National Cabinet Ends Rent Freeze Discussion

Read The Media Release Here

We want to extend our thanks to all of our members who shared this message and helped us get our industry view on this important matter across.

Rent Freezes will leave renters out in the cold

A policy that caps residential rents was always going to get headlines for politicians. Any suggestion to keep the cost-of-living down - now, will sound like a good idea in the current environment. At the REIV we support well thought-out, sustainable housing policy that benefits Victorians and the Victorian economy, now and into the future.

Rent freezes and caps are a naive view of the wider economy. Rising rents are a symptom of a problem, not the problem itself. The problem is lack of supply. Rent regulations only make the problem worse by driving away investment and exacerbating the lack of supply, making it almost impossible for people to find a rental. With Victorian vacancy rates already under 2%, any reduction in supply will make matters worse for renters.

Rent caps have failed across the world, in Stockholm, New York, Berlin and San Francisco.

A Rent Freeze will do more than just freeze rents. The rental housing market will be frozen. And that will leave a lot more people out in the cold. Sweden has rent controls since 1942, the average queue for a rental apartment in the capital is 11.3 years – reaching 30 years for heavily subsidised apartments. The city’s queue for rent-controlled housing is so long that it’s being considered by the Guinness Book of World Records.

Without addressing the core issue, rent caps would simply discourage investment in property resulting in a reduction in the supply of rental properties, rather than making housing more affordable for renters. The broader impacts of fewer property investors in the economy would be crippling.

Just some of the factors to consider are:

• - Reducing supply - As mum and dad investors exit the market due increased costs and capped income.

• - The overseas evidence - Rent controls have been proven to create inequality, black markets, poor housing conditions and reduced supply.

• - Quality of housing - Limiting the amount that can be charged for a property also limits the amount that can be spent on maintenance.

• - Not means tested - Rent freezes don't consider the economic capacity of the renter. Overseas evidence shows that this can shut new and low income renters out of the market. 

• - Black market - Artificially limiting rents can create a black market of subletting as people struggle to find suitable accommodation.

• - Dissuades investment - Inability to make a reasonable return on investment will mean that businesses and individuals will take their money elsewhere.
  

Reducing supply

Over 88 per cent of renters rent from private rental providers. (ABS Census 2006-2021). These are often average mum and dad investors with limited means, investing for their future. According to the ATO, in 2021, 72 per cent of private rental providers in Victoria only had one investment property. Across Australia 68.6 per cent of single-property investors earn an annual income of under $100,001.

Rising interest rates, property taxes, cost of property maintenance, owners’ corporation fees, council rates, compliance with regulations etc. are some of the costs that these property owners recover from the rental income. But, when the rent is capped and their costs go up, selling up and investing elsewhere becomes the right financial decision. The reality is that most rental providers will not be able to sustain the increased cost burdens and will exit the market. 90 per cent of REIV Members have reported an increase in sales appraisals from their landlord clients.


Source: REA Group Ltd 

The overseas evidence

• The Effects of Rent Control Expansion on Tenants, Landlords, and Inequality: Evidence from San Francisco

• BBC.com – Why rent control isn’t working in Sweden

• Austrian Economic Centre – Rent Control Has Failed in Sweden

• Regional Science and Urban Economics – The case of the German rent control

• Brookings - What does economic evidence tell us about the effects of rent control?
  

Quality of housing

By limiting the amount that can be charged for a property, it also limits the amount an owner would spend on the property, if they cannot recover the cost. Overseas evidence shows that property owners may leave the property to deteriorate, take it off the market as it no longer complies with the RTA minimum standards, or sell up as it creates a drain on their finances. Whichever path they choose, it takes rental property off the market and leaves one more family looking for a rental.

Not means tested

Unlike most other government support measures, rent caps are not means tested i.e. the renter benefits from the low rent irrespective of their personal income. Overseas evidence shows that this can lead to current renters refusing to move even if they can afford to, closing the property to someone in need. A significant unintended consequence, benefiting higher income households and pushing rental properties out of reach from the people that it was intended for.

Black market

Overseas experience shows that rent freezes disproportionately impact new renters who find it harder to access rental property. New renters resort to sub-letting from existing renters, at much higher prices, creating a cash based black market.

“…This increases the waiting times for “rent frozen” properties, forcing desperate individuals – usually those already most disadvantaged – to rent illegally through the black market. This worsens the divide between the wealthy market-insiders and unemployed, migrant, young and other disadvantaged renters. The resulting lack of available rentals worsens worker shortages in some areas and can create pockets of increased violence and crime spawned by uncontrolled hidden black markets.” - Deakin University

Dissuades investment

As mum and dad investors turn to alternative investments to save for their retirement, there is less incentive for builders to develop new housing in Victoria, taking jobs and investment away from the State. Rental caps would discourage people from investing in Victorian real estate. Not being able to make a reasonable return on their investment would encourage them to look elsewhere - be that location or asset class. The reallocation of investment would lead to fewer properties, exacerbate the housing shortage, and further push up rents.

The impact will be felt not only in the rental market but also in the wider state economy as businesses choose areas where they can attract workers and grow. Property investment is an important driver of economic growth and job creation in Victoria fuelling over 40% of the state revenue each year.
 

Rent freezes are not the solution

Without addressing the core issue, rental caps would simply lead to reduced investment in the rental market and a reduction in the supply of rental properties, rather than making housing more affordable for tenants. The broader impacts of fewer property investors in the economy would be crippling.

If policymakers step away from using polarizing policies as campaign bargaining chips, they could look at alternative policy solutions, such as sustainably increasing funding for social housing, removing lazy tax regimes like Stamp Duty, or introducing tax incentives for property owners – all of which would be more effective in addressing housing affordability issues without the cost of rental caps.

Rent freezes will only leave Victorians out in the cold. #frozenout

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