Why Australia’s rental crisis won’t ease in 2026 despite investor comeback

We have two strong trends at present that are counterbalancing one another, leaving us with an acute shortage of rental properties in the national marketplace.

Pleasingly, we are seeing investors flow back into the property market in strong numbers. Investor loan growth jumped 7.3 per cent in the year to September, the fastest annual pace of growth since 2015.

Three drops in interest rates, strong growth in property values, improved lending conditions, and continuing evidence that the construction of new properties is well below the level needed to meet demand have convinced investors that property is once again a sure bet.

Some of the temptation to drift into the stock market has also been tempered, as rising concerns and volatility have made that a less certain option.

News of this increase in investor buying would normally have been great news for the rental market, where vacancy rates throughout most parts of the country remain at around 1 per cent - a third of what is considered a balanced market between tenant demand and supply.

To counterbalance this, there have been strong sales of existing rental properties, primarily among long-term investors.

This trend is most evident among senior and ageing investors who have been selling for a mix of reasons, ranging from a desire to tidy up their financial affairs and make estates simpler for executors and beneficiaries to manage, to finding the new wave of legislation more challenging to understand and comply with.

Then there is the desire to reduce debt, and increasingly, towards using equity from the sale of their investment properties to help their children purchase homes of their own.

Most of these senior and long-term investors are seeing large capital gains and were brought up in a generation focused on “playing it safe” and adopting the “a bird in the hand is worth two in the bush” mentality.

New investors driving harder rent deals

The wave of new investors is at best balancing out the exit of long-term investors in the marketplace.

Sadly, the net result for the rental pool is that we are not seeing an increase in the number of rental properties.

But there is also another underlying factor that is becoming evident.

Many long-term investors were less focused on increasing rents to the maximum or doing so regularly.

Because they had owned their properties for long periods, they were comfortable with the returns they were receiving and were more interested in having a stable, happy tenant than achieving the highest possible rental yield.

New investors entering the marketplace are, by necessity, very focused on obtaining the highest rental return they can in order to meet loan repayments and cover incidental holding costs, such as rates, land rates, insurances, maintenance and, for many, land tax.

This is likely to place stronger upward pressure on rents across the market.

Expect more of the same throughout 2026, with increasing numbers of investors entering the market but, equally, senior and long-term investors exiting the market as Baby Boomers reach very advanced ages.