The Queensland premier, Annastacia Palaszczuk, has spent this week riding a tide of investor backlash after saying her government was “very seriously” considering introducing rental caps.
Queensland is feeling the brunt of the nation’s rental crisis, with rents rising 80% in the central city of Gladstone, 51% in Noosa and 33% on the Gold Coast in the past five years.
Other states are also feeling the pinch. With vacancy rates in capital cities averaging just 1.2%, rental costs are soaring, pushing people out of their homes.
Rental advocates are calling for rental price controls across Australia, saying they would provide cost-of-living relief for those struggling the most. But investor groups warn price caps will cause a drop in supply and make things worse.
So what are rental caps and how might they affect the market? Experts weigh in.
What is rent control?
Rent control policies have been implemented in various forms around the world, and there is more than one way to do it.
In Germany, where more than half of the households rent, price control policies have existed since the 1920s. The current 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.
What’s the situation in Australia?
Chris Martin, a researcher at the University of New South Wales Sydney’s City Futures Research Centre, said Australia had some history of rent caps but only during emergencies. He said the latest was the evictions moratorium during the early stages of the Covid-19 pandemic.
“That was one very recent example of Australian states saying: here’s an emergency, we’ll try to keep people in their homes,” Martin said. “But as it happened, they did it at a time when demand in the rental sector went down.
“Going back further we had rent controls in the second world war, applied on a national basis. They continued for a few years afterwards.”
No state or territory now regulates rents for affordability, according to Martin. While there are limits on the frequency of increases, rents can always rise in line with market prices.
The closest system to a rent cap is in the Australian Capital Territory: landlords cannot increase rent by more than 10% above the consumer prices index without justifying it.
What would rent caps look like?
Michael Fotheringham, a policy development specialist at the Australian Housing and Urban Research Institute, said there was a difference between the rent caps Queensland government was discussing and rent-controlled dwellings.
“We’re not talking about a cap on the amount of rent people can charge, but on the amount and frequency rent can be increased,” he said. “A rent increase cap – not a rent cap.
“It’s about it not going up astronomical amounts every six to 12 months.”
Fotheringham said a model where rent increases were tied to the CPI could work. But a potential design challenge was avoiding a situation where landlords could evict tenants when their lease ends and heavily hike rents to match the market, which has been seen in Canada, where CPI-based rent controls are in place.
“In international jurisdictions, we’ve seen the impact of repeatedly poor[ly] design[ed] controls,” he said. “We have seen tenants write to their former address to let the new tenant know how much they were paying so the new tenants can appeal [against] the rent.”
Would it impact supply?
In response to Palaszczuk’s comments, Antonia Mercorella, the chief executive of the Real Estate Institute of Queensland, said a rent cap would drive investors from the market.
“In the middle of a housing crisis caused by lack of housing supply, it’s beyond belief that the government is now proposing a measure which innately discourages further supply,” Mercorella said
“No one denies that there is an immense amount of pressure for the most vulnerable in our community, but rent control or freezes are not the answer.”
But Jemima Mowbray from the Tenants’ Union of NSW said research from the Australian Housing and Urban Research Institute showed landlords do not divest when stronger protections for renters are introduced.
Mowbray said renters were “voicing their struggles to us daily” as rents increase.
“Many increases are excessive and force renters, particularly those in the regions, to cut back on essentials,” she said.
Tenants’ unions across Australia would like to see other jurisdictions follow Queensland and look at what interventions can address the nationwide problem of rental and housing stress.
“It’s clear fairer limits on rent increases are needed, as well as a more effective way to challenge rent increases,” Mowbray said. “One model for reform that should be considered by Australian jurisdictions is the model already in place in the ACT.”
