- Rental advocates argue rental price controls can relieve cost-of-living pressures
- Some believe this would only worsen the housing crisis
- The Queensland government are looking at a rental cap of once per year
The cost of living is increasing in Australia and so are property rental prices.
There is speculation about a cap being placed on rental price increases across the country in line with the jurisdiction already in place in the Australian Capital Territory (ACT).
In all States and Territories except the ACT, the current legislation has no maximum amount or percentage to limit the size of rent increases. Whereas in the ACT, landlords cannot increase rent by more than 10% of the Consumer Price Index (CPI) unless they have specific approval.
In Queensland (QLD), Western Australia (WA), and the Northern Territory (NT), landlords have the ability to raise the rent every six months. In contrast, in New South Wales (NSW), Victoria (VIC), and the Australian Capital Territory (ACT), landlords are not allowed to increase rents for a period of 12 months.
The QLD Government has ruled out a cap on price increases in favour of limiting a rental increase to once every 12 months rather than every 6 months, which would bring the QLD jurisdiction into line with VIC, NSW, TAS and the ACT.
This topic needs to be handled carefully because whilst rental advocates are campaigning for rental price controls in order to relieve the cost-of-living pressures, investors argue that caps on rental prices will only cause a drop in rental supply and worsen the housing crisis. This is because some investors will leave the market to look at putting their money into other assets such as shares or overseas investments.
What does a cap on rental prices mean?
A cap on rental prices is essentially a rule in the jurisdiction to limit how much or how often the price of property rent can be increased. Governments are looking at placing a cap to work as a mechanism to curb the cost of living pressures.
In the ACT, there is already a cap in place whereby a rental increase cannot be beyond the “prescribed amount”, which is 10% more than the rents component of the Consumer Price Index (CPI) in Canberra; CPI is sometimes referred to as inflation.
Rent caps in Australia
There is no state or territory that restricts the upper limit to the amount of rent a tenant can pay. The closest that we have is in the ACT landlords cannot increase rent by more than 10% of the Consumer Price Index and any rent increase in excess of this amount must be approved by the ACT Civil and Administrative Tribunal.
This means that rents can increase in line with market prices but tenants understand that the price is locked in for the period.
Around the world
The concept of rental caps is not a new idea. New York introduced widespread rent controls in 1943 during the second world war due to a major housing shortage, with some properties still tied to these historical rent prices.
Even today, rental caps and restrictions on rental prices are already in action in other parts of the world. Germany has a greater than 50% rental population and has had rental controls in place since the 1920s. The current system was introduced in 2015 and limits rental increases to no higher than 10% above the current market rate stipulated in their price index.
Canada has a policy set to an annual percentage that rents can be increased per year.
Spain, Ireland, and Scotland have rental caps in locations where the rental market is very tight.
The benefit of knowing about these policies around the globe is that they have already been tried and tested, so that the policy setters in Australia can understand the impact and effect of these policies on the wider community and on property prices and the impact to rental prices.
Risks in Australia if a rental cap is introduced
- This could result in a lower supply of rental properties. Antonio Mercorella, the chief executive of the Real Estate Institute of Queensland (REIQ), has warned that a rent price cap “innately discourages further supply”. This is because some investors may move away from property investing, or building new properties, to invest their money elsewhere.
- The lower supply of rentals can worsen the housing crisis as a lower supply of rentals will increase rental prices.
- Property prices decline. If investors sell their properties and move to other investments, this will lead to a decline in overall property prices in that market and fewer properties available on the rental market.
- Investors will not be able to recoup expenses when the country’s economic conditions change, which could possibly lead to more negatively geared properties.
What’s next?
At this stage, rental price caps are only speculation. The Queensland government are investigating further into limiting rental prices to only once every 12 months rather than the current 6 months but this has only been brought up for discussion with no official policy change. If the current speculation was to go ahead in Queensland, it would only bring the policy in line with what is already the jurisdiction in NSW, VIC, and ACT so we would not expect any dramatic change or impact to property investments for landlords.
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