Will rent control solve unaffordability?

By Gerv Tacadena | 29 Oct 2019

A recent study from the Productivity Commission found that Australian households are getting more exposed to rental stress. Could imposing rent control on landlords be the solution?

Citing figures from the Australian Bureau of Statistics, REA Group chief economist Nerida Conisbee said rent prices have been increasing in recent years.

"In many big Australian cities, a growing proportion of renters pay more than 30% of their household incomes on rents, technically putting them in rental stress," she said in a think piece.

Also read: Concerns About Changes To ACT's Tenancy Laws

As tenancy laws get reviewed, one of the major topics that has become a centre of attention is rent control. Conisbee said overseas markets have already put in place certain thresholds to limit rent increases.

For instance, some parts of the United States, including California and Oregon, will be implementing as much as 7% annual cap on rent increases next year.

In Berlin, a rent freeze was implemented — landlords will not be able to increase rents for the next five years.

Does Australia need rent controls?
What could be driving the high rents in some Australian cities? Conisbee said it could be due to the landlords passing on the higher property prices they paid to renters.

However, Conisbee believes rent prices in Australia are cyclical, meaning these high rents would not persist given the increased competition.

"Australia's well-developed building industry and comparatively good planning controls also ensure that over the long term enough housing is built, and enthusiastic investors in housing, ensure a constant supply of rentals," she said.

Conisbee said for the market to be affordable to renters, an increase in the supply of properties, especially in areas where people saturate, is crucial.

"This means developers, planners and government authorities need to work together and plan to create rental properties that are attractive to renters and close to public transport," she said.

Also read: Hobart An Expensive City For Renters?

The downsides of rent controls
Conisbee said rent control could have severe implications if applied to Australia's rental market.

"The first problem is that rent control discourages the development of more rental housing – capped rents typically make new home building financially difficult for both developers and owners," she said.

Another potential problem is the deterioration in maintenance work on existing rental properties.

Rent control could also discourage investment in existing properties as it hampers yield.

"Rent control can also lock people out from entering the rental market at a more affordable price," Conisbee said.

What governments need to do
Property leaders who attended The Australian Financial Review Property Summit las month said governments have to exert more effort to do their part in solving the country's housing affordability crisis.

Aside from pushing efforts to release land faster, property leaders demanded governments to solve the planning delays and provide tax breaks for build-to-rent housing.

Governments also need to ensure the supply of affordable and social housing, summit attendees said.

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