‘Forever renting’ is common in New York, California and Europe. What lessons can we learn?

For a growing swathe of Australians, “forever renting” has become the new norm.

Renting is no longer a youthful rite of passage or a transitional phase on the way to home ownership.

Given these circumstances, how do we get housing security for renters? What can we learn from rental market regulations elsewhere?

Rent control is common overseas

A different ideological approach to housing in other nations has led to policies that support long-term renting, through regulated rents or subsidies, long-term leases and stronger tenants’ rights.

Rent control or regulation is common across Europe, New York City, the major cities of California^[1], and several Canadian provinces^[2]. In Australia, only the Australian Capital Territory^[3] has adopted rent controls.

We all recognise that utilities such as water and electricity are basic services that everyone needs to live. That is why they are regulated and monitored. Housing, too, is recognised as a basic human right^[4], so similar regulations in the rental housing system should not be controversial.

In New York – the epicentre of global capitalism – around 50% of apartments are rent stabilised^[5], meaning rents can only be increased by a regulated amount.

Australia needs to adopt nationwide policies that limit allowable rent increases to reasonable levels and allow evictions only for just cause^[6]. These policies would reduce the risk of sudden homelessness or sharp rent spikes.

Keeping a lid on rent increases

Regulatory details may vary by state and/or city. However, annual allowable rent increases could be tied to the regional rate of inflation (the consumer price index^[7] or CPI). This would constitute a return to historical patterns^[8] in which consumer prices and rents rose at comparable rates.

In California, many laws limit annual increases to less than the increase in the CPI^[9], typically 60% to 80%. Some laws also place floors and/or ceilings^[10] on allowable annual increases.

Allowable rent increases could take into account operating and maintenance costs of rental units. These typically amount to only about one-third of rental income^[11].

In most North American cities with rent control, owners are allowed to reset rents at market levels when tenants move out. This is called “vacancy decontrol^[12]”. It protects new tenants from excessive increases after they move in. However, it undermines overall housing affordability^[13] because landlords raise average rents by more than the CPI.

Also, landlords may have economic incentives^[14] to evict or harass longtime tenants, or select tenants who are more likely to leave after a short period, if they can then raise the rent. Vacancy decontrol would be undesirable in Australia.

Striking the right balance

Some rent control laws exempt luxury units^[15] above a specified rent threshold. Others cap rents at a set percentage^[16] above what they were on a certain date.

Conversely, some allow additional increases^[17] for owners who had previously kept rents unusually low. In some cases, units in small buildings or granny flats in owner-occupied properties are exempt from rent control^[18].

These nuances would need to be considered in an Australian rent regulation framework.

A range of other policies adopted internationally would benefit Australian tenants. For example, long-term leases (10 years or more)^[19] would provide greater residential stability.

Germany^[20] and Switzerland^[21] have some of the lowest home ownership rates^[22] in Europe at 49% and 60% respectively, with incentives skewed towards long-term renting. Fixed-term tenancy agreements can range up to 30 years^[23], providing security for tenants. Strong tenant protections^[24] also make renting in those countries more attractive.

International experience shows that rental systems can also be designed with stronger protections for privacy^[25]. This includes tighter limits on routine inspections and clearer expectations that units are not subject to ongoing landlord intrusion.

Allowing tenants to keep pets^[26] and to personalise their dwellings – by hanging pictures or painting walls – fosters a sense of home in rental housing.

In some European cities, such as Vienna, rent subsidies further strengthen affordability and security. Around 50% of all Viennese residents^[27] live in subsidised dwellings, mainly flats, either built by the city or co-operatives^[28].

A rethink is needed

The first step forward is rethinking the way we view housing – as home and shelter rather than an investment or commodity. We also need to recognise renting as a permanent condition for many Australians, including middle-aged and older adults^[29] and families.

The second step involves policy design that treats tenants as equally deserving of rights as homeowners^[30].

Rent control is a measure we can adopt right away, as we wait for the supply of rental units to grow, without imposing additional burdens on the public budget.

Read more: Home ownership is slipping out of reach. It’s time to rethink our fear of ‘forever renting’^[31]

References

1. ^{^} New York City, the major cities of California (www.minneapolisfed.org)
2. ^{^} Canadian provinces (www.cmhc-schl.gc.ca)
3. ^{^} Australian Capital Territory (thefifthestate.com.au)
4. ^{^} basic human right (www.ohchr.org)
5. ^{^} rent stabilised (www.cityrealty.com)
6. ^{^} allow evictions only for just cause (thefifthestate.com.au)
7. ^{^} consumer price index (www.abs.gov.au)
8. ^{^} historical patterns (www.rba.gov.au)
9. ^{^} less than the increase in the CPI (housing.lacity.gov)
10. ^{^} floors and/or ceilings (housing.lacity.gov)
11. ^{^} one-third of rental income (housing.lacity.gov)
12. ^{^} vacancy decontrol (www.american.edu)
13. ^{^} undermines overall housing affordability (housing.lacity.gov)
14. ^{^} economic incentives (www.assembly.state.ny.us)
15. ^{^} luxury units (housing.lacity.gov)
16. ^{^} set percentage (ecode360.com)
17. ^{^} additional increases (housing.lacity.gov)
18. ^{^} exempt from rent control (www.justia.com)
19. ^{^} long-term leases (10 years or more) (www.sbs.com.au)
20. ^{^} Germany (www.uniplaces.com)
21. ^{^} Switzerland (swisscohousing.ch)
22. ^{^} home ownership rates (www.sbs.com.au)
23. ^{^} up to 30 years (www.sbs.com.au)
24. ^{^} tenant protections (www.cbreim.com)
25. ^{^} stronger protections for privacy (diem25.org)
26. ^{^} keep pets (rentwithpets.com.au)
27. ^{^} 50% of all Viennese residents (socialhousing.wien)
28. ^{^} co-operatives (www.housinginternational.coop)
29. ^{^} middle-aged and older adults (grattan.edu.au)
30. ^{^} equally deserving of rights as homeowners (theconversation.com)
31. ^{^} Home ownership is slipping out of reach. It’s time to rethink our fear of ‘forever renting’ (theconversation.com)