Stop penalising and instead incentivise investors to provide more rentals

24 Nov

How it helps:

More investors = more rental properties. It’s a very simple equation. Anything to support residential property investors to add more rental stock to the market supports the rental and housing crisis because above all the crisis is here because of a lack of supply.

When we look at who provides the majority of rental accommodation across the country it is private investors making up 90% of the properties available to rent. These are mainly mum and dad investors looking for a way to build their wealth and be able to retire without relying on the government.

By incentivising (and not disincentivizing) those looking to invest in residential properties or making others aware or consider the possibility of becoming an investor, the region can fast-track the number of rental properties available and keep more homes available for rent rather than seeing a vast majority of them go to owner-occupiers.

The challenges faced:

Not only are new investment loans down but investors are leading the exit of the property market with interest rate rises and increasing regulations making investments appear too hard to start or maintain, not worth the effort and an easier option is to sell out. Where two in three home sales are going on the market from investors, only ⅓ return to the market as investment/ rental stock with more owner occupiers buying up previously rented homes and pushing renters out.

Currently, investors are penalised on multiple fronts that makes considering purchasing, keeping or adding an investment property to a portfolio more complicated. Here are the areas that investors are penalised:

Higher stamp duty (more than owner occupier prices)
Tax implications when selling investment properties
Higher council rates (more than owner occupier prices)
Higher interest rates on loans for investment properties and more restrictions on loan approvals and typically higher deposits required for investors
Possibly additional land tax if they own residential property in multiple states in Australia if the Palaszczuk government goes ahead with their planned tax grab in the future..

Government taxes, charges and regulatory costs can add approximately 22% to the cost of new housing (PCA).

Simply increasing rents to cover the above costs isn’t a viable option as the current cost of living increases and is putting pressure on renters while simultaneously the lack of available rentals has seen price wars between renters drive up prices. Interestingly, new exclusive industry research has found that rents have grown at only half the rate of inflation for more than a decade – even after allowing for the past year’s rent increases and the current inflation spikes.

Renowned property academic, Peter Koulizos shares that, “As well as their cash flow taking a hit because of this income versus inflation imbalance, investors have also had to finance a huge variety of additional costs levied by all levels of government over the past decade.

“Governments deserted the supply of affordable rental properties years ago, expecting private investors to simply take over this responsibility, however more and more investors are deciding that it’s just not worth it.”

It is clear that investors have had enough of being the cash cow for all levels of government.

There is no incentive for people to invest in property other than the possibility of rental income but when so many other factors are diminishing that amount of possible rental return, people looking to grow their wealth are turning to other options.

The rental crisis is obviously impacting those looking for rentals, but it is also in turn impacting businesses with the number of job vacancy numbers exceeding available rental supply. People are leaving the region or unable to move to the region for work because there’s no where to live and so we need to correct this imbalance quickly in order to preserve our economy and community.

Not only can property investors support the economy by providing housing for workers, but it is also necessary to reduce the burden on the government for Australians who retire without enough money to support themselves. With an ageing population, and many retiring on less money it is beneficial to have more people generate wealth through property, particularly through self managed super funds that both supports retirement and the needs of the community now. It is a holistic and long term solution.

What we are looking at with adding incentives and removing disincentives for investors is not a matter of interfering with the market, rather it is supporting the market in a way that adds to supply and achieves the right outcome for the community. Giving incentives to first home buyers might help a few who are already looking to buy a property get in sooner, but it doesn’t add to the housing supply. By incentivising investors you add more supply and more housing and also support more people to financially support themselves into retirement.

What’s more frustrating is that despite it being fairly obvious that investors are needed, investors aren’t even included in the government’s discussions about how to resolve the housing crisis despite providing approximately 90% of rental housing. The Premier’s summit to address Queensland’s housing crisis was held in October 2022 without representatives of private landlords, who make up most of the state’s rental market.

What needs to be done:

Firstly the government and the community needs to recognise that property investors aren’t greedy, rich people looking to swindle others from their cash. Instead, people should recognise that property investors are a major part of the solution to the rental crisis we currently face and the solution to our economic future. We certainly cannot rely on the government to provide all the required housing because they have never been able to deliver this and have been failing to take action on real solutions for decades despite all the warnings and recommendations from industry experts.

Secondly, incentives need to be provided to property investors to encourage them to purchase more residential property to add to the rental pool, or at the least the penalties and disincentives are to be removed.

To encourage more investors to add to the rental supply and to encourage existing investors to keep their current properties in the rental pool, we recommend:

Stamp duty - Zero stamp duty for a period of time or at least make it equal to owner occupied property. Stamp duty is not only a barrier to entry to the market, it is also a barrier to mobility. In addition to adjusting stamp duty for investors, stamp duty for seniors should also be removed to encourage downsizing,which would free up suitable properties for families to rent or purchase.
Interest rates - Reduce investment loan rates to at least the same as owner occupied property loans
Lending - Review and reduce the lending restrictions on investors
Land tax - we propose that if a property is under a certain category and rented (with a particular formula to be tested and applied) then it shouldn’t apply to land tax calculation. Plus, stop the Palaszczuk government from enacting their double land tax grab policy in the future (has been shelved at this point in time but not entirely ruled out)
Rates - zero rates for a period of time or at least match OO (Why does it cost more to empty bins of rental than OO? Short answer is it doesn’t but the Council treats investors as a cash grab opportunity)
Establish a ‘Build to Rent’ scheme - The PCA outlined in a report that “there is a recognised need and willingness for institutional investors to invest in rental housing. The Federal Government’s decision to allow affordable rental housing within a Managed Investment Trust (MIT) is welcomed, however, more needs to be done to establish the Build-to-Rent sector in Australia. This includes ensuring that the Federal Government does not preclude MIT’s from investing in market-led Build-to-Rent property. These properties are designed specifically for renters and there are several advantages for tenants, including onsite maintenance services, long leases and predictable rent increases.”