Rent Freeze May Trigger 200,000 Victorian Home Sales as Landlords Opt Out
- Posted By Ndl 1 Realty
A potential two-year rent freeze could exacerbate the situation and trigger a significant exodus of landlords in Victoria, leading to the sale of over 212,000 investment properties.
Premier Daniel Andrews recently disclosed that the government is contemplating various housing and rental affordability measures. Among them, the proposition to restrict landlords from raising rents more than once every two years was mentioned. Additionally, there is a proposal for a $5 short-stay holiday rental levy aimed at generating funds for new home construction, as well as plans to reduce the involvement of councils in numerous planning decisions.
The property industry has generally embraced initiatives aimed at promoting increased housing construction. However, the CEO of one of Australia's major real estate firms, Ray Ellis of First National Real Estate, has expressed concerns over potential consequences if the scope for rent increases is restricted beyond the current one-year timeline.
Ellis stated that he apprehends a considerable reduction of around 30 per cent in rental supply, at the very least, if landlords face additional burdens. Many landlords are already contemplating exiting the market due to rising land tax costs, interest rate hikes, and changes to the Residential Tenancies Act that were implemented in Victoria in 2021. These factors combined may lead to the loss of rental homes from the market.
According to the latest data from the Residential Tenancy Bond Authority, they held bonds for a total of 706,892 homes at the conclusion of the 2021-2022 financial year.
A potential 30 per cent reduction in rental supply, as feared by industry experts, could lead to the removal of 212,067 homes from the market.
In Victoria, recent PropTrack figures revealed that more than 230 homes put up for auction (34.5 per cent) were previously rental properties. This percentage significantly surpassed the national average of 29 per cent for investment homes being sold.
PropTrack economist Angus Moore pointed out that international examples have shown that rent controls might result in a decline in rental home maintenance and lead to landlords exiting the market.
Additionally, Mr Moore highlighted the possibility that landlords might compensate for fewer opportunities to raise rents by implementing sharper increases when they have the chance to do so.
“Creating more supply is fundamentally the only way to solve this problem long term and in a sustainable way,” Mr Moore said.
Mr Ellis, who is a member of the International Real Estate Federation (FIABCI), recently conducted a review of international rental interventions, including instances in Paris and Berlin.
In Paris, a measure was introduced in 2015 that prohibited landlords from raising rents beyond a specific index. However, this led to many landlords opting to sell their properties instead, ultimately resulting in the termination of the program just two years after its implementation.
Similarly, in Berlin, a five-year rent freeze was put into effect in 2020 but was discontinued after only a year due to a legal challenge. During that period, a study revealed a potential up to 60 per cent decrease in rental listings, partly attributed to landlords choosing to leave their properties unoccupied while awaiting the court's ruling.
Simon Kuestenmacher, the co-founder of The Demographics Group in Australia, has cautioned that excessive government intervention may risk overwhelming market forces.
According to Mr Kuestenmacher, a former Berlin resident, he expressed concern that the measures taken to regulate the rental market in the city had been overly stringent, leading to a negative impact on landlords' willingness to provide housing. In his view, the focus should instead be directed towards increasing the supply of homes as an effective means of stabilizing rents.
Recently, the Australian Housing and Urban Research Institute conducted a review on rent freezes, revealing that while beneficial in the short term, rent control in the USA had proven detrimental to tenants in the long run.
In contrast, Jennifer Beveridge, the Chief Executive of Tenants Victoria, contends that certain landlords have been taking advantage of the current rental crisis by engaging in profiteering practices. She believes that additional regulations are necessary to ensure fairness and protect tenants' rights.
“Given that almost a third of households in our state are renters, better solutions for them are imperative and we are encouraged that the government is pushing the envelope in this space,” Ms Beveridge said.
The Real Estate Institute of Victoria's Chief Executive, Quentin Kilian, expressed support for reducing council involvement in planning decisions, as this could facilitate the efficient construction of new housing. However, he also cautioned against implementing policies that would obligate landlords to adhere to fixed rental rates for extended two-year periods.
“Landlords will look at this and say if I can’t do anything with pricing for the next two years, but you are going to increase your tax in that time, then I just won’t play anymore,” Mr Kilian said.
“This will make the decision a lot easier for those who are sitting on the fence.”