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Investor’s muted participation in the market could potentially create a harder environment for many would-be tenants, according to the Property Investment Professionals of Australia (PIPA).
PIPA chairperson Peter Koulizos said while activity have remained below the long-term average despite recent gains.
“The volume of investors has been trending up over the past few months, but the fact that they were generally stuck on the sidelines for a number of years means there is a significant rental property deficit in most parts of the nation,” he said.
Citing figures from the Australian Bureau of Statistics (ABS), a PIPA analysis showed that investors represented at least 35% of lending from 2007 to 2017.
This, however, was not the case in years after the period, as loan commitments from investors have trended lower.
Latest figures show that new loan commitments from investors had been on a decline pre-pandemic.
From the peak of $10.1bn in April 2015, new housing loan commitments reached a recent through of $4.2bn in May 2020.
Lack of investors worsens affordability
Mr Koulizos said the imbalance between rental property supply and tenant demand had been worsening since the restrictions targeting investors were laid out in 2017.
SQM Research data showed that the most recent peak in vacancy rate was in December 2016 when it hit 2.9%.
“The national vacancy rate is now just 1.7%, according to SQM Research, with some areas having rental markets that are critically undersupplied, such as Adelaide and Perth with vacancy rates of 0.6% as well as Hobart on just 0.5%,” he said.
“This is happening during a period when our population is missing hundreds of thousands of new overseas migrants each year as well, with even Sydney’s vacancy rate reducing to 2.7% over recent months.”
The tightness in the supply of rental homes have resulted in a sustained increase in rents.
In fact, weekly rents across Australia have increased by 24% for houses and 20% for units since December 2016.
“As we know, wage growth has been mostly stagnant over the same period of time, so how are people expected to find the additional funds that are required to lease a property?” Mr Koulizos said.
“When the next wave of overseas migrants’ land here in coming years, where are they going to live? Migrant accommodation camps like the 1950s? Something needs to be done – and it needs to be done now.”
Rental listings still low despite gains
Latest figures from realestate.com.au showed that new rental listings have increased by 3% in September as restrictions eased in Melbourne and Canberra.
On a monthly basis, rental listings surged by 16.7% in Melbourne and 22% in Canberra.
REA Group economist Angus Moore said despite the overall growth in new rental listings, renters faced fewer new options to choose from outside Canberra and Melbourne.
“September is typically a slower month for new rental listings, which was reflected in declines in Adelaide, Brisbane, Perth, and Hobart. Only Sydney recorded a modest increase in new listings of 1.8%, against a usually seasonally slower month,” he said.
Mr Moore also said that this tightness was also apparent in regional markets, as the COVID-driven migration caused faster absorption of available rental stock in regional markets.
“As a result, renters searching in regional areas face particularly tight conditions and a low level of available stock to choose from,” he said.
Tax breaks could hamper investor activity
A proposal by the NSW government to remove discounts on capital gains tax (CGT) was received negatively by some market watchers.
InvestorKit founder and head of research Arjun Paliwal argued that tax breaks on capital gains, as opposed to what the NSW government believes, do not create an environment for “investor speculation”.
“Removing CGT discounts will only create greater supply constraints, as investors will hold on to assets for longer to create gains worth of selling if this tax is removed,” he told Your Investment Property.
“It can create greater price rises, the opposite of what the thought on this policy is.”
Property Council of Australia chief executive Ken Morrison 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 need to build additional and more diverse housing.
“We strongly encourage all governments to prioritise ways to increase much needed housing supply through the provision of properly zoned land, efficient approvals, and strategic investment in infrastructure,” Mr Morrison said.
Gerv Tacadena, Your Investment Property, 28 October 2021