Chapter 4Factors underlying the current rental crisis
4.1This chapter discusses the key issues identified by submitters, which affect the affordability, the demand and supply of rental housing. It also explores the operations of tenancy law across Australian jurisdictions, and measures to further protect renters, including rent controls and oversight of tenancy laws.
4.2The chapter ends with the committee’s concluding comments, which signal areas that will be further examined in the final report.
Unaffordability of rental housing
4.3The thrust of many submissions in relation to rental affordability can be summed up as follows: ‘Rental housing has been unaffordable for many for a long period, but affordability is further worsening at an alarming rate’. Ajoint statement submitted to the committee by over 80 organisations stated:
Too many renting households are spending too much of their income on rent, leaving very little for other necessary ever-increasing expenses.
Cost of renting
4.4The ANZ and Core Logic Housing Affordability Report released in May2023 highlights some of the affordability trends that have contributed to pronouncements of a ‘rental crisis’ in Australia. Examples include:
median weekly rent value across Australian dwellings rose by $115 (to$570) between September2020 and April2023; and
‘growth in Australian rent values has gone from low, stable rates through much of the 2010s, to unprecedented levels in the past year’.
4.5Anglicare Australia’s 2023 Rental Affordability Snapshot assessed that the housing market ‘has never been less affordable or more volatile’. Surveyingthealmost46,000 rental listings available across Australia on a sample weekend in mid-March 2023, Anglicare Australiafound only a tiny fraction to be affordable for each of the following cohorts:
15.9 per cent were affordable for a family of four on the full-time minimum wage;
0.7 per cent were affordable for a single parent on the full-time minimum wage;
0 per cent were affordable for a person looking for work on the JobSeeker payment;
0.4 per cent were affordable for a retiree on the Age Pension; and
0.1 per cent were affordable for a person on the Disability Support Pension.
4.6On one estimate, only 0.9 per cent of Greater Melbourne’s private rental properties ‘are affordable for households receiving income support payments’.[5]
4.7The Australian Housing and Urban Research Institute (AHURI) described poor rental affordability as ‘a long-term issue, including the shortages of social and affordable housing’; and argued that the COVID-19 pandemic had adversely affected many renters despite efforts to provide some protections for renters from the impacts of the pandemic.
4.8The City Futures Research Centre provided the committee with the graph at Figure4.1 as evidence that ‘despite considerable sector expansion, the shortfall in private tenancies affordable to low-income private renters has deepened’; andexplained that graph as follows:
Over the past 20 years, … the distribution of rental price points in the sector has shifted dramatically up the scale. Whereas in 1996, the most common rental price points in the market were around $200-250 per week (in 2016 dollars), by 2016 the number of properties in the market had not only grown but moved up the scale of real rental prices, with the most common price points around $450-$500 per week and many more dwellings than previously renting about that.
Figure 4.1The changing distribution of private rents, 1996-2016
Source: City Futures Research Centre, Submission 40, p. 7 (citing Kath Hulse et al., AHURI, Thesupply of affordable private rental housing in Australian cities: short-term and longer-term changes, December 2019, p. 28; Chris Martin et al., AHURI, Regulation of residential tenancies and impacts oninvestment, November 2022, p. 11).
Price of rent relative to incomes and CPI
4.9Some submitters argued that rental prices have in fact not kept paceover time with consumer price index (CPI) increases. The Real Estate Institute of Australia (REIA), for instance, said ‘rents historically have fallen well below CPI and are expected to return to this trajectory once inflation has abated and housing supply returns to adequate levels’; and provided the graph at Figure4.2.
Figure 4.2Weighted median rents versus CPI, 2014-23
Source: REIA, Submission 56, p. 13.
4.10Per Capita concluded, after tracking the past decade’s wage growth against both CPI and CPI rents (Figure 4.3) that ‘rental affordability is driven by a failure of wage growth more than it is by any long-term growth in rent prices’.
Figure 4.3Wage growth, inflation and rental increases, annual percentage and average annual
Source: Per Capita, Submission 61, p. 13
Impact of increasing rents on overall cost of living
4.11Rents make up around six per cent of the basket of goods and services used to measure CPI, so rising rents themselves contribute to rising living costs as measured by the CPI. However, this may understate the extent to which rising rents add to cost-of-living challenges for new or prospective tenants.
4.12The Reserve Bank of Australia has published analysis comparing two rental measures: rents as measured in the CPI (i.e. price changes for the stock of all rentals); and advertised rents (i.e. the asking price for currently vacant properties). Advertised rents have risen over recent years far more steeply than CPI rents.
