Investors can play key role in rental solution

Feb 2023Karen Millers

Freeing up and incentivising investor clients to increase property supply has been proposed as the answer to Australia’s rental crisis by the managing director of a national quantity surveying group.

Mike Mortlock (pictured above), who heads up MCG Quantity Surveyors, said the current proposed solutions were “‘disconnected from reality” and they ultimately needed to engage investors if they were to succeed.

“Private investors account for around 84% of all Australia’s rental accommodation. The fact landlord advocacy groups have been left out of most discussions and round tables beggars belief.”

Mortlock has proposed five strategies, including reducing financial regulation on investors. He said APRA was turning investors into “scapegoats for poor practices in the financial sector”.

“Investors face far more scrutiny when applying for loans. In addition they are asked to pay interest rates well above those applied to owner-occupiers – despite being historically at less risk of default.”

Mortlock said the fact that the cap applied to interest-only loans was another impost. “Opening up and lending more to investors would be hugely beneficial in stimulating rental supply,” he said.

Construction and depreciation incentives needed

Mortlock has proposed construction grants for investors to ensure more stock is available for rental and increasing the depreciation benefits available would help boost rental property numbers.

“Construction costs have risen in the past two years and are forecast to increase a further 4.3% to October this year – an impost amplified by interest rate increases.”

Mortlock said rising construction costs are starting to bite. Data released in January from the ABS shows an annual fall in dwelling commencements of 5.2% to September 2022.

“Incentivising new construction through grants has provide fruitful in the past – but they must be extended to include investors as well as new homebuyers,” he said.

Reinstated and improved depreciation benefits could also encourage investors not to put money elsewhere, being a low-impact way to help more people own and run an investment property.

“Accelerated depreciation or instant asset write-offs would help immensely. The government must also reinstate some of the deductions for second hand plant and equipment assets too.”

‘Systemic erosion of landlords’ rights’ a problem

The tide of regulation favouring tenants over landlords should also be turned, Mortlock said, with potentially 269,000 dwellings lost due to investors selling out and owner-occupiers buying.

Property Investment Professionals of Australia research found 6.7% of investors sold at least one property over the two years to August 2022, and 65% were bought by owner-occupiers.

“This exodus of investors has been driven in large part by the systematic erosion of landlords’ rights via changes to tenancy legislation. There have also been onerous changes around the ability to end tenancies and the tenant’s right to make structural changes to a property.

Mortlock argued these rules can substantially impact the financial wellbeing of investor clients, which directly disincentivises investor participation in the market and causes fewer rentals.

The decentralisation that Australia experienced during the pandemic could also be encouraged to continue, with signs that some people were beginning to move back to the major cities.

“A program of incentivising people to continue engaging with the regions would be a win-win,” Mortlock said. “It makes regional living more appealing for tenants seeking cheaper, more easily available rentals, while also stimulating these non-capital city economies.

“The same attention needs to be given to city-fringe suburbs. The fringes are where developable land is plentiful and affordable rental availability is more abundant. Town planning changes, improved commercial hubs, and investment in transport would deliver enormous benefits.”

Mortlock said that if the five strategies were implemented they would boost the availability of shelter and help alleviate rental stress.

“One per cent vacancy rates, monthly rent increases of 2% and long lines at rental open homes aren’t going away anytime soon if we stay on the current path.

“I applaud politicians and other groups for finally recognising we are in a crisis – albeit one that could have been eased in part by implementing the right policies years ago. There is now an appetite to act, but I believe the solutions suggested so far are all wrong.”

Originally Published: Ben Abbott | Australian Broker | 23 February 2023

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