(Realestate) – In many big Australian cities, a growing proportion of renters pay more than 30% of their household incomes on rents, technically putting them in ‘rental stress’.
Rent control – telling property owners what they can charge tenants in their investment properties – sounds like an easy way to get rental levels under control, but does it work?Save on rent but still live close to the CBD
Why rent control is a hot topic
Renters tend to be younger and poorer than owners and as a result, there is a sense of intergenerational unfairness.
As you can see from this chart of ABS data, rent prices have been steadily rising in recent years:
Increasingly, tenancy legislation in Australia is being reviewed – in Melbourne, there was a major overhaul last year, which was the first in many decades. This is one reason why rent control is a hot topic here.
Other overseas markets are also looking at rent controls.
In California, rental increases will be limited to 5% per annum over the next decade, starting 1 January 2020.
Oregon has restricted rental increases to 7% per annum.
Berlin has taken it a step further and has implemented a rent freeze over the next five years while Paris has started rent controls up again after scrapping them in 2017.
What happens when rent control is put in place?
The first problem is that rent control discourages the development of more rental housing – capped rents typically make new home building financially difficult for both developers and owners.
It can also lead to less maintenance work being completed on existing rental properties. Typically, rents can be increased once a tenant leaves, so owners will wait until then to spend any money repairing or fixing the property.
Investment in existing properties also becomes less attractive when rent is capped, given that yields are low and have little chance of improving.
Rent control can also lock people out from entering the rental market at a more affordable price.
In cities like New York where caps on rent have been running for a long time, those looking to get into a rent-controlled apartment face very long waits for those properties.
Are rents here that high?
Cities in Australia rarely see strong increases in rental prices over a long time period.
The current high rent prices in some cities are partly due to the higher property prices owners have paid being passed on to renters.
But rent prices here are cyclical and high prices can’t last, as landlords face increased competition from other cheaper rental properties.
Australia’s well-developed building industry and comparatively good planning controls also ensure that over the long-term enough housing is built, and enthusiastic investors in housing, ensure a constant supply of rentals.Why millions of Aussies think they’ll rent forever
Right now, the city seeing the most rental stress is Hobart – vacancy rates reported are very low (below 1%) and we see very high views per rental listing. Rents have gone up 9% over the past 12 months.
Compare that to Sydney and Melbourne where a lot of building has taken place – rents are either flat – as is the case in Melbourne, or going backwards, which is happening in Sydney.
The situation in Hobart, however, looks set to improve – Hobart is one of two cities in Australia where building approvals have increased over the past 12 months.
This should mean more properties come on the rental market in Hobart, which should make it easier on renters.
For Australian cities, the key to making rent more affordable is to increase the supply of properties in areas where people want to live.
This means developers, planners and government authorities need to work together and plan to create rental properties that are attractive to renters and close to public transport.