Population, policy prove rich bounty for investors but grim for renters

Media attention on the real estate market and the Australian housing crisis tends to go in waves.

Constantly repeating the same issue runs the risk of audience fatigue and so in more recent times, we have seen a huge amount of attention this year on the Olympics and a number of international events. which has taken focus off of the housing crisis.

However, the crisis continues.

While there is an easing in the number of people enquiring about properties or attending inspections, the actual number of buyers remains very strong and above the number of properties on the market for sale.

This is why we have seen real estate price growth continuing in most parts of Australia, although at a lower rate, and we are finding the capacity to borrow more money to pay higher real estate prices, is limited of course by people’s income.

This capacity for people to borrow sufficient money to buy real estate properties is also producing a huge issue in the rental market.

Before interest rates started to rise in May 2022, buying was cheaper than renting across 818 suburbs of Australia, or around 30 per cent of all housing markets nationwide.

In the unit market, 48 per cent of all suburbs were cheaper for buyers. However, with the rise in interest rates, there has been a sharp decline and now there are only 11 per cent of suburbs within Australia where buying is cheaper than renting.

This means that it is forcing more people back into the rental market because it is cheaper to rent than buy, thus putting more pressure on the rental market.

On the face of it, people would argue that rents have risen rapidly. In the four years prior to the pandemic, rents increased by only $25 per week on a national basis. Since the start of the pandemic, rents have risen on average $200 per week across Australia.

While there has been an increase in the number of people taking out investment loans, it is still only a drop in the ocean compared to the need.

Although the Federal Government Housing Policy has been largely directed towards providing more homes per se, history will show us that most of those homes will be taken up by owner-occupiers.

There is virtually no policy in place to grow a greater supply of rental properties.

Housing policy may eventually - in another 10 years or so - ease the lack of supply of homes for owner-occupiers, we are likely to see the rental crisis continue for a very long time to come.

Similar to the owner-occupier buyer market, rent growth is starting to ease simply because there is a limit to how much anyone can pay from their wages to meet the rent.

There has been a handsome increase in income for most landlords, and this has produced a situation where annual returns are the best I have seen in decades. When you add to the income return, the capital gain, then property investment has been outstanding over the past couple of years and stands to be not only the safest but one of the best investments as a wealth creation foundation for Australians.

Population pressure an investment guide

The growth in rental values is very much associated with every region’s population growth.

There are markets in parts of Australia, such as Melbourne and Tasmania, where we are now seeing substantial deceleration of rental growth, while other areas of rental growth are still very strong.

This reminds us that where you buy is still the most fundamental consideration for maximising investment returns.

For example, the Gold Coast has seen such strong rental growth that it is now rated the most unaffordable city for rental accommodation and this is largely because the Gold Coast has been the largest population growth centre in Queensland, over the past several years.

So, when considering where to invest, it is always wise to look where the population is growing fastest, because that is where any investor is bound to get the greatest investment returns.

All of the proposals put forward by the Federal Government at this stage have largely been no more than a plan caught up in bureaucracy and reality around the shortage of builders, cost of construction, and finance, all of which means the ambitious housing growth targets will not be achieved anywhere near the timeframes proposed.

Australia desperately needs more investors to buy rental properties that will create the win-win of providing vital housing in areas where they are needed, while giving investors great returns.

A recent report showed that in Queensland, frontline workers such as nurses, police officers, childcare workers and teachers are being forced to move long distances from their place of employment, simply because they cannot find available rental accommodation in close proximity to their work.

This ultimately will have a detrimental effect on their ability for services to be provided across a wide range of essential services, simply because those potential employees cannot find rental accommodation.

Ultimately, more incentives need to be introduced so investors can enter the market in great numbers.