19 October 2023

Second Reading Debate

Debate resumed from 29 June 2023.

Mr ANOULACK CHANTHIVONG (Macquarie Fields—Minister for Better Regulation and Fair Trading, Minister for Industry and Trade, Minister for Innovation, Science and Technology, Minister for Building, and Minister for Corrections) (10:31): On behalf of the Government, I oppose the Residential Tenancies Amendment (Rent Freeze) Bill 2023. The bill seeks to impose an immediate freeze for two years on all existing annual residential tenancy agreements, with rental increases prohibited. These proposed changes would have significant adverse implications for the New South Wales residential rental market and for renters themselves—the very people we are trying to help. They will inflict further pain and add more pressure for renters in a tight market. Whilst the Government and the member for Newtown have recently worked collaboratively on rental reforms, unfortunately this is an area where we do not agree.

This Government has been frank about the challenges in the rental market. We know that renters are hurting in a market where rental properties are in low supply; indeed, this low supply is adding more pressure and driving up rents. The proposition that we should impose price caps, price ceilings or rent freezes—whatever you want to call them—is not without risk or impact and actually hurts the very people we are trying to help. Freezing rents, as attractive as it might sound superficially, would only make the problem worse. As the old saying goes, if something is too good to be true, it often is. Right now housing demand is exceeding supply by a significant amount and vacancy rates are at record lows. Of course, this is a core part of why renters and the rental market are experiencing so much pressure. We have more post‑COVID migration.

People are seeking more space and there are more single‑person dwellings. The supply of new houses and apartments is indeed falling behind demand. The shortfall in supply has been building for some time. This imbalance, as well as increased mortgage costs due to interest rate rises, is driving the rent increases that are hurting so many people in our community. The bill's stated intention is to assist renters in the current rental crisis. In actual fact, I believe it would have the opposite effect. It would make things worse and not better because it is not addressing the factors contributing to rental increases. Rather than making things better for renters, these proposals will worsen supply and lead to poorer outcomes for renters. They will add more pressure, creating more stress for people who are already doing it tough. The bill completely fails to recognise the complexities around renters and the rental market. Introducing a rent freeze is not the panacea some believe it to be.

There are multiple problems with a rent freeze. Firstly, it would exacerbate supply problems by deterring building and investment in the property sector at a time when we need high‑quality standard supply to come on as quickly as it can. Increasing supply will be the greatest contributor to ensuring that we put more downward pressure on the rental and housing market. Further, a rent freeze also acts as a disincentive for owners to update existing housing stock, meaning rental properties may not be maintained to the standard that renters deserve, let alone be improved. It risks reducing the quality of amenities that renters deserve. They pay the rent to a property owner for a property that suits their needs at a standard of quality they are entitled to. A rent freeze also risks adding to the interest rate pressures that are already seeing many owners having to sell up, which can permanently remove properties from the rental market. As I said, this further reinforces why a rent freeze has an effect adverse to its intention.

This Government has already demonstrated that it is ready to take action as far as rental reform is concerned. We have already passed the rental fairness bill and appointed a new Rental Commissioner, Ms Trina Jones, who is doing an excellent job consulting and engaging with all stakeholders from across the spectrum in the rental market—property owners, landlords, real estate industry associations, tenants unions, advocates for the homeless and homes and shelter, and affordable housing and social groups. The whole gamut of what we are doing in this space is extensive, deep and consultative. We are committed to easing the pressure for renters in New South Wales by implementing rental reforms that actually improve renters' rights.

It is important to note that giving renters certainty is also about improving amenities and giving them confidence in the longevity of the property that suits their needs. All our reforms are done with one overarching principle in mind: We must do nothing that reduces supply. Of course, a reduction of supply in an already tight market will only add more pressure, both financially and emotionally, on the very people we are trying to assist. The previous Government left a legacy of lagging building approvals, increased development application waiting times and a lack of housing supply. This shortage of supply has built up over the past 12 years. We have reached a crescendo where the demand is now greatly exceeding the supply, leading to more pressure on renters, the rental market and the housing market in general.

The Labor Government believes it is a shared responsibility to address this crisis. We have announced significant reforms. For the benefit of members, I will point out a few major things we have done. We have brought in new approval pathways to allow the Land and Housing Corporation, the Aboriginal Housing Office and Landcom to increase affordable housing. We have opened access to the State significant pathways for private developments worth more than $75 million that include at least 15 per cent affordable housing. Those projects can also access a 30 per cent extra floor space ratio and a 30 per cent height bonus above local environmental plans.

