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.”  

Regional rents continued to outpace capital city rents in 2021

Maitland Mercury, 20 July 2021:

Rents across regional Australia surged by 11.3 per cent in the year ending June 2021, the highest annual growth figure since data firm CoreLogic began records in 2005.

Increases were most pronounced in Tasmania's South East region, including Bicheno, Bruny Island and Huonville, with combined rents for houses and units increasing a whopping 23.7 per cent to $430 per week.

Tasmania aside, many of the largest gains were found in regional Queensland, Western Australia and NSW, with many traditional tourist hotspots seeing the greatest growth.

The Richmond-Tweed region, home to well-known lifestyle enclaves like Ballina, Byron Bay and Lismore recorded regional NSW's highest increase, with combined rents rising by 19.0 per cent over the 12 month period to $620 per week.

Immediately south to Richmond-Tweed, the Coffs Harbour-Grafton region recorded combined rental growth of 16.7 per cent to $525 per week.

In the Southern Highlands-Shoalhaven region, which includes Nowra, Berry and Mittagong, rents rose 15.8 per cent to $549 per week.

Rents in regional Victoria recorded lower increases. The Latrobe-Gippsland region, which includes population centres such as Sale, Bairnsdale and Morwell, recorded the greatest increase in combined dwelling values at 10.4 per cent.

CoreLogic's Head of Research Australia, Eliza Owen said that regional Australia had been suffering from low levels of rental stock, likely contributing to an increase in prices…..

Regional rents continued to outpace capital city rents in the most recent quarter, though there are signs that both markets may be slowing, according to Ms Owen.

Regional rents increased by 2.7 per cent during the quarter compared to a 1.9 per cent for capital cities, both down on the previous quarter…….

Rental housing is becoming beyond the reach of locals in 2021

ABC News, 1 March 2021:

After years of supporting others to find secure accommodation, Cherie Bromley never imagined she would find herself on the receiving end of the housing crisis on the far north coast of New South Wales.

Key points:

Valuable members of regional communities are being forced out of the area due to a shortage of affordable rental properties

A woman who applied for rental properties says she was told the successful applicants offered to pay $100 more than the advertised price

The head of a homeless support group says many of her own staff are struggling to find accommodation for themselves

"I didn't even approach the real estates because I just knew there was nothing out there," she said.

For the past decade, Ms Bromley has been working for the Byron Community Centre, which provides a number of services, including support for the town's homeless population.

The Byron Bay resident of 29 years said she began the search for a home when the lease on her share house ended late last year, thrusting her into a rental market with a vacancy rate close to zero.

"This is the worst it's ever been," she said.

"There is no housing stock that is affordable."

Ms Bromley said she was extremely fortunate to have a good network of friends who were able to find her and her 14-year-old daughter temporary accommodation.

"I'm sleeping in the kitchen area [and] I gave my daughter the bedroom, but I have to pass through her bedroom to go to the bathroom," she said.

"It's not sustainable long-term."

Cherie Bromley is sharing a one-bedroom unit with her teenage daughter.
(ABC North Coast: Leah White)

'Catastrophic proportions'

The term "traumatic experience" is not one Ballina solicitor Sadie Hunt thought she would ever use to describe trying to secure a rental property in regional NSW.

After all, she works in conveyancing, has a regular and respectable income, and has contacts in the local real estate industry — how hard could it be?

"I thought I had a pretty good chance of getting a rental property, but I was rejected from all the properties I applied for," Ms Hunt said.

"I was basically told that if you weren't a DINK (double income, no kids) … you just had zero chance of getting a rental property."

Ms Hunt said she sold her Lennox Head property in November 2020 and gave herself a five-week settlement period to find a new place.

But she said even the first hurdle into the rental market — property viewings — proved challenging.

"You get sent an email and if you don't respond to that email within two minutes those little 4-minute appointment slots are all filled," Ms Hunt said.

"You turn up and there's 30 to 50 people there … that you're essentially competing with to get a home for you and your family to live in."

Ms Hunt said she was able to find a private rental at the eleventh hour but was knocked back for the three rentals she applied for through real estate agents.

She said that the real estate agents later informed her that, in at least two of the homes she missed out on, other prospective tenants had offered higher rental payments to secure the properties…...

