And unlike house prices , these increases are set to continue . Already we can see that the pace of growth is accelerating . Fundamentally we have a rental housing shortage . There are too few homes in places where people want to , or need to , live . To introduce a policy that makes that shortage worse seems like madness but that is exactly what is currently being proposed . Rent control is back on the political agenda . While it seems like an easy solution , this short term solution leads to long term pain that is very difficult to undo .
RENTS ARE GROWING AT THEIR FASTEST RATE EVER RECORDED BUT RENT CONTROL WILL MAKE THINGS WORSE
BY NERIDA CONISBEE , Ray White Chief Economist
There are almost twice as many people under rental stress than there are mortgage stress , defined as spending more than 30 per cent of household income on rental or mortgage payments . In the most recent Census of Population and Housing conducted in 2021 , there were 915,000 households spending more than 30 per cent of their income on rental payments . This compares to 469,000 households spending more than 30 per cent of their income on mortgage payments . And although interest rate rises are causing challenges for many mortgage holders , the accelerated pace of rental increases are a bigger problem .
The reason that forcing rent control is problematic is that it discourages investment in housing . Consider someone who is looking to invest their money . There are a lot of different options - from the share market , the housing market , gold , cash , bonds , Bitcoin and the list goes on . While people have different investment strategies , generally they want some sort of return . Capping the return on housing makes it less attractive as an investment option and would lead to other investments becoming more attractive . For those that are prepared to hold on to housing as investments , there is less money available for repairs and maintenance . Fewer rental properties that are more rundown is the outcome and this flows through to desirability of suburbs where rent control is in place .
The negative impacts of rent control are not just theoretical but are exactly how things have played out whenever rent control has been put in place anywhere around the world . In the mid 1990s , rent control in San Francisco resulted in a 15 per cent decline in rental properties and a further five per cent increase in rental levels . Controls put in place in Berlin more recently in 2020 have now resulted in a halving of rental properties available while rents in nearby cities have skyrocketed as people have had to move further out to find accommodation .
The solution to fixing affordability for renters is providing enough housing for the people in places that people want to live . It is a market failure that not enough homes are created , a market failure that will worsen this year as construction costs continue to rise . This inability to provide enough housing isn ’ t just bad news for renters and first home buyers but ultimately Australia ’ s economic growth .
Supply restrictions in the US in just three major cities has been estimated to lower overall GDP by four per cent . Unlike rent control , ensuring adequate supply of housing is difficult , time consuming and frequently politically unpopular . Existing residents of desirable areas tend to not like higher densities in their suburbs . Streamlining planning processes is often difficult and ensuring adequate infrastructure in both new and infill areas is expensive .
Over the past year , advertised rents in Australia have risen 17.1 per cent , the biggest jump ever recorded . While advertised rents are soaring higher compared to current rental agreements , we know from history that these will soon follow .
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