Regulatory policy

Is Australia following Ireland in a politically inflicted rental crisis?

  • There have been calls for rent control in Australia, although it has been heavily criticized
  • A series of policy changes have been introduced in Australia, including changes to the capital cost allowance and an increase in the mortgage margin
  • Australia’s vacancy rate is below 1%

A chronic shortage is set to be exacerbated as Australia follows through on some of the major policy mistakes made in Ireland, according to a leading buyers’ agency.

BuyersBuyers co-founder Pete Wargent said many stories in the media referred to Ireland’s dire rental market, which prompted a series of measures initially intended to target “greedy landlords” that backfired.

“These include rent control, tax policy changes to limit interest deductibility and the moratorium on evictions,” Wargent explained.

“The inevitable result has been a chronic shortage of rentals and massive queues outside rental properties.”

Mr Wargent said reports show there are just 716 rental properties in Ireland – Ireland is home to 5 million people, around the same population as Sydney and Melbourne – highlighting the fact that landlords are leaving the market in droves, thanks to increased taxes and regulations. .

“Like Australia, Ireland struggled to maintain a adequate Social housing supply during the last years but also did this more and more difficult for prIGo owners to take over“, he added.

“Australia is not yet at such a crisis point, but things are moving in that direction. There have been the first calls for rent controls in Australia from UNSW City Futures and others. , but these have yet to materialize.

Pete Wargent, BuyersBuyers. Image – LinkedIn.

There have been a series of policy changes affecting landlords in Australia, such as restrictions on depreciation allowances for assets acquired since May 2017, major reforms to tenancy laws and the 300 basis point buffer for new borrowers.

“There are other measures in the post that would have own gradually less attractive, like Queensland’s proposed changes to property tax regulations to include the taxation of properties located out of state,” he said.

“A rapid series of interest rate increases also tends to shift the balance between buying and renting towards the rent side of the equation, so in this context it is not so surprising that the number of available rentals continues to decline.”

According to SQM Research, weekly rental listings are at an all-time low, despite Australia’s population increasing by 4 million between 2011 and 2021. The vacancy rate is 0.9%.

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“The latest figures for arrivals and departures suggest a very clear rebound in the number of New incoming to Australia, the majority of which will be tenants, so it is inevitable that there will be further away pressure on the rental supply,” added Mr. Wargent.

Immigration rebound

Doron Peleg, CEO of BuyersBuyers, noted that there had been a recent shift in demand to Sydney and Melbourne. This has eased the pressure on regional markets, with town center landlords now able to find suitable tenants more easily than before.

“However, overall, the pressures on the rental market continue to grow. With population growth likely to rise towards 1.5% per year is 375,000 additional heads to be housed each year,” he said.

“Unfortunately, in the current environment, many landlords are likely to sell, which will further deplete the rental stock, and asking rents will continue to rise.

“As in some other countries, the increased use of short-term rentals electrical outlets Phone like Airbnb and other privatepossesses websites Course may also have reduced the available rental supply announced through the traditional real estate portals.”

Mr. Wargent added that the current pressures in the rental market are not directly due to one policy, but to a series of factors.

It’s the death of a thousand cuts for many small owners right now,” he said.

“For example, homeowners in Canberra have already faced adverse property tax changes in recent years, and they are now facing new sustainability laws related to appliance energy use, in addition to other reforms. leases.

“In this context, it’s not hard to see why an owner might choose to sell and move to an asset class where the goalposts don’t continually move.”

“Adelaide had a rental vacancy rate as low as 0.3%, which is about as unhealthy a market dynamic as we have seen in an Australian capital, although no doubt Hobart was still worse in this respect.”

Non-resident buyers have also been taxed out of the market, he said, adding that there does not appear to be any respite for rental supply on the horizon.

“There is no simple solution, but a useful start would be to bring the serviceability buffer down by 300 basis points in September. After the next interest rate hike, the loan valuation buffer in place will effectively be a stress test for a scenario that financial markets view as distant,” he concluded.