‘The answer is more housing’: Victorian rental caps off the table

Victoria has abandoned a plan to cap rental increases to tackle housing affordability after concluding it would have the unintended consequence of deterring investment in new housing.

A cap had been closely examined as an option to improve the situation for the growing cohort of renters forced to compete for a limited supply of increasingly expensive rental properties.

The Andrews government has taken rent caps off the table. Credit: Darrian Traynor

But the state government has concluded the measure would likely be counterproductive, limiting returns for investors and consequently discouraging the supply of new housing and ultimately leading to higher rents.

Premier Daniel Andrews was on Thursday adamant the government’s housing and planning package – due next month – would be focused on measures to boost the supply of housing.

“I’m ruling out anything that would see us with less housing,” Andrews said.

“We think there’s more that can be done again to make renting even fairer, but look, if you’re worried about rents and how high they are, the answer is more housing, more supply, not less, because if there’s less, prices will only go up. Logic tells you that.”

The state government has also been considering a plan under which landlords would be able to lift rent only once every two years, up from the current 12-month limit in most cases. It is unclear whether this element is also off the table.

In an exclusive poll for The Age, the Resolve Political Monitor asked Victorian voters whether they supported the potential freezing of rent levels so that owners could only increase rent every two years.

In response, 49 per cent of people said they supported it, while 30 per cent opposed it and 21 per cent were undecided.

The development follows a legislative stand-off over the federal government’s $10 billion Housing Australia Future Fund, with the Australian Greens are demanding the Albanese government agree to a two-year rental freeze, after which time rental increases would be capped at just 2 per cent every two years.

According to census data compiled by The Age, about 22 per cent of households were renting in 2001. Today, that figure is almost 29 per cent, while the proportion of homes owned outright has dropped from about 43 per cent to 32 per cent.

A Victorian cabinet minister, speaking on the condition of anonymity to discuss internal matters, said while a final position hadn’t yet been put to cabinet, senior ministers’ opposition to rental caps had firmed in recent days.

“The arguments used are mainly around consequences such as a reduced number of rentals in the market,” the senior Labor figure said.

Another government source, also speaking anonymously to discuss internal deliberations, said the measure had then been shelved after this week’s national cabinet meeting, with a broad consensus that rental price controls do not represent a viable solution. NSW Premier Chris Minns has previously ruled out a cap on rent increases.

After the meeting, Prime Minister Anthony Albanese suggested that increasing supply, as opposed to the Greens’ plan to freeze rents for two years, was the key to fixing the housing crisis.

“No one is [seriously] arguing that that will make a positive difference,” he said of a cap on rents. “Indeed, we believe that will make it worse. The key to addressing these issues is supply and that’s why we have focused our attention on supply.”

Opposition Leader John Pesutto this week accused Albanese of having to talk sense into his Victorian counterpart.

“The key issue, as I think the prime minister is finally admitting, is supply. It’s not like what Daniel Andrews is doing, which is increasing taxes,” he said.

“If you speak to investors, you want to build your housing stock. They’re telling us Victoria isn’t the place to invest anymore. And if they have a choice, they’ll look at other states and territories.”

Greens renters’ rights spokeswoman Gabrielle de Vietri accused Victoria, and national cabinet, of continuing to give unlimited rent increases the green light.

“Rent control isn’t a radical idea,” she said. “Scotland, Paris, Germany, Ireland, New York and Spain all have some form of rent control.

“It’s time Victoria caught up and stopped pandering to property investors. With every rent rise, from now on, renters should know – this is Labor’s fault.”

Greens MP Gabrielle de Vietri has been calling on the Andrews government to introduce a rent freeze and caps to rent rises. Credit: Justin McManus

Housing experts have warned the imposition of a rental freeze – in line with the Greens’ plan – could ultimately lead to higher rents. However, the Greens have pointed to the ACT as a jurisdiction that has successfully limited rental increases, albeit through a cap rather than an outright freeze.

National cabinet this week agreed to a new national target to build 1.2 million “well-located homes” over five years from July 1, 2024.

That means an extra 200,000 new homes would need to be delivered over and above the National Housing Accord target agreed by states and territories last year. As an incentive, states that deliver those extra homes will be offered $3 billion in “performance bonuses”, which works out to be $15,000 per additional house.

Andrews said he was confident Victoria was on track to more than meet its original target, suggesting Victoria will get a “healthy share” of the $3 billion of federal cash on offer.

“I think … we may be one of very few states that meet their targets, we may get quite a healthy share of that $3 billion.”

The government is hopeful Victoria will get a minimum of $780 million – commensurate with its share of the population. That would require it to deliver about 52,000 additional houses.

Polling published earlier this week by the Property Council of Australia found 34 per cent of Victorians supported capping rents.

But Labor for Housing’s Julijana Todorovic – the co-convenor of a group within the Victorian Labor Party that advocates for better housing policies – said rent caps were bad policy.

“The evidence we’re seeing at the moment is that tenants get a rougher deal with rent caps because landlords do not reinvest into their properties and we have tenants continuing to suffer poor living standards.”

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