Gone with the rates: Rental market loses 35,000 properties as lending falls

A new report directly linked the worsening rental crisis to the Reserve Bank’s monetary policy tightening, with the rate rises named as having a hand in the reduced availability of rental properties in the market.

Kevin Young, the president of Property Club, said rising interest rates have had a negative impact on property investment lending and led to fewer investors taking up the landlord mantle.

In a study conducted by the independent national property investment group, it was shown that the 11-interest rate rises imposed by the central bank from May 2022 to May 2023 led to 35,000 less rental properties being added to the market pool, based on a median house price of $800,000.

Findings also showed total lending to property investors in Australia fell by a massive $30 billion as result of surging interest rates over the period.

Mr Young said while the figures are grim, it is not showing the full impact of the rate hikes.

“These figures do not include the thousands of mum and dad property investors who have been forced to sell their rental properties over the past year because the higher mortgage repayments would not have been covered by their rental income,” he explained.

It’s not just investors that are feeling the pain. According to Mr Young, the impact for tenants has been “disastrous”, with many now struggling to find a rental property.

While various ideas have been proposed to alleviate the rental crisis nationwide, Mr Young highlighted a single, straightforward policy change that could swiftly resolve the problem: reversing recent counterproductive rules to lending practices for property investors.

“Since 2016, property investors have been hit by higher interest rates compared to owner-occupiers due to new rules imposed by APRA.

“At the same time APRA effectively made it effectively impossible to get access to lower cost interest-only loans, meaning that property investors on principal and interest loans have had to sell as they cannot service these higher repayments,” he said.

He warned unless there are immediate changes to restore previous lending practices for investors, then Australia will entrench the rental crisis that is gripping the nation.

“Rather than being seen as a short-term phenomenon in Australia, this rental crisis will last for years unless investment lending for investors becomes easier so the supply of rental properties can be boosted over the long term,” Mr Young said.

In his appeal to regulators, Mr Young advocated for the immediate restoration of full access to interest-only loans for property investors.

“The full access to interest-only loans – as is the case in other developed countries – should be restored immediately to investors and this change would not cost the government one extra dollar in public expenditure,” he added.

The executive also expressed the organisation’s belief that the supply of cheaper, lower priced rental properties can be immediately increased if the federal government restores tax depreciation benefits to second-hand properties which were moved in 2017.

“This meant that property investors were incentivised to buy new properties that had higher rents rather than older properties offering tenants lower rents,” he concluded.

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