Renters are bearing the brunt of Australia’s housing crisis, with stories of extortionate rent increases for poor quality homes making headlines all too often.
One solution being flagged by advocates is to control rents, either through freezes or caps on how much landlords can increase the amount.
The Greens have called for a countrywide rent freeze as a condition of support for the Albanese government’s housing Australia future fund.
While rent controls already exist in some parts of Australia and other jurisdictions around the world, experts warn they are not a simple fix.
What rent controls are being talked about?
The two methods that have been raised in Australia are rent freezes and rent controls.
Rent freezes, which the Greens have called for, means landlords are not allowed to increase what they charge an existing tenant. Depending on how such a law is conceived, it could also prevent landlords from increasing rents between tenants.
Rent caps still allow landlords to increase the amount they charge tenants, but limit how frequently and by how much rent is increased.
Where are rent controls in place?
The Australian Capital Territory introduced controls in 2019 that limit rent increases to 110% of inflation a year. For example, a renter paying $400 a week while inflation is 7% could cop a rent rise to $430. If a landlord wants to increase it further, they have to justify it.
In Germany, where more than half of households rent, price-control policies have existed since the 1920s. The system, known as Mietpreisbremse or “the rent-price brake”, was introduced in 2015 and stipulates that the rent for a property cannot be more than 10% higher than the local market rate, which is set out in an index.
Other countries such as Ireland, Scotland and Spain cap rent increases in certain locations where there are tight markets. In Canada most provinces set the annual percentage that rents can be increased that year.
In New York, in response to a housing shortage during the second world war, a widespread rent control policy was introduced in 1943 and there are still some dwellings tied to historical rent prices.
Are they working?
On Monday the ACT chief minister, Andrew Barr, said the rent-capping arrangements had acted as a safeguard “against the most egregious forms of rental increase”.
Rents in Canberra have been outliers in that they have recorded modest decreases – the median dwelling rent in the city fell 1.9% in the year to June, according to Corelogic.
But Barr said they had only helped as part of a concerted effort to tackle the renting and housing crises in Canberra more broadly.
“They only work when accompanied by a very significant supply side response,” he said. “So we’ve seen the share of housing in the ACT available for rent increase from about 26% 10 years ago to 31% now. We’ve had about a 50% increase in the number of rental properties in the ACT.”
He added: “I would not recommend doing [rental capping] unless you have a pathway for significantly increasing supply. It’s supply supply supply supply and then you can look at a couple of these other regulatory interventions.”
Internationally, experts say rental controls have worked in some areas but had varied success in others.
They can incentivise landlords to take their properties off the rental market and sell to owner occupants, so they can earn market price for the property, research of controls in Cambridge, Massachusetts and San Francisco conducted by the US-based Brookings thinktank found.
Michael Fotheringham, managing director of the Australian Housing and Urban Research Institute, also said owners may take their properties off the long-term rental market and turn them into short-term rentals on sites such as Airbnb, to maximise their return on investment.
Critics of rent controls argue the mechanism can leave landlords with little incentive to maintain their property because they can’t recoup their investment in raising rents, something the Brookings research also found.
But proponents of rent controls, including Barr in the ACT, say minimum quality standards for rental properties ensure landlords can only lease homes that are fit to live in.
Would they work in Australia?
Regarding rent freezes, all experts Guardian Australia spoke to said this would not be sensible in Australia, and should only be used as a short-term measure during emergencies such as wartime to avoid mass homelessness.
For rent capping, one key issue many experts point to is that in many overseas markets with rent controls, large scale “institutional investors” are the norm.
But in Australia, so-called mum and dad investors are the dominant owners of rental properties.
Fotheringham said this means landlords may be relying on rental properties as their sole incomes, and will try to seek maximum returns through other means if they can’t increase rents as much as they want.
In his comments this week, Barr also called on superannuation funds to invest more in housing in Australia, as this model of ownership would change the dynamic driving landlord behaviour.
Great, so can they work right now?
Dorina Pojani, associate professor in urban planning at the University of Queensland, believes that while rent freezes would be too extreme for Australia, rent caps tied to inflation would help.
“It shouldn’t be considered strange because we do cap other items in society, such as medicines,” Pojani said. “There are some things that are so important they need to be regulated. The moment the market doesn’t serve us but chokes us, we regulate.
“Controls are especially effective when the market is tight like it is now.”
Pojani noted the shortages of supply, and said strict eviction controls, to stop landlords from pushing out tenants as a way to charge more for their properties, were crucial.
Ameeta Jain, finance lecturer at Deakin University, believes supply must be increased well before rent caps are introduced.
“Our biggest problem in Australia is that our population increased by so much, but housing stock, including social and affordable housing stock, has fallen,” Jain said. “There isn’t enough supply, because of this I don’t believe rent controls will work to the same effect across Australia as overseas.
“There aren’t enough rental properties, and there will always be people who can afford to bid higher, so rent controls may actually help these types of renters,” Jain said.
Additional reporting: Cait Kelly and Paul Karp
