6 proposals capable of lessening the rental crisis

The LJ Hooker Group has published a report titled, What is Happening in the Rental Markets?, which not only sets out to explain the current market dynamics at play in the rental market, but also offers a number of possible solutions to the challenges facing landlords, tenants and property managers alike.

Mathew Tiller, head of research at LJ Hooker, believes new thinking is needed to address imbalances, especially given the 24 per cent growth in the number of rental homes over a 10-year period.

“The number of rental homes in Australia increased from 2.2 milion in 2011 to 2.8 million in 2021,” he highlighted.

He argues that “understanding the dynamics that drive the rental housing market is essential in developing effective policies, regulations and solutions to provide accessible and affordable options for all Australians”.

He credits the 24 per cent lift in rental homes to a range of factors, including changing economic conditions, demographic shifts, population changes and housing affordability.

“Renting is no longer predominantly associated with young individuals and couples alone. ABS data reveals a more diverse renter profile, encompassing families and older Australians, as housing affordability challenges have made renting a more viable and attractive option for a broader range of individuals and households,” he outlined.

Adding to that is the fact that since the beginning of 2020, rental demand across the country has fluctuated significantly, thanks to both overseas migration and changing household dynamics.

Mr Tiller believes that proper addressing of the rental market concerns require solutions that focus on housing supply, such as maximising utilisation of existing homes and constructing “quality built new ones of the right size in targeted areas”.

“Unfortunately, the outlook for new housing is not positive with the number of new dwellings being approved continuing to decline,” the researcher conceded.

“High construction costs, a shortage of skilled tradespeople and increased financing costs have put pressure on developers and builders, leading to a slowdown in construction times and a number of high-profile insolvencies.”

So, what can be done to boost supply?

The LJ Hooker Group has proposed a number of options:

1. Governments must get involved

Governments can act as developers – or finance private developers – to directly fund or build new homes.

LJ Hooker espoused that this would ensure a constant and consistent supply of homes being built, “particularly in softer periods of the market cycle where the construction and selling of new homes are not financially viable for private developers”.

2. Affordable supply is paramount

The boosting of social, community and affordable housing should be targeted, especially across less affordable inner-city areas and rapidly growing regional markets.

3. Align housing supply to population growth

The report proposed that any planning and development incentives should be aligned to the creation of new housing supply in areas subject to population growth, prioritising locations with tight labour markets and low rental vacancies.

4. Incentivise long-term leasing

In a bid to better provide security and stability for tenants, “landlords could be encouraged to offer multiyear leases, similar to commercial properties, spanning three, five, seven or 10 years”.

According to the report, special clauses, such as a make-good clause, could then allow tenants to change the interior, as long as the property is returned to its original condition on lease expiry.

5. Increase build-to-rent incentives

These could be useful for enticing large-scale builders and institutions to construct new rental accommodations.

6. Balance short- and long-term accommodation options

LJ Hooker is calling for the better balancing of short-term accommodation with the need for permanent long-term housing in regional ‘tourism’ centres.

All in all, the LJ Hooker Group has stressed it as “crucial” for Australia to adopt “a comprehensive approach that addresses the underlying factors of rental market challenges” and ensure an equitable and sustainable marketplace.

The group also hit back at “shorter-term relief” solutions such as rental freezes and rental caps for their “longer-term negative consequences that need to be considered”.

According to Mr Tiller, these kinds of policies would disincentivise landlords from offering long-term leases or renewing existing ones, ultimately lessening the security of tenure that’s sought after by many tenants.

“Both these options also discourage landlords from investing in property maintenance and improvements, potentially leading to declining rental property quality over time,” he outlined.