Why is there a housing shortage and why will government controls make it worse? Hotspotting's Terry Ryder
A key reason why fundamental problems in the housing market are never solved is because people seek to treat the symptoms rather than the cause.
This is true in business and in life, as much as it is in the housing market. It makes little sense to take medication for high blood pressure if the underlying cause is that you’re overweight because you have a bad diet and you don’t exercise.
People who hover around the sidelines of the real estate industry, sniping at things they don’t like, are highly prone to demanding actions on the symptoms of a perceived problem when they should be addressing the underlying causes of the symptoms.
Treating symptoms, while ignoring causes, has a tendency to make problems worse. Right now, we have spectators to the housing market demanding controls on landlords because rents are rising.
Other spectators want draconian measures from regulatory authorities because prices are rising, bringing howls of outrage about housing affordability.
In both cases, their targets are investors, always a popular choice as scapegoats when there’s growth in housing markets and it’s characterised in media as a crisis.
The natural impulse of the sideline whingers is to demand a crackdown aimed at investors, because they’re always seen as the villains.
The reality for the issue of rapidly rising rents is that we need to be encouraging investors, not attacking them.
The symptoms of the problem are rising rents, but the cause is a chronic shortage of rental properties.
In my four decades of researching and writing about housing markets, I’ve never seen vacancies so low in so many places.
Anyone genuine in their concerns (rather than having a whinge or grandstanding for political reasons) should be asking why we have such a shortage and how we can fix that fundamental problem.
Rental control is a quick fix medicine to treat the symptoms, while ignoring the underlying market health issues. It will make the problem worse by exacerbating the fundamental problem, which is that Australians have been massively discouraged from becoming investors.
Rental vacancies are a function of the activity of property investors. When people buy dwellings and make them available for rental in large numbers, there are ample properties for everyone who wants or needs to be a tenant, and rents are likely to be stable.
But investors have been largely absent from the market in recent years. There has been a growing raft of disincentives to property investment over the past five or six years – including a series of negative measures by APRA, negative changes to depreciation rules and menacing political rhetoric at the last two federal elections, notably from the ALP which has been intent on scrapping negative gearing and increasing capital gains tax.
We’ve also had state governments discouraging investors by hitting them with new taxes, fees and charges. The impact of all those different milestone events since 2015 has been a profound discouragement to investment. Some sections of media have characterised property investment as something akin to a criminal activity, abetted by politicians who have claimed the average investor is a rich greedy bastard who owns 15 or 20 properties and is ripping off the system – a blatant lie (the official data shows 75% of investors have average incomes and own only one or two properties) but lapped up by a careless media.
The short-term consequences include a rental shortage crisis and the long-term outcomes include fewer Australians who will be self-funded in retirement and will need to be supported in growing numbers by taxpayers. If governments respond to the twits on the sidelines and enforce controls on rental levels, rather than allow market forces to set them, that will be yet another disincentive to investors – and the problem will get worse.
Limiting how much a tenant has to pay in rent is worthless if the prospective tenant can’t find a vacant property at any price. That’s the reality at the moment. There are so few vacant properties that there are dozens of applicants for every listing and people who desperately need a home keep missing out. Rents are rising because people are offering more than the asking rent in an effort to out-bid their competitors, not because landlords are asking extortionate rents.
And, as an aside, increasingly businesses can’t fill job vacancies because willing applicants can’t find anywhere to live. The only answer to this problem is to increase the supply of rental properties. And that means introducing measures that encourage property investors.
That will elicit further howls of indignation from the chattering economists and other sideline snipers, but it’s the only way to fix this problem.