Greens inquiry blames housing crisis on banks and landlords
The Greens' Senate inquiry says rent caps will fix Australia's rental crisis. The evidence says otherwise — and Australia has already run this experiment.
A six-month Senate inquiry led by the Greens has concluded that Australia's housing crisis is fundamentally a story about corporate greed, and its recommended cure is national rent caps, an expansion of public housing to 10 per cent of total stock, and a requirement that banks offer cut-price mortgages to first home buyers. The diagnosis has some truth in it. The remedies, however, are a different matter.
Profiting from a broken system is not the same as breaking it
The inquiry's framing places banks, landlords, and developers at the centre of the crisis, and there is something to that. As we have covered previously, Australia's big four banks have benefited enormously from decades of rising prices, and the mortgage market is not a model of competition. But profiting from a dysfunctional system is not the same as causing it. Identifying the winners does not tell you why the game is rigged.
The structural cause of Australia's housing crisis is simpler and harder to dramatise than banker greed: for generations, Australia has not built enough homes where people want to live. Planning restrictions, zoning laws, infrastructure funding gaps, and state and local government obstruction have compounded into a structural shortage that no financial intervention addresses. When the stock is inadequate, prices rise. That is not a conspiracy. It is arithmetic.
A conclusion reached after six months of evidence-gathering that lands precisely on the solutions the Greens arrived with beforehand is worth examining carefully.
Rent caps have a documented history of destroying the supply they were meant to protect
Into that arithmetic, the Greens propose to introduce rent caps: limits on how much landlords can increase rents each year. The political logic is obvious. Renters are being hammered, rents are rising at around 6 per cent annually while real wages have fallen, and a cap feels like relief. But the economics of price controls in a supply-constrained market are about as well-established as anything in housing policy. We have been here before, with the Greens' earlier rent freeze proposal, and the conclusion was the same: the mechanism does not hold.
Australia's own history with rent controls is instructive. Introduced during the First World War and extended through the Depression and the second war, rent controls progressively destroyed the incentive to build and maintain rental stock. Exemptions for new construction were introduced in 1954 precisely because the supply-destruction effects were visible. By 1974, fewer than 20,000 controlled tenancies remained in New South Wales. The system did not end because attitudes changed. It ended because it demonstrably failed.
Contemporary research arrives at the same place. The Committee for Economic Development of Australia has warned explicitly that rent caps will worsen, not solve, the rental crisis. The Australian Housing and Urban Research Institute, which takes a more cautious and less ideological view of the evidence, nonetheless notes that all rent-control measures carry meaningful supply-side risks in a low-vacancy market, and Australia's vacancy rates are about as low as they get. The Conversation's analysis of the same question found the same thing. The Victorian Greens' own Parliamentary Budget Office modelling on rent caps, which we examined in detail, only showed savings by ignoring every flow-on effect, including reduced investment in rental supply.
The mechanism is not difficult to follow. A landlord facing capped rents on an existing property has reduced incentive to keep it in the rental market and reduced incentive to maintain it. An investor considering building a new rental property faces a future where their return is regulated downwards. Fewer new rentals are built. Existing rentals are converted, sold, or allowed to deteriorate. The renters who stay in controlled properties may be better off. The renters who cannot get in at all are not counted in the headline.
The other two recommendations are more defensible, but not by much
The public housing recommendation is more defensible in principle. Australia's public housing stock has been allowed to decline as a share of total housing, and the consequences are visible in wait times and homelessness figures. But scaling from the current level to 10 per cent of all stock within a decade would require a construction effort that dwarfs anything in recent Australian history, at a moment when the construction sector is already stretched, costs are elevated, and every government housing target is, as Senator Pocock herself notes, being missed. The ambition is not wrong. The gap between ambition and mechanism is.
The low-interest mortgage proposal for first home buyers has a different problem. Subsidising demand into a supply-constrained market raises prices. The research on demand-side housing subsidies is consistent on this point: when you put more money behind the same stock of homes, the money gets capitalised into prices. First home buyer grants and stamp duty concessions have been running this experiment for years, with results that should give any honest analyst pause.
Younger Australians have been genuinely squeezed, the rental market is genuinely brutal, and the problem is real. But a conclusion reached after six months of evidence-gathering that lands precisely on the solutions the Greens arrived with beforehand is worth examining carefully. The evidence on rent caps is not ambiguous. It runs, clearly and consistently, against them. An inquiry that heard that evidence and still made them its centrepiece recommendation was not following the evidence. It was dressing pre-existing policy in the language of process.
Australia's housing crisis was built by decades of under-supply. The only thing that resolves a shortage is more of the thing in short supply. Everything else is queue management.
Frequently Asked Questions
Do rent caps actually lower rents for tenants?
Rent caps can lower rents for tenants who are already housed in controlled properties. But in a market where vacancy rates are already very low, they reduce the incentive to build new rentals and push existing landlords to sell or convert properties, meaning fewer rentals become available over time — and the tenants who cannot get into the market at all are worse off.
Why is Australia's housing crisis so bad?
Australia has not built enough homes where people want to live for decades. Planning restrictions, zoning laws, infrastructure funding gaps, and state and local government obstruction have compounded into a structural shortage that pushes prices up regardless of what happens in financial markets.
What does the Greens Senate inquiry recommend for housing?
The inquiry recommends national rent caps, expanding public housing to 10 per cent of total stock within a decade, and requiring banks to offer concessional mortgages to first home buyers. All three recommendations face significant practical and economic objections.
Why do first home buyer grants and subsidies not help affordability?
When additional money is directed at buyers in a market where the number of homes is not increasing, the extra purchasing power gets absorbed into prices rather than improving affordability. First home buyer grants and stamp duty concessions have been running this experiment in Australia for years with results that consistently disappoint.
Has Australia had rent control before?
Yes. Australia introduced rent controls during the First World War and extended them through the Depression and the Second World War. The controls progressively destroyed the incentive to build and maintain rental stock, and exemptions for new construction had to be introduced in 1954 because the supply effects were already visible. By the 1970s, fewer than 20,000 controlled tenancies remained in New South Wales.