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Real estate experts call for action against rental crisis

Real estate experts have called on property managers, agency owners and investors to make a serious amount of noise about the worsening rental crisis, imploring state and federal governments to ditch thoughts of rent freezes and rent caps, which they say will only make the problem worse.

Real Estate Institute of Australia President Hayden Groves has urged family investors to have their say in the national senate inquiry into the rental crisis, while escalating talk of two-year rent freezes and rent increase caps in Victoria has prompted The Property Management Coach Kirk Stafford to call on PMs and agency leaders to write to their local members of parliament.

“We need to be in touch with our local members of parliament, we need to be in touch with our federal members of parliament,” Mr Stafford said.

“If we don’t do something, we’re facilitating whatever government does because we then become complicit by silence.”

According to the latest PropTrack Rental Report the national vacancy rate is at 1.5 per cent, down from 1.6 per cent a year ago, while new rental listings remain 5.7 per cent below the June average for the past five years.

The PM impact

Mr Stafford said in addition to fearing a throng of landlords would sell up if Victoria brought in rent freezes and caps, he said one not-so-talked-about-issue, was the cap such policies could place on property management departments and agencies profit margins.

He said as management fees are a percentage tied to the weekly rent of a property, if rents are frozen, so too will be each property’s earning potential from a business perspective.

“If they freeze it for two years, your income is going to be fixed at that level unless you bring in a great deal more properties to compensate,” Mr Stafford said.

“But you’re still going to be faced with people leaving the market for other reasons.

“But even if you maintain your current level of rental properties, your income is locked. 

“Depending on how legislation could be framed, you might be able to lift it at the time that the property becomes vacant, but your opportunities to vacate a tenant are limited, so you’ve really got to wait, in a lot of cases, for the tenant to move out of their own volition.”

Kirk Stafford

Mr Stafford said his concern was not about real estate agencies making copious amounts of money, but retaining viable businesses that delivered first rate service to clients and enjoyable workplaces.

He said if rental management fees ended up caught up in a rent freeze, agencies would still have rising rents, increasing outgoings and wages to pay. 

“They’re not going to freeze or wait for you to catch up in two year’s time,” Mr Stafford said.

He said businesses would have to find ways to economise, which could result in departing staff not being replaced, mergers to generate better economies of scale or even selling up.

“The natural impact of this is that the additional revenue loss will adversely impact the provision of better standards of service for clients across the board – and by this, I mean both landlords and tenants, as they are both vital in the rental market and in agency service delivery,” Mr Stafford said.

A concerned approach

Alana Spruce runs Spruce Real Estate in Melbourne’s inner city suburbs, and says as a boutique, property management-only agency, she’s carefully monitoring the Victorian rental situation.

While Ms Spruce would like to think the State Government won’t impose a rent freeze on landlords, and by default property management fees, she knows it’s a possibility.

“How do you prepare for what you’re not sure is coming?” she said.

“It’s really tricky.”

Alana Spruce.

Should a freeze eventuate, Ms Spruce said it would be the latest ‘cost’ for agencies to bear following the difficulties of Covid and additional costs, like cyber insurance, that didn’t exist a few years back.

“I also worry that, if a freeze is put on, some people might not be able to have the right people in their business or be able to provide a great workplace,” she said.

“When someone new comes into a business and they’re raring to go, they’re wanting to further their career. 

“They want to grow personally and you, as the leader, are responsible for that. But all of those things cost money and you just want to provide a great working environment.”

Other impacts

Mr Stafford, Ms Spruce and Metro Property Management Director and industry consultant Leah Calnan all agreed rent freezes and caps would hurt landlords and tenants.

Landlords will leave the market, rental property supply will drop and there will be fewer homes available at affordable prices, they said.

But Ms Calnan also said a rent freeze would make it harder for tenants to budget for rent rises when they did come.

“At the moment, when we talk about a rent increase, it can either be increased in accordance to market conditions or CPI in Victoria,” she said.

“And let’s say we’re working on CPI of 7.1 per cent, as an example. What happens in two years time if that CPI is at a higher rate or if the market conditions are much higher?

“Instead of a renter, on an annual basis, receiving a $50 per week increase, every two years they would potentially receive a $100 per week increase.”

REIV Leah Calnan lockdown
Leah Calnan

Ms Calnan said many landlords were understanding regarding increasing costs for tenants and some would prefer to do smaller increases, more often, but a rent freeze wouldn’t enable them to offer this.

“There are adverse effects, not just from a supply aspect, but for the consumer as well,” she said.

“From a budgeting point of view, renters would be receiving much larger rent increases than what they would perhaps if they were receiving them on an annual basis.”

Ms Calnan said any rent freezes or rent caps would also prove difficult for property managers who were already receiving abusive phone calls and emails.

“They’re already being challenged when there’s a rent increase,” she said.

“So what’s that going to look like when the rent increases are potentially larger because of running a two-year cycle?”

Family investors

The REIA has also called for family investors to have their say into the inquiry into worsening rental affordability. 

REIA President Hayden Groves said there were 2.2 million family investors supplying rentals in Australia while only 3 per cent of the nation’s tenants rented from a government housing authority – half of what it was two decades ago.

He said 30 per cent of households rent and 27 per cent rent from a private landlord.

Hayden Groves.

Mr Groves said the continued politicking around rental affordability is causing further confusion for Australians and adversely impacting housing supply. 

“Adam Bandt is out there campaigning for rent freezes and rent controls, whilst busily attacking family investors when they are, in fact, the main suppliers of rental homes across Australia,” he said. 

“Meanwhile, Victorian Premier Daniel Andrew’s has joined in with recent speculation about rent controls and rent freezes, with 36 per cent of new property listings in Victoria are now family investors selling rental homes.

 “At a time when cost of living, inflation and interest rates are challenging for all, family investors are rightly frightened by talk of rent controls and rent freezes and we see that bearing out in the listings and sales data. 

“The biggest loser out of that is, of course, renters as fewer rental properties will be available.” 

Mr Groves said everyday Australians needed to tell decision makers in Canberra their story about supplying rental properties as well as renters themselves. 

“Now is the chance for family investors; and tenants to get involved and give their ideas on how we can improve the rental system and increase supply, not further reduce it.” 

* REIA has issued a call to action to Australia’s real estate industry. Click here to have your say.

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Kylie Dulhunty

Kylie Dulhunty is the Editor at Elite Agent.