By Michael Yardney November 7, 2024

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Has Australia Passed Peak Property Investor?

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Has Australia Passed Peak Property Investor?

Key takeaways

The number of private property investors in Australia is dwindling, with recent data showing a significant drop.

This shift could worsen Australia’s rental shortage and increase housing insecurity.

Rising interest rates, regulatory pressures, increased taxes, and high compliance costs have driven many investors to sell or pause further investment, with particular impact noted in Victoria due to higher land taxes and strict tenancy regulations.

With fewer private investors, rental properties are in short supply, causing rents to rise and vacancy rates to drop below 1% in some areas. This situation strains middle- and lower-income households and puts pressure on businesses that rely on accessible housing for a mobile workforce.

Private investors historically provided over 90% of Australia’s rental housing, filling gaps that government programs couldn’t address. Their absence in the market has deepened the rental crisis, as government solutions alone are unlikely to meet demand.

To attract investors back into the market, experts argue for stability in policy, reduced regulatory and tax burdens, and new incentives for rental property purchases. These changes could restore investor confidence and relieve pressure on the rental supply.

The rental housing shortage affects workforce mobility, talent attraction, and overall economic stability, signaling an urgent need for policy intervention to ensure Australia can meet housing needs in the face of a growing population.

Without significant policy shifts that support private investors, Australia’s rental crisis will continue to escalate. Encouraging private investment is essential for building a resilient, balanced rental market that can provide long-term, affordable housing for all Australians.

As Australia contends with an increasingly severe rental housing crisis, a new trend has emerged that could exacerbate the situation—the dwindling number of private property investors.

A recent report from The Australian Financial Review warns that Australia has likely reached “peak property investor,” with experts cautioning that the impacts on the rental market could be significant and long-lasting.

For decades, private investors have served as the primary providers of rental housing in Australia with the proportion of taxpayers declaring rental income quadrupling from just 5 per cent in 1980 to 21 per cent by 2014, but recent data shows a striking drop in their numbers, posing a real threat to an already strained market.

Source: AFR

The absolute number of property investors is also declining, dropping to 2.29 million in 2021-22 from a peak of 2.39 million in 2019-20.

If this trend continues, Australia's rental shortage will only become even more acute.

The numbers: a significant decline

The Australian Financial Review article highlights that the latest data from the Australian Bureau of Statistics reveals a stark drop in investor participation in the property market.

As of October, investor loans fell by 12% year-on-year, the lowest since the pandemic began, suggesting that many investors have either exited the market or are delaying further investments.

This trend follows on the heels of rising interest rates, increased regulatory scrutiny, and a series of tax changes targeting property investors.

Source: AFR

With more government interference, higher mortgage rates, and increased insurance and compliance costs, the cost of holding property has increased dramatically despite rising rents and this has caused many property investors to sell up.

At the same time, low consumer confidence and uncertainty about the future have resulted in fewer rental properties being added to the market, compounding an already critical shortage of affordable rental housing.

This has been the case, particularly in Victoria, where higher land taxes and tighter tenancy regulations have placed added pressure on investors, deterring them from the property market.

However, at Metropole, we're now seeing a reversal of this trend, with many strategic property investors seeing a window of opportunity in the Melbourne property market which has underperformed over the last couple of years.

The impact on tenants: a squeeze on rental affordability

For renters, this shift spells trouble.

As investor participation dwindles, Australia faces a dwindling supply of available rental properties, resulting in rising rents and fierce competition.

Some suburbs currently report rental vacancy rates below 1%, underscoring the intense demand for available housing.

For middle- and lower-income households, these conditions make finding affordable, long-term rentals more challenging, pushing some individuals and families to the brink of housing insecurity.

Moreover, the unaffordability of housing has broader economic consequences.

Businesses that rely on a stable, mobile workforce are finding it increasingly difficult to attract talent in high-demand areas due to the lack of affordable housing options. Without an increase in rental supply, these pressures on affordability and accessibility will likely worsen.

Why Australia needs private investors in the rental market

With the shortage in rental properties reaching critical levels, Australia urgently needs to bolster its rental housing supply.

While there are various ways to tackle this issue, one of the fastest and most effective solutions lies in encouraging private rental providers (property investors) to get back into the market.

Historically, private investors have supplied over 90% of Australia’s rental housing, filling gaps that government programs couldn’t.

