Rents keep rising with no relief in sight. If the government can’t come up with answers, it could bear the brunt of tenants’ frustrations at the next election

Rents continue to rise and renters are demanding answers. With the next federal election due by early 2025, the Albanese government needs to find solutions and fast.

Rents are up nearly 12% since the start of 2022. They rose 7.3% in the last year alone.

Sadly, there is little reprieve in sight. As the Reserve Bank recently noted, rents are likely to continue to grow at a hefty clip in the next two years, even as inflation eases. For renters, much of the pain is yet to come.

To its credit, the government has been taking action on housing.

It lifted commonwealth rent assistance last year, putting an extra $600m into poorer renters’ pockets.

The $10bn Housing Australia Future Fund, a key Labor policy at the last election, passed the Senate late last year and should deliver 30,000 social and affordable homes in the next five years.

And the federal government put $3.5bn on the table at national cabinet in August last year to encourage the states to reform land-use planning rules to get more homes built – the only real long-term fix to our housing woes.

But renters are, rightfully, demanding more.

The Greens have been calling for a rent freeze. That would end up doing more harm than good but is appealing to many people facing steep rent rises.

If the government can’t come up with better answers soon, it could bear the brunt of renters’ frustration at the next election.

So how can the government help renters and, at the same time, boost its electoral prospects?

First, the government should further raise commonwealth rent assistance. Last year’s 15% increase should be turned into at least a 40% increase. This would provide an extra $1,000 a year to nearly one-third of all renters, at a cost to the budget of about $1.2bn a year.

The government should work with the states to extend rent assistance to those low-income renters with high rent burdens who do not qualify because they don’t receive another income support payment. That would require a referral of power by the states to give the federal government the constitutional authority to make the payments.

And the government should better target rent assistance to people who most need it. Roughly half of younger Australians on income support are paying more than 50% of their income on rent and could do with more support. Whereas at the moment, rent assistance goes to many middle-income families who aren’t struggling to pay the rent.

Second, the government should double the size of the Housing Australia Future Fund, from $10bn to $20bn. This could fund a further 30,000 social housing dwellings in the next five years.

Third, while the government should continue to steer clear of rent freezes and caps, it should pave the way for the states to better protect tenants against excessive, sudden increases in rent.

Most states and territories allow tenants to contest rent increases via an independent tribunal but this puts the onus on the tenant to make the case that proposed increases are unreasonable.

Instead, the states should follow the ACT by adopting a single, clear benchmark that defines when escalation may be warranted – at least 1.5 times the growth in rents in the local market – and where the tenant objects, require landlords to justify rent increases that exceed the benchmark.

But such a move is only possible if the federal government funds the creation of new regional rent indices across Australia, which the states could use as benchmarks for excessive rent increases.

Fourth, the government should halve the capital gains discount and curb negative gearing.

These changes would not have much impact on housing affordability – our modelling suggests house prices might fall by no more than 2%. But these changes would help more renters to become homeowners, because they would be bidding against fewer investors at auctions.

And halving the capital gains discount and curbing negative gearing could add about $7bn a year to government coffers – money which could be used to pay for more support for low-income renters.

Last, and most importantly, the federal government must follow through on the commitments it has made to encourage the states to enable a boost to the supply of housing – because the long-term solution to Australia’s housing crisis is to build more houses.

Housing is on the political agenda whether the government likes it or not. Good policy in this field will be good politics. That means delivering for renters.

Joey Moloney

Housing and Economic Security Deputy Program Director
Joey Moloney is the Deputy Program Director of Grattan Institute’s Housing and Economic Security program. He has worked at the Productivity Commission and the Commonwealth Treasury, with a focus on the superannuation system and retirement income policy.