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In the article Landlords who own one property ‘left without relief’ under new Victorian Government package posted on 15 April 2020 on the domain website. Barry Plant chief executive Mike McCarthy Makes the claim that landlords selling to owner-occupiers will push up the price of rent by reducing the available pool of rental properties as below.

“We are going to have landlords that are going to have to sell their property and while that’s great for first-home buyers what it does is reduce the pool of properties for tenants and over time that will push up rents,” Mr Webb said.

There is a similar claim which was made by PETER VERWER chief executive of the Australian property council in this 2013 discussion about a Grattan institute report (Check the transcript for full details.

They create 1.8 million homes available for rent. They’re not new homes, but they are 1.8million homes that would not exist unless a private investor is satisfied with the high compliance costs, the quite moderate rent and the maintenance costs to create all of this rented space

Does this claim add up, my understanding is that its a zero sum game. e.g. A landlord sells the property and a owner occupier moves in. Then there is one less property available for rent however one less person (or group of people) looking for somewhere to rent.

OR am I missing something?

Notes this is based on content in Australia.

https://www.domain.com.au/news/landlords-left-without-relief-under-new-victorian-government-package-949032/

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  • $\begingroup$ This question should be asked on an Econimics site. $\endgroup$ – DJClayworth Apr 16 at 12:47
  • $\begingroup$ That does sound odd to me. You would think a lot of first time buyers were renting spaces beforehand. I know there's also been a lot of fuss some places about landlords renting out as AirBnB locations instead of renting to actual tenants. This can cause the problems the article is talking about... but I don't see how people buying those properties can cause those same issues. $\endgroup$ – JMac Apr 16 at 13:19
  • $\begingroup$ @DJClayworth the intention of posting it to skeptics was to test a notable claim. I'm sure the answer will come from the economics arena $\endgroup$ – user1605665 Apr 17 at 6:51
  • $\begingroup$ Skeptics is really good for scams and conspiracy theories where you can debunk them by just finding something a knowledgeable person has written. But with questions like this a) it requires some decent knowledge of economics b) it is likely there are different opinions, even among expert economists $\endgroup$ – DJClayworth Apr 17 at 12:52
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Your argument is sound (as a first approximation). In fact this is one of the basic examples discussed in chapter 1 of Varian's Intermediate Microeconomics (a standard textbook).

Suppose that a developer decides to turn several of the apartments into condominiums. What will happen to the price of the remaining apartments? Your first guess is probably that the price of apartments will go up, since the supply has been reduced. But this isn’t necessarily right. It is true that the supply of apartments to rent has been reduced. But the demand for apartments has been reduced as well, since some of the people who were renting apartments may decide to purchase the new condominiums.

(quote from pg 10 of the 8th edition)

If you make some additional assumptions e.g., that all buyers are former tenants and that there is no friction in the market (rent changes may be larger when there are new tenants to avoid tension), the equilibrium price will be the same.

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it can be looked at by taking a longer time frame. assuming that both the mentioned parties are not referring to the immediate rental demand, but in the near/ foreseeable future, it would be right to note that a decrease in rental property would lead to a higher rent(less supply, higher demand ) so while your observation makes perfect sense in the immediate scenario, looking at these owner-occupier developments over a prolonged period will naturally result in a decrease of rental properties, pushing up their prices.(assuming there is little to no increase in the number of rental properties that are radically cheaper in cost although this is highly unlikely and will not occur in the market) you can simply assume that there are hypothetically speaking, ten houses available in the market. if 5 of these are owner-occupied, the number of rental properties decreases. and although the immediate needs are balanced as per your observation, in the long term it is natural to note that the demand for rentals will potentially rise, thereby leading to higher prices because of the low supply of rental properties in comparison to higher demand.

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  • $\begingroup$ Can you explain what what factors would change demand over time? If the number of rental decreases because the property now becomes owner occupied then the demand has decreased by a corresponding amount, hence the demand / supply curve should not change. The explanation must have some other assumption that has not been called out. $\endgroup$ – user1605665 Apr 19 at 12:32
  • $\begingroup$ the above answer mentions that a longer time period will affect demand. $\endgroup$ – themanwhosoldtheworld Apr 20 at 13:31
  • $\begingroup$ How does a longer period change demand? Are you saying the pooulation will grow, the rental properties will dissappear? Time alone doesnt change demand something must happen over that time to change demand. $\endgroup$ – user1605665 Apr 20 at 21:52

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