Backdrop of rising cost of living
4.13At the same time as rental prices have increased, tenants have faced increases in the overall cost of living with steep rises in CPI from 2021.
4.14The combined impact of these pressures was described in detail to the committee by many submitters, as outlined in Chapters 2and3. Renters living on low incomes are the least able to reduce expenditure on non‑essentials and are therefore the most affected by cost-of-living pressures.
Rental stress
4.15As also highlighted in Chapter 2, the committee heard compelling evidence that rental stress is a significant issue among renting households, particularly those on lower incomes.
4.16Per Capita argued that ‘there has been a rental availability and affordability crisis for decades for people reliant on minimum wages or income support payments, as both social housing and welfare payments have declined in real terms’.
4.17Dr Chris Martin and Professor Hal Pawson from the City Futures Research Centre describe the private rental sector as ‘the site of the worst affordability outcomes in the Australian housing system’:
The median low-income private renter household (i.e. in the lowest two quintiles of the population by income) spent 36% of its income on rent in 2019–20, with 20% of this cohort spending over half of their income on rent.
4.18Analysis by the Committee for Economic Development of Australia (CEDA) estimated that ‘renters among the poorest fifth of Australian households could be paying an average of 44 per cent of their disposable income on rents in 2023-24, based on a 20 per cent increase in asking rents from 2021-22 as of February2023’.
4.19Bankwest Curtin Economic Centre has calculated median price-income ratios for rentals in 2022 of established houses in Australian capital cities and regional areas. It found that all major cities were ‘affordable’ for households on median incomes, ‘with median rents representing on average 26.4 per cent of their incomes’ – ranging from 21 per cent in Melbourne to 28percent in Sydney. However, rentals were less affordable for lower-income households (the bottom quartile): the average rent-to-income ratio across capital cities was 28 per cent, with ratios of around 32 per cent for both Sydney and Hobart and 36 per cent for Perth.
4.20Analysis in Western Australia indicates that in areas historically considered more affordable, over the five years to December 2022 ‘housing costs had grown much faster in the cheaper areas and for those at the bottom of the market’.
4.21As mentioned earlier in this report, organisations have reported that they are increasingly assisting people who have not previously experienced housing insecurity or homelessness.[18]
Rent increases
4.22The Reserve Bank’s June 2023 Bulletin observed that:
Over the past year, rents have increased for almost three-quarters of properties, up from around one-quarter every year pre-pandemic. …
Rent inflation has picked up and is broadly based across new and existing tenants, property types and the states. Rent increases have also become more common, and larger on average.
4.23Rents paid across Australia rose by 2.5 per cent in the June quarter 2023 and by 6.7 per cent annually. This was the largest annual increase since 2009, with especially high increases in Brisbane (8.9 per cent), Perth (8.2 per cent) and Sydney (7.3 per cent). Median advertised rents rose by 11.5 per cent in capital cities in the 12 months to June 2023 (and by 13 per cent in each of Sydney, Melbourne and Perth).
4.24Numerous submissions, including many tenancy advocacy groups, called for some form of limits on rent increases. The Grattan Institute noted that ‘all states and territories already limit the frequency of rent increases for ongoing tenancies to between 6-to-12 months’, and most jurisdictions ‘allow tenants to contest rent increases via an independent tribunal’.
High demand for rental housing
4.25Key factors affecting demand for rental housing in Australia include reductions in home ownership affordability and average household size; and patterns of international and internal migration.
Declining home ownership affordability
4.26Australia is experiencing a decline in the affordability of home ownership, as noted in Chapter 1. A reduction in the homeowning proportion of the population can be expected to cause increased demand for rental housing.
4.27According to PropTrack, home ownership affordability is now at its worst level in at least 30years, based on ‘the share of homes that households can afford to purchase across the whole income distribution’.
Declining household size
4.28The Australian Institute of Family Studies noted in its submission that, while the number of Australian households is increasing (as is population size), the average household size has declined to 2.5 in 2021. Of all households in 2021:
71 per cent were family households (down from 78 per cent in 1981);
26 per cent were individuals living alone (up from 18 per cent in 1981); and
4 per cent were groups of unrelated persons.
4.29The committee heard that smaller-sized households mean that a greater number of dwellings are needed to house the same number of people.
4.30The increased incidence of working from home during the COVID pandemic is thought to have driven interest in greater household space, fuelling demand for an additional 120,000 households and thus greater demand for dwellings.
International and internal migration
International migration flows
4.31A number of inquiry participants noted that the recent net gains in overseas migration have contributed to boosting housing demand.
