Blog - Dethridge Groves Real Estate

Hayden Groves Property Management Housing Crisis

Oct 10, 2022

No Place to Call Home

By Hayden Groves ABC’s 4 Corners program that aired earlier this week shone a spotlight on the rental crisis gripping our nation. In our regional towns and major cities, there are insufficient homes for tenants to live in. State governments have not built enough social houses to accommodate those in our community that are unable to afford market rents. Across the housing spectrum, social housing accounts for about 3 percent of all stock. In the 1960’s, it was 7 percent. Meanwhile, state governments raised $23 billion in property-related taxes last year, a combination of land tax and stamp duty. More of these taxes ought to be spent on social housing. Median rents in Australia are at $539 per week and vacancies are at 1.2 percent. Overall, rents have risen about 10 percent over the past twelve months catching many tenants off-guard, with many struggling to meet these rising costs. It is worth noting that Perth’s rents, along with Melbourne, remain the cheapest in the nation with tenants parting with 19.8 percent of their average weekly wages on rent. Rents rise simply due to a lack of supply and an increase in demand. Currently, Perth has only 1675 homes advertised for lease on reiwa.com, 1000 fewer than a year ago. Rising rents is clearly a supply issue. taxes ought to be spent on social housing In response to rents rising, tenancy advocates justifiably appeal to governments to intervene in a variety of ways including an increase in social housing and review of tenancy laws. They’re persuasive because they’re getting both. State governments have made changes to tenancy laws to favour tenants and the Feds have pledged to build 30,000 more social houses. Many of the provisions introduced to tenancy laws in Victoria and Queensland recently seriously erode the rights of the property owner. For example, property owners no longer have the right to end a tenancy upon finalisation of a fixed term lease without giving a legitimate reason such as moving back in themselves. Other changes included the requirement for property owners to pre-warn tenants if they are intending to sell the property during the lease, allow a tenant to make “reasonable modifications” to the property and keep a pet without the permission of the owner. Changing tenancy laws in this manner adds further pressure on rental markets because it impacts supply. Why? Because laws that go too far in favouring tenants inevitably erode the rights of property owners, which disincentivises investors, which reduces supply. Private investors, most of them ‘mum and dad’ types provide about 37 per cent of all housing in Australia. It follows that the less encouragement you give private investors to supply tenantable homes the higher rents will go. In Victoria, with the pendulum of fairness swinging in favour of tenants at the expense of the people who carry the risk and cost of property ownership, investors turn to alternate vehicles of wealth creation such as shares, managed funds and superannuation. We are already witnessing this change with rental listings in Melbourne down by 30.2 percent in a year.

More Land Tax Will Mean More Rent

by Hayden Groves To apply from June 30 next year, the Queensland government has decided to apply a land tax to property investors that hold additional property outside that state. This is a remarkable decision that relies on investors of Queensland property that is already assessable for land tax to self-disclose their additional property investments they own in other Australian states and territories. The new tax regime comes off the back of recently passed tenancy laws that swing the pendulum of fairness towards tenants, effectively disincentivising property investors. Having been in Brisbane last week, property managers are telling me their clients are instructing them to sell and that investors have put away their cheque books. This new tax will add to the trend. Tenants will be the ultimate losers It could be that a property investor that predominantly owns property in other states and has, say, a rental apartment on the Gold Coast will be assessed for land tax as if all their investments where in Queensland. I would imagine the first thing this investor will do is sell their Gold Coast apartment to avoid paying the additional tax. It is not uncommon for those living in the chillier southern east coast cities to buy an investment property in Queensland and rent it out with the view to relocating their one day. From next year, holding a single asset in Queensland and others elsewhere will no longer be as appealing. Pandemic-related changes to workplaces, Victorian lock-downs and migration movements has meant the flight to Queensland is already well underway. As a result, rental vacancy rates in Brisbane are at 1.0 percent and rents are already up 13.3 percent in a year; the highest increase in the nation. This new punitive tax captures those investors that own Queensland property that is currently under the threshold value of $600,000 but who own property elsewhere across Australia. Currently, it could be an investor that owns a single property in each state that falls under that states’ threshold land value that would not be liable for any land tax. As an example, an investor that owns land in Victoria valued at $1,565,000 and a property in Queensland worth $745,000 is currently paying $1,950 for land tax. From June next year, thanks to the aggregation rules of cross-state ownership, that same investor will receive a land tax bill of $8,422. Administratively, managing cross-state Treasury departments’ mechanisms to ascertain land values and taxes will not be straight-forward. This will add significant cost to managing the new regulation and combined with the likely sell-off of Queensland investment stock, the new tax may not gather as much revenue as first thought. Unfortunately, higher taxes on property investors leads to fewer investors which, in turn, means fewer homes which always leads to higher rents. Tenants will be the ultimate losers in Queensland’s land tax grab. Aerial view of Hamilton Hill, City of Fremantle

Getting a Rental

by Hayden Groves Across the nation, rental vacancy rates are sitting at around 1.1 percent and continue to trend downwards. There is a dramatic shortage of housing supply and demand for homes is strong, fuelling rent rises in Australian cities and regional areas. The rise in popularity of short-stay accommodation houses has taken up normally long-term rental stock, investors have been ‘profit taking’, selling up as home values rapidly grew then peaked in big east-coast cities and population growth continues to fuel underlying demand. In some jurisdictions, land tax hikes, changes to residential tenancy laws and the introduction of foreign investor taxes have discouraged property investors. Across Australia’s entire housing supply, 27 percent is delivered by privately owned rental properties, 80 percent of which is owned by mum and dad types who own one or two properties. A rent freeze would see investors flee the market Over the past ten years, investors have been buying property, with increases in rental stock across all capital cities. It’s just that they haven’t bought enough to meet demand. The National Housing Finance and Investment Corporation estimates we’ll be 160,000 homes short by 2030 unless we increase supply. Since 2018, (coinciding with the threat of changes to negative gearing) the gap between the number of investors selling versus those buying has widened. Meanwhile, the Australian Greens’ proposed solution to impose a rent freeze over the next two years, is a reminder that some of our political leaders have little idea as to how private property markets work. A rent freeze, whilst well-intentioned, would see investors flee the market, leaving stock levels so dramatically short, rents would rise to unsustainable levels leaving many thousands of people with literally nowhere to live. Instead, how about providing incentives for investors to provide the housing stock? Stamp duty concessions if you bought in areas particularly short of housing supply, tax concessions if providing housing for key workers like teachers and nurses in the regions, rebates for investors renting to vulnerable citizens are just some ideas to encourage more private sector investment. For tenants, it is a difficult time. Whilst it hasn’t always been that way (in January 2018, there were about 12,000 rentals advertised on reiwa.com, now there is about 1,900) there is little evidence to suggest the current supply shortage will ease anytime soon. Rents will continue to rise and tenants will normally have to compete to secure a property. If you are looking to rent, make sure you have your references in order, are prepared to meet the market demand and make quick decisions. Those hesitating to sign a lease after being accepted in the hope something better might come along, may find themselves waiting to find a home for longer than expected. Aerial view across Rockingham to Coogee, Western Australia

Articles

No Place to Call Home

More Land Tax Will Mean More Rent

Getting a Rental