Franzen tips #1147:Will a Freeze on Rents Solve the Rental Crisis?

Will a Freeze on Rents Solve the Rental Crisis?

 

Last week we highlighted some of the initiatives from the recent budget (and previous announcements from the Labor government) focussed on resolving the current property and rental crises. The issue has become politicised with the Coalition and the Greens blocking the proposals in the Senate. This is of course entirely their right in our democratic political system however any delays are not a good thing for those who already can’t find a rental or can’t afford to purchase a home.

 

One of the proposals/demands from the Greens is to implement rental freezes for two years, and cap increases at 2% every two years after that. You might remember that rental freezes have occurred before and in fact quite recently. During the pandemic (which incidentally still exists), the National cabinet introduced a rental eviction moratorium and the Tasmanian, Victorian, South Australian and Western Australian governments all froze rents. But it should be noted these were planned as very short-term initiatives. But would a two-year freeze and subsequent rental cap work?

 

Well, certainly not everyone agrees. The prime minister has previously described the idea of rental freezes as "absolute pixie dust" and many others believe that the only activity that will solve the problem is increasing the supply of rental properties. It is generally considered that a rental freeze would provide a very short-term solution that would have long-term negative consequences.

 

The Real Estate Institute of Australia believes a rental freeze would have disastrous long-term impacts saying:

 

· The introduction of a rental freeze would have far-reaching consequences with renters as the biggest loser.

· It has a sexy short—term effect on politicians but as the market adjusts the consequences turn out to be dire.

· We know from international experience that rent freezes or controls will immediately reduce rental supply, discourage institutional and private investment in housing and reduce investor income needed to improve existing rental stock for essential things like heating, cooling and energy-efficient improvements.

 

So, implementing a freeze and cap may well push current landlords to sell their rental property, further reducing rental stock and also being a massive disincentive for new investors to purchase property for rental purposes. Fixing rental stock availability still seems to be the only long-term solution and it might take more creative thinking to find better short-term relief.