Their presence in the market has provided a diverse, flexible, and responsive supply of rental accommodation, tailored to a range of tenant needs.

Encouraging private investment could help alleviate the immediate strain on the rental market.

But to do this, policies need to shift.

A big incentive would be to increase certainty for investors and not keep changing the rules.

Then, reducing the regulatory and tax burden on property investors, offering incentives for new rental property purchases, and creating more investor-friendly environments could make a tangible difference in enticing private investors back.

Without these reforms, the rental shortage will continue to worsen, pushing rents up further and leaving many Australians struggling to find affordable housing.

Conclusion: a clear call to action

The fall in the number of property investors isn’t just a statistic; it’s a symptom of larger challenges facing Australia’s housing market.

Private investors have been instrumental in meeting rental demand for decades, providing housing that government schemes alone couldn’t supply.

Without a substantial increase in rental property investment, we risk deepening the current housing crisis, leaving many Australians unable to access stable, affordable housing.

The solution lies in policy changes that recognise private investors as an essential part of the rental ecosystem.

By making it more attractive for investors to re-enter the market, we can build a stronger, more balanced rental supply.

This way, private property investors can once again play a leading role in providing rental accommodation for those who need it—a role they’ve fulfilled successfully for the last fifty years.

The current shortage underscores the urgent need to restore investor confidence, ensuring a steady flow of rental properties for Australia’s growing population.

About Michael Yardney Michael is the founder of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media.

4 comments

Amayzingone 2024-11-08 14:10:15

1 reply

Kirk 2024-11-08 13:54:57

Absolutely, unfortunately/fortunately being in the investment game since the 90’s. My 2 cents - We are the most over taxed nation, on income, then on what we buy and then on what we sell. A start to kick off more private property investment as ...Read full version

1 reply

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Amayzingone November 8, 2024

This negative trend against property investment has accumulated over many years.
State governments have been the worst offenders making tenancy laws endlessly more favourable for tenants to the detriment of investors.
There is absolutely no recognition of who is putting up all the risks and all the money and it’s certainly not tenants. They can stop paying rent, wreck a property and walk out with absolutely no real consequences. And it happens all too often. I hear of property investors saying they have had enough and selling up.
State governments continually fail to see the need for providing protection for landlords. The cost of what I have mentioned above can be in the thousands of dollars which can literally bankrupt a property investor who is trying to pay their loan instalments.
I’ve never heard of any tenant becoming bankrupt because of rental issues.
But then we also have the Federal Governments guilty of discouraging Property investment as well. The Morrison Liberal government removed travel expenses, building write-off and capital works as a tax deduction on established properties. At the same time they reduced the maximum tax deductible amount that could that could be invested into superannuation. This removed tens of thousands from tax deductions.
Now we have talk of this high taxing, high spending Albanese Labor government looking to remove negative gearing again and increase capital gains tax.
And don’t tell me about rents going up (only recently). They have barely kept up with inflation over the last 10 years whilst property costs and repairs have gone through the roof resulting in a net real decline for landlords.
It’s no wonder property investors are selling up and moving their money elsewhere

1 reply Reply

Michael Yardney November 8, 2024

Thanks for your thoughts

0 replies Reply

Kirk November 8, 2024

Absolutely, unfortunately/fortunately being in the investment game since the 90’s. My 2 cents –

We are the most over taxed nation, on income, then on what we buy and then on what we sell.

A start to kick off more private property investment as you suggest is to abolish, The government’s greed on Land tax for the privilege of private investors to supply housing.

Remove CGT on IPs this would also promote investors to buy , renovate and put back into the market promoting the building, supply even down to the good old food truck industries to name a few (not that we have the labour or affordable materials, another issue) we pay Stamps(tax) at the onset why then again to release.

Existing holding stocks would be released back into the market by our ageing investors to better fund their own retirements, Oh and guess what they would also be able to put more money back into circulation down the local businesses rather than tied up and worried on how to pay for the upcoming associated holding costs.

All utilities should be Government owned and services supplied at cost not by private third parties for a profit.

The government has become far to top heavy, complacent and wasteful with public funds and the ability to continually raise costs (especially for their own benefit, regardless of who is in and blaming the past) why should any public servant employed or worse still retired from politics have more entitlements than the public that fund it.

Look at the number of Expats/ Veterans/ businesses relocating overseas due to the constant changes, over governance/compliance red tape.