The talks about a possible rent cap in Queensland will only worsen the rental crisis and infuriate investors, experts say.
PRD Real Estate chief economist Dr Diaswati Mardiasmo told Your Investment Property that while the concept of a rent freeze would help alleviate financial pressures among renters, a policy enforcing it would not be appropriate for current economic conditions.
“A rental cap has more of the desired impact when the economic conditions allow for it, which is an economic condition that is relatively static — right now, ours economic conditions is anything but static. A cap signals a ‘stop’, yet nothing else is ‘stopping’,” she said.
Factors such as cash rate, mortgage payments, infrastructure costs, council rates, insurance, and any other fees, according to Dr Asti, are not static and continue to fall on landlords, who, then, pass them on renters.
As costs continue to rise, a potential rent freeze would essentially restrict the income landlords get from their investment properties.
“For rent freeze to be viable, there needs to also be a cap on the landlord’s costs — thus you have a balanced account between income and costs. The question is, will the relevant authority — whether city council or state government — put pressure on entities like banks, utilities, etc to put a cap on items that is a cost to the landlord?” Dr Asti said.
“Some will say, ‘But investors can negatively gear’ — yes they can, however there are also limits on what the investor can claim. Negative gearing tax claims can only be done once a year, whereas other costs are incurred on a monthly or quarterly basis. For an investor a balanced income and cost cycle is also important.”
“Disgraceful attitude” by the state towards investors
For Propertyology head of research Simon Pressley, talks about rent freeze is another manifestation of the “disgraceful attitude” of the state towards investors.
“The current state government has a long-running history of demonstrating disdain towards good citizens who set financial goals, exercise financial discipline and aspire to one day enjoy a lifestyle that does not require taxpayer-funded aged pensions,” he told Your Investment Property.
Mr Pressley said there has been a series of policies enforced in the past that put investors and landlords at a disadvantage.
In November 2019, the state proposed a legislation that would prohibit landlords from refusing the renewal of a lease to a tenant.
At the beginning of the pandemic, the state enforced a moratorium on rental evictions.
Mr Pressley said during that time, the state gave “zero regard to the challenges faced by landlords from not receiving their income.”
In July 2022, the state passed the controversial land tax regime, which was eventually scrapped following the clamour of experts and industry players.
“Landlords will no longer cop these attacks on the chin. Nationally, there is an army of 2.3 million property investors whom are collectively fed up. One can only take so many hits from the baseball bat before one stands up and hits back,” Mr Pressley said.
Mr Pressley said while there seems to be a “selective empathy” towards tenants, which only compounds the “self-inflicted rental crisis”.
“The state government has completely ignored countless warnings over several years about the urgent need to encourage rental supply,” he said.
“Unless the federal and state governments start producing policies that result in more rental supply, they’ll continue to force more tenants into makeshift shelter, suppress more dreams of good people and risk an almighty level of public outrage that none wants to see. Investors are furious.”
Rent freeze — another red flag for investors
Real Estate Institute of Queensland (REIQ) CEO Antonia Mercorella said the uncertainty around how much the state government would meddle in the market is a “blazing red flag” to property investors that would only break what little confidence they have left in the current market conditions.
“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,” she said.
“It’s not only the property industry calling this out — several leading economists in Australia agree that rent control is not the solution.”
In August last year, the Australian Greens’ submitted a proposal for an emergency two-year rent freeze across the country as a way to solve the rental crisis.
Under the proposal, the National Cabinet would agree on national tenancy standards that include a two-year emergency rent freeze, ongoing rent caps, and an end to no-grounds eviction, minimum standards for rental properties, and tenants’ rights.
After the two-year rent freeze, rents will be subject to 2% increases every 24 months. This would allow wages to catch back up with rents by 2029.
“Entertaining rent control is incredibly dangerous for the stability of Queensland’s property market, as investors are the ones doing most of the heavy lifting when it comes to housing the 1.5m of Queenslanders who rent their homes,” Ms Mercorella said.
“Knee-jerk” policies created rental crisis
Experts attending the 2023 Property Investment Professionals of Australia (PIPA) Brisbane breakfast seminar last week said there are compounding factors that have worsened the rental crisis.
PIPA chairperson Nicola McDougall said close to a decade of policymaking in the property investment space has discouraged investors, ultimately reducing the supply of rental properties across the country.
“Since late 2014, we have seen investor-targeted APRA lending restrictions come and go; negative gearing and Capital Gains Tax laws continually on the chopping block; emergency tenancy laws enacted during the pandemic; and mooted rental caps now being the latest attack on investors,” she said.
Ms Mercorella said there is frustration among investors about the legal interventions that seem to restrict them.
“You only have to look at the number of properties that have been transferred from the long term permanent rental market into short-term letting, as well as the volume that have been sold to see their frustration in action,” she said.
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