Experts warn Daniel Andrews of unintended rent freeze consequences

Debate over the controversial measure follows recent Parliamentary Budget Office analysis which found Victoria has the highest property taxes in the nation.

Victorian Premier Daniel Andrews on Tuesday. Picture: NCA NewsWire / David Geraghty

Economists and property experts say freezing rents will do nothing to increase housing supply and may contribute to a deterioration in the quality and quantity of rental properties available, as the Andrews government considers introducing the measure.

Daniel Andrews at the weekend confirmed that a two-year rent freeze – with caps on increases – was among options his government was considering ahead of an overhaul of Victoria’s housing policy later this year.

Debate over the measure comes after Victorian Parliamentary Budget Office analysis released earlier in July established that the state had the highest property taxes in the nation.

Independent economist Saul Eslake said while he could understand the political pressure to freeze rents amid a cost-of-living crisis, it was a “fairly arbitrary measure, and one which will probably act as a deterrent to investment in residential property”.

“It also will probably discourage landlords from undertaking repairs and maintenance and could lead to a deterioration in the quality of the rental housing stock,” he said. “It certainly won’t increase rental stock, and to the extent it leads to landlords selling, that’s a fairly brutal way of achieving a higher rate of home ownership, if it has that effect at all.”

Mr Eslake said long overdue investment in public housing and reform of planning and zoning laws were key to addressing housing affordability.

Economist Saul Eslake. Picture: Chris Kidd

Metropole Property Strategists director Michael Yardney said the shortage of available properties, amid demand from groups who need to rent – such as students, young people and recent migrants – was the cause of high rents. “Rents have skyrocketed over the past couple of years, but over the last decade they have not kept track with inflation,” he said, citing rent reductions and waivers during Covid.

“Rents are rising not because of mortgage costs or interest rates but (because of) supply and demand. The problem is a lack of supply. To freeze rents will only limit supply more.

“Rent freezes will also dissuade investors from improving their properties, meaning they will bring down the standard of accommodation and we’ll have less. They will have the unintended consequence of making it worse for tenants, rather than better.”

Research published by the Parliamentary Budget Office earlier this month showed Victorians were set to pay an average of just over $2100 in property tax in the 2023-24 financial year, compared with $1650 in NSW and $1340 in Queensland.

Tax revenue also accounts for a higher percentage of Victoria’s total revenue, at 16.3 per cent, compared with 12.7 per cent in NSW and 9 per cent in Queensland, with the state set to rely more heavily on land tax than any other tax for revenue over the next few years.

The May state budget included increased land tax on second and subsequent properties, set to raise $4.7bn over four years.

Metropole Property Strategists chief executive Michael Yardney.

Property Council Victorian deputy director Andrew Lowcock said the only thing that would address the fundamental cause of a lack of affordable housing was industry and government working together to build more dwellings.

“The global evidence on rent caps is very clear – they make it harder to maintain property, incentivise owners to sell and reduce the overall supply of rental housing,” Mr Lowcock said.

“Tenants are not finding it difficult to afford their rent because of (insufficient) regulation – it’s simply because there are not enough homes to meet demand.”

Mr Andrews dismissed reports property investors were getting out of the market as a result of his government’s policies. “I would have thought properties that might be being sold, might have altogether more to do with 12 interest rate rises in as many months. I think that might be a relevant factor,” the Premier said.

 

“We need to just get some balance in this. We’ve made no announcements about rental matters. I did see some commentary that our changes to the Residential Tenancies Act, some time ago, we’ve made 130 of those changes, have somehow driven people out of the rental market.

“You know, you can hang a picture, you can have a pet, there should be running water, there should be hot and cold running water, there should be heat, the doors should be able to be locked, you shouldn’t be able to be evicted at a moment’s notice, that rent shouldn’t be able to go up every 15 minutes. We’re all obliged, when these theories are run, to have a look at what’s behind them … Is it a fair point to make?”