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Are rent controls the right way to go?

Real estate bodies have labeled calls to freeze rents and cap increases out of touch with reality, fearing it could exacerbate the nation’s rental shortage.

In the past week, the Greens have called for the Federal Government to introduce a nationwide two-year rent freeze, followed by ongoing rent caps and an end to no grounds evictions.

Under the plan, rents would be capped at two per cent increases every two years.

Greens Spokesman for Housing and Homelessness Max Chandler-Mather said based on wages and rents at the beginning of the pandemic in 2020, this would see wages catch back up with rents by 2029.

“An emergency rent freeze will give wages and incomes time to catch up to rents, which over the past 12 months have grown seven times faster than wages in capital cities,” he said.

“With more and more people renting long term, we desperately need legislated protections against unfair, arbitrary evictions and skyrocketing rents.

“As the Everybody’s Home report detailed yesterday, the rental affordability crisis is destroying regional communities and impacting the broader economy. A rent freeze will help those communities rebuild, tackle the skills shortage and protect livelihoods. 

“If the government is serious about cost of living relief, if they’re serious about affordable housing, then it’s a no-brainer to freeze rent rises.”

The REIA take

The Real Estate Institute of Australia President Hayden Groves told that while the Greens plan was well intentioned it would do nothing to address Australia’s long-term housing supply squeeze.

“The real estate industry, particularly, property managers and owners have implemented the rental eviction moratorium during the past two years of the COVID-19 pandemic,” Mr Groves said.

“At the same time, rent has increased in areas where there is a chronic shortage of supply and unless this is addressed, the situation will worsen.”

Mr Groves said that governments at both the state and federal levels needed to focus on encouraging supply and investment in private property markets.

Rent regulation could ease cost of living

Senior Research Fellow from the UNSW City Futures Research Centre, Dr Chris Martin said the greater use of rent regulation, including capping the amounts rents can increase during tenancies, could help relieve pressure on renters’ pockets and keep them in their homes.

“There should be regulation of rents in principle because everyone needs housing, and the consequences of not having it are dire,” Dr Martin said.

“Proper rent control hasn’t been discussed for a while in Australia, but it’s something that should be on the research and policy agenda.

“We currently have very light regulation of rents during tenancies, in terms of frequency of increases and ‘excessive to market’ provisions, and there’s no regulation of rents at the beginning of tenancies at all. 

“It’s just whatever the market will bear.”

Dr Martin said housing was often treated as a means to grow wealth rather than a fundamental need. 

“Rents are increasing but not the quality or output of the housing service,” he said.

“This is the problem with property investment: it promises that you can make a lot of money doing absolutely nothing.

“A landlord just happens to have acquired property in a place that has become more desirable. 

“In almost all cases, the dwelling quality is declining while they make more gains.”

According to Dr Martin, a new supply isn’t likely to catch up to demand fast enough for many struggling renters. 

“If there’s a supply response, it just can’t come fast enough,” he said. 

“In the meantime, it’s causing pain to households, many of whom are already in rental stress, and it can displace them from the communities they want to be in or have been in for a long time.”

Property data sources like CoreLogic show rents in Australia are climbing across capital cities and the regions while vacancy rates are also at record lows – below 1 per cent in some areas – as the demand for rental housing continues to drive up prices.

Currently, tenancy laws regulate the frequency of rent increases – usually no more than once every six or 12 months, depending on the jurisdiction. 

Tenants can also challenge a rent increase for being excessive to the general market level of rents for comparable premises.

What the REIQ says

The Real Estate Institute of Queensland (REIQ) Chief Executive Officer Antonia Mercorella said the Greens rent freeze bill disrespected mum and dad investors, who are primarily responsible for housing about 36 per cent of Queensland’s rental population.

She questioned how it could be deemed fair to freeze rents for tenants while the costs of property acquisition and ownership continued to rise.

“The REIQ acknowledges that rents have risen considerable over the past two years due to extraordinary economic conditions, however the Greens have conveniently ignored the realities of the past 10 years for property owners – which has seen rents remain relatively flat,” Ms Mercorella said.

Queensland Housing Minister, Leeanne Enoch, told parliament earlier this week that, “What renters don’t need right now … is poorly thought through legislation from the Greens political party that could see a further reduction of housing supply in the private rental market.”

Ms Mercorella said the bill could also incite a greater “us and them” mentality, which has emerged due to the pressures of the current rental crisis.

“It’s a dangerous and unproductive play to pit tenants and property owners against one another, and we would much rather see both parties being encouraged to put themselves in each other’s shoes to gain a greater appreciation for their respective positions – often a positively approached conversation is a productive one,” she said.

Rent assistance doesn’t assist enough

Dr Martin said in the absence of rent regulation, Australia had rent assistance paid through the social security system but it wasn’t effective enough because many households in need are ineligible, and the amount is insufficient to make market-level rents affordable for many.

“There are about a quarter of a million low-income renters who don’t receive Rent Assistance at all and are paying unaffordable rents,” he said. 

“And for more than a third of people who do receive it, even after accounting for all their Rent Assistance going towards the rent, they’re still in rental stress.”

The other alternative to private rental is the social housing sector, however, the construction of new social housing has stagnated for decades, and what little stock is available can’t keep up with demand.

“While social housing does provide more affordable rents, there’s not nearly enough to meet the needs of everyone who needs it,” Dr Martin said.

Regulation of rents could be pro-housing development, Dr Martin said, as it encourages landlords to increase land use intensity, increasing the availability of rental housing.

“If you’re the owner of land and rents are properly regulated, the way to increase your rental income would be to develop it further,” he said.

“So, rent regulation could be consistent with or even encourage rental housing development.”

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Rowan Crosby

Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.