We have increased rental housing in regional New South Wales through our build‑to‑rent pilot program on the South Coast and North Coast of the State. We have ordered an audit of all government‑owned land to identify where that land could be used for housing, and ensured that suitable sites are developed with a minimum of 30 per cent affordable, social and universal housing. These measures are the best way to increase housing supply and improve affordability and accessibility for renters and the housing market in general. They will also support the recently agreed target of the National Cabinet to build 1.2 million new homes over five years from 1 July 2024. Our rental reforms will increase certainty for renters and protect their rights without impacting the viability of the rental market. For those reasons the Government opposes the bill. I will now expand on those reasons.

A rent freeze does not target the source of the problem as it fails to address the factors contributing to rental increases and increasing pressure on the rental market. Instead, it risks exacerbating supply problems and creating negative and unintended consequences for renters and property owners alike. Low housing supply is impacting affordability for all renters. Housing and rental affordability does not exist without availability. Affordability and accessibility increases when availability increases. This is the core equation that we need to address.

The Reserve Bank of Australia has identified that the number of newly listed rental properties declined sharply from the onset of the pandemic and has generally remained at low levels, both in regional and metropolitan areas. The CoreLogic Rental Pulse report of May 2023 found that rental vacancy rates in Sydney in April 2023 were at 1.2 per cent and in regional New South Wales at 1.5 per cent, and its report of July 2023 noted that in July 2022 the rental vacancy rate in Sydney was 1.9 per cent. The current rate is significantly lower than the 3 per cent vacancy rate, which most commentators would consider to provide a healthy balance between demand and supply, and a much more balanced equation between property owners and renters. A rent freeze will reduce the confidence of investors to enter the property market and risk owners leaving the market. That outcome is not in the best interests of renters. It would add further pressure to the rental market and the prices for those who are seeking to rent out their properties.

The Government's stance on rental freezes is supported by a number of experts. On 11 August the former Reserve Bank Governor of Australia, Dr Philip Lowe, told the Standing Committee on Economics that the solution lies in increasing supply. Dr Lowe made it clear a cap on rents would not boost supply. He said:

When housing prices were rising quickly, people were saying, 'Well, we need to give people more money to help them.' And when rents are rising quickly, people say we need to the cap rent increases. They are short-term fixes. Both of them, in my judgement, make the problem worse. What I would like to see is a longer term focus on this because the short-term responses are not solutions and generally giving people more money or capping prices doesn't help with the balance of supply and demand in the market

On 15 August, in an opinion piece in The Sydney Morning Herald, Brendan Coates and Joey Maloney from the Grattan Institute outlined the devastating impact of a rent freeze. I have always found the publications, research and policy advocacy from the Grattan Institute to be par excellence. It does great work. The Grattan Institute publications address not only rental issues, but also other public policy challenges facing New South Wales and the nation. I quote from that opinion piece by Brendan and Joey:

While it may seem attractive to renters facing steep rent rises, it'll end up doing more harm than good.

Ultimately, if we freeze rents, more Australians could become homeless, not fewer.

Political slogans about rent freezes are not the panacea some people would have us believe. In fact, a rent freeze would end up hurting the very people we are trying to help. On 26 July 2023, in an article in The Australian, independent economist Mr Saul Eslake—who many people know as an eminent commentator on economics and a well-respected public policy advocate—is quoted as saying rent freezes were:

… a fairly arbitrary measure, and one which will probably act as a deterrent to investment in residential property.

He also said:

It also will probably discourage landlords from undertaking repairs and maintenance and could lead to deterioration in the quality of the rental housing stock.

In the same article Metropole Property Strategists director Michael Yardney was quoted as saying:

To freeze rents will only limit supply more.

He also said:

Rent freezes will also dissuade investors from improving their properties, meaning they will bring down the standard of accommodation and we'll have less. They will have the unintended consequence of making it worse for tenants, rather than better.

Those eminent and nonpartisan people in our community are undertaking evidence-based research and making well-articulated arguments about what it means and the adverse impacts that rental freeze may have. It may sound simple but, as the saying goes, if it sounds too good to be true, it often is. The core part of the argument is that we need a long-term solution to ensure a good quality flow of supply to reduce the pressure. Increased supply will increase the bargaining power of renters in the market as they search for properties. Short-term fixes are not the answer in a very tight market; nor is adding more pressure to people who are already doing it tough.

