What is rent control? Can it help tame Australia's housing crisis?

Highlights

• Rent control could offer a solution to longstanding affordability concerns seen across the Australian property sector.
• Rent control policy has been implemented across multiple countries, including Scotland, South Korea, and Spain.
• Concerns loom that rent control might prompt landlords to stop looking after the property and pay little attention to maintenance and renovation.

With the Australian property prices soaring to unimaginable levels, experts and policymakers have been compelled to think of appropriate solutions to the problem. The longstanding affordability concerns that have started to build up in the property sector need rectification. One plausible solution to the issue is rent control, an option that has long been debated over.

Rent control essentially allows the government to place an upper limit on the amount of rent that a landlord can demand for leasing a home or renewing a lease. Considering the plight of many Aussies who have been compelled to leave their houses as they could not afford the rental payments, rent control seems a promising option. However, the option comes with its own challenges and might not solve the supply shortage issue.

Before discussing the pros and cons of rent control, here is a closer analysis of the measure and its meaning for tenants.

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What is rent control?

At its core, rent control is a quick and easy policy tool to ensure that rental payments of those renting out a house do not spiral out of control. This is especially important in the current climate, where many people have had to leave their existing houses as property prices have reached painfully high levels.

The rent control model has been adopted in various forms across geographies, including Scotland, South Korea, Spain, Ireland, and parts of Canada. Moreover, rent control is not new to Australia, as the country has implemented the policy at various points in history. The prevalence of rent control was even seen during World War II in Australia.

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However, there is no fixed way of going about the policy. For instance, in South Korea, the government decided to limit rent increases to 5% as real estate prices soared. Rent control can also be implemented to prevent landlords from raising rent more than once in six or twelve months. Some countries even decided to keep national rental rates steady at the same level for years.

It is worth noting that most of these rent control policies were short-lived and changed as a new party came into power. Perhaps, many governments have sought the usage of the measure as a political tool.

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Who will benefit from rent control?

In Australia, tenants have seen the rough side of an increase in housing prices as soaring rental payments left them financially worse off. Since renters generally belong to lower-income groups, charging exorbitantly higher prices will mean little income of what they earn is left for them.

However, taking cues from Australia’s past implementation of rent control, the present government might be able to provide some respite to the problem at hand. Specifically, in Victoria, rent control offered strong protection against soaring rental prices during the 1940s.

A similar situation can be seen today, where rental rates have become unpalatable for low- or middle-income households. Since rent control has had a successful run in Victoria, the national government might implement the policy across the country to offer a viable solution.

This could prevent many Aussies from becoming homeless and businesses from getting bankrupt. Additionally, the burden of rising property prices would be shared equally by landlords and tenants with this policy measure.

Why the hesitation around rent control?

Despite the numerous benefits of rent control, there are still many underlying problems of the policy. Rent control might give rise to certain unintended outcomes that could affect tenants and property seekers adversely.

A major fear stemming from rent control is that landlords might stop looking after the property and pay little attention to maintenance and renovation. For instance, suppose landlords fear that they would be able to make the intended level of profit on their property. In that case, they might sell it off, eliminating it from the reach of potential tenants.

Another issue is that the rent control policy may interfere with the large-scale apartment construction happening in Australia. Apartment builders may not be able to sell their units to landlords as they would not be able to charge the desired amount of rent.

Overall, rent control might be a good policy to help tenants in the short term. If not at a national level, the policy can offer some resolve across cities such as Sydney and Melbourne, where property prices have leapt uncontrollably. However, a wider approach would be needed in the long-term that provides a significant makeover to the property market.

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