Andrew Bell’s Market Update | Australia’s Rental Crisis: Causes, Effects, and Urgent Solutions

Issue 6 | Thursday 23 March 2023 | Australia’s Rental Crisis: Causes, Effects, and Urgent Solutions

Australia is currently facing a housing crisis, which is not unique to the country but is being experienced globally. The rental market is bearing the brunt of the crisis, and the situation is expected to worsen before any relief is seen. At a recent board meeting with the Real Estate Institute of Australia, fellow directors from across the country confirmed that the rental crisis is widespread.

The issue is primarily one of supply and demand. During the boom years of 2020 and 2021, many landlords, who had not seen any increase in rents for over a decade, decided to sell their properties. This was due to the low returns resulting from the lack of rent increases, coupled with significant increases in outgoings such as rates, insurance, body corporate levies, and more. New investors were deterred from the market, as they were outpriced by homebuyers. As a result, between 2020 and 2021, the number of properties available for rent decreased by 17% in many markets.

Recent legislative changes by state governments have further increased the burden on landlords. These changes have led to some landlords selling their properties, while others are losing interest in investing in the rental market. The government’s policies seem to be out of sync with the real estate market, as they have not incentivized people to invest in rental properties, but instead disincentivized them.

Suggestions to introduce rent control or freeze on existing rents have triggered more landlords to sell their properties, and if the proposal gains any credibility, more investors will exit the market.

On the demand side, the situation is set to worsen with the return of migrants and international students. The majority of these individuals will be heading to the rental market, further exacerbating the housing crisis. Building approvals have also dropped significantly, with the number of approvals for standalone homes decreasing by 13.5% and approvals for attached homes (apartments, townhouses, or semi-detached homes) slumping by 44%. This is the weakest figure since 2012, and the pipeline of apartments has already narrowed significantly. The lack of supply of new attached dwellings is not expected to pick up before 2025 at the earliest. This means less construction and higher rent prices, with Westpac predicting advertised rents to rise to 11.5% this year, the sharpest annual increase on record.

Governments should incentivize investors to buy rental properties. Tax concessions and other incentives for a 2-3 year period would be sufficient. However, talk of raising taxes, such as negative gearing or capital gains tax, will only drive more investors from the market. If the government is not building public housing, they must depend on private investors to solve the housing crisis. The government’s attitude towards the rental market needs to change to help the thousands of people dependent on rental properties for a home.

It is essential to remember that around 93% of landlords are everyday Australians. They have taken a risk to secure their retirement by investing in rental properties and need to be supported to help others who desperately need rental accommodation. Landlords are not a wealthy group of people who take advantage of the less fortunate; they are everyday Australians who need encouragement and support.

The solution to the housing crisis lies solely at the feet of governments, including federal, state, and local governments with zoning policies or the like. Rising interest rates and penalizing landlords to support tenants will not help. Urgent steps need to be taken because the rental crisis is expected to persist for years to come.

Anyone thinking of buying an investment property should do so as soon as possible because fellow Australians desperately need rental accommodation. The more people who invest in rental properties, the greater the service they provide to their fellow Australians.

Warm Regards,

Andrew Bell, OAM
Chief Executive Officer
The Ray White Surfers Paradise Group

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