Rent control – it’s a hell no from me!

Posted by Helen Matsoukas

I’ve read many articles written by seemingly educated journalists who are paid to argue that ‘regulating rent will provide relief to those feeling the biggest squeeze. Those feeling the biggest squeeze? As far as I’m concerned, that’s every single one of us! The cost of living has impacted us all in some way and keeping up with expenses like daily essentials, groceries, and rent, on top of mortgage repayments, is bloody hard. I understand that rent controls seem like a good way to decrease costs for many of the population. However, in the long run, entertaining the thought of rent control in this environment is bat shit crazy.

It’s no surprise that the issue of rent control is on the radar. As predicted, rents have exploded in the last 12 months. The average rent increase across Australia for 2022 was a staggering 12%, on the back of a 7.4% increase already recorded for 2021. In 2023 we expect rents to increase by a further 15%.

Let’s have a look at a practical example. If you rented a property in December 2020 for $465, by December 2021, your rent would have increased to $499 per week; that’s an increase of $1768 per year. Now, in Dec 2022, your rent would have increased further to $558 per week. That’s an additional increase of $3068 per year, totaling a two-year increase in rental income of $4,836.

If they are implemented, rent controls will almost certainly worsen the supply shortage. In a country where 26% of rental housing is provided by ordinary Australians through investment properties, rent control will almost certainly result in a massive exit of property investors from the market. Investors are sold on growth strategies. Capping the possibility of growth with any investment is a massive constraint. Then there’s trying to balance the increased holding costs and maintenance and upkeep costs. Why would you?

Put perfectly by Nurit Brukarz of Motion Property in a recent discussion she and I had;

“ I would strongly urge any Government to consider the greater impact rent control would have on our markets before introducing such far-reaching changes.

At face value, there seem to be many benefits for rent control – rental affordability being the most obvious.

However, I believe some unintended consequences of rent control outweigh the positive effects. If landlords cannot raise rents to meet the costs of maintaining their investment, you can expect to see a deterioration in the condition of properties. The bigger issue is that rent control would disincentivise private investors from entering the market, with those already invested making the move to more lucrative options such as short-stay accommodation. This will result in a much tighter rental market”

Whilst 9.8 million Aussies rely on rental housing in Australia, only 3% of housing is provided by the government. The Australian government relies on investors to provide affordable accommodation for its citizens. The rental housing market is a function of supply and demand. Rent control will artificially push down the price of rent that would have otherwise been set by the free market.

An artificial freeze on rent will only create market distortions and shortages across the economy.

History has shown that the effects of rent control are short-lived. San Fransisco and New York are prime examples of this. In 2020 research conducted by economists from the Manhattan Institute concluded that the only benefit of rent control was short-term rent relief. In the long run, it resulted in significant housing deterioration, discouraged residential construction, misallocation of tenant suitability, and conversion of housing to temporary accommodation. And worst yet purposely left vacant properties.

With a current national vacancy rate of 0.8%, meddling with investor housing in this environment is a foolish idea. The property boom of 2020-2021 and the implementation of minimum standards laws in Victoria, NSW, and more about to hit QLD have already seen many landlords offload their properties.

Let’s be honest; investing in property hasn’t been the easiest ride these past few years. It’s felt like we have been hanging upside down on a rollercoaster that’s been stuck. And now our keys and wallet just fell out of our pockets. But that’s a normal part of any type of investing. As long as you stay on that roller coaster, you’ll get moving again and make it back up to the top in time.

Working in property for almost 25 years now, I’ve never seen such a distinct opportunity to enter the investor market. Despite the noise and uncertainty around holding costs, investors brave enough and able to buy property now will make outsized returns in the future.

All the factors for a boom are now in place. The population is set to increase substantially as we recover from the pandemic, net migration is rising, and population growth is set to peak at 1.4% in 2024/2025.

Our business lives and breaths research. If you didn’t get a chance to read last week’s article written by our senior researcher Gavin Chau, please have a look now at; https://www.bluewealth.com.au/uncategorized/the-fomo-premium/. In a time when we are led to believe that everything around us is falling apart, windows of opportunity open up. Those who have the courage and ability to look objectively at the research rather than the media are the ones that stand to benefit in the long run.

Posted by Helen Matsoukas, on 13th Dec 2022