Australian Politics in 2023: The pros and cons of rent control proposals

 

Academia invites itself into a contentious debate being had across sections of the national electorate.....

University of New South Wales (UNSW) media release via Medianet, 22 June 2023:

Proposed by the Australian Greens, a two-year emergency rent cap prevents rent increases, providing relief for tenants. However, it may lead to landlords selling their properties. Photo: Getty

 Would you benefit from a rent freeze?

 

 

UNSW

 

 

Mandated rent freezes, one of the rental crisis solutions proposed by the Australian Greens, seek to address the urgent needs of renters. The solution involves introducing an immediate two-year emergency freeze on rent, followed by the implementation of a rent cap where rent increases are capped within certain limits. 

This means that regardless of market fluctuations and rising interest rates, tenants could find solace in knowing their rent payments will remain relatively stable and stress less about their financial situation.  

“Rent increases have been getting much larger and more common,” said Dr Chris Martin, Senior Research Fellow in the City Futures Research Centre at UNSW Arts, Design & Architecture. 

How much have rents gone up? 

Research has shown that the national average of asking rents has increased by 11 per cent in the last 12 months. Renters in Sydney have seen the median average weekly rent for new tenancies soar by 20 per cent over the past year to $650 per week.  

“When properties are re-let, a new tenancy commences and 95 per cent are getting a higher rent than for the previous tenancy,” said Dr Martin.

“Most are going for at least 10 per cent more than previously let. About 75 per cent of properties with existing tenancies have recorded rent increases over the past 12 months, and about 25 per cent are getting increases of more than 10 per cent.” 

With statistics such as these, Dr Martin said a rent freeze, and a subsequent rent cap, would protect existing tenants from rents rising to similar levels.  

Dr Martin explained that significant rental increases are a crucial price signal to property owners. This should encourage the supply of new rental properties, ideally from sources outside the existing stock, such as newly constructed dwellings or currently unused and underused properties like second homes and Airbnb listings.  

“The goal is to expand the rental market by increasing available housing options.  

“That price signal is currently going into the existing stock; as landlords increase rent prices, tenants are being pushed out of their existing homes. That brings the property to the market but also means there’s another tenant looking for a lower-cost rental property or are being made homeless.  

“By regulating rent increases for existing tenants, the price signal from the new tenancy market is directed into sources of genuine new supply,” said Dr Martin. 

This approach aims to ensure that the rental market expands in a sustainable manner while simultaneously addressing the immediate needs of tenants facing displacement and housing instability.  

Rent freeze policy pitfalls  

While the rent freeze policy is designed to alleviate financial stress on renters, crucial questions remain about the impact on landlords.  

With interest rates on the rise and mortgage repayments increasing, the policy could have serious implications for homeowners.  

Dr Peter Swan, a Professor in the School of Banking & Finance at UNSW Business School, said the rental crisis would become “far worse for tenants and landlords” if the policy came into force.  

“While it is true that tenants who are not evicted may gain temporarily, tenants as a whole lose as rental accommodation is withdrawn, fewer new places are provided, and maintenance of rent-controlled housing deteriorates.   

“Rental rates rise due to restricted supply, while landlords with sitting tenants suffer. Eventually, a black market evolves with ‘protected’ tenants unable to move and with the rampant use of sizeable ‘key money’ paid by prospective new tenants.   

“The latest version of the Residential Tenancies Act 1997 in the ACT reveals that pre-existing rent control in Canberra has doubled in its severity in 2019.  It now limits rent increases to no more than 10 per cent above the increase in the rent component of the ACT Consumer Price Index (CPI). It was previously 20 per cent.   

“As a result, it has left some landlords no option but to sell their properties, leaving evicted tenants back on a tighter rental market.” 

Prof. Swan explained how another example can be seen in the Californian Tenant Protection Act of 2019, which imposed a 10 per cent cap on rental increases.   

According to a 2018 analysis by the National Bureau of Economic Research (NBER) on San Francisco legislation, rent control resulted in a 15 per cent reduction in rental supply as landlords converted their properties to exempt building types, subsequently causing a 5.1 per cent rise in rents.  

“The repercussions of these circumstances result in a significant portion of tenants being at risk of eviction and will face the challenge of re-entering an increasingly competitive rental market, where they may be required to pay, effectively, a substantial increase in rent in the form of a bribe to secure a new place.  

“Interest rates will persistently climb until we align with the rates of countries like the US, UK, and others. As a result, these escalations will lead to even higher rental prices and if restrictions were imposed on these unavoidable increases, the current inventory of rental housing will diminish even more,” said Prof. Swan.  

A possible solution: adopting other rental practices  

The rent freeze policy has both positive and negative implications, and it has prompted the need to examine the delicate balance between the needs of renters and the challenges faced by landlords.  

“The solution to the crisis lies in boosting the housing supply. However, governments and councils commonly exhibit significant reluctance when it comes to permitting new developments or streamlining bureaucratic processes plagued by excessive regulations and prolonged delays,” said Prof Swan.  