4.32For example, CEDA submitted that with the post-pandemic reopening of Australia’s borders, population growth reached a record annual high of almost 500,000 in 2022, ‘requiring roughly 200,000 additional dwellings peryear based on the national average household size’. The Institute of Public Affairs (IPA) said net migration to Australia over the period 2023–28 is expected to exceed 1.7million people, equating this to the establishment of 117,000 new households peryear and a cumulative shortfall of around 250,000 dwellings (relative to the expected increase over that period in housing supply).
4.33AHURI submitted that while the post-pandemic reopening of Australia’s borders is ‘not a key reason for housing affordability stress in the last two years’, it is a contributing factor to the increased demand for rental housing. Per Capita similarly told the committee:
There is undoubtedly a relationship between high returning migration figures and rental prices and availability. However, blaming the rental crisis on immigration does not stand up to scrutiny: net migration numbers are well below the 2009-2019 trend when rents were growing at a very low rate.
Internal migration flows
4.34The demand for rental housing is also affected by internal migration flows.
4.35The Regional Australia Institute (RAI) reported that the population of regional Australia had increased annually by an average of over 76,000 in the decade to 2020 – with the number of new home construction approvals declining in half of those years. RAI also observed that ‘net city to regional migration flows … are still more than 16% higher than they were pre‑pandemic, despite coming off record highs’. For regional Victoria, that figure is 30per cent above pre-pandemic levels, according to Regional Development Australia (RDA).
4.36Such net population flows to regional areas apply pressure to both availability and affordability in regional rental housing markets, which in turn adversely affects regional labour markets.
4.37The Reserve Bank of Australia has published analysis showing rent inflation since 2019 has been higher in regional areas than in capital cities.
Supply of rental housing
4.38The following section provides an overview of the housing stock to rent and the supply shortage of private rental dwellings. It also outlines key factors affecting supply of rental stock. Rental affordability problems are often ascribed to a shortage of available housing stock for rent, with high demand relative to supply placing upward pressure on rent.
Social housing (public housing and community housing)
4.39As noted in Chapter 1, the number of households in public housing fell by 13.6percent (to 286,000) between 2002 to 2022, while over that same period the number of households in community housing almost tripled (to 102,600).This trend is illustrated in Figure 4.4.
Figure 4.4Number of dwellings by social housing program
Source: AIHW, Housing assistance in Australia, 14 July 2023, www.aihw.gov.au/reports/housing-assistance/housing-assistance-in-australia/contents/social-housing-dwellings (accessed 13 September 2023).
4.40The Grattan Institute observes that social housing stock has barely grown in 20years, while the population has increased by 33 per cent. Similarly, the City Futures Research Centre notes that annual social housing lettings have fallen since the mid‑1990s from 52,000 to 29,000: ‘anominal reduction of 44 per cent, but pro rata to population, down by over 60percent’.
4.41Waiting lists for social housing are extremely long, demonstrating the inability of supply to keep up demand. AHURI highlighted the sheer extent of this demand:
If we add together all the households on the waiting list and those already in social housing, we find that over half a million (close to 565,000, or just over 6 per cent) Australian households were living in, or had requested to live in, a form of social housing. AHURI research has projected growth in demand for social housing to the year 2037, estimating that over 1.1 million social dwellings will be needed by that point …
4.42The Community Housing Industry Association argued that:
The evidence is that Australia needs around 8-9% of its total housing stock to be social housing for low income households and around another 3% to be affordable rental housing for moderate income households. This is about three times the current supply.
4.43On 14 September 2023, the Housing Australia Future Fund Bill 2023 (HAFF Bill) was passed, committing additional funding for social housing that is estimated to result in an extra 30,000 new social and affordable dwellings over five years.
4.44To date, a number of inquiry participants have expressed support for the passage of the HAFF Bill. For instance, Mr Hayden Groves, President of the REIA, stated that:
The Housing Australia Future Fund does give an important injection of social and affordable housing funding for the states and territories, in order to help them catch up with an area that has been long neglected by the states and territories. It is very important legislation to try to get more housing, more quickly into the market, at the affordable end, right now.
4.45The committee will examine the views of inquiry participants on the new legislation in its final report.
Private rental housing
4.46As noted in Chapter 1, the national residential property rental vacancy rate in July 2023 was 1.3 per cent, with some capital cities vacancy rates closer to 1percent. This is well below a ‘healthy’ vacancy rate of between 2.6 and 3.5 per cent.
4.47Of properties in the private rental market, 80 per cent are owned by individual investors with the remaining 20 per cent owned by self–managed superannuation funds, institutional investors and employers.