Right now a three bedroom house rental in Yamba is likely to cost between 35% and 50% of the 2020-21 middle tier median annual income of $67,000 in regional New South Wales. In Ballina a three bedroom rental is likely to take between 35% to 61% out of that same income if suitable housing stock is available. While renting a three bedroom home in Tweed Heads would reduce that median annual income by between 43% to 56% and, in Lismore such a rental would likely subtract between 34% to 43% from that $67,000 if there was suitable housing stock available.

A single parent raising a child on an annual Centrelink payment of $21,920 from March 2021 who is attempting to secure private rental of even a one-bedroom unit between Clarence Valley and the NSW-Qld border faces a daunting task.

Diversity of opinions on NSW North Coast towards the short-term holiday letting sector

Mirage News, 11 February 2020: 

Residents’ views differ widely across the NSW North Coast on the impacts of short-term holiday letting (STHL), according to the results of a Southern Cross University survey.  

Most residents (71%) and approved accommodation providers (64%) favour rental caps for permanently non-hosted investment properties; while just 34% of Airbnb hosts residing in the region support day limits for such properties. There were more than 1,600 responses to the survey. 

The finding is part of research aimed at giving locals a say in decision-making about how to manage short-term holiday letting in the NSW North Coast region. The survey focussed on the area between Tweed and Kyogle in the north to Tea Gardens/Hawks Nest in the south. Residents in 12 council areas were surveyed: Ballina, Bellingen, Clarence Valley, Coffs Harbour, Kempsey, Kyogle, Lismore, MidCoast, Nambucca, Port Macquarie-Hastings, Richmond and Tweed. The research follows a similar study by the same Southern Cross University researchers in the Byron Shire in 2018. The project was undertaken in partnership with Destination North Coast. 

Drs Tania von der Heidt, Sabine Muschter, Deborah Che and Rodney Caldicott from the School of Business and Tourism at Southern Cross University spent several months surveying 1,632 residents in the NSW North Coast region, including 320 Airbnb hosts, 169 approved accommodation providers and 1143 other residents. 

Dr Muschter said one significant finding was slightly more than two-thirds of approved accommodation providers and other residents believed caps are needed when the property is without a host – temporarily or permanently. 

“In other words, most residents favour a model involving mandatory on-site management for any short-term holiday letting,” said Dr Muschter. 

The majority of the short-term holiday lettings are listed on online rental platforms, notably Airbnb. Across the 12 council areas Airbnb listings increased 371% over the past three years – from 4,072 at the end of 2016 to 6,456 at the end of 2019. The rate of growth in the 12 council areas has outpaced that of the Byron Shire, which grew by 195% in the same time period, albeit from a higher base. In December 2016 the number of Airbnb properties in Byron (1,172) was already more than three times as high as that of the next biggest tourist destination in the North Coast – Tweed – which had just 289 Airbnb listings at end of 2016. 

Dr von der Heidt said the data suggests the other surveyed council areas are following the Airbnb trend that started in Byron Shire. 

She said the study demonstrated a diverse range of perceptions of the sector with many championing the positive impact to tourism, the local economy and employment, while around half of the respondents highlighted social impacts such as traffic, parking and neighbourhood lifestyle and called for more regulation. 

“While Airbnb hosts did not wish for their operations to be regulated, most approved accommodation providers and other residents want more regulation on short-term holiday letting including adequate reporting avenues to lodge complaints of misconduct, appropriate enforcement of non-compliance, and the introduction of compulsory public liability insurance for guests and third parties,” Dr von der Heidt said. 

According to the latest data from Destination North Coast, the NSW North Coast’s multiple tourist hubs are valued at approximately $12.5 million per day. Even though tourism generates 9.4 per cent of regional jobs and supports 7,000 business, the North Coast faces many tourism pressures, including the burgeoning peer-to-peer accommodation platforms.....

In November 2018, with a view to shaping the implementation anticipated state planning legislation, Clarence Valley Council resolved to submit to the NSW Government "an expression of interest in allowing short term rentals for 180 days a year in R2 low density residential coastal areas (Yamba, Iluka, Angourie, Wooloweyah, Brooms Head, Sandon, Wooli, Diggers Camp and Minnie Water) but allowing short-term rentals for 365 days a year in all other residential areas where tourism pressures are not as pronounced and was allowed with a development application previously."

By February 2019 The Daily Examiner was reporting that there were 330 active Airbnb lisitings in the Lower Clarence, with the vast majority being in Yamba.