The member for Newtown argued in her second reading speech that owners leaving the market would increase supply for renters wishing to pursue a home to live in, particularly first home buyers. While that may be for those lucky enough to be able to afford a home, that does not help renters one bit. In answer to such a claim I again refer to independent economist Mr Saul Eslake's comment in The Australian where he said that a rent freeze:

… certainly won't increase rental stock, and to the extent that it leads to landlords selling, that's a fairly brutal way of achieving a higher rate of home ownerships, if it has that effect at all.

Further, the bill may also deter owners from entering into or renewing a longer lease during the freeze period. This could leave many renters unsure of their tenure and at the expiry of the freeze period renters are very likely to experience a surge in rent prices, as has been seen in other places which have chosen rent control. The Australian Capital Territory is often referred to as the beacon for controls on rental increases or price freezes. However, the Australian Financial Review has highlighted the problems with rent control. A 29 June article stated:

Rent controls in Canberra have not stopped lease costs in the national capital growing faster than the national average over the past four years …

The article also stated that rents in Canberra have increased by 14 per cent since the rental cap laws came into effect in early 2019, compared to only 4.6 per cent nationally. Those figures speak for themselves and would obviously be a huge concern for renters here in New South Wales. There are also examples from overseas we can look to where price controls on rentals simply just do not work.

On 16 August, in an opinion piece in The Sydney Morning Herald, William Bennett backed the comments by the former Reserve Bank Governor, Dr Philip Lowe, that rent freezes will ultimately make the situation worse. The article points to numerous American studies that showed rent freezes or caps did not help renters, and I quote:

A 2015 study of New Jersey rent controls found that over 40 years from 1970 to 2010, rent controls did not have any statistically significant effect on housing markets.

A 2019 study out of Stanford University found that when rental controls were introduced in San Francisco, while tenants benefited in the short term, landlords reduced housing supply by 15 per cent and likely drove up rents in the long term. as a result.

Then a 2022 study from Minnesota found that rent control caused property values to fall sharply and didn't benefit low-income renters as much as high-income renters.

How much more evidence do we need that rent freezes or caps are not in the best interest of renters and the rental market? They do not create availability, which also reduces the affordability and accessibility for renters and in the housing market in general.

The New South Wales Government went to the last election with a set of firm commitments to improve the situation for renters in New South Wales and it is taking the steps to deliver them. The first important step the Government took was one of the first bills to be introduced in this Parliament: the Residential Tenancies Amendment (Rental Fairness) Bill 2023. The Act strengthens rent bidding laws in New South Wales by extending the ban on solicited rent bidding by agents to owners and third parties, such as online application tools, further closing the loophole based on the bill that was passed late last year. This ensures that the Government captures the whole gambit of the residential market, because people can rent properties from a range of avenues, not just real estate agents—for example, they can go directly through a landlord. As technology improves and is made more available, the Government needs to make sure that laws are contemporaneous and keep up with the changes in the market and the different actors within that market.

The bill lays the groundwork to ease the cost pressures renters face when they move into a new property by including regulation-making powers to support the implementation of a portable rental bond scheme. As members will know, a portable rental bond scheme makes sure that as people move from property to property, they do not have to fork out the average four weeks' rent. It is estimated that some four-week rental bonds are about $2,000, which is a significant amount of money and equivalent to about 10 to 11 weeks' worth of groceries for some households. I note that our friends down south in the Victorian Government are also looking to implement a portable bond scheme, which we have already passed in New South Wales, which is a good sign that the reforms are needed. We need to find every single way to reduce pressure on renters, not only in direct pricing transactions but also in the ancillary transactions that a renter experiences when they access a property or move from one property to another.

Since passing the Residential Tenancies Amendment (Rental Fairness) Bill, the Government has wasted no time on commencing work to implement its other rental reform commitments, including requiring owners to give a reason for ending a tenancy, making it easier for renters to keep pets in a rental home, and protecting a renter's privacy and personal information. To shape those changes, the Government is seeking input from all stakeholders and the public. We want to make sure every stakeholder—whether they are property owner, an association, the Tenants' Union, or those who are involved in social and affordable housing—has a right to their say. The Government wants to bring everybody on this journey, and collaboration and corporation is needed. It does not want to get into an adversarial situation where renters and tenancy advocates are pitted against property owners and associations. There can always be a happy medium when people come with goodwill, an open mind and a willingness to ensure a good balance that does not pit one against the other. This will ensure a good, well‑balanced market that supports both renters and property owners, because property owners putting their properties on the market is the most important principle behind reducing the pressure on renters and the rental market.

