A lot of uproar this week following the proposed rent freezes in Victoria.
My perspective is, to borrow a quote from Mark Twain, “I’ve worried about a lot of things in life that never happened.”
First, the Victorian Government is merely suggesting rent caps as one of many options under consideration to navigate the housing crisis confronting every city in Australia. That’s the Government’s job; to consider all policies which might ease the burden of housing supply and affordability.
Second, I doubt it will happen. There is too much evidence to suggest rent controls don’t work and, if anything, worsen the affordability and supply problem.
The solution ultimately lies in unlocking supply.
In this respect, it was great to see the ACT present a proposal this week to change its planning laws to allow townhomes, duplexes and higher density to be built as-of-right.
The variation would allow for medium-density developments, such as townhouses and duplexes, to be built on land now zoned solely for detached housing, which makes up about 80 per cent of residential land in the ACT.
It makes sense – if the market wants it, allow for more density to be built in and around existing infrastructure and employment. Any proposed increase in density will only get off the ground if there is a demand for end users (i.e., owners or renters).
According to Peter Tulip, of Centre for Independent Studies, a blanket upzoning like the one proposed in the ACT is similar to when Auckland in 2016 upzoned 75 per cent of the city’s residential land.
The reform led to rents increasing by 10 to 20 per cent in Auckland, compared with approximately 40 per cent in other New Zealand cities, such as Wellington, over the same period.
The irony is, ACT is also the only place in Australia where rent caps are currently in place.
The Australian Capital Territory introduced rent controls in 2019 which limit rent increases to 110% of inflation a year.
For example, a renter paying $400 a week while inflation is 7% would be limited to a rent rise to $430. If a landlord wants to increase it further, they must justify it. (There are no limits if a tenant moves out and the property is placed on the open market).
The ACT chief minister, Andrew Barr, said the rent-capping arrangements “only work when accompanied by a very significant supply side response… so we’ve seen the share of housing in the ACT available for rent increase from about 26 per cent ten years ago to 31 per cent now. We’ve had about a 50 per cent increase in the number of rental properties in the ACT… I would not recommend doing [rental capping] unless you have a pathway for significantly increasing supply.”
Mr. Barr then supported his point by saying “it’s supply, supply, supply, supply, and then you can look at a couple of these other regulatory interventions.”
The details of the ACT’s proposed changes are still to be finalised, but I think it will be implemented and within the next five years and every other State and Territory will follow.
This means any 400m2 block in an Australian capital city will soon be able to accommodate anything from a single house to four townhouses, as of right.
It is the best solution to housing affordability being tabled today, because it deals with creating supply rather than limiting.
It’s also the reason why land in capital cities is the best investment you could own. It was true 30 years ago and it’s still true today.
