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In part three of A perfect storm: Australia’s rental crisis we examine two more potential solutions to the issue, including how lowering the lending buffer may encourage investors to re-enter the market and how accepting offers of higher rent could fuel the rental affordability side of the crisis. You can catch up on the other parts of the story here.
Solution: Lower the lending buffer
Some argue one barrier to investors re-entering the property market is the Australian Prudential Regulation Authority’s current lending buffer.
In 2021, APRA stepped in at a time of historic low interest rates to raise the serviceability buffer from 2.5 per cent to 3 per cent.
It remains at that level despite the cash rate increasing from 0.1 per cent in April this year to 2.85 per cent in November.
Effectively it means borrowers seeking a mortgage in November were assessed on their ability to repay a loan of at least 5.85 per cent.
But a recent PIPA National Market Update found this could be contributing to borrowers, and particularly investors, being unable to obtain finance.
“Many of these borrowers are stuck on the sidelines due to the servicing buffer of 300 basis points still being applied to lending applications – even though interest rates are significantly higher now than when APRA announced the measure in October last year,” PIPA Chairwoman Nicola McDougall explains.
And that’s creating a situation similar to 2017, she notes.
“There is an element of déjà vu about this situation, with a similar circumstance occurring when caps on investment lending as well as higher rates more generally for investors wiped out lending possibilities for many during the 2010s,” she says.
“The flow-on effect from that decision was the continued reduction in investment activity – especially from 2017 – which hit rock bottom at the start of the pandemic, when the percentage of investors active in the market was just 22.9 per cent compared to a long run average of nearly 35 per cent.”
Solution: Don’t accept offers of higher rent
Property managers who accept prospective tenant’s offers of paying extra rent could be fuelling the rental crisis by driving market prices higher, a leading property manager says.
Best Nest Property Management Director Alison Hatch says it’s something she and her team don’t do.
“We drive the housing prices by doing that… and then that creates a false understanding in the marketplace and an unrealistic expectation for landlords on what they’re going to get,” she says.
Ms Hatch says the practice could also be classed as discriminatory against renters who could not afford to pay more than the advertised rent.
“We are taught not to discriminate,” she says.
“So if I’m only going to put the person who can afford the most in the property, does that not come down to indirect discrimination?”
Ms Hatch says just because someone can afford to pay more, doesn’t mean they are the best tenant, will look after the property better or remain in the home long-term.
Originally Published: Kylie Dulhunty & Cassandra Charlesworth | Elite Agent | 13 December 2022