4.48Nearly half of Australia’s private rental dwellings are owned by landlords who own a single investment property; and about 90 per cent are owned by landlords who own four or fewer investment properties.
4.49Properties and owners tend to enter and exit the private rental sector quite rapidly. One analysis of rental bond data found that over half of rental properties in Sydney and Melbourne had exited the sector five years after first having been observed in the sector. A similar proportion of landlords leave the sector at five years.
4.50The growing gap over the two decades to 2016 between the number of lowest‑quintile (‘Q1’) renter households and the number of private rental dwellings affordable and available to such households is shown at Figure 4.5.
Figure 4.5Indicators of supply shortage of private rental dwellings for Q1households, 1996-2016
Source: City Futures Research Centre, Submission 40, p. 19, (citing Kath Hulse et al., AHURI, Thesupply of affordable private rental housing in Australian cities: short-term and longer-term changes, December 2019).
4.51The REIA characterises the main factors affecting current rental housing supply as follows:
… inadequate housing, combined with a shrinking of the existing pool, is the absolute dominant factor in the current supply of rentals.
Australia's building program has not kept up with consumer demand; and existing rental inventory has become stressed by economic conditions, excessive regulation, taxation and reduced returns.
Build to rent
4.52AHURI explains the concept of ‘build to rent’ (BTR) as:
… the process whereby developers and their financiers build multi-unit buildings and, instead of selling the units, retain them to rent to tenant households. Rents may be set at market rent or, for affordable and social housing, at an appropriate discount to market rents.
4.53The BTR sector accounts for about 0.2 per cent (by value) of Australia’s residential housing sector, consisting of about 3,000 completed units and some 19,000 in development. It has been incentivised by some recent changes to tax settings (both state-level land tax and federal-level withholding tax). Thecommercial BTR sector currently operates at the higher end of the residential housing market.
‘Affordable housing’
4.54The need for an increased supply of more affordable housing, especially for low- and moderate-income earners, was a major theme of evidence before the committee.
4.55There is no universally used definition of ‘affordable housing’ in Australia. AHURI has observed that the term is variously used across jurisdictions and government programs to refer to:
a household’s ability to pay, determined by its income;
rental housing with rent lower than the prevailing local market rate; and
rental housing only, or also home ownership.
4.56As noted in Chapter 1, a range of government programs aim to promote housing affordability. Of these, several programs attempt to boost the supply of affordable housing; some assist people to pay their rent; and others focus on assisting people to enter home ownership.
4.57Many submitters stressed the need to focus on the composition as well as on the quantum of the required additional rental supply, inorder to ensure that the needs of moderate- and low-income earners are met. For example, Mr Thomas Chailloux of the Public Interest Advocacy Centre (PIAC) told the committee:
… it's really, really important, when we talk about supply of housing, that we talk about targeted supply—supply of social and affordable housing that people on the lowest income can actually afford—because you cannot guarantee, when you focus on general supply, that this supply will actually flow down to the people who need it the most, and those people often are our clients.
Factors impacting supply of private rental stock
4.58Inquiry participants suggested that a variety of factors influence the supply of private rental housing, including incentives and disincentives for property investors; short-stay rental housing; and levels of construction activity.
Tax incentives for small investors
4.59As noted above, 80 per cent of Australian rental properties are owned by individual investors.
4.60As noted in Chapter 1, the main tax incentives for investment in the housing market, in terms of cost to the Commonwealth budget, are negative gearing and capital gains tax concessions.
4.61In 2020–21, approximately 1 million out of 2.2 million individuals with an interest in rental property reported a net loss in rental income (i.e. they were negatively geared), while 1.25 million individuals reported net capital gains.
4.62In their joint submission, Treasury and the Department of Social Services (DSS) contended that ‘current settings provide a marginal incentive for individuals to invest in rental housing’. They also argued that ‘while changes to tax systems can affect investor incentives, current rental affordability dynamics have not been driven by tax settings’.
4.63Some inquiry participants argued that the removal of tax concessions for investors would result in an exodus of investors from the private rental market, which would lead to worse outcomes for renters. On the other hand, a number of submitters linked the availability of tax concessions to negative outcomes for tenants. For example, Per Capita argued that:
The instability of the hobby landlord class is the major cause of short tenancies and housing insecurity for tenants, and of the spikes in rental prices that occur when properties change hands or are leased to new tenants. It is in large part driven by Australia’s unusually generous tax concessions for property investors, which incentivise ordinary income earners, without high levels of capital, to speculate on the housing market.
