Opinion
Why freezing rents could make more people homeless
By Brendan Coates and Joey Moloney
The rental market is in a perilous state. Renters across Australia face double-digit growth in advertised rents and record-low vacancy rates. Low-income renters have been hit especially hard. More than half suffer rental stress.
The federal government has been slow to react. National cabinet this Wednesday must commit to bold action.
Greens MP Max Chandler-Mather is taking the fight on housing to the government as his party suggests a two-year rent freeze.Credit: Paul Harris
But one idea that shouldn’t be on the table is the Greens’ proposal for a two-year rent freeze, followed by a permanent cap on rent increases of 2 per cent every two years. While it may seem attractive to renters facing steep rent rises, it’ll end up doing more harm than good.
Rents are rising because there’s not enough housing to go around.
Australians are occupying more housing, on average, than we used to. COVID-19 lockdowns and the work-from-home revolution have spurred a “race for space” – many of us have taken on an extra bedroom as a home office. The reopening of Australia’s borders has boosted demand for housing further still.
But traffic to Flatmates.com.au suggests that rising rents mean that those who can economise on the housing they occupy – by renting out the home office to a flatmate, or moving into a share house or with family – are now doing so.
If we freeze rents, that will stop. And people who absolutely need to find a new home – such as new migrants or women fleeing domestic violence – will be left out in the cold.
The Greens liken their rent caps proposal to the recent gas price cap agreed on by national cabinet last December. But whereas Australia doesn’t have a shortage of gas – we export 75 per cent of what we produce each year – we do have a shortage of housing.
Ultimately, if we freeze rents, more Australians could become homeless, not less.
And the long-term costs of capping rent increases at just 2 per cent every two years could be even greater. The cap would blunt the incentive to build more housing, leaving us with fewer, poorer-quality dwellings.
The evidence from overseas is telling. In San Francisco, studies showed the lost rental supply probably just drove up market rents in the long run. In New York, evidence showed rent-controlled units were more likely to be dilapidated.
Federal Housing Minister Julie Collins. said Commonwealth Rent Assistance should be increased.Credit: Rhett Wyman
Cities that try these kinds of strict rent controls end up with a bevy of carve-outs to try and retain incentives for landlords to get new rentals built and keep the existing ones habitable. But so far, no one has won this game of whack-a-mole.
But just because strict rent freezes and caps are a bad idea, it doesn’t mean we can’t offer stronger protections for tenants against large, sudden increases in rent.
The ACT requires landlords who want to increase rents more than 1.1 times faster than the growth in rents across the ACT, as recorded by the rental component of the Canberra Consumer Price Index (CPI), to seek their tenants’ approval. If the tenant objects, the onus is on the landlord to justify the increase to the ACT Civil and Administrative Tribunal.
Most other jurisdictions allow tenants to contest rent increases via an independent tribunal. But the ACT is alone in using such a clear benchmark for when the onus is on landlords to justify the increase.
But it’s hard to see this approach extending beyond the ACT in the short term. Canberra is a single rental market covering a small geographic area whereas rents in Brisbane are very different to rents in Townsville, more than 1350 kilometres away. Such an approach isn’t possible unless we get better regional rent benchmarks from the ABS. And any benchmark for excessive rent rises should be set much higher than the ACT – perhaps between 1.5 times and twice the growth in the rental price index.
The best way to help struggling renters is to boost Commonwealth Rent Assistance, which helps vulnerable renters to keep a roof over their heads and still afford other essentials. But rent assistance remains inadequate in Australia. The Albanese government lifted the maximum rate by 15 per cent in the May budget – that should be turned into a 40 per cent rise.
And the Housing Australia Future Fund – which would fund the largest federal investment in social housing in a decade – should pass the federal parliament as soon as possible.
But the best step national cabinet can take on Wednesday to tackle the housing crisis is to allow more housing to be built in the established suburbs of Australia’s major cities. That’s where most people want to live, but can’t.
Only when housing is plentiful will it also be affordable. That’s the plan renters should get behind.
Brendan Coates is Economic Policy Program Director and Joey Moloney is a Senior Associate at Grattan Institute.
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