New York City has a lot of rent controlled properties.

It should have been a stellar week for housing policy with the federal government’s surprise weekend announcement of $2 billion in social housing funding to be paid to state governments within a fortnight.

But by Tuesday, debate had descended into chaos with The Greens and the Coalition refusing to pass the $10 billion Housing Australia Future Fund in the Senate and deferring a vote on the legislation until October.

This leaves national housing policy stuck in limbo for at least three months. The Greens used the legislation as leverage to call for a national two-year rent freeze to help address spiralling rental prices that have been forcing renters to share housing with more people or cut back on other essential essential spending.

It’s no secret that Australia is facing a rental crisis that also fuels the housing affordability beast because higher rents make it more difficult for people to save up for a deposit. But it’s odd that debate is occurring at a federal level, when rental tenancy and other property law is regulated at a state level.

For their part, the states have of late been toying with light-touch rental control policies. The Australian Capital Territory already has a rent control policy, which limits rental increases to 110 per cent of increases to inflation – effectively, if the consumer price index rises by 5 per cent, rents can only rise by 5.5 per cent. And Queensland and Victoria have both capped the number of times rents can rise in any given year.

But a national cap on rents would represent a substantial step-up on the interventionist front. There are plenty of examples of rental controls operating in overseas countries on either a blanket or selective basis. Some Canadian provinces regulate the maximum amount rents can rise in any given year, and Ireland has introduced a two per cent cap on rental increases in certain “rent pressure zones”. San Francisco and New York have had rent controls applying to select buildings since the post-war period.

Not unheard of

Australia has a history of using rent controls in times of crisis. Rental caps were introduced following World War I and also during the Great Depression in the 1930s. Some states introduced temporary rent caps and a ban on no grounds evictions during Covid-19.

But are we in enough of a crisis now to justify introducing rent controls? Do they even work? Which policy response is more effective – controlling rents or building more social and affordable housing through a future fund?

The evidence on the efficacy of rent controls is mixed. A 2019 paper published in the American Economic Review examined San Francisco from 1908 to 2016 where selective rental controls applied to certain properties but not others. The study found there was a 15 per cent reduction in the number of rental properties among those where rents were capped, and a 20 per cent reduction in tenant mobility because they were less likely to move and more likely to remain in a property that did not suit their needs.

Another study compared cities in New Jersey that had some form of rent control with those that did not. It found that the existence of rent controls did not affect the quality or quantity of properties on the market or the size of rental units.

Other research has shown that rent controls benefit tenants in the short-run, but in the long-term they create systemic issues by decreasing affordability and fuelling gentrification.

If a federal or state government does dare to experiment with rent controls, they can expect an explosive reaction from the property industry. The Property Investors Council of Australia has already accused Victoria of being the “worst state” for renters for daring to consider rent caps, as Victorian Greens Party has advised.

The Property Council of Australia has claimed that rent capping would reduce investment in residential housing and a “counterproductive policy option”. The argument is that by capping rents, it reduces returns for investors, who are primarily Mum and Dad investors who may then consider exiting the market, which would reduce the supply of rental properties.

Build-to-Rent investors, who recently won a tax break from the federal government, also have reason to fear rent caps, because this would limit the investment upside in these projects.

A cheap shot

The Greens’ decision to filibuster the Housing Australia Future Fund by demanding a national rent freeze is a cheap shot that will frustrate progress on reigniting housing supply. Rather than delay action on housing policy at a federal level, The Greens could have focused their rent control lobbying efforts at a state level – as they have already done in Victoria – and supported the passing of the future fund legislation through the Senate.

Had they done so, the property industry could have gotten on with the job of building more homes and not be in our current state of staring down the barrel of another double dissolution election which could be called as early as 2024 – hardly enough time for the Albanese government to achieve real progress on the housing and homelessness crisis.

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  1. Asks PIA, is there enough of a crisis, to justify rent controls?

    Beyond any doubt, yes. Equally beyond doubt, it wouldn’t even scrape the sides, of engineered 1.9% population growth.

  2. This article ignores the fact that 31% of households (& voters) are at threat of devastating rent increases that could lead to homelessness. Yes the federal government does not control rents, but nor does it deliver health care or education. The federal Govt influences State health and education through moral leadership and funding incentives.
    The Labor government wants to ignore the rental crisis and portray it as a Greens ‘stunt’. Ask any vulnerable renter whether Government intervention is just a ‘stunt’.
    It is the ALP that is treating this issue as a partisan wedge. The Greens just want economic justice for the 31% of Australians that Labor has put in the too-hard basket.

  3. Where are immigration decisions made? Who controls tax breaks for investment properties? Who’s refusing to put the break on RBA interest rate rises though the Treasurer has the power to do so – and wants to get rid of that power…. The Greens’ move may be clumsy but the target is both federal and state policy so it’s not surprising. The real squib is the lack of enthusiasm across the board for public investment in public housing.