Institutional investors
4.64Evidence before the committee highlighted the relatively small role of institutional investors in the Australian housing market. For example, CEDA noted that the largest investors hold only a few thousand units, contrasting this with Germany and the US where the largest institutional investors hold a combined total of over half a million dwellings.
4.65REIA told the committee that institutionalised investment assets will be useful in that they will provide rental supply, albeit at the upper and more bespoke end of the rental continuum, which will free up other rental supply in the market.
4.66As outlined in Chapter 1, the Government announced in its 2023–24 Budget incentives for investment in build-to-rent accommodation.
Short-stay rental housing
4.67The committee heard a range of views about the extent to which short-stay rentals exacerbate rental affordability and supply issues.
4.68AHURI research suggested that short-stay rentals arranged through platforms like Airbnb ‘are probably not significantly worsening rental affordability at the metropolitan scale’, with commercial Airbnb listings comprising only 1‑2percent of rental stock in Melbourne and Sydney. However, AHURI found that such platforms are having an impact on rental supply in ‘high-demand inner city areas that have significant tourism appeal’.
4.69The Productivity Commission noted that Airbnb listings as a proportion of the rental housing stock were 12 per cent in Hobart (2020) and 48 per cent in ByronBay (2017). It argued that short-term rentals ‘highlight – rather than cause – broader supply problems’.
4.70Airbnb pointed to the complexities involved in the housing market:
At its core, the issue of housing is challenging and complicated. The causes of housing or rental availability and affordability differ from place to place, with legacy factors – which often pre-date the founding of Airbnb by decades – ranging from the supply of new homes, the ratio of affordable to social housing stock, demographic changes, the number of empty dwellings and rooms, shrinking household sizes, migration, interest rates, taxation settings, as well as state and federal policy and broader economic conditions.
4.71Professor Nicole Gurran told the committee at the public hearing in Brisbane that it was difficult to isolate the impact of short-term rentals from other types of demand shifts. However, she said there was ‘quite robust international economic literature’ finding that the impact did entail upward pressure on rents. Professor Gurran stressed that, with vacancy rates low, ‘anything that reduces the availability of properties will further exacerbate that rental vacancy rate’.
Construction activity
4.72The committee heard that a variety of factors influence the rate at which rental housing is constructed across the country. These factors may include planning and zoning regulations, development approvals, and issues with labour shortages and supply chains.
Planning and zoning regulations
4.73A number of submitters argued that housing supply in Australia has been constrained by the operation of planning rules. For example, Treasury and DSS said in a joint submission:
A key deterrent to new dwelling construction in Australia has been planning, zoning and land release systems. Such regulations, when restrictive, can substantially increase the cost of supplying new housing. For example, planning delays increase costs and uncertainty to developers, which can restrict housing supply.
…
Planning, zoning and land release regulations have been diverting housing development away from well-located areas, where it would best satisfy household preferences. Proponents suggest that dense development in the ‘missing middle’ of major Australian cities, where households can reside closer to jobs in areas with higher quality amenities and infrastructure, has been restricted by regulations put in place by local governments.
4.74The Centre for Independent Studies argued that planning restrictions are the ‘fundamental cause’ of rental supply issues which lead to overly high rents.
4.75Others questioned whether planning and zoning rules are the major delaying factor – inview of the lag times observed in practice between planning approvals and commencement of construction. For example, Sustainable Population Australia submitted:
There is no evidence that more government efforts for rezoning or reducing ‘red tape’ will increase the rate of housing construction, since developers already have access to land they choose not to develop yet.
4.76Researchers from the University of Sydney gave evidence that planning and zoning regulations are not the main barriers to the construction of new rental housing.Dr Cameron Murray pointed out that ‘plans are rules about where things go, and only property owners can decide when or how fast to build them’. This was echoed by Professor Nicole Gurran who indicated that the real problem is ‘getting projects off the ground once they’re approved’.
Development approvals
4.77Government agencies submitted that dwelling approvals provide an indication of future construction levels. Master Builders Australia pointed out that in the June quarter of 2023, new home building approvals were 15.5 per cent down on a year earlier, with higher-density home building approvals down by 14.4percent’. Figure 4.6 shows the trajectory of dwelling approvals since 2009.
Figure 4.6Dwelling approvals
Source: Treasury and DSS, Submission 133, p. 25 (citing ABS, Building Approvals, Australia, 30 August 2023, www.abs.gov.au/statistics/industry/building-and-construction/building-approvals-australia/latest-release (accessed 1 August 2023).
4.78On the other hand, several inquiry participants suggested that development approvals do not significantly influence the rate of construction activity, as developers are free to choose when to commence developments once they have been approved. According to Sustainable Population Australia:
Housing supply is largely controlled by developers, who choose to drip-feed stock to ensure the market remains tight and prices keep rising, while holding large parcels of land already approved for development (land banking).
