The concept of rental price freezes has been rejected in Victoria. Here’s why it wouldn’t have made a difference to low rental property availability.
Property managers, rental property owners and renters watched with interest this year as the Victorian Government decided whether or not to implement a rental cap and rental freeze policy.
Backed by The Greens, a rental cap policy places a limit on how much rental prices can be raised by. A ‘freeze’ would have meant prices remain fixed for two years instead of rental property owners having the option to increase the rent on an annual basis. Tenants Victoria argued this change would help put an end to rental property owners “profiteering from the tight rental market.”
However, despite initially saying he was open to the idea, it was ruled out by then-Premier Daniel Andrews a few months ago. Instead, he pointed towards an increase in social housing and introduced a new levy for short term rentals, to be introduced from 2025. This policy is expected to raise an estimated $70 million each year, which can then be put towards new social and affordable housing.
Why a rent freeze wouldn’t have worked
Statements released by The Greens have claimed “Without rent freezes, rent caps and rent controls, rents will just continue to rise unchecked and renters will not be able to afford a place to live – and be subjected to more and more financial stress.”
However, while a rent freeze may seem like a solution for renters, when you look at the bigger picture, it has the potential to create more problems than it solves.
Many industry insiders say the policy wouldn’t have worked for a couple of different reasons.
Firstly, as reported on realestate.com.au, a freeze on rents would have potentially led to hundreds of thousands of rental property owners selling their investments. With interest rates being high and still having the potential to increase, being unable to raise the rent would have made the investment unviable for a lot of people.
Selling would improve stock on the market but if former rental properties go to owner-occupiers, the rental shortage would get worse, not better.
Secondly, as PropTrack economist Angus Moore pointed out, in addition to rental property availability being reduced because people decide to sell, “international examples showed rent controls could result in rental home maintenance suffering.”
Frozen rents can put renters at risk of leasing sub-standard properties, which would have the potential to increase Tribunal hearings and fines for property owners… who may then end up having to sell their investment.
In European countries such as Germany, France and Spain, rent freezes were reportedly scrapped after trials.
What’s the solution to Australia’s rental property shortage?
The solution to the rental property ‘crisis’ is to add more homes to the market, not create a situation where rental property owners are forced to sell or look interstate where there are fewer restrictions.
To achieve this, the Victorian Government has pledged to build more homes and recently announced a $1 billion initiative to support the construction of 6,000 new social and affordable homes. This includes a loan of $32 million to construct 362 new apartments – including 73 social homes, 73 affordable, 14 specialist disability and 202 private market homes.
Critics say the plan won’t go far enough to resolve the crisis and some are calling for a rental subsidy, a voucher or a tax break to help renters absorb rent hikes while the gap in availability remains.
What can property managers do?
Caught in the middle are property managers, who have the dual responsibility of doing the right thing by renters as well as rental property owners.
On the one hand, rental property owners need their investment to be viable, or it's not worthwhile. On the other hand, high rents are stressful for renters and they also expect a lot for their money.
As a property manager, while there is a rental property shortage, communication and service are key to finding the right balance. You will need to work with your property owner clients to help them recognise the value of having an investment property, and reassure renters so they feel valued as well.