Michael Pascoe: Government has responsibility when markets fail – check rentals
As the six-month eviction ban takes hold, some landlords are still being pressured by insurers to evict their tenants. Photo: Getty/TND
At first glance it sounds preposterous, the sort of wrong-headed socialism that would pervert markets, what you might expect of the Greens.
But then you’re given cause to consider the case of what should be done when essential markets fail. On such occasions, intervention is in order.
When the national electricity market failed in June, the Australian Energy Market Operator intervened, suspending the dysfunctional market. It was the right thing, the necessary thing to do in a rational society.
Right now, another of our most essential markets is failing – the residential rental market.
When the market has failed, when the balance of supply and demand are seriously out of kilter, the Greens calling for a two-year rental freeze suddenly doesn’t look so outlandish.
Vacancies at record low
The national vacancy rate is the lowest on record at 0.9 per cent, according to Domain Research, but the national figure only tells a fraction of the story.
In cities like Adelaide with a 0.3 per cent vacancy rate, Hobart with 0.5 per cent and many regional areas even worse, leaving the provision of shelter to the private sector has failed society.
People who weren’t captured by the private property industry have been banging on for years about the real housing crisis – rental. It was clear earlier this year that “crisis” was not an adequate term for the shortage of shelter in many areas, a reality that has steadily dawned more broadly in the media.
But while the problem became more obvious, along with the threat that it will get worse through falling building approvals and the promise of increased immigration, nothing has been done about it.
The result in the failed rental markets is enabling landlords to make like bandits.
Freeze proposal feasible
By coincidence I’ve had two conversations days apart that have been enough to make me think the Greens’ radical rent freeze might not be such a bad idea.
The first was with an Adelaide landlord who at first suggested higher interest rates would mean he would be increasing his rents. I queried his statement, suggesting that wasn’t the case, that really it wasn’t a matter of costs for a landlord, but what the market would bear.
He agreed. Yes, he was putting up his rent because he could, because the tenants had no choice but to pay it as they had no alternative shelter.
The second conversation was with a Sydney renter who was pushing the Greens rent freeze idea. Sydney overall is not in as bad a space as Adelaide, but sections of it are getting there.
The renter posed the question of whether the rental market had become a bit like the natural gas market – offering windfall profits in a dysfunctional market.
Governments of all stripe stand condemned for their failure to take the rental disaster seriously while it was building.
Most voters either own their own home outright or are in the process of paying it off and 2.2 million Australians own a rental property – so the problems facing renters don’t bother most politicians.
Thus it’s little surprise that governments have all run away from their most obvious responsibility – providing more social housing, increasing supply for those who can’t afford market rents. Our public housing stock has been basically flat for decades while our population grew.
Leaving the supply of housing stock in the hands of developers whose priority is increasing prices and profits, not the provision of shelter, has resulted in the present shortage, a situation exacerbated by some COVID trends even while COVID-19 slashed immigration.
Even now, at this stage of people having to sleep in cars and tents, governments are not serious about dealing with it.
The Coalition took a token and dud social housing policy to the last election and federal Labor wasn’t much better – a Mickey Mouse idea of setting up a $10 billion fund to add a trickle of dollars for extra public housing. The Grattan Institute suggests doubling the size of the fund.
Whether it’s $10 billion or $20 billion, it’s palpably poor policy, deftly skewered by Dr Cameron Murray. Instead of using $10 billion to buy bonds and shares to earn interest and dividends to drip into building housing, it makes much more sense to just spend the money on building public housing directly.
And the suggested money is peanuts in the broader scheme of things. The $10 billion is less than the Commonwealth will have spent on rental assistance, subsidising private landlords, over the past two years.
The ready availability of food, health care and shelter for citizens are the minimum we should expect of government. We’re not getting it.
Freezing rents won’t solve the problem, but it would ease the pain of renters being exploited by market failure while government and the private sector get to work to provide more stock.
There is no one silver bullet, but intelligent commitment to a rapid increase in public housing build should be the start.
Removing tax deductibility of costs for periods when a rental property is vacant would also help, discouraging the surge of properties into Airbnb away from permanent rentals.
There are roles for all three levels of government in combating this crisis.
Developers and landlords have been calling the housing tune for decades in Australia as government retreated from its responsibilities. It hasn’t worked.
It’s time to try something different.