Labour and supply chain issues
4.79Numerous submitters indicated that labour and supply chain issues are limiting the rate and amount of rental housing being built.
4.80Peak bodies for the housing and construction industry noted the impact on the construction sector of labour shortages and increased costs of building materials. For example, Mr David Bare, Executive Director at the Housing Industry Association, testified that construction costs have increased over the past 12 to 18 months ‘on average by 20 per cent’. In Sydney, this equates to an additional cost of $130,000 for an average build.
4.81The Housing Industry Association outlined the substantial increases in the cost of building material from pre-pandemic levels:
All home building inputs have increased in price between the December Quarter 2019 (pre-pandemic period) to the latest March Quarter 2023. Notable inputs that have saw a large price increase over this timeframe are reinforcing steel (+59.0%), steel products (+46.7 per cent) and timber, board, and joinery (+40.9 per cent).
4.82The committee heard that the combination of labour shortages and supply chain issues is causing ‘significantly extended build times’, with some people renting in the private market for long periods of time while waiting for their home to be built.
Rights and obligations of landlords and tenants under tenancy law
4.83Residential tenancy laws and tenancy support services affect security, safety, and accessibility for renters. As noted in Chapter 1, state and territory governments have responsibility for tenancy laws, but the Commonwealth Government has recently become more engaged in coordinating efforts towards greater harmonisation of tenancy laws across Australian jurisdictions – with a view to enhancing protections of renters’ rights.
4.84Residential tenancy laws provide legal protections for tenants around rent and conditions of rental leases. The differing levels of tenancy protections across Australian jurisdictions are summarised in Table 4.1.
Table 4.1Key features of private rental tenancy protections by jurisdiction
| | | | | | |
NSW | Permitted every 12 months, nocap | Permitted | Being considered, currently 30 or 90 days | Being considered | Being considered | Transfer of bonds, other reforms being considered |
Vic | Permitted every 12 months, nocap | Prohibited | At end of first fixed term or with reason | Landlord discretion | No restriction | Minimum standards, allowable modification, right to reasonable repairs |
Qld | Permitted every 6 months, nocap | Permitted | End of lease 60 days, otherwise not permitted | Landlord discretion | No restriction | Personal modification, fees and charges, bond transfer being considered |
WA | Announced restricted to one a year, no cap | Announced | Permitted 30 days before end of fixed term, 60 days periodic lease | Announced allowing pets with reasonable refusal only | No restriction | Announced allowing modifications, announced streamlining bond release, announced dispute process |
SA | Permitted every 12 months, nocap | Soliciting bids prohibited (tenants can initiate) | Legislating prescribed reasons during lease, allowed at end of lease | Legislating allowing pets with reasonable refusal only | Prescribed application form and restrictions on info collected/ stored/ destroyed | Longer leases being considered, bond limit to 4 weeks’ rent |
Tas | Permitted every 12 months, nocap | Advertising price range not permitted (tenants can initiate) | End of lease 42 days Otherwise not permitted | Landlord discretion | No restriction | Basic minimum standards required |
NT | Permitted every 6 months with 30 days’ notice, nocap | Permitted | Permitted 42 days during lease, 14 days at end of fixed term lease | Landlord discretion | No restriction | |
ACT | Permitted every 12 months with, for periodic tenancies, ‘prescribed amount’ | Soliciting bids prohibited (tenants can initiate) | Permitted 26 weeks | Landlord discretion | Landlord discretion | Growing food Compost |
Source: adapted from Australian Council of Social Service (ACOSS), Submission 117, [pp. 6-7]
4.85All states and territories are currently reviewing, or have recently reviewed and amended, relevant legislation. For example, the ACT Government recently amended its legislation to place limits on rent increases; ban no-cause evictions; ban solicitation of rent bidding; require rental properties to be advertised with a fixed rental rate; and make it easier for tenants to have pets or make modifications to their home.
4.86As outlined in Chapters 2 and 3, the experiences of many renters point to the need to better protect renters, and many submitters called for profound reforms of tenancy laws.
4.87Inquiry participants who participated in the recent public hearings which took place after the National Cabinet announcement of ‘A Better Deal for Renters’ were broadly supportive of the initiative. However, many of these were of the view that ‘A Better Deal for Renters’ does not go far enough, especially in the area of rent increase control. For example, Ms Maiy Azize, the campaign spokesperson for Everybody's Home told the committee:
The recent National Cabinet meeting, for example, was a real lost opportunity to protect renters from the worst of the housing crisis. The recent agreement we've seen is not going to end unfair rent increases. Limiting those increases to once a year won't change anything for nine out of 10 renters across the country who already enjoy that protection.
