Greens policy to impose rent control on unwilling investors will be a disaster

24 February 2011

Todays NSW Greens proposal to allow councils to impose rent and price controls on unwilling property investors would be disastrous, according to the Urban Taskforce. The policy was reported in the Sydney Morning Herald today.


The Taskforces chief executive, Aaron Gadiel, said any law requiring homes to be rented or sold below the market price would make the housing shortfall dramatically worse – if the losses investors suffered werent covered by government subsidies.


Mr Gadiel cited research by the Organisation for Economic Co-operation and Development (OECD) last month.


The OECD studied 30 developed countries and found no clear evidence that comparative average rent levels are lower in countries with stricter rent controls, he said.


Without compensating government subsidies, stringent rent regulation leads to lower levels of new construction and reduced maintenance in regulated properties.


Thats because a landlords returns are capped, and investors shift the money into more attractive investments.


Rent regulations create a divide between households benefiting from rent-controlled, more secure tenancies, and new households who have to access to housing primarily through the unregulated market.


The OECD says that countries with stricter rent control are associated with lower quantity and quality of rental housing.


Unsubsidised rent control means inferior homes – with less living room for tenants, more leaking roofs and unhappier residents.


Poorly targeted rent control can also stop people moving house to take up employment opportunities.


Mr Gadiel said the solution to housing affordability is simple.


Boost housing supply, by reducing the restrictions preventing the construction of new homes, reducing the huge regulatory costs faced by developers and investing more public money in the infrastructure of high growth communities, he said.


Mr Gadiel said the Greens appeared to be simultaneously advocating a ban on new suburbs and a ban on new apartments near public transport.


This could lead to nothing other than a complete collapse in the housing supply, and consequent sharp increases in property prices and rents, Mr Gadiel said.


That may make some existing home owners very happy, but it will have a harsh impact on the 30 per cent of our community who are currently renting.


It will make life harder for young people looking to get and establish a home of their own.


It will also hurt home owners who are looking to move to a bigger home when their family grows, or need to move house for work or family reasons.


Mr Gadiel said that it was unrealistic to expect new housing development in Sydneys inner and middle ring suburbs to imitate Paddington or inner-western semi-detached homes, as suggested by the Greens in the Herald today.


The fixed supply of freestanding houses in the inner city has driven up land prices for the existing stock of houses, he said.


As a consequence, its rarely viable to buy and demolish freestanding houses and build townhouses or terraces in Sydneys inner and middle ring suburbs.


For similar reasons, low rise apartment development – less than six storeys – will often not be commercial if a developer needs to consolidate small lots owned by different people.


As home buyers interest in compact living is focused on the inner and middle ring suburbs, its likely that higher density housing will need to take the form of apartment development and much of this apartment development ultimately needs to be six storeys or more.


Of course, apartment development will not address the needs of all home buyers and there continues to be a very strong unmet demand for detached housing in the new suburbs on the edge of Sydney.


The NSW Governments most recent Metropolitan Development Program report observes that solid underlying demand exists for new houses in fringe greenfield growth corridors.


The Urban Taskforce is a property development industry group, representing Australias most prominent property developers and equity financiers.


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