Surge in Rents – Bureaucracy or Market response?

by on July 29, 2008

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State control urged as rent surges 12.7%
is the headline that attracts our eager eyes in the Age today.

Many of the city’s most affordable suburbs have been hardest hit, with the typical rent on a two-bedroom house in Oak Park, Glenroy and Fawkner surging by 25%, according a report by the Department of Human Services.

Using our economic analysis we can see the Law of Rent strongly at play here. The crux of our argument comes down to this: landlords have a monopoly power over tenants in that they can say that renters must pay the asking price or ‘move out to the boondocks’! The 25% surge in rents see landlords playing the market, understanding that rents can be increased by that much in order to bring these affordable suburbs into line with other more trendy areas.

What option do renters have? This market power by landlords must be questioned. But do we do it with regulation? The more paperwork we throw their way, the more costs they can pass on. If regulation caps rent increases, this will deter investment in affordable housing.

What is needed is the supply side solution we keep pushing. Increase holding charges on land, be that through a higher Land Tax (reformed so that it’s set at a flat rate) or greater Site Rental at the council level. This will unveil a raft of under-utilised locations that we are trained to ignore – those vacant blocks of land surrounding key infrastructure or empty flats that get used once or twice a year, if that. Read one of our past commentaries on affordability.

Please can Mark O’Brien of the TUV read and understand these concepts. Greater FHOG or regulation will end in the same effect – higher rents.

Join us to forge ahead towards a simplified economic system where land prices are more affordable, less work hours are needed, less taxes are required and more freedom is possible. Believe it ….or keep reading these pages.

1 Comment

  1. Lloyd Churches02-08-2008

    I read the Tenant’s Union’s pdf about Commonwealth Rent Assistance. It says:

    “The Commonwealth Government spends more than $2 billion on CRA each year. Despite this, 35% of recipients of CRA still pay more than 30% of their income in rent.”

    “The Tenants Union believes that CRA must be reformed to ensure that it really meets the needs of low income Australians renting privately.”

    I wonder what reform they have in mind. If they think that giving even more money to these people will help they are wrong. The more people have, the more they have to give in rent.

    Taking away the rental assistance wouldn’t hurt them that much either because having less to pay, rents would be lower, but then again if giving them less means that they don’t have to tax them as much then they have more after tax income to force up rents.

    The only real solution then is supply side. Capture the site rental of land for public revenue. This will put downward pressure on rents as the market is flooded with the inefficiently used sites.

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