Rent freezes and rent caps must be put to rest: REIA

Previously, the Greens had demanded $5 billion of direct spending on housing every year and a $1.6 billion a year fund to incentivise states to freeze rents for two years and limit increases thereafter.

But on 4 June, the Greens put a new offer for compromise on the table, proposing reduced direct spending and a $1 billion annual incentive for the rent freeze, aiming to facilitate the passage of the bill in the Senate during the month’s sitting.

During the announcement, Adam Bandt, the Greens Leader, said that “the Greens have shifted, and it is time for Labor to do the same”.

“If Labor backs a rent freeze and guarantees real money for more housing, the Greens will pass Labor’s bill,” he added.

He argued the Greens has shown it “can negotiate with Labor and get significant outcomes for people and the climate”, citing the reforms made and greenlit for the Safeguards Mechanism Bill in April.

“We’re now trying to fix the broken bill, but Labor has to shift,” he stated.

But REIA president Hayden Groves argued that in a time when Australian renters and mortgage holders are struggling with the cost of living, “endless speculation” on rent freezes and rent caps is moot.

“We know that rent freezes are bad for rental supply, bad for rental affordability and bad for renters. We know from lived experience it will send vacancy rates even lower,” he stated.

“We’ve seen this bear out all over the world in OECD nations in cities like Berlin, Boston, Dublin and San Francisco.”

For example, in Berlin, a rent freeze was implemented in February 2020, icing rents for 1.5 million (90 per cent) of Berlin’s flats at their June 2019 level for five years. During that time, the intention was to stabilise housing costs and provide relief for tenants.

But critics of the policy contended the controversial law was distorting the local housing market and negatively impacting renters.

Additionally, they argued the policy has discouraged construction companies from building new homes in the city, exacerbating the demand for existing housing stock.

Another ripple effect of the rent cap was landlords started including a “Schattenmiete” or shadow rent clause in rental contracts, which informed tenants they would be required to pay a higher rent if the court were to overturn the rent cap.

Eventually, the rent freeze faced legal challenges and was later overturned by the German Constitutional Court in April 2021, ruling that it violated property rights.

Mr Groves, who had pushed against the contentious policy when it was first put forward by Greens MP Max Chandler-Mather in August 2021, stated the rent freeze proposal for Australia was merely creating “some short-term relief for political gain”, adding it will only “transfer future rent burdens to Australians seeking to enter the rental market later on.”

He also warned a rent freeze, or any other investor-busting policy, would “turn the tap off on housing investment” across the board, be it mum-or-dad or institutional investment at a time it is “needed the most”.

“The Housing Australia Future Fund and even the niche build-to-rent sector that is the darling of the Australian government will be unable to attract the institutional investment it so requires if these types of investors get a whiff of rent controls and rent freezes,” he stated.

Notably, federal Housing Minister Julie Collins said on Sunday (4 June) that while the government would work “constructively across the Parliament” to try to secure passage of the housing bill, she added that what “we don’t need are proposals that won’t work, are not backed by evidence and would only make our housing challenges worse”.

“Australia desperately needs the 30,000 new social and affordable rental homes the fund will deliver in its first five years,” Ms Collins said in a statement.

Ms Collins said senators who voiced their support for more social and affordable homes “need to stop the delays and pass the bill”.

Mr Groves welcomed the response, stating: “We thank Minister Collins and the Albanese government for continuing to listen to the clear evidence in the face of Adam Bandt’s rental freeze snap.”

He also called on the Coalition to act on the HAFF to “put rent freeze and rent control speculation to rest once and for all” for both renters and mum-and-dad investors.

“It is clear Adam Bandt will not stop with this albeit well-intentioned thought bubble, and we call on the Coalition who is [in] a position to shift the dial on this, to enact a policy that Australians voted in when it comes to the HAFF,” he stated.

Echoing Mr Groves’ statement, Real Estate Institute of the ACT (REIACT) Maria Edwards criticised the proposal, stating it “isn’t the solution to address the current rental crisis in Australia”.

She also accused the minor party of “holding the country to ransom” with a “one-size-fits-all” approach, which she said “ignores the unique economic indicators of each state and territory and disincentivises long-term investment in every jurisdiction, especially in Canberra where there has been a significant turnaround in the market in the past 12 months”.

“We are now seeing landlords having to reduce weekly rents for properties as cost-of-living pressures impact what tenants can now afford while absorbing rapid and sustained increases to interest rates — a double whammy for investors,” she added.

She emphasised the priority for local governments needs to be providing more affordable housing options and rental assistance programs that can provide immediate support to tenants where most needed.

“Ultimately, an increase in overall housing supply is key to addressing rental affordability rather than further reducing incentives to invest in Canberra,” Ms Edwards said.

The institute also called on the local Barr government to mirror the federal Albanese government’s position and end the rent freeze speculation creating uncertainty for potential mum-and-dad investors who make up a significant portion of landlords in the ACT.