4.88On the other hand, in its submission to the inquiry, the Productivity Commission told the committee that while tenancy law reform can increase security of tenure, renter autonomy, and minimum dwelling standards, it may also increase costs and risks for landlords.
4.89AHURI submitted that rental reforms need to achieve a balance between improving conditions for renters while not disincentivising investment and limiting supply of fit for purpose rental housing (which in turn can increase rental prices). The different views on the impact of rental reforms on property investors were discussed earlier in the chapter.
4.90Evidence before the committee highlighted varying views on the appropriate balance between the rights and obligations of tenants and landlords in a variety of areas, including:
rent regulation;
tenancy application processes, including privacy considerations;
tenants’ use of rental properties, such as pets and minor modifications;
minimum accommodation standards, such as energy efficiency;
‘no-grounds’ evictions; and
enforcement of tenants’ rights.
Rent controls
4.91A significant number of inquiry participants called for the introduction of rent controls, though there were differing views as to the precise form these regulations should take. It was said by these submitters that rent controls are needed to ease the financial pressures on renters; increase certainty and stability for renters; and address the recent issue of some rental providers demanding excessive, and sometimes punitive, rent increases.
4.92The committee heard that for rent controls to be effective, they must be accompanied by stronger protections for renters. For example, Ms Penny Carr, Chief Executive Officer of Tenants Queensland, indicated that:
… protecting people from arbitrary eviction goes hand in hand with limiting rents because, if you have one without the other, you use the other lever to effect the change you want as a landlord.
Limiting rent increases
4.93Many submitters suggested restrictions on the amount and frequency that rents can be increased. There were suggestions that rent increases should be tied to official indexes such as CPI or median wage increases. The system of regulating rent increases in the ACT was widely cited as a model that could be replicated in other Australian jurisdictions.
4.94Dr Chris Martin, Senior Research Fellow at the City Futures Research Centre, noted that the ACT has had some form of guideline in place since 1997 on the amount by which rents can be increased. According to Dr Martin, such a guideline helps to protect existing tenants from being dislocated from their communities due to excessive rent increases.
4.95The ACT Government explained the model as follows:
The rules work by permitting lessors to increase rent by a certain amount, which is known as the ‘prescribed amount’. The formula for calculating the prescribed amount uses the percentage increase in the rents component of the housing group of the Consumer Price Index for Canberra published by the Australian Bureau of Statistics.
The prescribed amount is: 110 percent of the increase in the rents component of CPI for Canberra since the last rental increase or the start of the tenancy (whichever is the later). …
A lessor may only increase the rent in a periodic tenancy by more than the prescribed amount if either:
the tenant agrees in writing to the proposed increase, or
the lessor obtains an order from the ACT Civil and Administrative Tribunal (ACAT) permitting the increase. The lessor must be the person to commence the ACAT application if they wish to secure approval for the increase.
4.96Several inquiry participants stated that rent increases should be limited to once every 12-month period. For example, rents for fixed term and periodic tenancies in the ACT cannot be increased more than once every 12 months (from the start of the tenancy or the date of the most recent increase).
Rent freezes
4.97Other inquiry participants called for rent controls to include an immediate temporary freeze on rents to provide urgent relief for renters. For example, Amity told the committee at the public hearing in Sydney that:
A short- to medium-term freeze on rents would provide much-needed relief to renters while we wait for long-term solutions to come into place.
4.98The City Futures Research Centre noted that:
… the notion of such a [rent] freeze in ‘emergency conditions’ is far from alien to Australia; the height of the COVID-19 pandemic saw such action implemented across much of the country. In the circumstances prevailing at the time of this inquiry – the extraordinary rent increases seen over the past three years – there is some justification for arguing that a different kind of housing market emergency is indeed ongoing.
4.99However, AHURI argued that the evidence demonstrated that:
…blanket provision of rent caps is harmful, particularly in the absence of sufficient supply and particularly in the absence of minimum standards. So we need to make sure we have a rapid increase in supply. That's clearly a priority. Funding the HAFF, for example, would be a really positive step in that direction. We need to make sure we do move on minimum standards across the country. There are some movements in some jurisdictions already, but there is a lot more to be done in that space. But then also we need to think about how we would target any kind of rent controls. Typically in North America it's done on very specific measures, at a municipal level rather than a state level or a federal level, and done to particular segments of the market. In Europe it's more often targeted to particular rent-pressurised zones rather than entire cities or states. It's much more targeted to where there are specific pressures. That's how you avoid getting the sorts of knock-on effects that we're concerned about.
