Rent caps - a disastrous policy for any State

Residential rental providers have been threatened in recent times with rent freezes, which are nothing more than a knee jerk reaction to an issue that requires careful deliberation, consideration and longer-term solutions. 

Rent freezes, or ‘capping’, is a method of regulating the price of rental properties.

Regulating the price of any service or product without careful long-term planning, continues to be the wrong move for any market, and simply exacerbates the problem, rather than resolves it.

The aim of this policy, albeit misguided, is to make rental accommodation more affordable by limiting the amount rental providers can charge renters. Can politicians successfully do that to milk, eggs, bread, fuel – just to name a few everyday essentials?

While there may be good intentions with this policy, the implementation of rent capping has never yielded the desired results. The two major issues are reduced supply, as rental property is no longer an attractive investment option, and the deterioration in the quality of remaining rental stock.

In Victoria, almost 90 per cent of renters are renting from private rental providers. While it's essential to ensure that tenants are not unfairly burdened with rising rental costs, it's equally important to provide a fair return on investment for the owners who play a critical role in providing much-needed long-term rental properties.

Forcing the hand of rental providers and telling them how to manage their properties flies in the face of what attracts people to the market in the first place.

Despite popular opinion, 70 per cent of Victorian property investors only own one rental property, with 43 per cent of that group earn under $100,000 p.a. according to the ATO, so these investment properties represent the future financial planning of everyday Victorian families.

If rent is capped and cannot move with the market, investors are unable to respond to cost movements such as increasing interest rates, maintenance etc. They are very likely to take their hard-earned savings elsewhere, which is what we are already seeing as a response to the increases in Land Tax.

Rental providers who cannot charge the true cost of maintenance become unwilling to invest in maintenance, upgrades or renovations, leading to deterioration of the quality of the rental properties. This ultimately impacts on the renters.

Rent capping discourages any further investment in the sector as developers and investors find it less attractive to invest in an asset with capped returns.

The entire rental ecosystem must be considered if a solution is to be identified for now and future generations. That includes the needs of renters and rental providers.

Short-term actions like rental freezes, which are not solutions, do little other than drive headlines for policy leaders and peddle inaccurate forecasting.

Victoria’s rental crisis requires structural reform, not nonsensical ‘quick fix’ responses.

It’s time the State Government comes out and says, absolutely no, to rental caps, freezes and other market interventions.

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