While no national leader has come close to suggesting a rent freeze as a potential policy prescription to address housing affordability, some are still arguing freezing rents is necessary as a short term measure, to protect those impacted.
With everyone of substance singing kumbaya around the campfire of housing supply, there are still a few who are wary of sticking their marshmallow into the collective fireplace. In particular, there are those who are argue for a rental freeze, as a means of solving housing affordability.
It does seem like those voices will be drowned out by the collective, but what would a rent freeze look like, if one were to be contemplated?
Analysis by Prosper Australia, reported by Rachael Dexter in The Age in late May indicates that even significant over supply of housing would only lower rental costs by about 10% and only for one year.
They argue therefore that means additional supply will not solve the housing affordability problem, on its own. That seems true enough, but it doesn’t mean additional supply is not needed.
The report from Prosper Australia is a fairly divergent note in a sophisticated economic debate and drew criticism from senior and independent housing think tanks like the Urban Development Institute of Australia, who suggested the report conflated a lot of issues and had not assessed it effectively.
That however did not stop some policy makers from latching onto the Prosper Australia report, arguing a rent freeze was the way forward.
Some continued their efforts to flog this donkey down the road, even as the ACT (where rent controls are in place) saw rents surge faster than the national average over the past four years.
Writing in the Australian Financial Review, Michael Read’s article ‘Surging ACT rents undercut Greens push’ noted that in the ACT a landlord needs permission to increase rents more than 10%, but that was achievable because the ACT’s specific inflation rate is running at the highest in the country.
There are concerns from the ACT Government that the quality of rental stock could deteriorate, without allowing some form of market derived movement for rental prices.
On that front, we note a recent New York Times article that reports controlled rents for two million people in New York (a city in the United States) will rise for the second successive year.
In the country most touted for allowing the ‘animal spirits’ of demand supply to clash in a ‘free market’, it is worthy of note there are many cities with rental controls, most of which have not led to wholesale disinvestment.
As the New York Times report says:
“Roughly two million people — a quarter of New York City’s total population — live in rent stabilized apartments, and no other American city has a program as vast. The system has become one of the most important sources of lower-cost housing as the cost of living in New York continues to reach new heights, and it has helped retain the city’s middle class.
“Several renters across the city — including higher earners, retired people who had lived in their apartments for decades and newcomers — said the incremental rent increases and guaranteed lease renewals that come with rent stabilization have helped them navigate New York City’s chaotic and unforgiving housing market.”
On the flipside, the Australian Economic Review reported research from academics Hulse and Goodall that appears to discount the ‘disinvestment’ proposition that state curbs on rent prices will result in less investment. Part of their research includes recognition that a growing number of households are long-term renters, including in the private rental market.
The stability of demand presented by those households creates an investment paradigm of its own, Hulse and Goodall argue, one where investors calculate for a specific class of renter and invest accordingly. They also found that rental laws and arrangements, even those where renters end up with increased rights or with moderated controls on rental prices, are not a particular disincentive to investment.
We suspect in most regards, this relates to sophisticated investors, engaged in the market for multiple properties, potentially even in the role of developers. It may be less the case for the ‘mum and dad’ investor buying a single property, but equally, we are probably moving to an era of institutional investment in rental properties anyway.
A freeze on rents might be tough to achieve, but some forms of rental controls appear achievable, can be done without destroying investment and appear to support socially desirable city living arrangements.
Some more food for thought for the National Cabinet.
