In this podcast episode, we dive into the two different approaches that state governments in Australia are taking to address the issue of rental shortage in the housing market. On one hand, Western Australia (WA) has adopted the carrot approach, offering incentives and encouragement to investors to increase the supply of rental properties. On the other hand, Victoria has decided to take the stick approach, punishing investors with new and higher taxes if they do not comply with the government's desires.

The WA government has implemented several measures to encourage investors to bring new supply to the rental market. This includes offering cash incentives to property owners who convert their short-term rental properties, such as Airbnb, into long-term rentals for permanent tenants. They have also relaxed regulations around building granny flats, providing interest-free loans to help builders complete unfinished properties, and offering cash incentives to owners of vacant homes to make them available for long-term rent.

In contrast, the Victorian government has scrapped the Victorian Home Buyer program, which was aimed at helping young people get into home ownership. They have instead turned to new and higher taxes on property investors to generate revenue and alleviate the state's debt. However, this approach may further exacerbate the rental shortage in Victoria.

It is clear that the WA government's approach is more constructive and will bring new supply to the market, while the Victorian approach may have negative consequences. The WA government has also allocated significant funding towards social and affordable housing initiatives to not only increase supply but also support those in need.

So, why are property investors now more likely to buy in Perth and key WA regional markets, while selling in Victoria? The difference lies in the government's actions – WA is encouraging investors, while Victoria is discouraging them. This highlights the importance of government policies and their impact on the housing market.

In conclusion, governments have two options when it comes to creating significant change – the carrot approach or the stick approach. In this case, the WA government's carrot approach seems to be more effective in addressing the rental shortage issue, while the Victorian government's stick approach may have negative consequences. Time will tell which approach will yield better results, but it is clear that incentives and encouragement go a long way in creating change.