Paul Scarr (Queensland, Liberal Party) Share this | Hansard source

Sitting here today, I've just come up with a new theory in relation to economics, and I reckon it may well win me the Nobel Prize for economics! It is this: whatever the Greens propose in terms of economics policy, do the opposite. That's the Scarr rule of economics! I reckon that could well give me the Nobel Prize. It may well put me on a flight to Stockholm to collect my Nobel Prize for economics, following in the footsteps of one of the great neoliberal inspirations I have, Milton Friedman. It could well provide the opportunity to me to get the Nobel Prize for economics!

When I go to Stockholm to collect my Nobel Prize for economics for coming up with my new economics rule, my new paradigm, which is: 'Whatever the Greens propose in terms of economics, do the opposite and you will get a better outcome,' I can talk to people in Stockholm about how rent control has gone in Stockholm. And what will I find? Nine-year waiting lists to get access to rent-controlled apartments in Stockholm. So what have they found in Scandinavia? They've found, just as they have all over the world, that the evidence does not support rent controls. This is the most classic of all classic examples of best intentions leading to negative outcomes—of best intentions paving that famous road to hell, leading to negative outcomes for the people who are intended to be assisted by the policy.

I don't question the motivation of Senator McKim and his colleagues with respect to this policy and this legislation. I tip my hat to them. They care about this issue and want to do something positive about it. But what they're proposing will achieve exactly the opposite of what they're suggesting.

Now, Senator McKim knows me reasonably well, because he knew I would quote from my textbook on basic economics in relation to rent control. Let me remind the chamber what our literature on basic economics tells us about rent control—first, in relation to Australia, since Senator Faruqi has mentioned rent control in Melbourne, Australia. Well, these are the facts. I'll quote from page 43 of my edition of Thomas Sowell's book Basic Economics. He's another great neoliberal. He writes: 'Nine years after the end of World War II, not a single new apartment building had been built in Melbourne, Australia.' So that's nine years under rent control, under what the Greens are proposing in their horrendous economic policy. In economics, we should always do the opposite to what the Greens propose. This is what Basic Economics tells us:

Nine years after the end of World War II, not a single new apartment building had been built in Melbourne, Australia, because of rent control laws there which made such buildings unprofitable.

How's that assisting people in need, wanting accommodation? In nine years, not a single apartment building was built in Melbourne because of rent-control laws.

Let's turn to page 44. What happened in the USA? Sowell writes:

After rent control was instituted in Santa Monica, California in 1979, building permits declined to less than one-tenth of what they were just five years earlier.

One-tenth! Again, how is that helping the people that the Australian Greens want to help?

Let's have a look at what happened in England and Wales. On page 45, he writes:

Under rent control in England and Wales, for example, privately-built rental housing fell from being 61 percent of all housing in 1947 to being just 14 per cent by 1977. A study of rent control in various countries concluded: "New investment in private unsubsidized rented housing is essentially nonexistent in all the European countries surveyed, except for luxury housing."

So that's the impact of rent control—that construction capital would go towards luxury housing, as opposed to affordable housing, under the Greens policy.

And then what happens when you lift rent control? This is what happens. I quote from page 47: 'In Massachusetts, a statewide ban on local rent-control laws in 1994 led to the construction of new apartment buildings in some formerly rent-controlled Massachusetts cities for the first time in 25 years.' So this is the flip side. This is the corollary. When you cease rent control, you actually increase supply and thereby assist those seeking affordable accommodation. The evidence is there.

It is just baffling that the Australian Greens continue to put forward these ridiculous economic policies. I will quote from the submission made by the Productivity Commission to the Senate inquiry into the rental crisis in Australia. What did they find? Section 3 is entitled 'More homes, cheaper rent'. Of course, supply and demand—we need to increase the supply of the housing stock in this country, not introduce economic policies which would dampen or depress the supply of housing. The submission says, 'Addressing barriers to the supply of properties will reduce rents.' It's basic economics. Page 10 of the Productivity Commission's submission says:

Increasing the supply of housing will lead to an increase in the supply of rental properties. While most newly-constructed properties are bought by owner-occupiers, about a third of mortgages for the purchase of new dwellings in June 2022 were for investors, most of whom will likely lease the properties in the rental market. And, in 2019-20, about 45% of new homes were bought by first home buyers, probably reducing demand for rental properties.

Even when newly built housing does not immediately come on the rental market, it can still moderate rents.

So, even when the market is given the signal that new supply is coming onto the market, rents fall or at least the increase is moderated, which is exactly what the Greens are trying to achieve—but it will not happen through their policy. The Productivity Commission submission concludes:

Rent control is not an effective way to improve affordability for renters

Governments should avoid policies that artificially depress rents and curtail the supply of new properties.

Direct regulation of rental prices (or 'rent control) involves government regulation of rental prices, either fixing rents for the duration of a tenancy or imposing a rent limit across all tenancies. Australian jurisdictions have not imposed rent controls widely.

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Rent control benefits incumbent renters in the short term—

So those who have already got a premises, tenants, are benefited in the short term, but this is the important point—

but harms all renters in the long term.

So what do the Greens know that all of the experts don't know? All of the evidence from Egypt to the UK to North America to here in Australia at the time of World War II was referred to by Senator Faruqi, who obviously hasn't gone to the trouble of working out the consequences of that policy when it was introduced in Australia. What do the Greens know that all of us don't know?

I come back to Scarr's new theory of economics, which hopefully will lead to me flying to Stockholm to collect my Nobel prize for economics, and that is: 'Whatever the Greens propose in terms of economic policy, do the opposite, and you are guaranteed to get a better outcome.' When I go to collect my prize in Stockholm, I will talk to all those young Scandinavians, Swedes, who are in nine-year queues in Stockholm to try to get apartments, because rent control has not worked in Sweden, just as it has not worked in the United Kingdom, in Egypt, in North America and in Australia, and it will never work. Sadly, I'm afraid the Greens will never accept the reality, because their economics policy is an evidence-free zone.