Will a national rent freeze fix Australia’s housing crisis? Depends on who you listen to
In the face of rapidly rising rents in Australia’s capitals, the Greens are calling for the federal government to work with states on a national rent freeze to protect tenants from the “bill shock” of sudden rental increase of 20%, 30%, or more when they renew their lease.
Berlin froze rents in 2019 on apartments built before 2014. It saved that city’s renters billions before being ruled unconstitutional in 2021. Perverse supply outcomes that were promised failed to materialise, with Berlin seeing much faster new housing development than the 13 next-largest German cities in the two years of the policy.
The likely outcome of the Green’s political bargain, however, is a more modest rental regulation that smooths out rental price shocks, rather than freezing rents in place, which is something that even landlords think is a good idea.
Most states protect landlords from the “bill shock” of sudden increases in their land taxes. To smooth out costs for landlords, land values are averaged out the last three years. A sudden 30% increase in land values, for example, would normally result in a 30% or more jump in land taxes. But we have “tax controls” that instead smooth this out to 10% a year over three years. Protecting landlords from “bill shock” costs taxpayers hundreds of millions a year in forgone revenue when property prices are rising.
Second generation rent controls that limit the rate that rents can increase offer the same protection for tenants and have operated for decades in many countries like Germany, Austria, Switzerland, France and the Netherlands. Even the ACT limits rent increases to a touch above CPI for ongoing rental contracts. It is the modern tenancy standard.
Many landlords will even voluntarily smooth out rental increases for tenants over multiple years because they see the fairness of it and value tenant stability. I was a landlord for 20 years and that’s what I did. There is nothing radical here.
Yet the actions of landlord and property lobby groups against any such change to tenancy laws would have you thinking that limiting the rate of rent increases amounts to “bombing a city” as economist Assar Lindbeck described rent controls back in 1971. Supply will dry up. Landlords will sell. Houses will disappear.
In fact, some economists have gone so far as to say that rent controls will backfire and raise housing rents and prices in the future.
Call me sceptical, but landlords lobbying against a policy that will increase the value of their property in the long run seems contrary to their own financial interests. And that’s the problem – landlords make money from higher rents, so they are going to complain about policies that work to make rents lower, and support policies that don’t.
They aren’t saints.
I call this pattern of property lobbying The Great Housing Contradiction. Landlords lobby against rent controls, which they say won’t make housing cheaper, and for upzoning and more competition, which they say will.
Deceptive stories and mythmaking like this is normal behaviour for interest groups.
Prior to Medicare, doctors fought against public intervention and free medical services for customers if it meant they could only charge a regulated price for their service. The taxi industry hates more competition and lower prices, arguing for more regulation, not less, to protect their monopoly.
The pharmacy industry today is lobbying to make prescriptions more expensive for the public by pushing against 60-day dispensing. Even in the 1930s depression era when building public housing emerged as a policy to support the poor and a macroeconomic stimulus tool, landlords across the US lobbied hard against the government supplying housing and competing with them for tenants. None of these groups are evil. They are just self-interested like the rest of us.
Economic studies are also weaponised to make these arguments. For example, a study of San Francisco rent control found that 15% decline in the number people in rent controlled housing after two decades, which is interpreted as some kind of decline in the supply of housing. But that was the result of a combination of half of those being renovated or redeveloped into more and better housing and half due to selling to owner-occupiers. These are both good things but can be twisted as a negative by calling them a “decline in supply”. But that doesn’t make it true. The fact that the only way to earn more rent when rents are regulated is to build more housing seems neglected.
In fact, any policy that increases home ownership must come at a cost of the “supply” of rental housing – landlords selling to owner-occupiers or owner-occupiers outbidding investor buyers if new homes, is the only way home ownership rates can rise.
There is nothing unusual about regulating rents and smoothing off shocks. It is just the economic and political power that decides who gets those luxuries, who doesn’t, and who pays.
Dr Cameron Murray is a research fellow in the Henry Halloran Trust at the University of Sydney