Impacts of rent controls
4.100On the other hand, several submitters warned of the risk that rent controls would operate as disincentives to landlords. Private investors suggested that any attempt to introduce stringent rent controls would be the ‘nail in the coffin of affordable rental accommodation’. Simon, a witness who owns investment properties in Sydney and Canberra, warned of the following ‘unintended reactions from investors’:
Investors will move their investments into alternative opportunities, so investment funds will come out of the housing industry. … Alternatively, it may lead to investors staying in housing but seeking to circumvent the legislation. … It may lead to additional charges that are hidden charges, such as the notorious 'key money', or requiring tenants to pay for repainting and so forth. And it may just lead to neglect of basic repairs and upkeep.
4.101Concerns were raised, in particular, regarding rent freezes. According to some inquiry participants, the supply of affordable rental housing and the level of maintenance conducted on rental properties decreased as a result of rent freezes in countries where they had been implemented. Per Capita also submitted that a blanket rent freeze would be unable to account for differences in local rental market conditions.
4.102The REIA contended that rent controls would be ‘disastrous for rental supply, rental affordability and, ultimately, tenants’. Similarly, the REIQ argued that by eroding people’s confidence to invest in residential rental property, rent controls would:
… result in further supply depleting from the market, and more competitive conditions for tenants, driving rents even higher and seeing more tenants become homeless. Rent caps will only perpetuate this cycle.
4.103The Housing Industry Association surmises that rental caps will incentivise ‘mum and dad investors’ to abandon the standard residential market and turn to short-term rentals or sell their properties, reducing private stock available for rent:
They'll either … go into short-term rental-type approaches or take a profit and sell because the value of the home has increased. There is a risk with that.
4.104However, Dr Cameron Murray questioned the extent to which rental housing stock would be depleted if rent controls were introduced:
… for 150 years landlords have always threatened to leave the market, but it’s not clear to me where they’re going to take their land when they sell. Every seller has a buyer. In fact, today we’ve got more landlords than we had 45 years ago.
4.105Mr Shane Rattenbury MLA, Attorney-General of the ACT, gave evidence at a public hearing that there has been no adverse effect on rental housing supply since rent controls have been in place in the ACT, and in fact:
… we have seen an increase in the proportion of the ACT population who rent and a significant increase in the number of rental properties over that period.
4.106Additionally, a number of inquiry participants pointed to countries such as Germany and Spain where rent controls have been implemented and there has not been a depletion of rental housing stock.
Enforcement and oversight
4.107As discussed in Chapter 2, renters face various barriers to self-advocacy and enforcement of their rights under tenancy legislation. Throughout the inquiry, participants emphasised the need for stronger enforcement and oversight of tenancy laws, including ‘active regulators and visible consequences for noncompliance’. As Ms Farah Farouque, representing the National Association of Renters Organisations, told the committee:
We need better enforcement, oversight and accountability so that compliance is the norm. Enough of the renter being their own cop. That has to end. At the most basic level, the current enforcement paradigm across the country for residential rental laws relies on the renters to enforce the laws despite the deep power disparity that persists.
4.108The committee was made aware that NSW and Victoria have recently introduced a Commissioner for Residential Tenancies and a Rental Commissioner, respectively. These commissioners are responsible, amongst various duties, for ‘exposing market practices and regulatory gaps that erode the rights of renters, [and] working to increase renters’ understanding and knowledge of their rights’. AHURI noted that these have been well-received ‘policy innovation[s] that would be anticipated to improve the experience of renters across the nation’.
4.109Several submitters underlined the importance of collaboration and coordination at the national level to effectively safeguard renters’ rights. Abundant Housing Network Australia advocated for the development of a ‘national renters rights accord’ with independent oversight, as well as a ‘national renters’ voice’ that could be delivered through a national rental commissioner.
Concluding comments
4.110This chapter outlined key factors contributing to the worsening of the rental crisis. The committee is yet to review all the evidence it has received and a further hearing in Melbourne is scheduled shortly after the tabling of this interim report. The complex issues raised in this final chapter will be further examined in the final report.
4.111The committee notes that significantly different approaches to boosting the supply of and investment in rental housing have been proposed. Possible solutions will be investigated in the final report.
4.112The committee made two recommendations in this interim report. Guaranteeing stronger rental rights will better protect all renters and help achieve minimum standards for rental properties. Investing in public and genuinely affordable housing is imperative to address the needs of our most vulnerable communities.
Senator Janet Rice
Chair