Rent caps are being debated in Victorian parliament, with the Greens party pushing for a limit to annual rent increases. Find out how this could affect the industry. 

The price of rent has increased dramatically over the last twelve months, with costs in some Melbourne suburbs rising by as much as 45 percent. Finding affordable housing is becoming harder and many people are calling the situation a crisis. 

Because of this, the Greens are pushing for a cap on rent rises in Victoria. A release from the party said a two-year rent freeze is needed to protect tenants from out of control rent rises. It explained rents are rising four times faster than wages, and low vacancies mean people are lined up around the block to secure a property. 

The Greens are urging the Government to: 

• Introduce a two-year rent freeze (meaning rents can’t be changed at all), followed by a two percent cap on rent increases every 24 months.

• Enforce the vacant property tax, to incentivise owners to put empty homes on the rental market.

• Crack down on rental bidding so a property can’t go for more than the advertised price and push up the cost of renting for everyone.

• Enforce better standards in rentals including energy efficiency.

There is also a push to regulate the short-stay market, to prevent properties in Victoria from being locked up as ‘mini-hotels’ and making them available as secure long-term rentals. 

The Greens say freezing rents would allow wages to catch up to the cost of rent, although  reports say this has been ruled out. Still, the possibility of introducing a cap is on the table. 

As reported by SBS, some parts of Europe have rent increase caps, which limit rent increases to a maximum of 10 percent of a local comparative rate. Meanwhile, in the ACT, rental property owners have to apply to the ACT Civil and Administrative Tribunal if the tenant does not approve an increase beyond 10 percent. 

Industry and property owner response to rent caps

A rent cap might sound like a positive solution to the rental crisis but it also presents some concerns and has the potential to backfire. 

There are a few reasons why rents have increased so dramatically in Victoria and other parts of the countr

• First, they dropped significantly during COVID, particularly in inner city areas, so the rise does partially represent a levelling out. 

• The RBA has imposed several consecutive rate rises, which means the cost of owning a mortgaged investment property has gone up significantly.

• New rental property compliance laws have added to investor costs.

• Land tax on investment properties is set to change, with more investors set to start paying land tax and others paying more in the next financial year.

Investing in property is risky and not without drawbacks. If investors do not have enough incentives to apply this strategy, and if they are not making money, they will start looking at alternatives. The introduction of rental price caps may mean they sell their investment properties, with no guarantee they will go to other investors. As a result, availability will shrink further. 

Even if they don’t sell, as pointed out in The Conversation, they will have to cut back on paying for things like maintenance. There are other potential issues like property owners switching to accept cash from their renters, which affects tax and can complicate things when it comes to safety issues and insurance. This provides less certainty for renters and will have flow-on issues for the property management industry.

To add to this, apartment construction approvals are currently at a ten-year low. The problem of rental price increases is compounded by a lack of stock. It would make more sense to balance out the issue of supply and demand, rather than potentially reducing the supply of rental properties by introducing a price cap. 

So, will the cap go ahead? 
As reported in The Guardian, a government spokesperson said Victoria is working to deliver a pipeline of more housing via its $5.3bn “big housing build” and build-to-rent incentives. It acknowledged the housing system needs reform and said it is “working hard on a package of reforms to come later in the year.”