The CEO of the peak body for property investors has spoken out about the structural problems in the rental industry that are keeping investors out of the marketplace.
Vacancy rates in Australia are currently highly uneven: in Sydney and Melbourne, they are above the recommended 3%, but everywhere else, they are well below. In some regional capitals, such as Hobart, they are below 1%.
The pandemic has seen an above average amount of vacant rental properties in Sydney and Melbourne as international students and new migrants are no longer arriving, but in other areas, a combination of lack of investors and tree changers buying homes has seen a squeeze on the market.
Peter Koulizos, CEO of the Property Investment Professionals of Australia (PIPA), told Australian Broker that the problems in the market date back to before the COVID-19 pandemic.
“You see a very high correlation – and we feel it is a causation – that starts in March 2017, when APRA put restrictions that banks were to place on investors,” he said. “Investors needed a bigger deposit to buy investment property and they needed a to have higher interest rate on their loan.”
“As a result, there were less investors interested in buying rental property. Therefore, if there’s fewer rental properties, there’s fewer options for renters. If you decrease supply, you increase rental prices.”
The effect of this decision was that it treated investors across the nation the same, even though the problem of spiking investment property prices was localised to Sydney. Now, after the pandemic, the problems are seen even more starkly.
“It’s like using a huge hammer to punch in a small nail,” said Koulizos. “You’re affecting everybody. Sydney and Melbourne are greatly influenced by overseas migration, international tourists and international students. All these people need some sort of accommodation. For the last 15 months, we haven’t had any of them, so in particular the CBDs, which are favoured by tourists have been vacant. But the other capital cities, we haven’t had that issue.”
“What they should have done was target it: for example, anything with a 2000-2200 postcode would have had some sort of restrictions if they thought there were too many investors in that particular market.”
“Banks do that. If you go for a loan, they have a look at the suburb postcode that you’re buying in, and if it’s a decent suburb in a metropolitan area, you’re more likely to get a lower interest rate than if you’re in a small country town. So it can be done, but they chose not to apply that methodology. It was just one rule fits all.”
There is, according to Koulizos, a simple solution: to revert to the rules as they were prior to the change in 2017.
“The best thing that they can do, and the fairest thing that they can do, is to have a level playing field,” he said. “Whether an investor or owner-occupier, it’s the same deposit requirements and the same interest rate. Just like it had been for the previous 30 years.”
“It was working fine: yes, you had property booms and slowdowns, but that’s just part of a market economy. If the government feels like they have corrected what they need to correct – I think it’s been over-corrected – it’s time to go back to the situation we had for the previous 30 years.”
Mike Wood, Australian Broker, 10 May 2021