The Times Australia
The Times World News

.
The Times Real Estate

.

Rent freezes and rent caps will only worsen, not solve Australia's rental crisis

  • Written by Ameeta Jain, Senior Lecturer in Finance, Deakin University
Rent freezes and rent caps will only worsen, not solve Australia's rental crisis

Average housing rents across Australia have increased by about 10% per year[1] to February 2023 for new rentals, and just a bit lower than that for existing rentals.

Combined with rapidly increasing interest rates and wage rises not keeping pace with inflation, this is placing huge strain on the average household purse, prompting calls for improved rental market conditions.

Read more: To deliver enough affordable housing and end homelessness, what must a national strategy do?[2]

The Greens[3] are refusing to pass the $10 billion Housing Australia Future Fund bill to provide more community housing unless the federal government supports the introduction of rent controls. But is a rent freeze a simple panacea?

Australia used rent controls effectively during the two world wars. However, they have been used in other countries without much success. Using basic economic principles, there is evidence freezes worsen inequality and actually reduce availability.

Making the market worse, not better

Rentals, in economic terms, are a product. To make a quality product for the market, the producer – the landlord – invests substantial sums of money in construction and maintenance to meet legislated minimum standards[4] for rental properties. They also have to cover land and income tax, insurance and mortgage costs.

The rent from a property is expected to cover these expenses with an average return[5] on investment between 3% and 7%. As soon as there is a rent freeze and the return on investment starts falling – in some cases into the negative – landlords will cut back on what they consider discretionary spending.

Read more: Building in the same old ways won't end the housing crisis. We need innovation to boost productivity[6]

This can affect spending on maintenance because all other outlays are fixed. Houses are then allowed to fall into disrepair, leading to landlords selling up or withdrawing properties from the long-term rental market.

Experience in the United States shows how landlords allow some houses to become uninhabitable so they can fraudulently obtain insurance payouts for damage to the property.

Unscrupulous landlords will also try to bypass the minimum rental property standards by offering their properties at above-market rents, capitalising on the high demand and low stock.

Cashing in on the black market

Promoting rent-bidding[7] above the fixed price will only worsen if there are government-imposed rent freezes. While rent bidding has been banned in some states including New South Wales and Victoria, anecdotally it remains widespread.

Man holding cash
Some renters are prepared to pay extra in cash just to secure a property. Shutterstock[8]

Then there is a grey area where real estate agents and landlords appear to adhere to the law by not asking for bids, but willingly accept offers above the advertised price[9] from renters desperate to secure a property.

Given the difficulty in evicting renters, and rent freezes not covering costs, landlords might think a premium payment is justified. On paper, it would appear the rent being paid is reasonable and in accord with a government-imposed freeze.

But it also provides the landlord with untaxed cash. This flows on to the building sector where tradies will happily provide their services for cash, thereby expanding the black market.

Read more: The National Housing Strategy won't end homelessness without supportive housing[10]

The reasons for the property supply shortage are longstanding, and many of the causes were worsened by the COVID pandemic. These included material supply delays, increased costs and changes in preferred housing types. Government policies relating to the release of land and drawn-out approval processes for new builds have added to the supply problem.

Other unintended consequences

Battling families are further disadvantaged in the rental market because landlords would prefer to have their properties occupied by professionals with no children. Often, it is easier for owners to charge under-the-table premiums to this cashed-up group prepared to pay to get a particular property.

This increase in social segregation[11] has been reported in Britain, where landlords choose renters from their preferred social and economic cohort. 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.

Read more: Government's housing fund legislation delayed by Greens-Coalition alliance[12]

While freezing rents would appear to be a simple method to increase rental housing affordability, the unintended consequences of any such move will have a long-term negative impact on the total availability of rental housing stock, reducing the quality of housing and increasing a black market in rental housing.

Global experience suggests that improving supply, by easing building restrictions and scrapping red tape for new developments, is likely to be a more effective policy tool in Australia. Local councils and state governments need to simplify and expedite the process for approving new developments at the same time as reducing taxes on rental properties, both during construction and later.

Read more https://theconversation.com/rent-freezes-and-rent-caps-will-only-worsen-not-solve-australias-rental-crisis-208099

The Times Features

Best Deals on Home Furniture Online

Key Highlights Discover the best deals on high-quality outdoor furniture online. Transform your outdoor space into a stylish and comfortable oasis. Explore a wide range of d...

Discover the Best Women's Jumpers for Every Season

Key Highlights Explore lightweight jumpers for spring and summer, ensuring breathability and ease. Wrap up warm with cozy wool jumpers for the chilly autumn and winter season...

Uncover the Elegance of Gorgeous Diamond Tennis Necklaces

Key Highlights Diamond tennis necklaces are a timeless piece of jewelry that exudes elegance and sophistication. They feature a continuous line of brilliant-cut diamonds, cre...

Dental Implants vs. Dentures: Which Is Better for You?

When it comes to replacing missing teeth, two of the most common options are dental implants and dentures. Both have their advantages and disadvantages, so choosing between them ...

What Neck Pain Really Means (And Why It’s More Than Just Poor Posture)

Neck pain is often brushed off as something temporary — a tight spot after a long day at the desk or a poor night’s sleep. But when the discomfort keeps returning, it could be a ...

The Work of Gosha Rubchinskiy: Fashion, Culture, and Youth

From Designer to Cultural Architect Gosha Rubchinskiy is not just a fashion designer—he's a cultural force. Born in Moscow in 1984, Rubchinskiy began his career in fashion in t...

Times Magazine

The Essential Guide to Transforming Office Spaces for Maximum Efficiency

Why Office Fitouts MatterA well-designed office can make all the difference in productivity, employee satisfaction, and client impressions. Businesses of all sizes are investing in updated office spaces to create environments that foster collaborat...

The A/B Testing Revolution: How AI Optimized Landing Pages Without Human Input

A/B testing was always integral to the web-based marketing world. Was there a button that converted better? Marketing could pit one against the other and see which option worked better. This was always through human observation, and over time, as d...

Using Countdown Timers in Email: Do They Really Increase Conversions?

In a world that's always on, where marketers are attempting to entice a subscriber and get them to convert on the same screen with one email, the power of urgency is sometimes the essential element needed. One of the most popular ways to create urg...

Types of Software Consultants

In today's technology-driven world, businesses often seek the expertise of software consultants to navigate complex software needs. There are several types of software consultants, including solution architects, project managers, and user experienc...

CWU Assistive Tech Hub is Changing Lives: Win a Free Rollator Walker This Easter!

🌟 Mobility. Independence. Community. All in One. This Easter, the CWU Assistive Tech Hub is pleased to support the Banyule community by giving away a rollator walker. The giveaway will take place during the Macleod Village Easter Egg Hunt & Ma...

"Eternal Nurture" by Cara Barilla: A Timeless Collection of Wisdom and Healing

Renowned Sydney-born author and educator Cara Barilla has released her latest book, Eternal Nurture, a profound collection of inspirational quotes designed to support mindfulness, emotional healing, and personal growth. With a deep commitment to ...

LayBy Shopping