You might have seen a recent proposal by the Greens political party to cap rents across Australia.
It started with Federal Greens leader Adam Bandt seeking a national freeze on rents.
It was followed up by Queensland Greens State MP Amy McMahon proposing to introduce a Queensland-specific freeze on rents.
Under the proposal, national cabinet would also sign off on a two-year rent freeze, as well as capping rent increases at 2 per cent every 24 months (i.e. 1 per cent per year), an end to no-grounds evictions, and minimum standards for rental properties.
Greens leader Adam Bandt, in defending the proposal, said a rent freeze was necessary to reduce homelessness across Australia, make rents more affordable by slowing the rate increases, and allow more people to live near their workplaces.
He and other advocates for rent freezes are citing the success of similar policies in places like Toronto and New York as further justification for the proposal.
As someone who owns seven investment properties, I acknowledge it’s impossible for me to have a balanced view on this topic. Everyone will have one view or the other, depending on whether they are a renter or homeowner.
Having said all that, regardless of where you stand, it goes without question that there is a rental crisis in Australia today.
Rents across Australia have increased by 10 per cent over the last 12 months, and they are up by 24% over the past 5 years. This compares with wages having only increased by 2.4 per cent and 12 per cent in the same periods.
In other words, rents are increasing twice as quickly as incomes. That’s not fair, but more importantly it’s not sustainable.
There were 116,000 Australians homeless on the night of the 2016 census. That’s 1 in 200 Australians. We don’t know the 2021 number yet, but it’s probably fair to assume it’s even higher.
I agree there is a problem, but I also think there is a better solution.
The only way you can solve homelessness and affordability is by introducing more supply.
Rent freezes will discourage investors from building new rental accommodation. One in two new houses in Australia are bought by investors.
Because even less supply would be introduced, it’s going to drive rents even higher for those not protected by rent controls. More importantly, it’s going to cause prices to accelerate even faster than they have historically.
I’ve got friends in Toronto who have rented the same townhouse for 10 years and been protected by rent controls. However, the downside is that when they want (or need) to move out of their current rental, they would have to pay market rate which is 25 per cent higher than their current rent. That’s on top of Toronto having one of the fastest growing and least affordable housing markets in the world (to buy).
As for New York, I’m not sure their rent controls have done anything to solve the homelessness problem. The city is currently experiencing its highest rate of homelessness since the 1930’s.
There is a better solution, and that solution lies in solving the supply equation.
For at least the past decade, we haven’t built enough houses in Australia.
We have built roughly 175,000 new houses each year for the past decade.
Our population, on the other hand, has grown by 400,000 per year with two thirds of that population growth coming from migrants. It’s not as simple as working out population growth and dividing that number by the average household size to work out how much housing is required.
The majority of our migrants don’t come here with a family, so they don’t have two and a half people per household (which is the average across Australia). Our household sizes are shrinking, too, which results in demand for 70,000 extra dwellings per year alone.
Quite simply, if we were building enough houses, we wouldn’t see vacancy rates dropping, rents increasing at a faster rate than wages, and people having to wait more than 12 months to start building on their block of land, or to move into their new apartment.
How can we get new housing built quicker? How could we build an extra 20,000 homes in 6 months?
The answer lies in making it easier to build new housing. That probably means faster government approvals, building of infrastructure to unlock new suburbs, and faster and more innovative construction methods.
It also ultimately means a transition toward density. This will probably be the last decade we see 400m2 blocks in city fringes.
Good on the Greens for starting a conversation. The problem of homelessness and affordability is one worth debating in the public domain.
While I don’t believe their proposed solution would solve the problem, it might just lead to broader discussion on making it easier to build and deliver new housing in Australia.
With the Government increasing our skilled migration intake to 195,000 people per annum as of last week, we’re going to need it.
