Australian Property News

Why capping rents would be disastrous

Posted on Thursday, December 01 2011 at 2:07 PM

A proposal to cap rents would be disastrous for rental affordability and the property market, according to Real Estate Institute of Australia (REIA) president Pamela Bennett.

The idea will be considered at the Labor Government’s next national conference, with the suggestion that Labor should “monitor the rent costs in the private rental market and examine mechanisms to maintain affordability, such as the introduction of rent capping legislation”.

Bennett says capping rents would be counterproductive to the objectives of improving affordability.

“It would reduce the supply of rental housing, which would be detrimental to rental affordability,” Bennett says.

If the proposal was implemented, the impact could be similar to the outcome of the Hawke Government’s decision in 1985, which denied investors tax deductibility of interest payments, according to the REIA. As a result, there was an undersupply of rental property and rents escalated, before the decision was reversed in less than two years.

“The proposal isn’t sustainable and when it’s reversed, rents will soar,” Bennett says.

“This is an extremely important issue and one that shouldn’t be taken lightly. Rather than capping rents in the private rental market, we need to be focusing on increasing supply in both the public and private rental market.”