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Stricter regulations could stabilise housing market

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The Australian Housing and Urban Research Institute (AHURI) recently released a report that analysed the private rental sectors of ten countries in Australasia, Europe, and North America. Among other objectives, the report identified the innovations in rental housing policies and markets that Australia might try to emulate—as well as avoid.

“It is not the case that ‘everyone in Europe rents’,” the report said. “Most of the European countries surveyed have higher rates of home ownership than Australia. In 9 of the 10 countries including Australia, the PRS [private rental sector] is the second largest tenure after owner occupation. In seven countries, the PRS is growing.”

Australia’s PRS stands out among the surveyed countries for being less differentiated from the wider housing system in terms of built form, household type, and incomes. “This suggests a high degree of integration between the Australian PRS and owner-occupier sectors, which is significant for policy-making.”

Overall, the AHURI report says that private rental housing, once regarded as a sector in decline, is now largely growing and diversifying. Private rental housing is the second largest tenure after owner-occupation in all but one of the countries reviewed (only in Germany is the PRS larger).

“Germany is exceptional for its extended period of stable house prices; other countries have had booms and some have had booms and busts. In all countries house prices are rising again. Australia is unusual for having had a long escalation in house prices and no recession—and now the highest level of household debt of the 10 countries.”

Moreover, fears that more stringent regulations would lead to a decline in investors and subsequent declines in dwelling values are unfounded, according to Chris Martin, the report’s co-author and research fellow at the City Futures Research Centre.

Fears that amplified regulations – such as capping rent increases and putting an end to no-grounds termination – would negatively impact the Australian housing market are out of step with the experiences of most countries analysed in the report, Martin said.

“None of the recent growth in the PRS in the countries surveyed has been prompted or unleashed by deregulation (though arguably the United Kingdom’s reforms of the late 1980s had such an effect), the report said. “On the contrary, Ireland and Scotland are examples of successively stronger regulation being implemented as the PRS has grown. Only Spain has recently liberalised its tenancy laws”

In Germany, investors have incentives that are very similar to Australia’s negative gearing and the capital gains tax discount. But unlike Australia, Germany has more stringent rental protection laws.

While negative gearing and capital gains tax discounts are blamed for encouraging speculation and driving up houses prices in Australia, Germany has enjoyed a long period of stable house prices.

Stricter regulations, alongside more conservative housing practices (interest-only home loans are rare), are believed to have helped rein in price booms while investors continued to enjoy tax incentives.

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Source: https://www.yourinvestmentpropertymag.com.au/news/stricter-regulations-could-stabilise-housing-market-245982.aspx

This article provides general information which is current as at the time of production. The information contained in this communication does not constitute advice and should not be relied upon as such as it does not take into account your personal circumstances or needs. Professional advice should be sought prior to any action being taken in reliance on any of the information.

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