According to the Property Investment Professionals of Australia (PIPA), the moderate participation of investors in the market could potentially create a more difficult environment for many potential tenants.
PIPA chairman Peter Koulizos said activity has remained below its long-term average despite recent increases.
“The number of investors has risen in recent months, but the fact that they have generally been sidelined for a number of years means that there is a significant shortage of rental housing in most parts of the country,” he said.
Citing figures from the Australian Bureau of Statistics (ABS), a PIPA analysis found that investors accounted for at least 35% of lending between 2007 and 2017.
However, this was not the case in the years following the period, as investor credit obligations show a declining trend.
The latest figures show that pre-pandemic new loan commitments from investors were on the wane.
From the high of $10.1 billion in April 2015, new housing pledges reached a recent peak of $4.2 billion in May 2020.
Lack of investors worsens affordability
Mr Koulizos said the imbalance between rental housing supply and tenant demand has worsened since restrictions on investors were enacted in 2017.
Data from SQM Research shows that the most recent spike in vacancy was in December 2016 when it reached 2.9%.
“According to SQM Research, the national vacancy rate is now just 1.7% with some areas having rental markets that are severely understaffed such as Adelaide and Perth with vacancy rates of 0.6% and Hobart with just 0.5%,” he said. .
“This is happening at a time when our population is also missing hundreds of thousands of new overseas migrants every year, with even Sydney vacancy rate dropping to 2.7% in recent months.”
The shortage of rental housing has led to a sustained increase in rents.
In fact, weekly rents across Australia have increased by 24% for homes and 20% for units since December 2016.
“As we know, wage growth has largely stagnated over the same period, so how are people expected to find the extra money needed to rent out a property?” said Mr Koulizos.
“If the next wave of overseas migrants lands here in the next few years, where will they live? Refugee camps for migrants like the 1950s? Something has to happen – and it has to happen now.”
Rental offers still low despite profit
The latest figures from realestate.com.au show the number of new rental properties increased by 3% in September as restrictions were eased in Melbourne and Canberra.
On a monthly basis, rental offers increased by 16.7% in Melbourne and 22% in Canberra.
REA Group economist Angus Moore said that despite the overall growth in new rental offers, tenants had fewer new options to choose from outside of Canberra and Melbourne.
“September is typically a slower month for new rental offers, reflected in declines in Adelaide, Brisbane, Perth and Hobart. Sydney alone recorded a modest 1.8% increase in new listings, versus a generally seasonally slower month,” said he. .
Mr Moore also said this tightness was also evident in regional markets as the COVID-driven migration caused a faster uptake of available rental inventory in regional markets.
“As a result, tenants seeking in regional areas face particularly tight conditions and a low level of available inventory to choose from,” he said.
Tax breaks can hinder investor activity
A proposal by the NSW government to abolish capital gains tax (CGT) rebates was met with negative reception by some market viewers.
InvestorKit founder and head of research Arjun Paliwal argued that, contrary to what the NSW government believes, tax breaks on capital gains do not create an environment for “investor speculation”.
“Removing CGT discounts will only lead to greater supply constraints as investors will hold onto assets longer to create sales gains if this tax is abolished,” he told Your Investment Property.
“It could cause bigger price hikes, the opposite of what the thinking about this policy is.”
Ken Morrison, chief executive of the Property Council of Australia, said removing the discount for and increasing the capital gains tax would reduce the incentive to invest at a time when NSW and the nation must build additional and more diverse homes.
“We strongly encourage all governments to prioritize ways to increase much-needed housing stock through the provision of well-zoned land, efficient approvals and strategic investment in infrastructure,” said Mr Morrison.
Photo by Chris Robert on Unsplash.