However, governments and councils often hesitate to approve new developments or streamline bureaucratic processes, which can create housing supply bottlenecks. This begs the question: should we turn to international renting practices and consider alternative methods?  

Dr Martin said: “All these variations on rent regulations should be on the table. 

“Scotland implemented a rent freeze in September 2022, and in April 2023 moved to a rent cap of 3 per cent, in most cases. For years, most Canadian provinces have had rent caps - called ‘guidelines’ there - that limits rent increases to a certain percentage rate set by the government. 

“Ireland has a system of ‘rent pressure zones’, if a local government area records increases in median rents above a certain threshold for successive quarters, a cap kicks in, currently 2 per cent, and not more than once in 12 months.”  

The Promise vs The Reality of post-flood housing for homeless victims of the Northern Rivers climate change-induced 2022 unnatural disaster

 

THE PROMISE

NSW Government, website excerpt retrieved 28 December 2022:

Northern Rivers temporary housing sites

Temporary housing sites will host groups of temporary modular homes (also called pods) and caravans. The sites will include supporting infrastructure and amenities. They will vary in size, depending on the land and available amenities.

The temporary homes are stand-alone accommodation units that range from studios to 3-bedroom units. Some temporary homes will have their own internal facilities. Some sites will have communal bathrooms and kitchen facilities.

Temporary homes are rent-free for up to 2 years. Power and water costs are also included during that time. Residents are responsible for their own internet costs. For caravan residents, there may be some costs for waste management. The community housing provider will discuss any ongoing costs with residents.

How long will the temporary homes be available?

The temporary housing sites will be available for up to 3 years. The time will depend on what is needed by the community. Residents can live in the pods while they find and settle back into long-term housing. This will allow time for rebuilding homes, moving, or finding a rental property.

THE REALITY

The Daily Telegraph, 27 December 2022, p.6:

Flood victims are calling for urgent help after many spent Christmas sleeping in their cars or under their houses while emergency housing pods built specifically for them stand empty on the side of the road.

The Daily Telegraph found 10 empty purpose-built pods on the roadside just four kilometres from the centre of Lismore where Julia Melvin is still living in her car under her flood-damaged home.

Ten months after the catastrophic floods there are still officially 765 people in emergency accommodation – not counting those staying with friends or family or in their cars – and four of 11 pod housing sites still under construction.

Frustrated residents believe the $350 million spent on temporary housing, including unused pods by the now decommissioned Resilience NSW, could instead have been used to help fix the shortage of 18,600 homes across the Northern Rivers.

Ms Melvin, 62, is sleeping in her car underneath her home near the river in Lismore with her dog Bella after being rescued from the house in a tinny last February.

“I cannot live in the house so I have to sleep in the car,” the graphic designer said through tears. “Talking about it is still pretty tough.” Ms Melvin would like to move her entire house to a new location but while she battles to do so she could have been living in an emergency pod.

“I haven’t been offered anything,” she said.” It’s been inertia, totally shambolic.” The emergency housing pods, costing up to $170,000 each, were meant to be a quick fix to provide flood victims with temporary housing. But the rollout has been slow with local residents opposing their construction on ovals and public land.

A site with 52 self-contained pods that can house 200 people only opened on land at Southern Cross University in Lismore last month – nine months after the floods hit. There are other sites at Coraki, Evans Head, Kingscliff, Pottsville, Wardell and Wollongbar. Four more are under construction.

Lismore state Labor MP Janelle Saffin, who is still working out of a temporary office because hers was damaged in the floods, said rather than leaving 10 pods empty on the side of the road it would have been better to put them on private land so people could use them.

“It could have been managed better. No one knows what is being spent. It is awful and heartbreaking,” she said.

“They have said people will be in the pods for a couple of years. It might have been better to do modular homes in the beginning and let people buy them in the future.” NDIS worker Gray Wilson and partner Lisa Walmsley were due to move into their new home in Brewster St the day after the floods hit. They desperately want one of the pod homes.

“I was waiting for someone to contact me but I never heard back,” Mr Wilson said.

A NSW government spokeswoman confirmed there were 765 people in emergency accommodation in northern NSW, including in motorhomes and motels, despite $350m being spent on “medium-term accommodation”.

“The rollout of this housing program has faced challenges, particularly the persistent wet weather which has hampered construction,” she said.

The spokeswoman said 546 temporary housing units across 11 sites would eventually have the capacity to house more than 1800 people.

On 25 December 2022 SQM Research recorded a total of 110 rental listings for the Lismore City postcode of 2480, which includes East, West, North and South Lismore, Goonellabah and Girards Hill . Only three of these properties were long-term rental, the majority (92 dwellings) being rented out for periods under 30 days.

Property investors are reportedly buying up flood damaged dwellings on the market at bargain prices with the aim of renovating and placing these properties on the financially favourable rental market.