Victorian landlords could soon have to make significant changes to their properties under the state's new minimum rental standards, raising concerns it will put further pressure on an already tight market.  

The proposal, which is open for consultation, is mainly focused on improving energy efficiency of rental properties.

It includes prescribing standards on ceiling insulation, draught proofing, hot water systems, cooling and heating. 

If agreed upon, the changes would be regulated from October 30 this year. 

It would come three years after minimum rental standards were first introduced by the state government. 

Joe Belfrage, who owns a 1950s weatherboard in the regional Victorian city of Ballarat, said it had no insulation under the floor and precious little insulation in the ceiling. 

Mr Belfrage said he loved the idea of what the government was trying to achieve with the new standards but they could prove costly for landlords.

Energy Minister Lily D'Ambrosio estimated it would cost landlords $5,000 if they were required to undertake all upgrades, all at once.

But Mr Belfrage said insulating his home would cost at least $12,000.

If he was to renovate the entire property to meet new proposed standards, he said it would be in the realm of $60,000. 

"If it is a mandatory standard, then [my] house and so many others would never be on the market," Mr Belfrage said.

"They would just be removed as potential rental properties.

"That seems crazy in a time where we are constantly hearing about the lack of supply of houses."

According to latest data from REA Group, regional Victoria's rental vacancy is about 1.2 per cent, representing a 20 per cent decrease since 2020. 

'Leading with a stick'

Mr Belfrage said it was highly unlikely that landlords, forced to fork out thousands to meet the proposed standards, would not pass on the expenses to tenants, effectively neutralising the potential $791 energy saving pitched by the state government.

"The price of rent would have to go up, and that of course lifts every other rental around it," he said.

He said the state government needed to add some kind of incentive to its proposal to get landlords on board.

"Reward good behaviour, rather than just leading with a stick," he said.

"Offer a carrot instead."

Landlord exodus 

Mildura, in the state's north-west, has a rental vacancy rate of less than 0.5 per cent, according to the Real Estate Institute of Victoria.

Ray White managing director Damian Portaro said investors were leaving Victoria in droves for more favourable jurisdictions including South Australia and Queensland.

"It's a shame to see our money leaving our state and our area [in Mildura]," he said.

"With that compliance that is already in place, landlords have been exiting."

He said compliance measures to improve energy efficient and comfort for renters could be the "straw that broke camel's back" for mum-and-dad investors in certain regional Victoria markets.

Mr Portaro said there was no good news for renters either.

"The supply squeeze that we have at the moment [and] the over demand is going to get worse, that's what's coming," he said.

A report by Deloitte for the Department of Energy, Environment and Climate Action last month found changes to minimum standards could prompt rental providers to withdraw properties from the market, "further limiting supply".

"The introduction of minimum standards is more likely to disproportionately affect older rental properties," the report reads.

"Should these properties exit from the rental market, this may reduce choice and supply for renters, particularly at the more affordable end of the market."

'More equitable' quality of life

University of Melbourne senior lecturer in property, Hao Wu, said it was hard to predict the exact impact on the rental market.

"It probably makes sense to project that it [new minimum standards] might put more pressure on [renters] because of this cost, as well as an existing supply constraint," he said.

"Who is paying for it? It's uncertain."

But Dr Wu said the principal of the proposed new regulation was to maintain a basic quality of life across Victoria and therefore the social impact could be great.

"It will bring a more equitable kind of quality of life," he said.

"A better-quality building has both benefit for occupiers' comfort and wellbeing and at the same time it will have some benefit for environmental sustainability."

Short-term accommodation, which is widespread in regional areas including places such as the Macedon Ranges and the Surf Coast, is less dependent on residential tenancy legislation and governed more like a business.

Dr Wu said more property owners could possibly find short-term accommodation policies more favourable.

"Certain group of the existing housing stock might be pushed towards short-term rentals," he said.

"Government has to think carefully about that."