Recent federal budget reforms aiming to help Aussies into homes could end up doing the opposite – pushing rents higher and forcing many to delay living independently altogether while existing investors and landlords reap the benefits.
Aus Property Professionals Director Lloyd Edge said landlords and existing investors are benefiting from the recently announced changes in many ways.
“Existing landlords still get the negative gearing because it’s grandfathered, but they’re also going to benefit from rental increases,” he said.
“I’m a strong believer that rents are going to increase massively like they did in 1985 when Hawke/Keating changed negative gearing and then they had to bring it back a couple of years later.”
Mr Edge said with investors selling and less investment properties purchased, there will be reduced property throughout the market for renters leading to prices increases for tenants.
Adding immigration levels much higher than new housing supply will also add to the pressure.
“That’s going to push up prices – it is going to take effect pretty quickly at this stage,” he said.
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Sydney tenants have been told to brace for another financial squeeze due to the government’s controversial decision to axe negative gearing. Picture: NewsWire / Max Mason-Hubers
“Changing negative gearing and all the things the government’s put in the budget is not going to have the desired effect because we’re not going to see much more supply, which is what the government’s trying to do.”
Those likely to be disadvantaged are those who need to enter the property market and renters, Mr Edge said.
“I think some people are counting on the fact that property prices are going to fall – but people, especially in Sydney even if prices come down a bit, aren’t going to be able to afford to buy because it’s such an expensive market,” he said.
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Lloyd Edge
“It’s probably the Sydney renters that are more disadvantaged for that reason and then it’s the landlords that are going to be more advantaged.
“The people that own property that are going to be the ones that are going to be benefiting from that because the rents are going to go up.”
Ray White Chief Economist Nerida Conisbee said if fewer investors buy established homes, some of those properties will gradually shift from rental housing into owner-occupation.
While this might help some buyers, she said this does not help renters who are not in a position to buy.
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Nerida Conisbee
“The problem is that the renter displaced from that home does not disappear with the sale,” she said.
“They still need somewhere to live, but there may now be fewer rental properties available in the suburb they need to be in.
“The real inequity is that a policy aimed at improving affordability for buyers can make conditions harder for renters.”
If there are fewer rental homes available but demand remains strong, Ms Conisbee said rents will rise until enough households are priced out.
“For some renters, that means changing location,” she said.
“For others, particularly younger people and lower-income households, it means delaying independent living altogether.
“The bigger unfairness is not that existing landlords are handed an advantage, but that renters may carry more of the cost of the adjustment.”
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Many experts say affordability pressures targeted in the budget reforms will instead shift from buyers to renters. Picture: NCA NewsWire / Max Mason-Hubers
Ms Conisbee said affordability pressure does not disappear: it shifts from buyers to renters.
“Young people move out of home, migrants arrive, students rent, people separate, workers relocate and many households are still saving for a deposit,” she said.
“So it is too simple to say one renter becomes one buyer and the problem is solved.”
She added the shrinking rental pool may see more people staying with parents longer, moving into larger share houses, delaying moving out, or accepting longer commutes to find cheaper housing.
Ms Conisbee added tax changes may shift who buys property, but they do not create more homes, with the rental market problem fundamentally a supply issue.
“In markets like Sydney, where demand is strong and established suburbs have limited capacity for new development, reducing investor participation risks making rental conditions worse rather than better,” she said.
New economic modelling is forecasting significant rental increases across some Sydney suburbs in the next three months alone. Photo by Jenny Evans/Getty Images
“The bigger policy challenge is ensuring Australia has enough rental housing across different price points and locations.
“A well-functioning rental market is not just about housing affordability; it also supports labour mobility, productivity and household formation.
“The real risk is that reducing the number of landlords reduces rental choice, increases competition between tenants and pushes more pressure onto rents.”
This comes as some experts say rent rises for the full year could be over $50 a week in a lot of areas.
Economic modelling from property analytics group FoundIt has forecast rents will rise by up to $34 a week in some Sydney areas over the next three months alone.
House rents in Manly were forecast to soar by $34 a week in the next three months, while the Eastern Suburbs-North would see a $32 weekly hike. Renters in North Sydney-Mosman face a $28 a week jump.
These increases would add about $1450-$1750 to tenants’ total rent bill for the year.
While others have said the impact of the rent rises may not be so drastic, there is likely to be sharper rises in the near term. :
Angus Moore
“The evidence we have in the economics literature suggests that, over the long term, rents will be a bit higher as a result of these tax changes,” REA Senior Economist Angus Moore said.
“But the effects are typically not large – in the order of a few per cent. That’s consistent with the Treasury’s estimates in the budget, which are for rents to be a couple dollars higher over the long run.
“While, over the long run, the estimates we have suggest the effects on rents won’t be large, there are some risks, particularly in the near term.
“If more investors than expected sell, we could see rental markets – which are already very tight – become even tighter. That could see more material increases in rents than expected.”
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