The rental market is in turmoil as landlords rush to sell before the government's budget changes. Australia's rental landscape is being reshaped by a wave of sales, with a staggering 22,640 rental homes dumped onto the market in the past three months. This is particularly concerning in Sydney and Melbourne, where 4,865 and 5,565 rental homes were sold, respectively. The FoundIt report describes this as a 'flood' of ex-rentals, raising fears that these properties may never return to the rental pool.
The proposed reforms, including changes to capital gains tax and negative gearing, are driving this panic. Kent Larnder, head of research at FoundIt, suggests that marginal landlords, already struggling with investment costs, are selling up due to a genuine fear of the changes. This fear is not unfounded, as the reforms could significantly impact their profitability. The triple threat of interest rate rises, the fuel crisis, and economic uncertainty is prompting some investors to cash in their chips early.
The impact of these sales is twofold. Firstly, it exacerbates the existing low vacancy rates, putting further pressure on tenants. Secondly, it highlights the need for more housing supply. As Louis Christopher, SQM Research director, points out, the current tax regime's gutting risks increasing rents by 20% in Sydney and Melbourne. This could further strain the rental market, making it even more challenging for renters to find affordable housing.
The situation is particularly dire for renters, as Brett Sutton, a mortgage broker, notes. A national poll by Money.com.au revealed that 61% of investors would pull back from new purchases or sell under the new tax changes. This suggests that the choice for many renters is not 'rent versus buy' but 'rent or have nowhere to live'. The consequences of a shrinking rental stock could be dire, especially for those already struggling with housing affordability.
However, some investors are adapting to the changes. Michael Kowalczyk, an electrician turned buyer's agent, understands the decision to sell early. He believes that those considering selling in the next few years might be getting ahead of the changes, ensuring they retain some capital gains discounts. Yet, he also emphasizes that restricting investing won't solve the housing market's fundamental issue: the need for more supply.
The proposed reforms could also prompt investors to diversify into other assets, such as commercial real estate, as suggested by Scott O'Neill, CEO of Rethink Investing. This shift could potentially alleviate some of the pressure on the residential rental market. However, the immediate impact is likely to be a rise in rents, as Nathan Birch, a Sydney-based investor, predicts. The rental market is in a state of flux, and the future looks uncertain for both landlords and renters alike.
