[+] Industry Gives Rent Freeze Plan the Cold Shoulder

A proposal to freeze residential rents across Queensland for two years would actually make the crisis worse, according to the property industry. Such a measure would in fact further drive up housing costs and turn away investors just at the time when they are needed the most, critics say. The Private Members Bill tabled by state Greens MP Amy MacMahon is to be assessed by a Queensland parliamentary committee. Queensland is in the grips of a well-publicised housing crisis. Rental vacancies are at an all-time low and there are about 50,000 people on the social housing waitlist. In a move to address this crisis, the Queensland government announced on Tuesday that it would hold a housing summit in October to look at a range of issues including unlocking more land for housing and fast tracking more social housing. It will kick off with a roundtable on Friday between government and private sector stakeholders. “The costs of owning an investment property continue to escalate,” Queensland executive director of the Property Council of Australia Jen Williams says. “The last thing the state needs is yet another disincentive to investors purchasing and renting out dwellings. “Rental properties in Australia are for the most part owned by ‘mum and dad’ investors. Investors are not immune to broader economic conditions and are increasingly faced with disincentives and added costs. “Like everyone, investors are dealing with increasing mortgage costs, insurance hikes and rising inflation. In addition, the Queensland government’s new interstate land tax model will see many investors receive new or higher land tax bills in the coming year.” The Greens proposal would freeze residential rents until August 2024 and would then cap rent rises at 2 per cent every two years. This would make it very difficult for investors to improve properties or even cover major repairs and not lose money. Plus, the increases would likely lag inflation, meaning a cut to landlords’ rental returns in real terms. ▲ Investment incentives, not freezes, will help alleviate the rental crisis, industry pundits say. “Not everyone needs or wants to own a home, and not everyone is in a position to do so,” Williams says. “For countless reasons, whether while travelling for work, in between houses or trialling what it is like to live in a different housing type, Queenslanders need access to a variety of safe, affordable rental accommodation.” She says a more prudent focus would be on supply solutions that quickly provide an increase to the amount of rental accommodation available across Queensland. “Each of the other major states has now introduced incentives to stimulate the construction of purpose-built residential accommodation, otherwise known as build-to-rent,” Williams says. “The Property Council has released a paper, A Home for Every Queenslander , encouraging the Queensland government to follow suit and help the private sector boost the supply of rental accommodation.” For property developers, who rarely want to get involved in politics or take sides, the freezing of rents would prove a disincentive to build properties to rent, as it would not allow any manoeuvrability to cover rising costs of materials or labour, as well as any incidental costs. They want all parties—government and the private sector—to work together if the situation is to be remedied. “We need to pull together as a community to work co-operatively to solve the acute housing shortage,” Consolidated Properties Group chief executive and chairman Don O’Rorke says. “We all know vacancies at less than 1 per cent across the board are the lowest on record, and unsurprisingly rents are increasing as competition for the small pool of new rentals increases. “Surging building prices are pushing up the cost for all property stock including housing and proactive initiatives such as loosening labour and immigration policies will start to relieve these pressures.” The Federal government has agreed to increase permanent immigration visas in the current financial year by more than 20 per cent, however, this won’t ease the problem of building costs. ▲ For property developers, a rent freeze would prove a disincentive to build properties to rent. CoreLogic research revealed that national residential construction costs increased 10 per cent over the 12 months to June 2022, the highest annual growth rate on record outside of the introduction of the GST in March 2001. O’Rorke says governments at all levels need to be reducing costs directly related to them, “such as the increasing valuations on which land tax and rates are based”, as a means of encouraging more investment. “On a practical level, if UCVs are used to calculate these taxes then decreasing the percentage levied against the increasing valuations would be sensible and will still deliver the same capital to government,” O’Rorke says. “It is irrefutable that the percentage attributable to government costs in housing creation has been steadily increasing over the past 20 years and now amounts to somewhere between 30 to 40 per cent of the purchase price of a land block or apartment.” He says it would also be sensible to release more land for development in both greenfield and infill areas as increasing supply is the simplest method to moderate price increases. “No one part of the private or public sector has the solution but together we should be able to avert this crisis.” The cost of metal, structural steel, reinforcing, fixing and fencing are all rising, leaving builders no choice but to increase estimated budgets for residential housing developments. Freezing rents risks putting pressure on every aspect of the residential market and driving investors away. “If even a small percentage of investors were to sell their Queensland properties or withdraw them from the permanent rental market, this would have a material impact on the state’s rental sector,” Real Estate Institute of Queensland chief executive Antonia Mercorella says. “A rent freeze would significantly deter property investment and therefore comes with the real risk of reducing rental supply at a time when we’re already in a rental crisis. “Australia’s building industry relies heavily on investors, so a logical consequence of significantly diminishing investor demand is that it discourages the construction and development of housing for investors.” You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

[+] Industry Gives Rent Freeze Plan the Cold Shoulder

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