Putting in a rent freeze or controls has been floated by the Greens as a solution to cool Australia’s red-hot rental market. It’s a feel good idea but most people agree that it wouldn’t work. Rather than debate what impact a rent freeze might have, we can see the results where it has already been tried.
In September 2022 Scotland brought in a 6 month rent freeze and eviction ban as part of emergency measures to combat the cost of living strain and housing cost crisis. The freeze only applied to existing tenancies, and there is no cap on what could be charged for an open market rental.
Firstly, let’s compare the pair:
|Population||5.5 million||6.7 million|
|Rent growth in 2022||13.9% (Citylets)||13.9% (corelogic)|
|Average apartment rent||A$610/wk (Glasgow)||A$510/wk (Melbourne)|
|% of population renting||37%||31%|
From a market size and position perspective, Victoria and Scotland are similar so we can assume market controls would have a similar impact.
Here are some of the outcomes that are happening in Scotland now.
- Existing tenants are protected. However, given the freeze there is no way they are giving up their rental property or moving out to an open market rental. Therefore, the rental shortage is getting worse with no new rental properties becoming available.
- In beautiful Dundee on Scotland’s east coast rents have risen 33% in a year.
- Instead of allowing a rental to go to the open market (and lose the rent freeze protection) renters are better to sublease it (unofficially).
- There is a two-tier market with sitting tenants enjoying a rent freeze and new tenants paying a much higher market rent.
- Landlords are exiting the market which further reduces the stock of rental accommodation.
- University of Glasgow students have been forced to join the panic for private rental accommodation after the university could not guarantee accommodation.
- Due to the rental controls, Glasgow “build to rent” specialist Get Living, halted a A$368 million development which would have delivered 823 rental homes and 687 studios for students.
Further to the 6-month freeze, rent controls have been extended from April 2023 to Sept 2023 with a cap on private sector housing rent increases of 3%.
Clearly the housing shortage in Glasgow and other cities around the world is more than an economic or property problem. It is a vital human issue. A home at the centre of our fundamental needs.
It is clear from the Scotland experiment, rental controls don’t work. They feel good in the short term and may even help people through a tight spot. However, they just kick the can down the road and make the problem worse.
Back home, a recent report by Infrastructure Victoria addresses the housing shortage. The report states that transport and amenities cannot keep up with the urban sprawl density we need to increase medium level residential development in existing suburbs. It is also advocating for the phasing out of stamp duty to enable better utilisation of our existing housing stock which would help ease housing availability and affordability.
The answer is obviously more homes, but this takes time. To avoid a shortage crisis situation we need to move quickly to create homes at a price people can afford. Governments can play a big role with social housing, but the market housing is a private sector solution. Governments can facilitate rapid supply of market housing by making the planning process faster and more certain, as well as incentivising capital like superannuation funds to invest in the sector.
Market interference such as rental controls often have unintended consequences. We are better off addressing the cause for a sustanined solution.