Rents Staying High

Anglicare’s most recent annual report into rental affordability this week revealed out of the 3500 properties listed for rent across Perth, only 14 of them were considered affordable for essential workers – nurses, aged care professionals and teachers for example. According to data gurus Cotality, rents across Perth are up and extraordinary 64.5% for houses and 71.9% for units over the past 5 years.

Our lost decade of 2010 to 2020 where house prices did virtually nothing and rents actually decreased have left us unprepared for the influx of new arrivals into WA since border restrictions were lifted once COVID came under control. The lack of meaningful investment in the housing sector during this period has left us under-supplied and we’re now scrabbling to get enough houses built to accommodate the demand.

Last time I looked, it is the private investor market that supplies nearly 9 in 10 of all rental homes in the nation. The government provides about 11 percent. If seems obvious that to disincentivise private investors (with things like rent freezes and changes to tax settings), investors will stop providing enough houses for renters. This leads to shorter supply (investors will sell) which pushes rents even higher. This is exactly what is unfolding in certain regions (think Melbourne) right now. Supply is the core of the issue; the rest is mere tinkering.

Any significant changes to negative gearing and removing the capital gains tax (CGT) discount would further undermine the current rental housing system, causing a rental crisis far worse than currently experienced. Current populist politics of demonisation of wealth creation through property investment adds further complication because the fact is we must continue to support the very people that supply the houses – private family investors. You can’t magic more housing supply out of thin air if policies are designed to whack investors. Unless, of course, the aim is to have no private investors at all, which would cost taxpayers a mere $3.5 trillion – the value of rental homes in Australia and about 3-times annual GDP.

Current negative gearing and CGT settings incentivises investment into the rental market, increasing housing supply. Removing or restricting it inevitably reduces investor activity, particularly among middle-income Australians who rely on such provisions to build wealth and plan for retirement. According to REIWA, a recent survey conducted via reiwa.com concluded 68 percent of property investors would “consider selling” should changes to current tax settings and tenancy laws be made. This should send a shiver down the spine of renters.

There is no avoiding that the only way to address rental affordability is by increasing supply and unhelpful policies that seek to diminish supply rather than incentivise it is counter-intuitive madness.