Supply is the Problem

Media stories of people resorting to living in their cars because they cannot find affordable rental accommodation often leads to cries for more help for tenants. The owners of rental properties seeking fair market rent are generally not considered at all from a tenancy advocacy perspective.

Yet, the core of the rental affordability ‘crisis’ is a lack of housing supply. Unsophisticated property investors account for 80 percent of all rental homes, but these mum and dad investors are selling these properties in droves with new investors reluctant to buy for a variety of reasons.

Those investors burnt from a flaccid Perth property market over the past decade are looking to get out with many of them vowing never to return. At 18 percent, investors remain well below long term averages as a percentage of all buyers in the market.

Encouraging investors to return to the Perth market should be a priority of the state government given the lack of investor activity over the past five years. Without property investors, the taxpayer will need to supply the housing at unsustainable expense.

The lack of investors in the market is fuelling the shortage which is exacerbated by investors selling to owner-occupiers. Extra taxes aimed at disincentivising investors don’t help either with foreign buyers pay an extra 7 percent transfer duty on top of the original stamp duty normally payable.

At Perth’s median home price of about $485,000, foreign buyers face a whopping tax bill of $52,902. Perth’s median home price would have to grow by 11 per cent in the next twelve months to cover that cost (assuming the tax isn’t borrowed). An investor is unlikely to take such a risk. At Fremantle’s median price, a non-resident would pay an eye-watering $89,900 in buyer tax.

It is well known that Perth’s property market had been stagnant for at least a decade with no net growth in property values for ten years. That is rapidly changing now of course with sales levels now escalating and prices rising yet investors remain largely absent.

In a flying market where foreign speculators are outbidding local buyers, a special tax on non-residents makes some sense, but to justify it “because the east coast does” when our property markets operate so differently is reckless, unimaginative and bad policy.

Foreign buyers looking to invest in Australian property are important because they often soak up sufficient off-plan housing stock to ensure new developments proceed, which keeps tradies employed and the supply wheel turning.

The government’s 75 percent stamp duty rebate available to investors buying off the plan for developments yet to get under way was a great way to bring on more supply, support tradies and create jobs. Incentives such as these are badly needed until supply can start to meet demand.

If the government wants to address rental affordability, then incentivising investors to participate in the property market is an urgent priority.