House prices continue to rise as number of landlords increase

House prices continue to rise as number of landlords increase
  • PublishedApril 2, 2024

While buying a home to live in remains out of reach for many Australians, investors are flooding back into the housing market.

Data from the Australian Bureau of Statistics shows lending to investors — otherwise known as landlords — has jumped almost 20 per cent in the past year.

Almost four in 10 people taking out a mortgage now are landlords.

The combination of rising house prices, rising population growth (due to migration), rising rental demand and slower housing construction has made housing investment a more attractive proposition, according to economist Rachel ViforJ.

“If we’ve got huge demand relative to supply that would normally push up rents. And that would be an incentive for investors to invest in rental housing,” Professor ViforJ told the ABC.

The ABC visited an open house last week hosted by Adelaide real estate agent Aditya Singh.

Mr Singh said he had noticed an uptick in investors buying to rent or short-term lease (like Airbnb) had increased over the past year.

“At the last two months of open houses, we’ve had lots of investors,” he said.

An older Indian man wearing a suit and collared shirt without a tie stands in the kitchen of a modern house.
Adelaide real estate agent Aditya Singh has noticed an increase of investors at open houses in recent months.(ABC News: Morsal Haidari)

Meanwhile, housing data from CoreLogic shows prices in capital cities continue to rise — up 0.6 per cent in March and up 10.2 per cent since January of 2023 when prices began to rise again after a short slump.

CoreLogic’s Tim Lawless said there had been 14-months of consistent growth.

“Despite very high interest rates and a cost of living crisis, we’ve been seeing housing values rising ever since, albeit at a slower rate of growth,” Mr Lawless said.

In practical terms that means a house valued at $800,000 in January 2023 that increased by 10.2 per cent would now be worth $881,600.

All the while rents have continued to climb, largely due to those low vacancy rates which are the result of a post-COVID boost in migration over the past year.

a man in a suit on a street
CoreLogic chief analyst Tim Lawless said increased investor involvement could help ease the housing crisis.(ABC News: Geoff Kemp)

Mr Lawless suggested the increase in investors could potentially help to ease the rental crisis.

“Arguably more investment in the marketplace is a positive thing. Hopefully that is introducing more rental stock to the marketplace.”

Though he noted: “Obviously, if investors are purchasing established stock off other investors, it doesn’t necessarily add to overall rental stock.”

A woman with short, dark, curly hair, small rounded glasses and red lipstick wearing an emerald green blouse and black cardigan.
Professor Rachel Viforj said young people looking to get into the housing market have a financial mountain to climb.(ABC News: Mark Leonardi)

Rachel ViforJ, a professor of economics at Curtin University is more blunt: the state of housing affordability is a “really, really massive problem … whether you’re looking at the homeownership market or you’re looking at the rental market”.

“If a young person is looking to buy today, that young person will be facing much higher house prices than say 10 or 20 years ago and also facing much higher interest rates than several years ago,” she said.

“The median house price in Sydney is now well over $1 million, and unfortunately, people’s income levels are just not keeping up with house price growth.”

The cause is widely agreed to be one of supply and demand.

“On the supply side, we’ve had historically low levels of building approvals and so we’ve also had labour market shortages as well in the construction industry,” Professor ViforJ said.

“And on the other hand, we’ve actually got huge demand for housing, in the form of a large number of migrants who have come in over the last year.”

An auctioneer in a suit inside an apartment living room with six people watching. A young couple in a corner looks excited.
Would-be-buyers are faced with stiff competition in their quest to purchase a property.(ABC News: Ethan Rix)

Tension between generations becomes an unintended consequence

The housing affordability crisis is having unintended consequences between generations, Professor ViforJ said.

“There’s definitely growing intergenerational tension in the housing market.

“Most people who are home owners are older and many of them would have bought back in say the 1980s, or the 1990s, just before the worldwide housing boom.”

“If you bought just before the housing boom, then you would be enjoying a huge amount of capital gain,” said Professor ViforJ.

“Unfortunately, what that means is that it’s actually locking out growing numbers of young people from being able to access first home ownership.”

The divide was not just between generations but between classes, she said.

“if you’re a young person, but you have access to the bank of mum and dad, you’ll actually find it easier to be able to buy your first home”

That was the case for 25-year-old bartender Connor Roche-Wesd who just purchased his first apartment in Sydney’s lower north shore this past weekend.

A man and woman in their mid-20s. The man is wearing a cap and has a beard, and the woman has her long brown hair tied up.
Sydney apartment buyer Connor Roche-Wesd and his partner, who asked not to be named.(ABC News: Ethan Rix)

Mr Roche-Wesd was thrilled when he spoke to the ABC after the auction.

He said it had been a long hard journey to buy a property in the current market where he was often outbid by other buyers, some of whom he believed may have been investors.

“It’s rough knowing it’s going to be back on the market in a couple of weeks for renting, but it is what it is, there’s not much you can do” he said.

