Lift Lending Restrictions And Solve Rental Crisis
Calls to place restrictions on landlords, limiting their capacity to increase rents, comes amidst claims renters are being pushed out of their homes by greedy landlords, but this will only make a bad situation worse.
The reason why rents are increasing beyond the reach of many tenants is due to a current severe shortage in rental stock.
Landlords provide a critical component to a healthy property market through much-needed accommodation and a stepping stone for those who are potentially transitioning into homeownership.
Recently, however, investors have been prevented from purchasing investment properties because they simply can’t get finance.
APRA has gone too far and banks are extremely conservative after the royal commission. As a consequence, investors have been kept out of the market.
The underlying reason why landlords are increasing their rents is in a bid to meet current lending specifications.
Not only are banks increasing LVR requirements, but they are also are forcing minimum serviceability (minimum yields) for new property purchases and refinances.
Banks are continuing to change the goal posts for investors. For example, a recent client had pre-approval in place with an 80% LVR, but when it actually came time to purchase, the lender reduced it down to 60%.
What’s more, the bank then included an additional serviceability requirement, insisting that the investment have a minimum of 4.8% yield.
If it wasn’t for this pressure coming from financial institutions, landlords might not be so aggressive in pushing their rents up.
In the first instance, banks are forcing investors to purchase high yielding properties and then when they are looking to refinance; there is pressure on them to continue pushing up their rents to achieve these minimum yields.
Furthermore, Field additional stress in being placed on the rental market, pushing it to crisis point by the tenants themselves.
Tenants are putting upward pressure on rent, because of the severe shortage of properties available.
To quantify this, as an example there are currently fewer than 100 property available for rent in the entire capital city of Hobart.
In these markets, there are so many renters falling over themselves to lease the few properties available, the balance of supply and demand is critically out of whack.
Ultimately, curtailing landlords ability to increase rents is not the solution, but instead, we need to encourage greater investment within the community.
If we try to limit rental increases in this way, it will mean fewer landlords in the market and a further decrease in the number of rental properties available to rent.
The way to put a brake on rental increases is not through artificial restraints. The fix lies in helping landlords viably put lower yielding properties into the market, by lifting current lending restrictions.