Offshore investors needed IMAGE TPT
Offshore investors needed IMAGE TPT
  • Nerida Conisbee said advertised rents have increased 22% in a year.
  • Investors need to be incentivised back into the market, with caveats.
  • Government, institutions and offshore buyers could invest in rentals.

More needs to be done to encourage investors back into the market to help ease the current rental crisis that is gripping the nation according to an expert.

Ray White Chief Economist, Nerida Conisbee, said the vast majority of rental accommodation is provided by private investors and they are not buying with interest rates rising.

Ms Conisbee said. “We need more rental properties. The problem is that the group that funds most of them isn’t too keen on supplying more right now.”

IMAGE Australian Bureau of Statistics
IMAGE Australian Bureau of Statistics

Rates hurting investor sentiment

Ms Conisbee said as interest rates rise, we are seeing fewer property investors which is pressuring vacancy rates: “The combination of this and rising construction costs means that fewer homes will be built, further exacerbating the shortage of rental properties and pushing up rents.

“Rental growth feeds into inflation and with high inflation, rates need to rise more.

Advertised rents have increased 22 per cent over the past 12 months, with some parts of the country experiencing much greater increases, Ms Coinsbee said.

While immigration is putting more pressure on housing markets than we’ve had in many years.

She said with interest rates rising, the number of property investors has been falling: “The total number of new loans to investors has now fallen 30 per cent from the peak in March 2022 and the rate of decline will continue.

“Like owner-occupiers, investors are struggling to get finance and price declines have them spooked. Rental growth is continuing but is often not enough to combat increasing interest payments” she said.

Ms Conisbe said new apartment developments that rely on investor purchases to get enough pre-commitments to get the project up and running have also stalled and will reduce supply in the future.

A range of investors needed

According to Ms Conisbee, incentives for investors and more diversification is the solution to the crisis.

“What would most quickly work would be to incentivise investors back into the market, but with caveats.

“The quickest way to get more rental properties would be to incentivise this group through some form of additional tax incentive.

“The problem is that this is politically unpopular given that investors and first-home buyers tend to concentrate on similar sorts of properties” she said.

Diversification of Providers

Ms Conisbee said the second solution is a longer-term option and that would be to diversify who provides rental housing in Australia: “Private investors supply almost all rental housing in Australia.”

Longer term, getting other groups to step into providing more rental housing should be a goal, Ms Conisbee advised.

Government should be providing more rental housing, with a focus on provision to vulnerable groups.

She said build-to-rent is another option that could boost the supply side.

In the US, build-to-rent (or multi-family as they know it) is the largest property asset class, with institutions developing, financing and owning most rental properties.
Encourage offshore investors

Ms Conisbee said the final group that could provide more rental housing is offshore buyers.

She said, “It is unlikely most of the rental stock in places like Melbourne CBD would have been built without the funds provided by offshore investors, particularly given large scale projects cannot begin without a significant level of pre-commitment prior to building.

“Since last decade, a range of additional taxes and charges have been put in place to discourage buyers from overseas. While other factors have also contributed, rolling back many of these would be a step towards getting more investment.

“Australia already restricts foreign buyers to buying new properties so this would also ensure more construction takes place, further increasing housing supply” Ms Conisbee said.

Nerida Conisbee, Chief Economist at Ray White said we need more rental properties. IMAGE Ray White
Nerida Conisbee, Chief Economist at Ray White said we need more rental properties. IMAGE Ray White

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