Rent regulation could help tenants facing a pricey market and scant available rental properties, in combination with an effort to build more homes, new research has found.
The best way to help tenants is either a fixed percentage cap on rents or an inflation-linked cap with a ceiling, alongside an end to no-grounds evictions, a new Macquarie University paper, commissioned by Shelter NSW and the Tenants Union of NSW, has recommended. The paper also recommended initial rents for new builds could be set freely to encourage construction of more rental properties.
Rent regulations are in place in several countries, but the only Australian jurisdiction with a cap on the size of rent increases is the ACT.Credit: Flavio Brancaleone
It comes amid heated debate that has often posed rent caps or new supply as either-or solutions.
Some politicians have rejected calls for limits on rent increases in favour of new building, and opponents of rent regulations have warned it would reduce the number of rental properties.
Sydney unit asking rents soared 23.6 per cent in the year to September, and Melbourne unit rents rose 22.4 per cent on Domain data. Brisbane and Perth rose at least 19 per cent each.
But individual tenants have reported hikes as high as 48 per cent, 50 per cent or 77 per cent.
Macquarie University research fellow in geography and planning and report lead author Dr Alistair Sisson said limiting rent increases to CPI during tenancies was an easy measure to implement to safeguard tenants from excessive rent increases while more homes are being built.
“Rent regulation is an important part of the policy mix that we need to improve housing affordability, security and quality in combination with increasing housing supply and really more importantly, building more non-market housing,” Sisson said.
“We need to end no-grounds evictions for both fixed term and continuing tenancies, because even if we introduced rent regulation, the ability to evict a tenant for no reasons undermines the benefits that are provided by rent regulation to tenants.”
NSW has committed to creating a list of reasonable grounds to ask a tenant to leave. Victorian landlords can only give a notice to vacate for certain reasons.
Renters face few options and high prices.Credit: Chris Hopkins
While the ACT is the only part of Australia that limits the size of rent increases, Sisson said the increases there were pegged to rental inflation, which was a self-fulfilling cycle, as rising rents justify rising rents.
“It seems to function pretty well to prevent the most excessive rent increases, but it can also function by baking in an increasing rate of growth,” he said.
He said rent regulation was more important than ever because it drives inflation.
“A lot of people are talking about cutting immigration. That is both immoral and unhelpful,” Sisson said.
“A more direct and helpful response would be to introduce rent regulation. It would help affordability, security of tenure and reduce rent inflation.”
Sisson found rent regulations, in place in more than 24 jurisdictions around the world in different forms, improved security of tenure, moderated rent growth and showed little evidence of reducing construction because the majority did not apply to the first tenant in a newly built home.
The paper found many misconceptions of rent control as a blunt instrument when it can be fine-tuned. For example, the authors argue regulations can make exceptions to allow landlords to increase rents above caps when they maintain or improve their property.
He said an often-quoted, but commonly misunderstood San Francisco study is used as an example of why rent controls reduce rental supply.
Fierce competition for rental properties is unlikely to change in the short term. Credit: Chris Hopkins
But Sisson said the study did not measure the overall amount of housing supply to see if more homes were added.
NSW Rental Commissioner Trina Jones said she was open to reviewing research on renting but international evidence suggested rent control can have unintended consequences such as worse affordability, gentrification impacts, negative spillovers on surrounding areas and lower investment and maintenance.
Centre for Independent Studies economist Dr Peter Tulip said he remained sceptical of rent controls because the majority of economists believed it stymied new development of rental properties.
He said while exempting new builds from rent regulation would encourage supply, it would create other problems.
“It means tenants are trapped in old tenancies and won’t move, even if their finances and situations change,” Tulip said. “That’s not a problem in the short term, but as financial and family [situations] change rental stocks become incredibly unsuited for those living there.”
Tenants’ Union of NSW chief executive Leo Patterson Ross said rent regulations would protect renters from unreasonable landlords.
“There’s a whole lot of landlords who are not increasing their rents, they are not going to be, in any way, impacted,” Patterson Ross said.
“This is a speed limit. The people who are going to drive at 45 kilometres per an hour anyway are not going to be affected. The person who is driving at 200 kilometres per hour is going to have to slow down. And we put in place these restrictions so others don’t get harmed.”
He said a lack of limits on excessive increases was pushing people out of cities and communities.