Government has completed its initial consultation on our rental reform agenda. I am pleased to inform the House that nearly 16,000 responses were received in a relatively short period to the online survey and more than 400 people did their research and took time out of their day to advocate for their point of view in a written submission. I am pleased that the responses have been not only great in the number but also broad in the avenues through which they came—from tenancy advocates advocating for social and affordable housing to those in the property sector. Finding a happy medium is an important part of introducing reforms that are acceptable and address the long-term pressures that are adding to the rental market.

The Government is reviewing the submissions as we look to implement further reforms. We will be making renting fairer and much more modern to give renters greater certainty in what is a tight market. So many people in our community are now renting. On average I think it might be one-third, but in some areas in New South Wales it is higher. We need to make sure that rental laws are contemporaneous and meet the living arrangements of so many people for whom renting is no longer a short-term transition but a more medium- to long-term arrangement. Housing affordability continues to be an issue, which is why the Government wants to move on long-term reform and long-term fixes that find a great balance between renters, tenants and property owners. I have always believed that with cooperation and collaboration, a happy medium can always be achieved.

Importantly, the Government has appointed the NSW Rental Commissioner, Ms Trina Jones, to act as an advocate and a voice for renters. She is the first Rental Commissioner for New South Wales. The commissioner will work with renters, owners and the community to identify barriers to increasing rental housing supply and look at gaps and practices that erode renters' rights. The Government's focus is on implementing reforms that address the supply shortage and strengthen existing renter protections without impacting the viability of the rental market. As I said earlier, ideas that add more pressure and take out supply from the market only hurt the very people we are trying to help. I cannot emphasise strongly enough how important it is not to take any action that decreases the availability of rental properties because that will only make things worse.

It is also important to understand that existing tenancy laws already limit the frequency of rent increases. The Residential Tenancies Act limits the frequency of rent increases to no more than once in a 12-month period for tenants under periodic agreements and fixed-term agreements of two years or more. For fixed-term agreements of less than two years, the rent can only be increased if the agreement sets out the increase amount or the method of calculating the rent increase. Tenants can also challenge excessive rent increases through an application to the NSW Civil and Administrative Tribunal. Those important existing measures ensure that there is a better balance and renters who may not be in the strongest position have avenues for protection so they do not experience significant rental increases.

The Government has consulted on several options to ensure that renters are more informed about the rental market, helping them make more informed decisions and be better equipped to challenge rent increases. They include: to make data on rents and rent increases more transparent to allow renters to more easily challenge unfair rent increases, requiring an owner to prove that a rent increase is not excessive in certain circumstances, to amend the criteria that the tribunal may consider when determining whether a rent increase is excessive, and clarification to the existing law on frequency of rent increases when tenants switch between different agreement types.

In conclusion, the Government opposes the bill. In order to lift New South Wales out of the current rental crisis, a fairer system needs to be set up where balanced reforms allow all parties to work together and build trust. The work of the Rental Commissioner—which the Government strongly pursued—through its collaborative consultation process has made sure that all sides of the equation are heard and proper input is received to ensure that long-term solutions to the rental market to reduce downward pressure are found. The Government does not want to just come up with simple slogans and a panacea that does not exist, which will only add more pressure onto the rental market. This would not help the rental market or renters. This is also not the way to do long-term public policy reform, which is required to address such an important issue for people in our community.

We need to ensure that nothing we do reduces rental supply even further. The only solution the bill provides is high rents, low accessibility and low affordability, which add more pressure on the people we are trying help. It pits renters against owners, creating an adversarial relationship that does not and will not produce the results that we want. It will further constrain rental housing supply in what is already a very tight market. The Government is committed to long‑term reform, working with everybody in the industry to create a collaborative and cooperative environment to ensure certainty for renters and the property industry. Increased investment will ensure that quality supply continues to enter the market. On that basis, the Government opposes the bill.

TEMPORARY SPEAKER (Mr David Layzell): It being 11.00 a.m., pursuant to standing and sessional orders, debate is interrupted for question time and the routine of business.