Why rent control is a bad idea
Rent control will ultimately make life worse, not better for Australia's already hard-pressed renters, according to one of the country's leading property economists.
Ray White chief economist Nerida Conisbee said advertised rents had risen 17.1% over the past year, the biggest jump ever recorded. Furthermore, rental rates are likely to keep increasing – and at an increasing rate.
The reason prices are skyrocketing, she says, is because of a "rental housing shortage". Supply, in other words, is failing to keep up with demand.
As a result, rent control is back on the political agenda.
Rent control will reduce supply
Ms Conisbee said while rent control seemed like an easy solution, it would actually exacerbate the problem.
"The reason that forcing rent control is problematic is that it discourages investment in housing," she said.
"Consider someone who is looking to invest their money. There are a lot of different options – from the share market, the housing market, gold, cash, bonds, Bitcoin and the list goes on. While people have different investment strategies, generally they want some sort of return. Capping the return on housing makes it less attractive as an investment option and would lead to other investments becoming more attractive.
"For those that are prepared to hold on to housing as investments, there is less money available for repairs and maintenance. Fewer rental properties that are more rundown is the outcome, and this flows through to desirability of suburbs where rent control is in place."
Ms Conisbee said that was what happened in San Francisco and Berlin when they implemented rent control.
This is a hard problem to solve
The cause of the rental problem is that there are too few homes in places where people want to live, according to Ms Conisbee.
So the solution is to build more homes in those locations – although that is easier said than done.
"Unlike rent control, ensuring adequate supply of housing is difficult, time-consuming and frequently politically unpopular," she said.
"Existing residents of desirable areas tend to not like higher densities in their suburbs. Streamlining planning processes is often difficult and ensuring adequate infrastructure in both new and infill areas is expensive."
With rents rising fast, you might be thinking about buying an investment property. I can help you finance the purchase. Reach out to discuss your home loan options.
