissions.

• Inefficient homes^[3] are unhealthy to live in and/or cost a fortune in household energy bills to keep comfortable.

• Renters are bearing more than their fair share of the costs of inefficient homes, in terms of rising energy bills and health and well-being impacts. The impacts are particularly severe for those on low incomes (who spend a greater proportion of their disposable income on utilities, and are more likely to rent), those with chronic health conditions, and long-term renters.

• The costs of inefficient rental homes are also felt more broadly across society, for example through rising health system costs (particularly in extreme weather events such as heatwaves), increasing pressure on the state government energy concessions budget, and greenhouse emissions contributing to climate change.

• A key contributor to the poor quality of rental housing stock is what’s known as the “split incentive”. Landlords have little incentive to invest in improvements because the benefits (in terms of lower bills and improved comfort) accrue to tenants.  Many tenants are reluctant to seek improvements because of insecure tenure, fear of rent increases or eviction.

• The only viable option for effectively addressing the split incentive is to regulate for minimum efficiency standards for rental properties.

• Complementary measures such as affordable finance and advice services should also be put in place to enable landlords to meet the standards, while ensuring costs are not passed through to tenants in the form of rent increases.

[1] SV 2014, Victorian Households Energy Report, Sustainability Victoria.

[2] Rental households have significantly lower rates of insulation, window treatments and solar hot water systems than owner-occupied households. ABS 2013, Household Energy Consumption Survey, Australia: Summary of results, cat. 4670.0, Australian Bureau of Statistics.

[3] Homes with little or no insulation, inefficient or inadequate fixed appliances such as heaters or hot water systems, inadequate or no window-shading (to keep heat in during winter, or out during summer)

Detailed response to options paper:

The options relating to health, safety, amenity and efficiency standards are listed on page 96 of the Options paper.

Environment Victoria supports:

Option 8.13D – Minimum health, safety and amenity standards for vacant premises

Environment Victoria supports this option because we need standards to be developed specifically for the private rental sector, rather than just adapted from standards for rooming houses and social housing, because these sectors are quite different.

But, there are two problems with the way this option is being presented which need to be pointed out.

Firstly, the standards need to apply to all properties, not just vacant premises. If a renter is lucky enough to have a secure, long-term tenancy, why should they be penalised by their landlord not being obliged to meet standards? For many landlords, it may be more convenient for them to do any necessary upgrades in between tenancies when the house is vacant, but that doesn’t change the basic principle that all tenants should have equal access to the benefits of efficient homes. The question of how and when the standards would come into effect are dealt with in more detail under Option 8.14 below.

Secondly, the revised Residential Tenancies Act must explicitly mention ‘efficiency’ alongside ‘health, safety and amenity’. The way standards would work is that the legislation would create the power to make standards, but the actual detail of what the standards require would be outlined in accompanying regulations. This is because it is much easier to change regulations (eg. if you wanted to change the standards because of technological advances or to improve them over time), than it is to have to do a complete review of the legislation for the sake of a minor change.

So, while it is true that the Department of Environment, Water, Land and Planning (DEWLP) (rather than Consumer Affairs which is running this review) is responsible for deciding what’s actually in the efficiency standards (and they are doing that technical work now), it is still the responsibility of this review to create the power for efficiency standards in the first place. Otherwise there’s a risk that all the technical work will get done but standards for efficiency will never be enacted.

So, it is important that the revised Act creates a power to make minimum standards for health, safety, amenity and efficiency, as well as a duty for landlords to comply with standards.

Option 8.14B – Flat transition date

As outlined above, once a power to make standards for health, safety, amenity and efficiency is created in the legislation, a separate process to develop the regulations defining the specific content of the standards should follow.

This process to develop the regulations should proceed in parallel with and be informed by current technical work currently being undertaken by DEWLP to define efficiency standards. This should ensure that by the time the regulations are finalised, they cover health, safety, amenity as well as efficiency all at the same time.

Once the regulations are finalised and gazetted, a flat date for compliance for all properties within 2 years should be set. A flat compliance date will make it easier to communicate to landlords what their obligations are, minimising potential confusion and facilitating a smooth transition. It also ensures all tenants are treated equally and benefit from standards from the same date regardless of the status of their tenancy.

Flagging the compliance date well in advance (ie. 2 years) will allow landlords to spread their investment over a longer time, thus minimising pressure on rent increases. It will also allow them to choose a time which suits them to implement any necessary upgrades – either at the changeover of tenancy, or through negotiation with existing tenants.

8.15B – Complete prohibition on letting non-compliant properties

If standards are initially set at a relatively low and achievable level, which is what we have been arguing for all along, then we believe all properties should have an equal obligation to meet them, and hence all tenants have the same rights to a safe, healthy and efficient home. We would be concerned that conditional letting could start to create confusion about exactly what landlords were or were not obliged to do, which would undermine a smooth and easy implementation process.

A note about compliance

There is not much discussion in the Options Paper about how rental homes would be assessed for compliance against the standards, and yet this is an important issue that will have a big bearing on how well the standards work in practice.

Environment Victoria considers that there should be an independent authority with power to assess compliance with the standards prior to a tenancy agreement being signed, rather than the onus being on the tenant to address non-compliance issues after they have taken possession of a property. Providing compliance information in the condition report, which is only provided to the tenant after the tenancy agreement is signed, is not sufficient.

The independent authority should have the powers outlined under 8.15A, namely to:

• seek an order that the landlord is prohibited from subsequently reletting the property until it is fully up to standard
• seek to impose a criminal penalty or, alternatively, a civil penalty for egregious non-compliance, and
• issue a public warning notice where a property has been declared to have breached the standards.

Where a property is non-compliant, the tenant should have the power to terminate the tenancy without penalty, but should not be required to do so.