The lunacy surrounding the rental crisis

I’m normally upbeat in my articles. I like the idea of exploring and developing strategies to help readers achieve long-term financial security through smart property investment.

But this month I need to have a rant because the current debate around housing affordability and the rental crisis has raised my hackles.

The discussions and suggestions doing the rounds have put the ignorance of our political leaders and special interest groups on full display. Their commentary shows precious little understanding of how housing markets and our economy operate.

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The problem

At present, securing a rental, particularly in our major population centres, has become a near impossible task for tenants.

Vacancy rates across Australia are prime indicators of the mess we find ourselves in. Vacancy rates reflect the percentage of a city’s total rental stock that is currently available for rent. A well-balanced rental market would normally have a vacancy rate of between two and three per cent.

If it exceeds three per cent, that means there’s more rental supply than demand, so tenants can negotiate asking rents down. But when vacancies traverse below two per cent, the reverse happens. Demand exceeds supply and rents ramp up.

At present, the national vacancy rate is at a staggeringly low one per cent with most capital cities well under this figure. Check out the latest information from SQM Research in the chart below.

Those final two columns tell a dire tale for renters. In short, there isn’t enough rental property to satisfy tenant demand which has led to rising rents and, in some cases, homelessness.

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Political idiocy

And here’s the crux of my rant. You would think the people who lead this nation would be looking for workable solutions to increase the rental supply. Instead, they appear incapable of even understanding the problem, let alone devising a path forward.

For starters, this rental problem is the culmination of years of bad policy delivered by politicians and regulators. The supply of rental property has been falling because investors are continually vilified to score political points.

There were attacks by the Labor party in their 2019 election campaign around negative gearing and CGT, which fortunately saw them roundly beaten at the polls. A mistake they didn’t make again in 2022.

Then there’s APRA, the banking regulator, which directs banks to hold investor borrowers to much higher standards than homebuyers. This is despite redundancy rates on investor loans tracking consistently lower than those for homeowners. Regardless, investors must pay higher interest rates and are subject to far more rigorous financial scrutiny when borrowing.

Moving onto taxation, again, investors have been unfairly targeted. Higher stamp duty and land tax are applied to investors. We’re being asked to put our hands in our pockets to bolster government coffers.

It’s no wonder investors have left the market and supply has fallen.

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Recent idiocy

But here are the three big events of late that have really got my blood boiling.

Firstly, the recent Jobs and Skills Summit saw the federal government announce that the permanent Migration Program ceiling will be increased to 195,000 in 2022-23. That’s great, but I am unaware of one real estate body or representative group invited to discuss exactly how we house these new arrivals. They will be coming into this country and entering an already steaming rental market.

Secondly, there’s the Greens party. Their proposals are showing a laughable lack of economic comprehension. The Greens have suggested we freeze rents for two years before applying a fixed rental increase well below CPI going forward. Their constant attacks suggest that “landlords can afford to carry the financial burden.”

That sort of statement is both offensive and dumb.

We are a liberal democracy, not a socialist state where the government controls people’s private and hard-worked-for assets. If this policy were to get up, investors – who are already deserting the market – would flee in droves which would drive rental supply even lower.

And for those who argue this would reduce housing prices so more tenants could become owners, I say think again. It’s not a one-for-one equation. Most rental properties are multi-person households with residents deciding they can’t or won’t buy a home for a variety of reasons. They still want to live in certain areas and renting is their solution.

Also, one rental house can accommodate two to three potential buyers. Lose a rental property and you can expect a raft of new buyers in the market all vying for listings, a situation that will increase prices.

My third target of disgust is the Queensland government’s latest hair-brained scheme about land tax. Their proposal will see property investors taxed on investments they hold OUTSIDE of Queensland. That’s right – the Queensland government wants to raise tax revenue on land they have no jurisdiction over.

It’s idiocy at its extreme. How will this move encourage investors to put their money into Queensland housing? I am already hearing among my fellow professionals at PIPA that clients are being advised to avoid the Queensland market if this new regime passes into law.

Let’s hope smarter minds prevail.

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The solution

I have a solution to our rent crisis and it’s simply this – boost supply by stimulating more investor participation, not less.

If encouraged via more sympathetic tax regimes and positive political rhetoric, Aussie investors will come to the party – particularly those building new rental stock. We need to make it easier and more attractive to add property to the rental pool.

Reduce the tax burden on investors to at least the same level as homeowners. Try it and watch the supply of rental property rise.

There is a path out of this crisis, but it’s not short and – at present – it appears politicians aren’t reading the signs. They continue to blunder while tenants and landlords cope with the pain of their bad decisions.

Rant over!… (for now, at least).

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