Comment

Kos Samaras
Rent control is not the solution

I was 15 years into my working life before I could buy a house. At the time the current housing crisis was in its infancy. My mum, sister and extended family all rent, here in Australia and abroad. In three generations I am, along with my uncle in Greece, the only member of our family who owns property. That said, both of us own only the roof over our heads.

It’s an important personal declaration for anyone who engages in any debate on rent controls.

Next week, national cabinet will discuss rental policies of the states and territories, with Prime Minister Anthony Albanese continuing to oppose calls from the Greens for a freeze on rent prices. This announcement of an effort to better align policies across the country follows a number of well-placed Victorian government leaks over the past few weeks suggesting the Andrews government is considering some form of rent control, aimed at easing the escalating rental stress experienced by millions of tenants in Melbourne and countless regional towns across Victoria.

It’s heartening to see a government seriously ponder solutions for renters, a class of citizen that until recent years was of little real interest to the major political parties. Indeed, the Victorian government deserves credit for implementing significant reform to tenants’ rights in 2017, for a cohort that was largely invisible in politics. Six years ago, their reforms were scoffed at by their political opponents and some in the media. These reforms were ahead of their time, taking bold steps towards addressing the many ailments afflicting renters in Victoria.

However, if media reports are correct, their next planned reforms for tenants will not necessarily help renters.

https://www.youtube.com/watch?v=xvpAY5wkHVQ

 

Many governments around the world have attempted to ease escalating rental prices via some form of rent control. New York City, for example, has waged a losing battle over the past 70 years on behalf of tenants, implementing various forms of rent control or stabilisation focused on limiting rent increases to significantly below market rates.

This battle is being lost because New York policymakers ignored one fundamental, inescapable factor: landlords place their assets on the rental market to make money.

Unsurprisingly, New York landlords found other ways to maintain their profit margin, to the detriment of their tenants, by cutting corners on – or entirely neglecting – maintenance of their properties, let alone making improvements.

This has led to an ageing and debilitated housing stock that is only ever offered to lower-income earners. Higher-income earners swim in another market, where landlords pitch a far better product to a smaller but lucrative base that is willing to pay top dollar.

So what happens if governments try to prevent this by mandating certain levels of property maintenance, paired with rent controls? Again, the market will respond. In Victoria, we will likely see a dramatic escalation of property offloaded by landlords who are already experiencing what we call “investor stress”.

In 2021, UNSW Sydney’s City Futures Research Centre published a critical insight into the phenomenon of investor stress. Right across the country, more than 40 per cent of property investors were experiencing financial stress in key federal electorates, and in Victoria these included the federal seats of Macnamara and Melbourne. That’s before the past 12 months of interest rate rises. We can safely assume that number is now much higher.

Who are these landlords? Almost three-quarters of all properties on the rental market are owned by landlords who own only one property in addition to their own home. Some in the media like to define them as “mum and dad investors”, but the picture is far more complex and diverse. They share a common vulnerability towards economic downturns not experienced by typically better-funded corporate or institutional landlords.

It’s within this investor cohort that we will see the first signs of property offloading. Even without rent controls, there are already signs these small-scale investors are leading the rush to offload property.

The French property market offers some insight into what this may look like. In 2015, France introduced the encadrement des loyers (rent controls). Landlords were not permitted to increase rents above a specified index, resulting in many choosing to sell their properties rather than lease them. The reduction in rental stock was so great that two years later, the French government was forced to repeal the law.

Some in Australia argue any policy that forces landlords to offload stock will only help renters, by increasing available housing stock. This is a shallow perspective and lacks any real understanding of why people rent, or how many rentals are onsold to new owner-occupiers, rather than new landlords. Put simply, houses sold by landlords will most likely be bought by landlords. Renters will not benefit.

Based on our own research, most who rent don’t do it by choice. It may be stating the obvious, but more than 75 per cent of renters we surveyed in Melbourne last month can only afford to buy a home under $500,000. They certainly do not have the capacity to buy up any stock offloaded in the federal seats of Macnamara and Melbourne.

The only meaningful way governments can improve the lives of renters is via supply and rights. The Victorian government has already implemented critical reforms with regards to renters’ rights, but more can be done to address significant levels of anxiety experienced by tenants. Aside from housing attainment, eviction is a main source of stress for many renters who recognise the struggle they will face to find suitable alternative accommodation. Homelessness is a very real fear for many lower-income and single renters.

These stresses are having a profound effect on how renters are planning their lives, with huge repercussions for our society in the years and decades to come. The most alarming of these appeared in our research, with several women in our groups deciding to delay having children, or not have them at all, for fear they will not have a stable home.

When it comes to eviction, tenants have far greater rights in many other countries, including Germany, Sweden, Japan and Belgium. These laws are driven by an acknowledgement that renters are a key part of society – a significant contrast to Australia’s approach over the past 30 years. In Australia, political parties have only ever been interested in Australians who bought into the “Australian dream”, taking advantage of the politics around the continuing aspiration for a secure future in which to build a life and raise a family while the value of their home grows.

When it comes to renters, both major parties have been extremely reluctant to place them on the same level of importance as home owners. The narrative that followed the 2019 federal election’s rejection of negative gearing reform is clear evidence of that.

Thankfully, within just three years, renters found a way to be heard, forming critical voting blocs in seats won by Labor, the teals and the Greens. The federal seats of Higgins, Bennelong, Wentworth and Brisbane are now just as important to this country’s political landscape as the traditional outer-suburban seats of Sydney and Melbourne, and regional Queensland. Without them, neither Labor nor the Coalition can form government.

Hence the political sparring between the Albanese government and the Greens over the Housing Australia Future Fund bill, which is now before the parliament for the second time. This debate has taken on the same gravitas as past contests between Labor and the Coalition on policies more relevant to seats such as Herbert and Hunter.

Living with an inexorably increasing struggle to keep up with rising costs and less stability than ever, renters within these newly contestable electorates are demanding to be heard.

They want the laws designed to protect them to be strong enough to ensure Australians who cannot afford to buy a home can still call their rental property a home. They also want access to the Australian dream, which they see as out of their reach, with too few houses on the market and too many vying for them using equity derived from their existing home or investment partners.

The only real solution here is supply. Based on media reports, the Victorian government appears to be working on significant reforms to address the problem. However, addressing vacancy rates is not just about building apartments in established suburbs but also offering renters a wide range of housing options that give them a pathway to the life to which they aspire.

Renters we surveyed in Melbourne wanted variety and choice. Migrants planning to start a family and a new life want more housing options where their community is already situated. For them, townhouses are all the rage. Naturally, younger renters living in inner parts of Melbourne are more than happy to live in apartments, but with a catch – they need space to work from home sometimes. Hence, governments need to take care to avoid the unintended consequences of poorly designed policy, and find solutions that address the varied needs of this group they would rather ignore.

Kos Samaras firm, RedBridge Group, provides consultancy services and market research, and its clients include property developers.

This article was first published in the print edition of The Saturday Paper on August 12, 2023 as "Rent freeze in your head".

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