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Do the rental rule changes work?

Do the rental rule changes work?

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In March 2021 the Victorian Government introduced a raft of new rules with the intention of protecting residential renters.

Did they work? Some did, but some had unintended consequences. Changes providing protection in situations of family violence were very welcome, but other changes have backfired.

Who pays for cost of rental rule changes?

Regulation always comes with costs to implement, manage and police them. The costs need to go somewhere. The changes also altered the risk / reward ratio to be more in favour of renters. If these costs and risks can’t be passed on somehow, then the providers (investment owners) will exit the market and choose another investment asset.

This of course reduces the rental pool which forces rental prices up. So, the renters end up paying for the additional regulation. I am sure this is not what the regulators hoped would happen but that is good for the remaining investment owners.

Market impact of rental rule changes.

The market impact has been most pronounced where there is a predominancy of older properties, where the level of compliance is low and the cost of remedy is high. Modern apartments are in the main fully compliant, so have seen minimal impact, whereas some older homes have found the compliance costs prohibitive. Even so, the additional workload placed on property managers just to ensure all the boxes are ticked adds to the cost of compliance.

There are also some odd inconsistencies in the regulations that protect the safety of renters, even though homeowners don’t need to meet the same standards. Like regular gas and electrical safety checks.

The Herald Sun reported that some owners are selling because it’s too hard to meet the new standards and continue to earn a suitable margin.

Is there a better way to help renters?

Disclosure and transparency is often a better tool than regulation (health and safety issues aside). Requiring an owner fully and plainly disclose a list of property features (or lack of) would enable renters to make their own decision and price it accordingly. This would enable renters and owners to self-select and adjust to their own local market.

The changes came on top of the pinch of the pandemic, adding to the challenges for apartment owners and their managers. Fortunately, the rental market has since recovered almost all of the fall, although Melbourne’s winter is retarding the market recovery just at the minute.

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