What home ownership and renting will look like in 2027

A wave of digital disruption will drastically change the rental market and who landlords are.

Home owners are expected to become a minority nationally in 2027, and experts say there are significant changes ahead for what it means to be a tenant in Australia.

From bonds and tenancy rights to new disrupters in real estate, renting in 2027 is likely to be a far cry from today.

The first change is likely to be that in a decade, renting would not just be somewhere tenants were forced to be – but the “preferred housing choice”, Justin Butterworth, founder of online rental marketplace Snug, said.

“The days are numbered for taking on a 30-year mortgage on a concentrated investment in a quarter acre block that our parents grew up with.”

One of the most fundamental changes he sees coming in the next few years is a wave of digital disruption into renting that will drastically change who landlords are.

A different type of landlord

In 2017, the typical investment property is owned by a so-called “mum and dad” investor – or property investors who own just one investment.

By 2027, it’s more likely to be a combination of individual properties owned by multiple investors – “fractional” investment properties – or professional landlords will own hundreds of investments – “build to rent” or “multi-family occupancy” properties.

Mr Butterworth envisions fractional investing will become more of a norm, with many platforms now catering to multiple property owners who choose to buy a portion of a property.

In many cases, the renter would also be a fractional property investor themselves.

Capital gains principal place of residence advantage for owner-occupiers needs to be extended to renters who invest in a fractional portfolio of properties, and who choose flexibility and diversification as their property investment strategy,” Mr Butterworth said.

“Properties will be increasingly owned by investment corporations and the performance standard of management and renter services will rise to meet market expectations.”

This is a forecast shared by Anthony Millet, chief executive of fractional investing platform BRICKX where hundreds of investors can have an interest in a single home.

He sees this as a way for tenants to have more stable renting environments – where they’re not beholden to the wishes of a single property investor.

But he also sees the “build-to-rent” sector as a critical change that’s “getting a lot of attention at the moment”.

This is where companies fund large developments, retain the ownership of all of them and rent them out as a portfolio.

This is what is known as having institutional landlords – something prolific in some of the most envied rental markets in the world, such as Germany, for providing stable tenancies and well-maintained homes.

“Creating homes and contracts where tenants have more rights, more freedom and are treated and feel more like a homeowner than they are in temporary accommodation is a huge positive,” Mr Millet said.

More rights for renters

A new type of property owner would likely come with significant changes to the rights of renters.

It has been well-documented that tenants fear retaliation if they ask for repairs and maintenance, and have concerns about insecurity and discrimination.

But in the last few years, the momentum behind “tenant’s rights” has been building, Anthony Ziebell, senate candidate for the Affordable Housing Party and founder of Don’t Rent Me, said.

“By 2027, I foresee tenants will be able to enjoy the right to their own privacy, rights to repairs, and most importantly – security of tenure, with the removal of ‘no-grounds’ evictions,” Mr Ziebell said.

However, he didn’t see many forthcoming improvements to the cost of house prices and rent prices – and warned that homelessness might be on the rise over the next decade.

“We may end up having some [more] rights, but the average Australian will be a tenant at perilous risk of homelessness, due to ever increasing house prices … It will also put home ownership well and truly outside of the realm of possibility.”

Tenants Union of NSW senior policy officer Ned Cutcher firmly believes renting would improve in a decade on the back of the “meteoric rise of the renter … the fact that more people will rent for longer, if not for life – means that a growing number of people are becoming increasingly concerned about tenants’ rights from an actual tenant’s perspective”.

“The more people who rent, the more people can relate to stories about the need for the rental market and related laws to shape up. Which means things are likely to change and by 2027 we’ll be able to see some of the benefit of that.

“Everyone who pays rent or some other fee for their accommodation will have rights protected by law, and will have access to affordable dispute resolution processes such as a tenancy tribunal.”

But Mr Butterworth anticipates more renters will see them gain rights over the property “similar to ownership whether it be as simple as decorative modifications or renovating the kitchen or bathroom”.

He anticipated there might also start to be rental recommendation platforms, providing suggestions on when and where tenants should move based on market conditions, lifestyle, work and financial factors.

“Cooperative housing similar to the WeWork style model will become more popular with furnishings and utilities incorporated for a generation that grows up owning few things but with access to everything, on demand,” he said.

These digital and innovation approaches are already starting to shift the market – particularly when it comes to rental bonds.

An overhaul of bonds and lease lengths

One tenant bugbear that’s up for significant change is the rental bond, landlord insurer Terri Scheer Insurance executive manager Carolyn Parrella said.

“Traditionally we have had cash bonds but we’re going to see different products where you don’t have to have the full bond upfront,” Ms Parrella said.

“It might be a loan, which you can pay back a little bit each time without interest. There’s going to be disruption.”

They have already been involved with Fintech company Traity’s product Trustbond – which uses trustworthiness by measuring online data, including social media, eBay reviews, Uber, LinkedIn and Airbnb to provide a TrustScore.

Launched in September, this allows tenants to pay a much smaller fee – say $250 as opposed to $2000 – with the rest of the funds provided as a surety bond.

Renters and landlords would also be able to review each other at the end of a lease. It’s also likely tenants will stay in place for much longer, which is more common overseas, Ms Parrella said.

“We’re going to need to see lengthier leases rather than 12-month leases, which are most common at the moment,” she said.

Mr Millet also anticipated a shift towards lengthy lease terms, saying they reduce vacancy periods and encourage tenants to look after the property – both aspects that will attract professional landlords.

 

This article was originally published by Domain on 26 September 2017. It represents the views of the author only and does not necessarily reflect the views of AMP.

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