Rental policy shifts
Australia is following some of Ireland’s policy mistakes, leading to a chronic shortage of rental properties, according to Pete Wargent, co-founder of Australia’s first national marketplace for buyer’s agents, BuyersBuyers.
Mr Wargent said, “countless media articles are now chronicling Ireland’s dire rental market situation, which has followed a series of measures to target so-termed ‘greedy landlords.’ These have included rent controls, changes to tax policy to restrict the deductibility of interest, and the moratorium on evictions. The inevitable result has been a chronic shortage of rentals and massive queues outside properties for rent.”
“It was recently reported that there are only 716 properties available for rent across the entire country, as landlords leave the market in droves, reportedly due to increasing regulation and property taxes. Like Australia, Ireland has struggled to maintain an adequate social housing supply in recent years but has also made it increasingly challenging for private landlords to pick up the slack.”
“Australia isn’t at such a crisis point just yet, but things are heading in that direction. There have been early calls for rent controls in Australia from the UNSW City Futures and others, but these haven’t yet come to pass.”
“However, there has been a raft of policy changes affecting landlords in Australia, such as the restrictions on the deductibility of depreciation for properties bought after May 2017, major reforms to residential tenancy laws including to the grounds for eviction and minimum property standards, and the introduction of a huge lending assessment buffer of at least 300 basis points for new borrowers”.
“There are further measures in the post which would make being a landlord incrementally less attractive, such as Queensland’s proposed changes to land tax regulations to include the taxation of properties located outside the state.”
“A rapid series of interest rate increases also tends to shift the balance between buying and renting towards the rent side of the equation, so in this context it’s not that surprising that the number of available rentals continues to dwindle.”
“SQM Research reports its very timely weekly rent listings figures at series lows, despite a population increase of approximately 4 million between the 2011 and 2021 Censuses” Mr Wargent said.
Figure 1 – SQM Research weekly rent listings
Source: SQM Research
“The latest arrivals and departures figures suggest a very sharp rebound in the number of new entrants to Australia, the majority of whom will be renters, so it’s inevitable that there will be further pressure on the rental supply.”
Immigration rebound afoot
BuyersBuyers CEO Doron Peleg said that there has been a recent shift in demand back towards the two major capital cities, which has taken some pressure of a number of regional markets.
Mr Peleg said, “there has been a slight shift in the demand away from some regional markets back to the largest cities, as the restrictions on movement have eased, and the drop in rents in the CBDs has helped landlords to find tenants in the previously vacancy inner city units.”
“However, in aggregate the pressures on the rental market continue to grow. With population growth likely to increase back towards 1½ per cent per annum, that’s an extra 375,000 heads to provide accommodation for each year”.
“Unfortunately in the current environment many landlords are likely to sell, further depleting the rental stock, and this will see asking rents continue to rise. As in some other countries, the increased use of short-term rental outlets such as Airbnb and other privately owned websites run may also have decreased the available rental supply advertised through the traditional real estate portals” Mr Peleg said.
Death of a thousand cuts
BuyersBuyers co-founder Pete Wargent said that rental market pressures are not the result of any one policy, but the combined result of multiple factors.
Mr Wargent said, “it’s the death of a thousand cuts for many small landlords at the moment. For example landlords in Canberra have already faced adverse changes to property taxes in recent years, and now they’re dealing with new laws on sustainability related to appliance energy use, in addition to the other tenancy reforms. In this context it’s not hard to see why a landlord might opt to sell up and move into an asset class where the goalposts aren’t continually moving.”
“Adelaide has had a rental vacancy rate as low as 0.3 per cent which is about as unhealthy a market dynamic as we’ve seen in a capital city in Australia, although arguably Hobart has been even worse in this regard.”
“Unfortunately with non-resident buyers also taxed out of the market there doesn’t seem to be any respite for rental supply on the horizon. Asking rents in Brisbane are up by 21 per cent over the past year, in Sydney they are up by 20 per cent, and in Adelaide and Melbourne they are up by 18 per cent” Mr Wargent said.
“There’s no easy fix, but a useful start would be bringing the serviceability buffer back down from 300 basis points in September. After the next interest rate hike the lending assessment buffer in place will be effectively stress testing for a scenario which financial markets see as remote.”