Rates on hold - Whoopee Do

Rates on hold for December - Whoopee Do

The reserve bank held rates steady in December, a welcome relief for investors facing increasing holding costs. But that’s where the good news ends.

Whilst rents have certainly rebounded from Covid lows, they do not account for the huge extra burden on investors caused by poor government policy implementing unpoliced legislation that has had the knock-on effect of further worsening the housing crisis.

Let’s look at this in more detail.

Interest rates have increased +/- 4% so on a $500k loan that’s an extra $20,000 per annum or $383pw in holding costs.

Further, owners now need to spend more meeting the new government minimum standards for renting. This includes excessive electrical checks (including 3 full checks within 4 years of a brand new property being built), annual smoke detector checks and exhaustive gas checks every two years. Whilst safety is paramount, electricians and gas fitters are licking their lips (if they enjoy monotonous work). An undercover investigation by a major industry service provider indicated that nearly all other providers of theses checks were not completing them as required and I am yet to hear of any consequences through VCAT for owners not completing them, or the other minimum standards even though heavy fines were threatened when the legislation was enacted almost 3 years ago. Consumer Affairs Victoria is the responsible body and I don’t think they have the resources to deal with it. Agents have been lumped with the role of educating the public and their workloads have skyrocketed whilst delivering bad news to owners.

The result – owners with properties that need substantial works are selling them – to owner-occupiers, worsening the problem as population growth and record migration just keeps adding to the tenant pool. Older properties are bulldozed and replaced with three townhouses that push low-income families out of areas they used to be able to afford. Rates and Owners corporation fees keep rising and trades costs are through the roof.

At the same time, the government keeps making holding investment properties less attractive – the increase in land tax for foreign investors takes effect this year (4% of land value per annum), and local owners get their whack in 2025.

The only winners seem to be multinational Build-to-Rent operators who benefit from discounts on land tax for building apartment buildings that cater largely for the wealthy. How odd that after a decade of single-party State Government policy that Mum and Dad investors are being punished for trying to accumulate a little wealth, yet the multinationals are on a winner.

With the population rising quickly through pent up demand in migration, where will people live? Construction costs are huge, and large residential projects don’t stack up when you need buyers to pay around $14,000 per sqm, yet they can buy similar on the second-hand market for $9,000sqm. Gone are the days where international buyers would purchase half of these buildings. The extra 7% stamp duty that the government put on these buyers makes our stock uncompetitive in a global marketplace.

So what’s next? In 2024 I see apartment prices starting to rise, a trend that will continue for several years. Rents will continue to grow, capped only by what people can afford. House sharing will become more popular again. Low-income earners will really feel the pain as they are priced out of large parts of Melbourne.

Victoria’s housing crisis feels mismanaged at best, manufactured at worst, and only deepening. It’s far past time to support rental providers in delivering the housing market that we all deserve. Change the politics, change the policy.?