He said he was able to purchase the apartment with some financial help from his parents which he said he was very grateful for.

The unfortunate reality was that it was “damn near impossible” for young people like him to get into the housing market without such monetary support, Mr Roche-Wesd said.

‘I think most politicians will be quite cautious’

Two men wearing professional collared shirts without ties in an apartment building smiling.
Real estate agent Ajay Valanju and property officer Scott He. (ABC News: Ethan Rix)

Real estate agent Ajay Valanju who sold the apartment to Mr Roche-Wesd said he had noticed an increase of investors since the start of this year.

“Last year it was mainly owner-occupiers who were active but now we’re seeing investors coming back into the marketplace.”

The tension at some auctions between different bidders is sometimes palpable.

“It’s definitely the case that when you have large numbers of investors wanting to purchase properties, as well as large numbers of first home buyers wanting to purchase properties, that there will be intense competition for the limited supply of housing that’s in the market,” Professor ViforJ said.

“And of course, with rental investors, typically, they’re on higher incomes than first home buyers, typically they have more equity behind them, and therefore more financially well off.”

A column chart with two columns for each of the seven categories. One column is yellow, the other orange.
The Commonwealth Bank’s own data shows most of those with investor home loans are comfortably earning six figures.(Supplied: Commonwealth Bank of Australia)

Aside from the generational divide referenced by Professor ViforJ, the other reason property investors can be an uncomfortable topic when it comes to housing affordability is that they often can price out younger buyers because of tax incentives.

One of those tax incentives is negative gearing, which essentially means any losses a housing investor makes on the shortfall between rent and interest will be offset against other income — and covered by the taxpayer.

Although touching negative gearing was not very politically palatable, Mr Lawless said there were some ways to scale it back if any politician is game to try.

“Speaking from a more personal perspective, I think there is room to change negative gearing policies, perhaps capping it at two properties or less than three properties, or capping the total amount that you can negative gear will be much more palatable to voters.”

Mr Lawless said this may help to reduce the number of investors who have “a significant stable of investment properties that have treated it much more like an investment class than the housing asset itself.”

Boxes with icons representing property expenses and a greater than sign showing they are more than property income
Boxes with an icon for property expenses being subtracted from property income and equalling net rental loss
Boxes showing the subtraction of the Net rental loss from the owner's income, resulting in reduced taxable income and tax bill


Another possible tax reform would be adjusting capital gains tax concessions which allows investors who hold a property for more than two years to get a 50 per cent concession on that tax when they sell it. Removing that might disincentivise investment in the property market, Tim Lawless said.

Though like negative gearing, tinkering with capital gains tax hasn’t proven a very popular political pursuit.

“The Labor government did have a policy of changing negative gearing policies and capital gains tax concessions, and they seemed to lose from an unlosable position. So I think most politicians will be quite cautious in adjusting these types of policies,” Mr Lawless said.

Professor ViforJ said another approach could be winding back stamp duty, which is the tax someone pays when they purchase a house.

Instead, she proposed replacing it with something like an annual land tax “that is not an up-front cost that people have to pay upon purchase, but it’s an annual tax that they actually pay on the value of the land year after year after year, but not in a lump sum.”

Tax reform isn’t the only option: experts

Aside from tax reform, the supply of housing clearly needed to be increased to meet demand, Professor ViforJ said, however that needed to include sufficient social housing.

“We do need to build new properties across the income and wealth distribution,” she said.

“But we do need to make sure that we have a focus as well on people who are at the bottom end of the distribution, we’re finding it difficult to access housing.”

“The supply of social housing has not kept up with the demand for it over a very long period of time now, which means that we are actually getting larger numbers of people who are slipping into homelessness.”

Professor ViforJ said there were many options on the table to improve housing affordability and the reality was many of them would need to be used together as there was no silver bullet solution.

Mr Lawless said other shorter-term solutions included government grants such as the boost to the first home owners grant after the global financial crisis, which led to a surge in house sales.

“But as soon as that stimulus was removed, we saw our first home buyer activity fall to below what it was pre stimulus. So I think that there’s a really good argument here that those sort of policy initiatives, those stimulus levels don’t really do a great deal for home ownership in the long run, and arguably pushes prices higher.”

Instead, Mr Lawless believes the problem is best tackled by increasing housing supply.

As for the outlook for the year ahead, Mr Lawless believed the numbers are only going to go up.

“I think the outlook for the housing market is it probably is further growth through the rest of this year and into next year. And arguably, if we did see interest rates coming down later this year, that could add a little bit more exuberance to housing activity.”

While Mr Lawless doesn’t believe the number of housing investors will rise this year, Professor Viforj believes it might.

“I think that as long as the rental vacancy rates are remaining, so low below 1 per cent, we will continue to see the amount of housing investment rise over the coming year. And I think that would especially be the case if interest rates start to fall.”


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