The rental shortage is changing the investment equation

The case for a property investment this spring, like any other time or in any other market, comes down to individual circumstances.

Those circumstances must be weighed against the variables and at present, there are some mixed signals to navigate.

Will interest rates go up or down? As at mid-September, there’s a case to be made for both scenarios.

A key consideration for the Reserve Bank is housing itself. Steadily increasing rents are a major factor contributing to inflation and while house prices are not part of the RBA’s considerations in setting monetary policy, the decline in values is having a significant impact too, including from a sentiment perspective.

Raising rates hurts affordability, lowering rates increases a buyer’s ability to compete for a property, potentially pushing prices up.

There’s much for the Reserve Bank to consider in pursuit of its main objective - to control inflation within a pre-set target range. Viewed against the big picture, that objective seems decidedly narrow in focus.

While there’s uncertainty about the future of interest rates, investors and renters can be much more confident in the likelihood that rents will keep rising.

That’s because supply is going backwards. According to an analysis by Foundit, approximately 10,100 rental homes were sold in the seven weeks following the Federal Budget and, over the same timeframe, only 6,140 new rentals were purchased and made available for lease. This equates to a loss of 570 rental homes nationally each week.

The Budget changes affecting investors have had a major, irrefutable impact. All the while, demand from hopeful tenants increases, not least due to net migration.

Inevitably, rents will rise as supply lags further behind demand.

Investor timing

It’s difficult to fathom the degree to which state and federal reforms, supposedly designed to help renters, have backfired.

The rental pool has shrunk significantly, rents continue their upward march, tenant demand continues to increase in an environment of declining supply, and the claim that this is happening because more renters are becoming first home buyers is demonstrably false. Transactions are slowing and lack of affordability remains a huge barrier.

It is politically popular to drive the binary, adversarial narrative that the rental crisis is a case of landlords versus tenants, and to side with the latter. This way, politicians can position themselves as saviours, to seek opportunities to stand side-by-side with tenant representative organisations.

But it has proven a policy disaster to seek to elevate the rights of one cohort by removing the rights of another. The tenant-landlord relationship is symbiotic – you can’t have one without the other – and this is not how symbiosis works.

More and more renters are waking up to the fact. At a recent town hall meeting I attended, which was not organised by REINSW, the disdain among renters over Government’s handling of the rental crisis was palpable.

Whether this delicate situation equates to a good time to invest in property remains up to the individual. There will certainly be many people crunching their numbers this spring, but time will tell if it leads to more transactions.

Every NSW citizen has an interest in a healthy property market, so as we gear up for the next NSW election, REINSW will continue to advocate for policy reform which puts people, and not politics, first.

The views expressed in this article are those of the author and do not necessarily represent the views of API Magazine.