Rents always go up – don’t they? The 1.2 million negatively geared Australian tax payers whose property expenses exceed their rental income think so. Their cunning plan is to patiently wait while the rent ratchet turns their negative cash flows positive and net income losses into profits.

If house prices stabilise at current levels – even if they fall back for a time – overall, wages will continue to grow if only by inflation, pushing up rents. And time is on the landowner’s side.

That’s why it’s called a ratchet. Rentiers make money in their sleep or while striking alpha male poses around the barbecue.

But what if rents don’t rise?

Blasphemy! Yet the historical record shows that is exactly what happens in downturns – and rents can keep falling for years.

My pals, Egan and Soos produced the following chart, of both nominal and real rents Australia 1880-2012.

australioan real rents 1880-2014B

After the 1888 boom, rents fell hard and kept falling for 8 long years. In WWI, real rents fell again, while wartime inflation maintained at least nominal rental growth and rentiers’ poise. The 1929-33 depression again saw savage cuts with three years of strongly negative rent contraction. WWII was an era of rent controls to keep wages down and protect the war effort. The spike after the election of the second Menzies government and their removal in a housing shortage shows just how effective the controls were. The 1959, 1972 and 1990 recessions are clearly seen, even though rising inflation kept nominal rents rising.

I expect the legions of spruikers and yes-men employed by the FIRE sector to distract citizens from reality will find fault with my skip through the historical record.

A key theme will be that it is the nominal change in rents that matter as borrowings are in nominal dollars, and that the Australian economy is more broadly based now.

OK. Let’s look in nominal terms at Australia’s last recession in 1989-92. I have to acknowledge Australia’s extraordinary 25 years that followed without a technical recession, a world record, but the downturn really hurt residential rents.

australian ABS nominal rents 1972-2014

The record shows very weak rental growth from 1990 to 2006, under four per cent annually in nominal terms, while inflation consistently tracked near three per cent. In fact, aside the three years 2006-09, nominal rents have been quite stodgy since 1990. The weakening trend since 2010 continues to this day.

That is a very very long time between drinks. And remember, the Australian economy was much more diversified then – we weren’t relying on iron ore and coal for export income – we even exported cars!

For every well-chosen well-located rental property that sailed through this era providing solid rent rises to absent owners, another underperformed. Never mind the continual fresh investment to update property facilities and features in a highly competitive market for quality tenants.

Real, after inflation rents 1972-2014 fluctuated around zero.

australian real rents 1972-2014

This is not the stuff of fortune-building or a secure retirement, let alone making a decent return on investment. We as a nation have gone massively into debt in pursuit of paltry returns. Nuts.